9911796707
TMI Blog2012 (6) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... eating it as part of cost of production and has to be allowed only in the year of its release but not when the picture is under production. 3. Before the CIT(A), in the written submissions the contention of the appellant is that he is engaged in the production of motion pictures for the past several years and therefore interest paid on monies borrowed is allowable as deduction u/s 36(1)(iii) of the Act. The appellant further stated that the funds were raised in the course o his film production business and therefore the deduction claimed towards interest is allowable in full without alleging that a part of interest is to be disallowed since the picture was under production. In this connection the appellant supported his contention relying on number of cases which are as under: 1. India Cements Ltd. v CIT [1966] 60 ITR 52 (SC) 2. CIT v. Tarai Development Corpn. Ltd. [1994] 205 ITR 421/72 Taxman 153 (All.) 3. State of Madras v. G.J. Coelho [1964] 53 ITR 186 (SC) 4. CIT v. Rajeeva Lochan Kanoria [1994] 208 ITR 616/[1995] 80 Taxman 572 (Cal.) 5. CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj.) 6. &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made to Rule 9A which places restriction on allowance of expenditure in respect of the cost of production of a feature film. Explanation (ii) to sub rule (1) of Rule 9A defines the word "cost of production" in relation to feature film means the expenditure incurred on the production of the film. It excludes the expenditure incurred for the preparation of the positive prints of the film and the expenditure incurred in connection with advertisement of the film subsequent to release of the feature film after receiving certificate. A reading of the said explanation makes it clear that the cost of production is the direct cost incurred by the assessee in production of a feature film. It does not include the indirect costs such as interest office salaries administrative expenses rent etc. It can also be seen that the indirect cost cannot form part of cost of production as such expenditure has to be incurred irrespective of the fact whether there is production of motion picture or not. It is also relevant to note that the said Rule 9A does not prohibit the allowance of various expenses which are normally allowable u/s 28 to 37 of the Act. Further it is also relevant to note that the int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... larly sec 36(1)(iii) has been amended from 1.4.2003, whereby interest payable on borrowing for acquisition of machinery is to be capitalized upto the date of putting the machinery into use. Thus the intention is to capitalize interest referable to an incomplete asset which has not been put to use. Rule 9A is a special rule for allowing expenditure on production of film. All expenses directly relatable to the production of film will have to be capitalized and which will be allowed as a deduction in the year of release of the film. It will include expenses which are otherwise allowable under sec 30 to 43B. When other normal expenses otherwise allowable under other sections like 36, 37 etc are capitalized under Rule 9A we don't see why interest on borrowings used for the production of the film should not also be capitalized under Rule 9A. It cannot be said that the interest payable on borrowing utilized for production of film will not form part of the cost of production. However it has to be determined as to how much of the borrowings were actually utilized for the purpose of production and how much was utilized for the normal operations (Other than production of the film). For the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on receipt of such consideration. As mentioned earlier, the assessee claimed that no consideration was received by him and only an understanding was reached for development of the property. Further, it is contended that S.53A of the Transfer of Property Act is basically for protecting the interest of the transferee when transferee paid the entire consideration and the transferor refuses to register the property. Therefore, it is contended that the provisions of S.53A of the Transfer or Property Act are not applicable to the facts of the case. 12. The CIT(A) held that the Assessing Officer proceeded on the assumption that the provisions of section 53A of the Transfer of Property Act are applicable and therefore held that the transaction entered into by the assessee is in the nature of transfer as defined in section 2(47) of the Act. The CIT(A) pointed out that the Assessing Officer proceeded to compute the capital gain, as no monitory consideration was provided ion the agreement, by treating the fair market value as per the records of the SRO as a consideration for transfer. 13. The CIT(A) held that a perusal of section 53A of the Transfer of Property Act which lends statutory r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 16. The learned DR relied on the order of the Assessing Officer. 17. The learned counsel for the assessee submitted as follows: (i) The agreement entered into is a mere development agreement and no monetary consideration was received at the time of entering into the agreement except a refundable deposit. (ii) The understanding between the assessee and the developer is that the property has to be developed by the developer and after development the developer is entitled for 65% of the built up area and the remaining 35% will be that of the assessee. (iii) It is also relevant to note that the said building is only under construction during the assessment year under consideration. (iv) That the provisions of section 53A of the Transfer of Property Act apply only when the consideration was received by the transferor and the possession of the property was handed over to the developer/transferor on receipt of such consideration. (v) No consideration was received by him and only an understanding was reached for development of the property. (vi) That section 53A of the Transfer of Property Act is basically for protecting the interest of the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay v. CIT [2003] 260 ITR 491/129 Taxman 497, wherein it has been held that S.2(47)(v) read with S.45 indicates that capital gains was taxable in the year in which such transactions were entered into even if the transfer of immovable property is not effective or complete under the general law. We also place reliance in this behalf on the ruling of Authority for Advance Rulings in Jasbir Singh Sarkaria, In Re [2007] 294 ITR 196/164 Taxman 108 (AAR-New Delhi), to the following effect - 21. In order to be 'transfer' within the meaning of cl. (v) of s. 2(47), there must be a transaction under which the possession of immovable property is allowed to be taken or allowed to be retained. Secondly, such taking or retention of possession as is well known is a facet of the equitable doctrine of part performance of contract falling within the scope of S.53A of the Transfer of Property Act. The legislature advisedly referred to "any transaction" with a view to emphasize that it is not the factum of entering into agreement or formation of contract that maters, but it is the distinct transaction that gives ri ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
