TMI Blog2016 (2) TMI 164X X X X Extracts X X X X X X X X Extracts X X X X ..... to the accrual of income, we find that the assessee has offered this income for the next subsequent six A.Ys i.e. A. Y. 2008–09 to 2012–13 at the rate of ₹ 9,21,428/- at prorate basis. The assessee has included in the paper book assessments for all these A.Ys. The income in question has been offered to tax and has been taxed by the department in all these A.Ys equally. The addition in this year amounts to double taxation. Distribution rights in the film is a property. This property has been licensed for a time period of seven years by the assessee to the third parties. The consideration received is for exploitation of certain rights in these films for a period of seven years. Thus we are of the considered opinion that the income aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aking an addition of ₹ 55, 28,571/-. The addition is on the recognition of income in respect to the sale of rights in certain films by the assessee by way of an agreement for the period of seven years. The assessee, on the ground that, the agreement is for the period of seven years, claimed that the income is to be spread over the period of seven years. She accounted for one seventh of the total sale value i.e. ₹ 9,21,428/- as income of the year under consideration. The balance amount of ₹ 55,28,572/- was declared as income for the six subsequent A.Ys at the rate of ₹ 9,21,428/- per year and assessments have been completed of such income for A.Ys 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13. 2.1. The AO was of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in purchasing these film rights. In the case of film distributor or Subdistributor, the deduction of expenditure incurred on purchase of exhibition/distribution rights is governed by a Special Rule i.e. Rule 9B of Income Tax Rule 1962. Though, in the accounts the deduction was shown as depreciation but in actual the deduction is being claimed according to Rule 9B only. The manner in which the deduction was claimed in the P L Account is not correct, however, the amount of deduction claimed is correct. In this respect it is pertinent to note that she did not claim any deduction during AY 2006-2007 on the film rights purchased amounting to ₹ 23,72,000/- as rights of these films were not sold during the AY 2006- 2007, because Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Indus Video Pvt. Ltd. The assessee has also explained that she has recognised the income pro-rata. 2.3. The AO did not accept the contention of the assessee. He held that on one hand the assessee is claiming deduction of the whole expenditure on the acquisition of rights, which period of assignment is more than one year. On the other hand when the rights are sold to M/s Indus Video P.Ltd. and M/s Prime Focus Ltd. the same is being recognised on proportionate basis and spread over the period of assignment. He felt that hence the method of accounting followed by the assessee is not correct. He held that the assessee is following mercantile system of accounting and as the agreements assigning the rights to M/s Indus Video P.Ltd. and M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ms. The Income Tax Act or Rules have not provided for any special manner in which income in such cases have to be taxed. Thus the general law prevails. Coming to the accrual of income, we find that the assessee has offered this income for the next subsequent six A.Ys i.e. A. Y. 2008 09 to 2012 13 at the rate of ₹ 9,21,428/- at prorate basis. The assessee has included in the paper book assessments for all these A.Ys. The income in question has been offered to tax and has been taxed by the department in all these A.Ys equally. The addition in this year amounts to double taxation. Distribution rights in the film is a property. This property has been licensed for a time period of seven years by the assessee to the third parties. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofits of a particular year Thus in the case of Hindustan Aluminium Corporation Ltd Vs CIT [1983] 144 ITR 474, the Calcutta High Court upheld the claim of the assessee to spread out a lump sum payment to secure technical assistance and training over a number of years and allowed a proportionate deduction in the accounting year in question Issuing debentures at a discount is another such instance where, although the assessee has incurred the liability to pay the discount in the year of issue of debentures, the payment is to secure a benefit over a number of years There is a continuing benefit to the business of the company over the entire period The liability should, therefore, be spread over the period of the debentures. 7.1. On the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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