TMI Blog2014 (5) TMI 1042X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee made the said payments to protect its goodwill in the market. The assessee has to operate and do business in the market in future as well, the assessee had to maintain its goodwill. The assessee has not been able to show from the agreements dated February 16, 2008 or supplementary agreement dated July 28, 2008 that the said payment is made in accordance with the covenants of agreement. A perusal of records, as well as the assessee's own admission make it absolutely clear that the payment was not made to discharge any legal liability. The payment was made either voluntarily or out of pressure from the market forces but it was certainly not out of business obligation. The assessee made the payment in the form of compensation to stay aflo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has shown a sum of ₹ 39.13 crores realised from Tamil feature film Kuselan and Telugu film Kathanayakudu . The assessee had sold both films outright to M/s. Kavithalaya Productions P. Ltd., and M/s. Vyjayanthi Movies vide agreement dated February 16, 2008. As per the agreement, the assessee had received ₹ 25,50,00,000 from M/s. Kavithalaya Productions P. Ltd., towards theatrical rights for ten years, perpetual audio rights, satellite and cable television rights for eleven years and non-theatrical rights including DVD, VCD etc., for a period of ten years. Similar agreement was entered into with M/s. Vyjayanthi Movies and the assessee had received ₹ 14.50 crores. As per the contentions of the assessee, both movies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus not allowable as expenditure under section 37 of the Act and disallowed the same. Apart from the aforesaid disallowance, the Assessing Officer made disallowance of bad debts, disallowance of depreciation on car and disallowance under section 14A of the Act. Aggrieved by the assessment order dated December 22, 2011, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) after considering various agreements entered into between different parties and the assessee, the purpose and the nature of payment, concluded that the payments of ₹ 1.50 crores is in the nature of compensation to protect the reputation of the producers. The same cannot be held as goodwill but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. M/s. Pyramid Saimira Entertainment Ltd. has no locus standi. The learned Departmental representative further submitted that the expenditure incurred by the assessee is non-recurring in nature. The payment has been made by the assessee to secure its goodwill. Hence, the expenditure is capital in nature and cannot be allowed as expenditure under section 37 of the Act. 4. On the other hand, Shri Anil Nair, appearing on behalf of the assessee vehemently supported the order of the Commissioner of Income-tax (Appeals) and submitted that the payment of ₹ 1.50 crores was made on account of business exigencies. The said expenditure was in the form of compensation and is thus revenue in nature. The learned authorised represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has reduced the amount from receipts. The Commissioner of Income-tax (Appeals) has held the said outflow of cash as sales return/discount. We do not agree with the reason given by the Commissioner of Income-tax (Appeals) to delete the addition. 6. A perusal of records show that the payment of ₹ 1.50 crores have been made to compensate the exhibitors of the two films Kuselan and Kathanayakudu as the films have not done well in commercial cinemas. Resultantly, the exhibitors suffered huge losses. An agreement dated September 13, 2008 was entered into between M/s. Pyramid Saimira Entertainment Ltd., and the assessee. However, in agreements dated February 16, 2008 and supplementary agreement dated July 28, 2008, between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly clear that the payment was not made to discharge any legal liability. The payment was made either voluntarily or out of pressure from the market forces but it was certainly not out of business obligation. The assessee made the payment in the form of compensation to stay afloat in the business. 8. The authorised representative in support of his submissions has relied on the judgments of the hon'ble jurisdictional High Court in the case of Amarjothi Pictures v. CIT [1968] 69 ITR 755 (Mad), CIT v. Gobald Motor Service P. Ltd. [1975] 100 ITR 240 (Mad) and CIT v. Associated Electrical Agencies [2004] 266 ITR 63 (Mad). In all the cited cases, the hon'ble High Court has held that expediency of expenditure should be left to the judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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