TMI Blog2005 (1) TMI 606X X X X Extracts X X X X X X X X Extracts X X X X ..... axing of the gross amount of Rs. 4,75,00,000 as the income for this year without deducting the relevant cost incurred by the appellant in respect of the same. 3. The learned CIT(A) was not justified in confirming the levy of the interest under section 234B. The appellant denies his liability in respect of the same." 4. Briefly stated, the facts of the case are that the assessee is a producer, distributor, exporter of motion pictures and also a professional film director. During the previous year relevant to the assessment year under appeal, he carried on the business of the production/distribution, etc., of films in the name and style of his proprietorship concern M/s. Shree Krishna International. In pursuance of the return of income filed by the assessee, the Assessing Officer took up the case for scrutiny and found that the assessee had received, inter alia , a sum of Rs. 4,75,00,000 on sale of music rights relating to the film "Ek Rishta". The said amount was not offered for taxation by the assessee and hence the Assessing Officer issued a show-cause notice and made the requisite enquiries. He felt that the aforesaid amount of Rs. 4,75,00,000 received by the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as all the obligations in terms of the agreement had been carried out by the respective parties. ( i )There was no evidence on record to show that the master tape was not delivered during the accounting period relevant to the assessment year under appeal. Relying upon the agreement, the Assessing Officer came to the conclusion that the payment of last instalment of Rs. 75,00,000 was dependent upon delivery of master tape and hence the receipt of the aforesaid instalment by the assessee would mean that he had delivered the master tape during the year under consideration. ( j )Rule 9A of the Income-tax Rules was not applicable on the sale of music rights. 6. It is in the background of the aforesaid facts that the Assessing Officer made the impugned addition. 7. On appeal, the learned CIT(A) confirmed the addition. It is against the order of the learned CIT(A) that the assessee is in appeal before the Tribunal. 8. At the time of hearing before us, the learned counsel for the assessee made oral submissions followed by a synopsis of the written submissions as under : "Choice of method of accounting is with assessee. [Section 145 and 77 ITR 533 (SC)] relied upon. Exerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilm. That was the main dominant purpose. The venture was not to produce music which is merely a part of the film. Entire matter should be seen from this angle. It is true that music rights have been sold under a separate agreement. But even distribution rights are sold to different distributors under separate agreements. But this does not mean that all these are to be separated.They are the mere modes of exploitation of a film by its producer and must be considered together. Very pertinent example of bus trip from Mumbai to Goa, it does not mean that if bus reached Chiplun or Ratnagiri on midnight of 31st March, the profits until then are to be taxed. The trip was from Mumbai to Goa and the profit from the trip will be arrived at on completion, after comparing total receipts and expenses. This is particularly so since computing earlier would result in depriving an assessee of a valuable right given to him by statute, i.e., to choose the method of accounting. Rule 9A does not specifically refer to music rights. However, it should be given an updating interpretation so as to give effect to its true original intention. Please see 226 ITR 625 (SC) at page 626, the true original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee. Since the assessee indisputably followed the mercantile system of accounting, he was obliged to show the income on sale of music rights as and where it became legally due and enforceable. In the present case, the entire sum of Rs. 4,75,00,000 not only fell due to be received but was also actually received and enjoyed by the assessee during the previous year relevant to the assessment year under appeal. 11. The learned counsel for the assessee has placed strong reliance on Rule 9A of the Income-tax Rules and submitted that the said rule was squarely applicable to the assessee and, therefore, the profits and gains on account of production of film Ek Ristha together with income arising on sale of music rights in the said film was required to be computed in terms of the aforesaid Rules. He submitted that the assessee had all along been showing the income upon sale of music rights as part of the profits and gains of feature films as and when the feature films were certified to be released in terms of Rule 9A. According to him, the assessee followed the same method of accounting during the year under consideration also and hence the Department was not justified in d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or commercial exploitability is concerned though both of them spring from film-making. The only point of convergence between the two may be the common cost of production. Rule 9A amortises the cost of production of feature film till it is certified for release but it does not prohibit the taxability of income arising on sale of music rights. It is a provision rationalizing the procedure for claiming deduction of cost of production of a feature film. It does not deal with the accrual of income or its taxability on sale of music rights. It does not prohibit but simply postpones the deduction of cost of production of a feature film till the certification of the film for release and exhibition. It does not postpone the taxability of income arising on sale of music rights which has already accrued to an assessee. Thus, the taxability of income arising on sale of music rights, on a plain reading of Rule 9A, is clearly outside the scope of the said Rule. In taking this view we are supported by the well-known legal proposition that there is no equity about a tax. There is no presumption as to tax. Nothing is to be read in and nothing is to be implied. We can only fairly look at the langua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll have the effect of allowing the cost of production of the film to that extent before it is certified for release. This is more so when the evidence available on record shows that the income arising on sale of music rights not only accrued to the assessee but was also enjoyed by him during the relevant previous year. 15. Learned counsel for the assessee, however, relied on an equally well-settled proposition that the tax laws have to be interpreted reasonably and in consonance with justice. He conceded that Rule 9A did not deal with or even referred to the sale of music rights but submitted that Rule 9A should be given updating interpretation so as to include not only feature film but also its music and sound track within its framework. For this proposition, he relied upon the decision in CIT v. Podar Cement [1997] 226 ITR 625 1 (SC) in which the Hon ble Apex Court has made the following observations : "At this juncture, we can also refer to the judgment cited by Mr. Syali regarding updating construction of the words used in the statute. In State (Through CBI/New Delhi) v. S.J. Choudhari AIR 1996 SC 1491, 1494; [1996] 2 SCC 428, this court has quoted the following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interpretation of Rule 9A in the manner suggested by the learned counsel so as to exclude income which has already accrued to the assessee on sale of music rights from his total income but such a course of action will defeat the charge of income-tax on the said income on accrual basis and thus require us to ignore the charging provisions of the Income-tax Act. Another difficulty is that such a course of action will have the effect of indirectly allowing/reducing the cost of production of film against the said income in this very year itself ignoring once again the provisions of rule 9A which requires amortization of the cost of production of film till it is certified for release; and, two update rule 9A and hold as the plain language of Rule 9A also requires, that sale of music rights is not within its framework and thus subject the income on sale of music rights of the film to the charge of income-tax in terms of the charging provisions of the Income-tax Act, 1961. Having carefully considered all the aspects of the case, we are of the view that latter interpretation is more reasonable and is consonance with the statutory provisions than the interpretation suggested by the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In taking this view, we are supported by the decision of the Hon ble Supreme Court in CIT v. British Paints India Ltd. [1991] 188 ITR 44 1 (p. 53) in which similar submission, as made before us, was rejected by the Hon ble Court with the following observations : ". . .It is incorrect to say, as contended on behalf of the assessee, that the officer is, bound to accept the system of accounting regularly employed by the assessee the correctness of which had not been questioned in the past. There is no estoppel in these matters and the officer is not bound by the method followed in the earlier years." 18. We are in respectful agreement with the aforesaid observations. The charge created by section 5 of the Income-tax Act on the income accruing to the assessee on sale of music rights during the assessment year under appeal cannot be defeated by the system of accounting followed by the assessee either this year or in the earlier years. 19. Reliance of the learned counsel for the assessee on the project completion method followed by the builders does not assist him either. In project completion method, the building itself, like a feature film, is not complete and hence cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the same expenditure twice, the Department can also not tax the same income twice. The claim made on behalf of the assessee that income arising on sale of music rights was shown as part of the profits and gains arising on sale of exhibition rights, and the related expenditure was also claimed in the year in which film was certified by release, cannot therefore be brushed aside. His claim deserves to be examined so as to ensure that the income arising on sale of music rights is taxed only once and the corresponding expenditure over and above the one allowable under Rule 9A is also allowed once. This requires examination of facts. Hence, while we confirm the action of the Departmental authorities in bringing the income arising on sale of music rights to tax in the assessment year under appeal, we consider it appropriate to set aside the orders of the lower authorities and restore the matter to the file of the Assessing Officer for passing a fresh order of assessment so as to ensure that the ( i ) same income, i.e., income arising on sale of music rights under the agreement referred to above is not taxed twice; and ( ii ) expenditure incurred by the assessee on production of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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