TMI Blog2017 (11) TMI 508X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue against the order of the Learned Commissioner of Income Tax (Appeals) 3, Mumbai dated 22.08.2014 for the Assessment Year 2011-12. 2. The only grievance in its appeal of the Revenue is, whether on the facts and in the circumstances and in law the Ld.CIT(A) was justified in allowing the expenditure claimed by the assessee on account of refund and the professional fees amounting to ₹.10 Crores when there was no provision in the documented contracts between the assessee and the producer M/s. UTV Software Communication Ltd. to refund any portion of the professional fees. 3. Briefly stated facts are that, the assessee is a Film Director and Producer filed his return of income on 27.09.2011 declaring total income of ₹.8,04,19,580/-. The return of income was accepted u/s. 143(1) and subsequently the scrutiny assessment was completed u/s. 143(3) on 26.02.2014 determining the income of the assessee at ₹.18,07,47,030/-. While completing the assessment the Assessing Officer disallowed ₹.10 Crores which was claimed as expenditure by the assessee. The Assessing Officer in the course of Assessment Proceedings noticed that assessee has shown in his Profit a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e movie projects. It was submitted that the since the film did not do well commercially, assessee returned ₹.10 Crores and the decision was made to maintain relation with a powerhouse studio like UTV. 4. It was further submitted that to survive in the industry it is essential to be practical and consider the loss incurred by the producer and take a cut in fees if the film does not do well commercially. It is only if one is practical in such matters that a producer will endeavor to make a new film with the assessee as a writer and director and it is normal industry practice to return fees. It was further submitted that there are innumerable instances in the film industry where people have refunded money and similarly on success of films they have paid extra money to lead Artists/Directors. It was further submitted that the motivating reason for the refund is commercial expediency and the assessee has returned his part of fee received. It is also submitted that even UTV has confirmed the refund of money by the assessee and reduced their marketing expenses. Assessee also relied on various judicial pronouncements in support of its contention that when the refund is out of comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e heard the rival submissions, perused the orders of the authorities below. On a careful reading of the order of Ld.CIT(A), the Ld.CIT(A) allowed the claim of the assessee holding that the refund of fees by the assessee is out of commercial expediency it is not a sham or colorable transaction as stated by the Assessing Officer and assessee has entered into a fresh contract from UTV during this very same Assessment Year and received professional fees of ₹.11.11 Crores and this was offered to tax and further Ld.CIT(A) also observed that the refund part of professional fee by the assessee to UTV has been taken as income by the UTV in its Books of Accounts. While holding so the Ld.CIT(A) considered the decision of the Hon'ble Supreme Court in the case of CIT v. Walchand Co. Pvt Ltd., [65 ITR 381] and Sassoon J. David Co., Pvt. Ltd., [1 Taxman 485] wherein it has been held that ordinarily it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business and such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits assessee is entitled to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any taxes on the refund of ₹ 10 crores. 1.15 I have perused the facts in the matter. From the perusal of the income-tax return of M/s. UTV Software Communications Ltd it is seen that the company has paid taxes a ₹ 24,20,09,475/- on the book profits of ₹ 134,44,97,086/- u/s 115JB. At the applicable rate of 18% M/s. UTV has paid ₹ 1,80,00,000/- on the refund of ₹ 10,00,00,000/-. I therefore agree with the appellant that the AO is wrong in holding that M/s. UTV has not paid any taxes on the refund of ₹ 10 crores. This would also negate the AO's allegation in para 9.4(h), that the entire transaction of refund was a shown one a colorable device. It is difficult to envisage that M/s.UTV would collaborate in a sham or colorable transaction, which involved a tax liability of ₹ 1.80 crores. it is also to be noted that M/s.UTV is a widely held listed company where the majority shareholding is with a multinational company M/s. Walt Disney Company (Southeast Asia) Pvt Ltd. Moreover, the appellant and M/s.UTV have no common directors or shareholders, which could allude to any collusion. I find that various courts have held that a transaction c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of ₹ 10 crores has been paid to UTV during the previous year. There is also no evidence to show that this amount has not gone out irretrievably. Therefore, the payment of ₹ 10 crores qualifies as an 'expenditure', in the general sense of the term. There is also no case of the AO that, the expenditure is 'capital in nature' or of the nature described in section 30 to 36. It is also not the case of the AO that the said expenditure is prohibited under any other provision of the Act. That leaves us with the last condition that, the expenditure has been laid out 'wholly and exclusively for the purposes of the business'. In this regard, the appellant has contended that, had it not honored its oral commitment with UTV, it would have lost, its goodwill with an important client. 1.19. I have examined the facts in this regard. M/s. UTV has incurred a loss of ₹ 54.18 crores, till 31-12-2010, on the release of the film 'Guzarish. After the refund of ₹ 10 crores this loss has got reduced to ₹ 44.18 crores. By any standards, this is a major loss for M/s.UTV, especially when it had paid a colossal amount of ₹ 22 crores as Dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores cannot be held not to qualify on the condition of business expediency, for deduction u/s 37(1). 1.21 Keeping in view the above, I am unable to agree with the AO that the refund of ₹ 10 crores is a sham / colourable transaction or that the said transaction constitutes diversion of income by overriding title. On the other hand, as discussed supra, I am of the opinion that the transaction constitutes an expenditure u/s 37(1), as the same has been incurred out of commercial expediency and is therefore wholly and exclusively for the purposes of business. I am also of the opinion that the expenditure has been made as per the terms of the Oral agreement entered into between M/s.UTV and the appellant and which is in consonance with the terms of the Production Agreement. In the circumstances, the AO is directed to allow deduction of ₹.10 Crores from the total income of the appellant. This ground of appeal is therefore, allowed . 9. Further more or less similar situation arose in the case of Shahrukh Khan and the Coordinate Bench by order dated 17.03.2017 in ITA.Nos.623/Mum/2013 and 4763/Mum/2013 held as under: - 7. We have carefully considered the rival subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head profits and gains of business or profession . 7.1 Factually speaking, there is no dispute that assessee and Star India Pvt. Ltd. share a business relationship, inasmuch as, the assessee has earned substantial professional receipts from Start India Pvt. Ltd. not only in this year but also in the past years. At this point, we may observe that the Assessing Officer has wrongly noted that assessee has not received any professional receipt from the said concern in the instant assessment year. On the contrary, the details on record reveal that assessee has earned a sum of ₹ 60 crores from Star India Pvt. Ltd., which is a part of the total professional receipts for the year under consideration. In fact, the Ld. Representative for the assessee submitted that the amount of ₹ 60 crores received from Star India Pvt. Ltd. during the year under consideration constituted almost 40% of the total receipts. Be that as it may, what we are trying to emphasize is that there is a subsisting professional relationship between assessee and Star India Pvt. Ltd.and the impugned arrangement has to be viewed from the prism of a Principal - client relationship. In terms of the Artis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;ble Supreme Court in the case of Sassoon J. David (supra) has held that the expression wholly and exclusively used in section 10(2)(xv) of the Income Tax Act, 1922 (which is pari-materia to section 37(1) of the Act) does not mean that expenditure has to be necessarily incurred. As per Hon'ble Supreme Court, an expenditure incurred voluntarily and without any necessity would be allowable so long as it has been incurred for promoting the business of the assessee. In our considered opinion, the commercial expediency canvassed by the assessee in the instant case clearly establishes that the impugned expenditure falls within the scope of the expression wholly and exclusively for the purpose of business or profession within the meaning of section 37(1) of the Act. Therefore, on this aspect, assessee has to succeed. Accordingly, the order of the CIT(A) is set-aside and the Assessing Officer is directed to delete the addition of ₹ 10 crores. Thus, assessee succeeds on this Ground. 10. In view of what is stated as above, we hold that the assessee in the course of his business and out of commercial expediency refunded an amount of ₹.10 Crores to UTV and this amo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
