COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM v. JOSEPH VALAKUZHY

Citation: [2008] 7 S.C.R. 752

Court: Supreme Court of India

Bench: ASHOK BHAN, DALVEER BHANDARI

Case summary

COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM v. JOSEPH VALAKUZHY.pdf

Judgment text

[2008] 7 S. C. R. 752 COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAM v. JOSEPH VALAKUZHY (Civil Appeal No. 7750 of 2002) MAY 6, 2008 [ASHOK BHAN AND DALVEER BHANDARI, JJ. ] Income Tax Rules - r. 9A - Deduction in respect of expenditure incurred on production of feature film -Assessee doing the business ofproducing feature films - Film produced by assessee not exhibited for 180 days in the previous year, and, did not cover the cost of production of the film - Held: Assessee entitled to carry forward the balance of the cost of production to the next following previous year and claim deduction of the same in that year. Respondent-assessee is a film producer. A feature film produced by him was not exhibited for 180 days during the previous year and did not cover the cost of production of the film.

The question which arose for consideration in the present appeal is whether the Respondent-assessee was entitled to carry forward the business expenditure incurred on production of the feature film over the next assessment year. Dismissing the appeal, the Court HELD:1. 1. r. 9A of the Income Tax Rules provides for deduction of expenditure incurred on production of feature films. r. 9A would appropriately be applicable to the present case, as the respondent is doing the business of ) : -exhibited for foofe than·1ao days in the previous Yea·r: -·· While computing the income or loss for the relevant assessment year 1992-93, the assessing officer had to take into account the number of days on which the film was commercially exhibited and then allow the deduction for cost of production of the film to the extent of the collections made during the period of exhibition only.

The balance cost of production will be amortized under Rule 9A(2) and then that will be allowed as deduction for the nextyear. It is not a business loss. If a film is not released for exhibition on a commercial basis at least 180 days before the end of such previous year, the cost of production of the film insofar as it does not exceed the amount realized by the film producer by exhibiting the film on a commercial basis, is to be allowed as a deduction in computing the profits and gains of such previous year and the balance, if any, is to be carried forward to the next following previous year and allowed as a deduction in that year. In the present case, the film in question was not exhibited for a period of 180 days in the previous year, and, had not covered the cost of production of the film, the assessee was entitled to carry forward the balance of the cost of production to the next following previous year and claim deduction of the same in that year.

(Para 14] [760-E-H; 761-A] CIVIL APPELLATE JURISDICTION : Civil Appeal No. 7750 of 2002. From the final Judament and Order dated 27. 11. 2001 of the High Court of Kerala at Ernakulamin I. TA. No. 105/1999 Parag P. Tripathi, ASG, Arti Gupta, Vismai Rao, A. K. Shrivastava (for B. V. Balaram Das) for the Appellant. T. L. V. Iyer, Subramonium Prasad and Jay Kishore Singh for the Respondent. The Judgment of the Court was delivered by j BHAN, J. 1. With the leave of the Court the Revenue has filed the present appeal, against the judgment and order dated 2ih November, 2001 of the High Court of Kerala in ITA No. 105/ 1999, rejecting the appeal filed by the appellant under Section 260 of the Income Tax Act, 1961 (for short "the Act"). 2. The respondent-assessee (for short "the assessee") is a film producer. In his income tax return for the assessment year 1992-93, the assessee claimed the benefit of carry forward of Rs. 39,43,830/- as amortization expenses.

The Assessing Officer allowed the claim of amortization. On appeal, the "' Commissioner of Income Tax, in exercise of his iurisdiction under Section 263 of the Act, set aside the assessment and directed the Assessing Officer to withdraw the benefit of carry forward granted to the Assessee on the ground that, as the provisions of Section 80 of the Act are applicable. the benefit of ) - (3) Where a 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 bas;s in all or some of the areas; or (b) sells the rights of exhibition of the film in respect of some of the areas; or ....

(c) 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 not released for exhibition on a commercial basis at least one hundred and eighty days before the end of such previous year, the cost of production of the film in so far as it does not exceed the amount realised by the film producer by exhibiting the film on a commercial basis or the amount for which the rights of exhibition are sold or, as the case may be, the aggregate of the amounts realised by the film producer by exhibiting the film and by the sale of the rights of exhibition, shall be allowed as a deduction in computing the profits and gains of such ·previous year; and the balance, if any, shall be carried forward to the next following previous year and allowed as a deduction in that year. (4) .............. " 10. Counsel for the parties have been heard. . ; .... 11.

It is not disputed before us that a film is a capital asset in the hands of a film producer and the subsidy given by the State Government to a film producer is a capital receipt. Section 80 falls under Chapter VI, which deals with aggregation of income and set off or carry forward of loss. 12. Rule 9A provides for deduction of expenditure incurred . '\ on production of feature films. Rule 9A would appropriately be ..... applicable to the present case, as the respondent is doing the business of producing feature films. The deduction for expenditure incurred on production of feature films is appropriately governed by rule 9A of the Rules. 13. The rule, as it now stands, provides that in such cases, deduction of the cost of production of the film is to be allowed to the extent of the amount realized during the number of days of commercial exhibition in that year and the balance has to be )< allowed in the next year.

Rule 9A(2) provides that where afeature film is certified by the Board of Film Censors for re~se in any previous year, and in that previous year the film is released for exhibition for at least 180 days, before the end of that previous year, the entire cost of production of the film shall be allowed as a deauction in computing the profits and gains of such previous year. Rule 9A(3) provides that where the film is not released for exhibition for 180 days in the previous year, deduction of the cost of production is to be allowad to the extent of the amount realized during the period of commercial exhibition in that year and the balance shall be allowed in the next year. 14. Admittedly, in the present case, the second film namely, "Santhwanam" had not been exhibited for more than 180 days in the previous your.

While computing the income or loss for the relevant assessment year 1992-93, the assessing officer had to take into account the number of days on which the film was commercially exhibited and then allow the deduction for cost of production of the film to the extent of the collections made during the period of exhibition only. The balance cost of production will be amortized under Rule 9A(2) and then that will be allowed as deduction for the next year. It is not a business loss. That if a film .. . ~ is not released for exhibition on a commercial basis at least 180 days before the end of such previous year, the cost of production of the film insofar as it does not exceed the amount realized by the film producer by exhibiting the film on a commercial basis, is to be allowed as a deduction in computing the profits and gains of such previous year and the balance. if any. is to be carried forward to the next following previous year ).. _ and allowed as a deduction in that year.

Admittedly, in the present case. as stated above, second film "Santhwanam" was not COMMNR OF INCOrylE TAX, THIRUVANATHAPURAM v. 761 exhibited for a period of 180 days in the previous year, and, had not covered the costofproduction of the film, the assessee was entitled to carry forward the b·alance of the cost of produGtion to the next following previous year and claim . deduction of the same in that year. : B• 15. For the reasons stated above, we do not find any merit in the present appeal and dismiss the same leaving the parties to bear their own costs. B. B. B. Appeal dismissed E· F. . \ ....