TMI Blog2012 (4) TMI 269X X X X Extracts X X X X X X X X Extracts X X X X ..... stained by the CIT(A) deserves to be deleted. Additional grounds - new claim - CIT(A) rejected the Additional Ground raised by the Appellant - held that:- he Hon'ble Delhi High court in the case of Jai Parabolic Springs Ltd. (2008 (4) TMI 3 - DELHI HIGH COURT) has taken the view that there is no prohibition on the powers of the Tribunal to entertain any additional ground for a just decision of the case. The Hon'ble Delhi High Court distinguished the decision of the Supreme Court in the case of Goetz (India) Ltd. (5171). We, therefore, hold that the CIT(A) ought to have admitted the additional ground for adjudication. Expenditure on production of feature films - Rule 9A - held that:- the claim made by the assessee was rightly accepted by the CIT(A). Even if Rule 9A is applied, the assessee was entitled to claim the un-recouped cost of production in terms of Rule 9A(3) of the Rules. This un-recouped cost has been determined at a sum of ₹ 2,93,73,793/- by the AO in the assessment of the firm for asst. year 2004-05 and the same has become final. It is not open to the AO of the assessee to re-determine the cost of production in the assessment of the assessee. - IT APPEAL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reased to ₹ 5.50 Crores and further the expenses on remuneration of lyricist, music director, music expenses, recording expenses, singers expenses, technicians expenses, background music expenses, costumes of all the artists were to be borne by the assessee instead of Bhairav films as originally agreed in the agreement dt. 29.11.2002. By another addendum dt. 5.8.2003, the consideration payable by the assessee to Bhairav Films stood reduced to ₹ 5.35 Crores. The assessee was entitled to the negative rights of the film. The assessee made payment of ₹ 10 lacs to Bhairav Films in the F.Y.02-03 relevant to AY 03-04. The assessee did not deduct tax at source while making such payment. In F.Y.03-04 relevant to AY 04-05 and FY 04-05 relevant to AY 05-06, the assessee made a payment of ₹ 2.10 Crores and ₹ 2.30 Crores respectively, to Bhairav Films. In respect of these payments the assessee deducted tax at source at 2.2% considering the payment as a payment falling with the category of a payment to a contractor, which falls with the meaning of payment to contractor u/s. 194-C of the Income Tax Act, 1961 (the Act). The assessee offered to tax the profits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofessional services shall have the same meaning as in clause (a) of the Explanation to section 194J ; (iv) work shall have the same meaning as in Explanation III to section 194C ; Admittedly, the provisions of Sec.194-C of the Act were not applicable to payments individuals up to AY 05-06 and therefore there was no obligation on the part of the assessee to deduct tax at source on payments made to Bhairav films which is the sole proprietory business of Mr. Mani Shankar. The plea of the assessee was that by mistake he had deducted tax at source in AYs. 04-05 and 05-06. It was the assessee's stand that since assessee voluntarily deducted tax at source, he should not be held to be liable to deduct tax at source and that there can be no estoppel against statute. The AO, however, held that the payment in question made by the assessee to Bhairav films was in the nature of a fees paid for rendering technical or professional services which fell with the purview of Sec.194-J of the Act. As per those provisions even payment to individuals can be made only after deduction of tax at source. The rate at which tax was deductible was at 5.23% of the payment. On failure to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee as financer has taken the negative rights of the film in consideration for providing finance for production of film. He relied on the decision of the Hon'ble Mumbai Tribunal in the case of Entertainment One India Ltd. v. ITO (TDS) [2010] 126 ITD 491 wherein the Tribunal took the view that such finance arrangements do not result in payment to a contractor to attract the provisions of Sec.194-C of the Act. Alternatively, it was submitted that the applicable provisions were only Sec. 194-C of the Act and not Sec. 194-J of the Act and, in this regard, relied on the decision of the Hon'ble Delhi High Court in the case of CIT v. Prasar Bharti (Broadcasting Corporation of India) [2007] 292 ITR 580/158 Taxman 470 (Delhi) wherein it was held that payment for production of programmes for broadcasting and telecasting fell within the ambit of Sec. 194-C of the Act and not Sec. 194-J of the Act. It was contended that production of films is akin to production of programmes for broadcasting and telecasting and, therefore, the payment made by the assessee should be held to be one falling within Sec. 194-C of the Act. Since Sec. 194-C was not applicable for individuals prior ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt further referred to the fact that even while the Finance Act, 1995, introduced the aforesaid Explanation III to section 194C, it simultaneously inserted section 194J in the Act which provided for deduction of tax at source at the time of payment of a fee for professional or technical service . The operative portion of section 194J read as under: 194J. Fees for professional or technical services.-(1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of- (a) fees for professional services, or (b) fees for technical services, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax on income comprised therein Explanation .-For the purposes of this section,- (a) 'professional services' means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including supply of labour for carrying out any work) in pursuance of a contract . The expression work has not been defined for the purpose of Sec. 194-C of the Act. The normal meaning of the expression work should therefore apply. By Expln. III (b) to Sec. 194-C of the Act, the legislature only clarified that the expression 'work' shall also include broadcasting and telecasting including production of programmes for such broadcasting or telecasting. It would, therefore, be reasonable to hold that the expression work would also include within its fold production of motion films or cinematographic films such as the one which the assessee got produced through Bhairav films for which it made payments. The payment made by the assessee would therefore fall for consideration only under the provisions of Sec. 194-C of the Act. Since the provisions of Sec.194-C of the Act were not applicable to individuals prior to 1.4.2007, the assessee was under no obligation to deduct tax at source for the period under consideration and therefore no disallowance could be made u/s. 40(a)(ia) of the Act. In that view of the matter, we are of the view that the disallowance made u/s. 40(a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year and that the assessee has been making efforts to liquidate these liabilities by selling negative rights of old films. The AO listed 44 debts shown as liabilities/creditors in the balance-sheet totaling in all a sum or ₹ 27,81,196/- (listed in para 7 of assessment order). The AO was of the view that generally in the film industry any trade creditor or trade liability outstanding for more than 1 year is as good as written off. He also held that the assessee was not in a position to obtain any credit confirmation for the liabilities/credits appearing in the balance-sheet. He, therefore, held that the provisions of sec. 41(1) were attracted. Accordingly, a sum of ₹ 27,81,196/- was brought to tax as income of the assessee. 10. Before the CIT(A), the assessee pointed out that the liabilities which were considered by the AO as no longer existing were in fact payable by the assessee and that the assessee did not get any benefit by way of remission or cessation thereof and therefore the addition made deserves to be deleted. In particular, the assessee pointed out that a sum of ₹ 7,42,130/- was on account of advances received from distributors against pictures. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof , the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained , whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year. Explanation 1 .-For the purposes of this s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Goetz (India) Ltd. [2006] 284 ITR 323 (SC) without appreciating that the facts of the said case are distinguishable and are not applicable to the Appellant's case. The ld. CIT(A) ought to have allowed the expenditure as claimed in the Additional Ground keeping in view the law as amended that was applicable at the time of disposing of the Appellant's appeal as per the well established and accepted jurisprudence and as held by the Hon'ble Supreme Court in a number of cases. The Appellant prays that expenditure of ₹ 1,14,17,827/-allowable u/s. 40(a)(ia) as per the retrospectively amended provisions of section 40(a)(ia) be allowed claimed in the Additional Ground. 17. In the computation of income filed by the assessee, the assessee on his own had made disallowance of a sum of ₹ 244,63,628/- by reason of the provisions of sec. 40(a)(ia) of the Act. Before the CIT(A), the assessee raised an addition ground in which the assessee submitted that deduction at source on the sums referred to in sec. 40(a)(ia) of the Act should be paid either during the previous year or in the subsequent year before the expiry of the time prescribed under sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i Parabolic Springs Ltd. [2008] 306 ITR 42/172 Taxman 258 (Delhi). 21. We have considered the rival submissions. We are of the view that the claim made by the assessee before the CIT(A) was consequent to a retrospective amendment to the law. It is not possible for an assessee to foresee a retrospective amendment to the law. In the circumstances, the assessee could make the claim only before the CIT(A). In our view, the CIT(A) ought to have admitted the additional ground for adjudication. We also find that the Hon'ble Delhi High court in the case of Jai Parabolic Springs Ltd. ( supra ) has taken the view that there is no prohibition on the powers of the Tribunal to entertain any additional ground for a just decision of the case. The Hon'ble Delhi High Court distinguished the decision of the Supreme Court in the case of Goetz (India) Ltd. ( supra ). We, therefore, hold that the CIT(A) ought to have admitted the additional ground for adjudication. We direct the CIT(A) to admit the ground for adjudication and consider the claim of the assessee in accordance with law. Needless to say that the CIT(A) will afford opportunity of being heard to the assessee. 22. In th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lars Direct Expenses 2,93,73,793.37 Direct Income 1,39,709.00 Gross Loss c/o. 2,92,36,084.37 2,93,75,793.37 2,93,75,793.37 Gross Loss b/f. 2,92,36,084.37 Indirect incomes 43,836.00 Indirect expenses 9,61,547.00 Net loss 3,01,53,795.37 Total 3,01,97,631.37 3,01,97,631.37 26. The AO, on scrutiny of the cost of production expenses, noticed that the following expenses were expenses incurred for preparation of positive prints and advertisement of the film : 1 Air conditioner Hire 14400 2 Bank charges commission 57551 3 Conveyance Expenses 49335 4 Donation 16501 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by M/s. Karma Entertainment in Asst. Yr. 2004-05 and released in February 2004. In the assessment of the firm for AY 04-05, the A.O. has also generally agreed with the accounts of M/s. Karma Entertainment. The AO has found no faults in the accounts of M/s. Karma Entertainment in Asst. Yr. 2004-05 and has accepted the loss declared and also the un-recouped cost of production of the film rudraksh. The AO however wanted to disallow the claim for deduction of un-recouped cost of film rudraksh in the hand of the Assessee and for this purpose reopened the assessment of M/S. Karma Entertainment for AY 04-05. Based on the reopening of assessment of Karma Entertainment, the AO wants to disallow un-recouped costs in the hands of the Assessee which is not possible. The un-recouped cost of production of the firm already accepted in the hands of the firm cannot be disputed in the hands of the Assessee. A copy of the order in the case of M/s. Karma Entertainment u/s. 147 r.w.s. 143(3) dated 18/12/2008 was also filed before CIT(A). 28. The CIT(A) after considering the submissions and the materials on record found that it was an admitted and undisputed fact that up to assessment year 2004-05 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d a sum of ₹ 1,39,709/- during the previous year. Thus, the loss in question has to be allowed. In fact, having accepted in the assessment of the firm M/s. Karma Entertainment that the un-recouped cost of production of the film Rudraksh was ₹ 2,93,77,793/-, the AO could not in the assessment of the firm seek to exclude any part of the cost of production expenses by trading them as post production expenses. He also pointed point out that the reopening of the assessment in the case of Karma Entertainment for AY 04-05 has already been struck down by the CIT(A) to be not proper and the order of reassessment now stands annulled. 30. We have considered the rival submissions. In our view, the claim made by the assessee was rightly accepted by the CIT(A). Even if Rule 9A is applied, the assessee was entitled to claim the un-recouped cost of production in terms of Rule 9A(3) of the Rules. This un-recouped cost has been determined at a sum of ₹ 2,93,73,793/- by the AO in the assessment of the firm for asst. year 2004-05 and the same has become final. It is not open to the AO of the assessee to re-determine the cost of production in the assessment of the assessee. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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