TMI Blog1996 (2) TMI 43X X X X Extracts X X X X X X X X Extracts X X X X ..... e case was the Income-tax Appellate Tribunal correct in holding that the firm dissolution expenses were capital in nature and cannot be deducted in computing the total income ? " The assessee is a private limited company. The assessment was completed for the assessment year 1975-76 under section 144B of the Income-tax Act, 1961. Amongst the additions proposed in the draft assessment order were : 1. Interest pertaining to production of feature films amounting to Rs. 2,075 ; and 2. Confirmation of dissolution fees of Rs. 24,962. The proposed disallowance was out of the total interest expenditure of Rs. 8,04,582. One of the activities of the assessee was production of feature films. During the year ended on March 31, 1975, the picture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issioner of Income-tax (Appeals), the assessee contested the abovesaid two additions made by the Income-tax Officer. However, the Commissioner of Income-tax (Appeals) confirmed the order passed by the Income-tax Officer with regard to the abovesaid two items. The Commissioner of Income-tax (Appeals) also pointed out that the assessee would be entitled to the reduction of interest at the time when the film is released for exploitation. On further appeal, the Tribunal found that there is no evidence let in by the assessee to show that any part of the borrowings had been used for the purpose of production of films. The assessment of income from the exploitation of films is separate and that can be adjusted when the film would be released. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is assessed in the hands of the assessee, which is a company. Therefore, it is not correct on the part of the Department to say that the production of the abovesaid two feature films in the assessment year under consideration is a separate business. On the other hand, production of the abovesaid two feature films is a part of the business done by the assessee. Therefore, when the assessee is claiming deduction with regard to the expenditure incurred for running the business, the assessee claimed the abovesaid sum as one of the items of expenditure incurred for the purpose of carrying on the business. It was, therefore, submitted that the Tribunal was not correct in coming to the conclusion that the abovesaid expenditure is related to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of feature films. The assessee is also hiring the studio for production of films. In the assessment year under consideration, the assessee incurred expenditure for dissolution of the partnership firm in which the company is a partner. The partnership firm in which the assessee-company is a partner came into existence from June 1, 1972, and it was dissolved on May 1, 1974. Thus the partnership firm was in existence for a period of 23 months. The assessee used to produce the feature films either by itself or by entering into an agreement with third parties as a joint venture. In the course of carrying on business, the assessee entered into a partnership with one Mr. Nagi Reddy. The assessee under the joint venture produced two feature films i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the partnership concern is a separate business. It is also significant to note that the partnership itself came to an end during the course of carrying on the business by the assessee. Learned standing counsel for the Department submitted that there is a finding given by the Tribunal that the abovesaid two feature films were produced by the assessee by entering into a partnership with a third party. The assessee has not questioned this finding of the Tribunal. Therefore, it is not now open to the assessee to challenge the finding given by the Tribunal that the partnership business is a separate business. The question referred by the Tribunal was whether the Tribunal was correct in holding that the firm dissolution expenses were ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of feature films by entering into partnership with third parties cannot be said to be a separate business. The partnership firm is not an assessee. The share income earned by the assessee-company by entering into partnership with a third party is one of the items of its business income. In the course of the business, the assessee-company incurred the dissolution expenses. Therefore, it is deductible as revenue expenditure from the business income of the assessee. Therefore, the Tribunal was not correct in holding that the share income was earned by the assessee through a separate business. In view of the abovesaid findings, we answer the question referred to us as question No. 2 in the negative and in favour of the assessee. Inasmu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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