TMI Blog2019 (3) TMI 1271X X X X Extracts X X X X X X X X Extracts X X X X ..... of cost of production are not to be granted as business expenditure. In other words, if the cost is cost of production of the feature film, it would be governed by Rule 9A. If it is not it would be governed by the provisions of the Act. The Commissioner was, therefore, wholly wrong in holding that the expenditures in question were covered under Rule 9A of the Rules and therefore, not allowable. The Tribunal was correct in coming to the conclusion that such expenditure did not fall within the purview of Rule 9A and therefore, the assessee's claim of deduction was governed by Section 37 of the Act. Any expenditure in connection with the preparation of the positive prints for the purpose of exhibition would really be a post production expenditure and item of expenditure in relation to the business of production and exhibition of films and therefore, would qualify for deduction as expenditure laid out wholly and exclusively for the purpose of business. See CIT Vs. Prasad Productions P. Ltd. [1989 (1) TMI 38 - MADRAS HIGH COURT]. - decided in favour of assessee. - INCOME TAX APPEAL NO. 1140 OF 2014 WITH INCOME TAX APPEAL NO. 873 OF 2016 - - - Dated:- 19-3-2019 - AKIL KURESHI SA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are that the respondent assessee is the same as in the previous case. The assessee had filed return of income for the assessment year 2009-10. During the year under consideration, the assessee had produced a film named DOSTANA and sold the distribution rights to one Yash Raj Films Pvt Ltd. The assessee received the film certification from Censor Board on 3.11.2008 and the film was released on 14.11.2008. The assessee had incurred advertisement expenditure of ₹ 4.44 Crores and claimed the same as deduction. The Assessing Officer noticed that the assessee had incurred the advertisement expenditure after issuance of certificate by the Censor Board. He was of the opinion that such expenditure was not allowable deduction in terms of Rule 9A and 9B of the Rules. The CIT(A) confirmed the view of the Assessing Officer upon which the assessee carried the matter before the Tribunal. The Tribunal, by the impugned judgment, allowed the assessee's appeal relying on its decision in case of the assessee which is subject matter of challenge in Income Tax Appeal No. 1140 of 2014. 4. In this background, the appeal was admitted for consideration on following substantial question of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lm Censors in any previous year and in such previous year,- (a) the film producer sells all rights of exhibition of the film, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year; or (b) the film producer- (i) himself exhibits the film on a commercial basis in all or some of the areas; or (ii) sells the rights of exhibition of the film in respect of some of the areas; or (iii) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas, and the film is released for exhibition on a commercial basis at least [ninety] days before the end of such previous year, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year. (3) Where a 66 [***] feature film is certified for release by the Board of Film Censors in any previous year and in such previous year, the film producer- (a) himself exhibits the film on a commercial basis in all orsome of the areas; or (b) sells the rights of exhibition of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis, the minimum amount guaranteed and the amount, if any, received or due in excess of the guaranteed amount or where the film producer follows cash system of accounting, the amount received towards the minimum guarantee and the amount, if any, received in excess of the guaranteed amount, are credited in the books of account maintained by him in respect of the year in which the deduction is admissible. [(6)] Where the [Assessing Officer] is of opinion that- [(a)] the rights of exhibition of the feature film have been transferred by the film producer by a mode not covered by the provisions of this rule; or [(b)] having regard to the facts and circumstances of any case, it is not practicable to apply the provisions of this rule to such case, deduction in respect of the cost of production of the film may be allowed by the [Assessing Officer] in such other manner as he may deem suitable. [(7)] For the purposes of this rule,- (i) the sale of the rights of exhibition of a feature film includes the lease of such rights or their transfer on a minimum guarantee basis; (ii) the rights of exhibition of a feature film shall be deemed to have been sold only on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear, a different formula for allowing the cost of production would apply. These provisions thus make special scheme for deduction for cost of production in relation to the business of production of feature films. One thing to be noted is that no part of the cost of production as defined in clause (ii) of explanation to sub-rule (1) is to be denied to the assessee permanently. It is only to be deferred to the next assessment year under certain circumstances. 9. All these provisions would necessarily be applied in relation to the cost of production of a feature film. In other words, if a certain expenditure is claimed by the assessee by way of business expenditure, which does not form part of cost of production of a feature film, Rule 9A would have no applicability. In such a situation, the assessee's claim of expenditure would be governed by the provisions of the Act. If the assessee satisfies the requirements of Section 37 of the Act, there is no reason why such expenditure should not be allowed as business expenditure. To put it differently, the expenditure that would be governed by Rule 9A of the Rules, would only be which is in respect of the production of the feature fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f production and exhibition of films and therefore, would qualify for deduction as expenditure laid out wholly and exclusively for the purpose of business. 12. Under these circumstances, we do not find any error in the view of the Tribunal. Even if the Commissioner's contention that the expenditure would fall within Rule 9A of the Rules has to be accepted, we wonder whether there would be any implication of the assessee's tax liability, since in the present case, the feature film was exhibited long before the completion of 90 days period before the end of financial year. Even as per Rule 9A, such expenditure was otherwise allowable. Be that as it may, on interpretation of the relevant statutory provisions, we find that the Tribunal is absolutely correct. 13. Learned counsel Mr. Chhotaray, however, raised a contention that the assessee's claim of expenditure under Section 37(1) of the Act had to be established. The same had to be examined by the Revenue Authorities before the same could have been granted. This contention is not sustainable at the hands of the Revenue in the present appeal. The Commissioner, while enhancing the assessment and disallowing the claim o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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