June 2019

Section 37(1) and Rule 9A of ITR 1962 Business expenditure Where assessee was engaged in business of production and distribution of films, cost of prints as well as publicity and advertisements incurred after production as well as their certification by Censor Board, the same would not be governed by Rule 9A, they would be allowable as business expenditure u/s. 37(1)

K. B. BHUJLE
Advocate

16

CIT vs. Dharma Productions Ltd.; [2019] 104 taxmann.com 211 (Bom)

Date of order: 19th March, 2019

A.Y.s: 2006-07 and 2009-10

 

Section 37(1) and Rule 9A of ITR 1962 Business expenditure Where assessee was engaged in business of production and distribution of films, cost of prints as well as publicity and advertisements incurred after production as well as their certification by Censor Board, the same would not be governed by Rule 9A, they would be allowable as business expenditure u/s. 37(1)

 

The assessee was engaged in the business of production and distribution of feature films. The assessee claimed expenditure incurred for positive prints of feature films and further expenditure on account of advertisements. The A.O. noticed that these expenditures were incurred by the assessee after issuance of certificate by the Censor Board and, hence, he disallowed the assessee's claim holding that such expenditure was not allowable deduction in terms of Rule 9A and Rule 9B.

 

The Commissioner (Appeals), confirmed the disallowance stating that any expenditure which was not allowable under Rule 9A could not be granted in terms of section 37; thus, he held that the expenditure on the prints and publicity expenses are neither allowable under Rule 9A nor u/s. 37. However, the Tribunal allowed the assessee's claim.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

 

i)   Sub-rule (1) of rule 9A provides that in computing the profits and gains of the business of production of feature films, the deduction in respect of the cost of production of a feature film certified for release by the Board of Film Censors in a previous year would be allowed in accordance with the provisions of sub-rule (2) to sub-rule (4).

 

ii) &n

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