Section 37 of the Act and Rule 9A of IT Rules, 1962 – Business expenditure – capital or revenue expenditure – Expenditure incurred on account of abandoned teleserial – Revenue expenditure

Section 37 of the Act and Rule 9A of IT Rules, 1962 – Business expenditure – capital or revenue expenditure – Expenditure incurred on account of abandoned teleserial – Revenue expenditure

The following question was raised before the Madras High Court in appeal filed by the Revenue:

“Whether in the facts and circumstances of the case, the Tribunal was right in holding that the write off of expenditure incurred in respect of a teleserial that was abandoned could be treated as business expenditure during the relevant assessment year, contrary to the provisions of rule 9A of the Income-tax Rules?” 

The Madras High Court decided the appeal in favour of the assessee and held as under:

“i)    The issue as to whether the cost of production of an abandoned teleserial/feature film shall be treated as revenue expenditure or capital expenditure has to be decided as per the circular issued by the CBDT in Circular No. 16 of 2015 dated 06/10/2015, wherein it is stated that the cost of production of an abandoned feature film is to be treated as revenue expenditure and allowed as per the provisions of section 37 of the Income-tax Act, 1961.

ii)    This circular was taken note of by the Division Bench of this court in Tiruvengadam Investments Pvt. Ltd. vs. ACIT (2016) 95 CCH 24 (Mad). Though the circular pertains to a feature film, we find that there cannot be any distinction between teleserial and feature film as the circular deals with the aspects regarding to the cost of production of a film. Hence, Circular No. 16 of 2015 dated 06/10/2015 has full application to the facts of the present case.

iii)    The appeal filed by the Revenue is dismissed and the substantial question of law as framed is answered in favour of the assessee and against the Revenue.”