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18 Film production — Amortisation of
expenses — Amortisation loss computed under Rule 9A is not subject to provisions
of S. 80 and S. 139 of the Act.
[CIT v. Joseph Valakuzhy, (2008) 302 ITR 190 (SC)]
During the previous year relevant to the A.Y. 1992-93, the
assessee, a film producer, produced two films, namely, (i) Ex Kannikcodi; and
(ii) Santhwanam. While the first film was released and
exhibited for more than 180 days, the second film was released and exhibited for
less than 180 days. In his return of income, the assessee claimed the benefit of
carry forward of Rs.39,43,830 as amortisation expenses relying on Rule 9A(3)
which according to the assessee provided that the cost of production of the film
equal to the amount realised by the film producer by exhibiting the films that
year should be allowed as deduction in computing the profit and loss of the said
previous year and the balance, if any, carried forward to the next following
previous year and allowed as deduction in that year.
The Assessing Officer allowed the amortisation as claimed.
But the Commissioner of Income Tax in exercise of the power u/s.263 of the Act
set aside the order and directed the Assessing Officer to withdraw the benefit
of loss in view of S. 80, as the assessee had not filed his return of income
within the time prescribed u/s.139(3) of the Act.
The assessee filed an appeal to the Tribunal against the
order passed u/s.263. In the meantime, the Assessing Officer passed a fresh
assessment order in terms of the order passed in revision. The assessee filed an
appeal before the CIT(A) against the said order.
The CIT(A) took the view that S. 80 of the Act could not be
applied to the situation to which Rule 9A(3) was applicable. The CIT(A) however
found that the computation of amortisation expenses to be carried forward, as
shown by the assessee was not correct. The CIT(A) directed the AO to obtain
separate accounts in respect of the different films produced by the assessee and
determine the claim of the amortisation in accordance with the Rule 9A,
clarifying that in case there was a loss in respect of the old film on such
computation, that would have to be subject to the provisions of S. 139(3) and S.
80 of the Act. In regard to the second film, it was held that the amortisation
allowance for the next year was not subject to the provisions of S. 80 and S.
139(3) of the Act.
Being aggrieved by the order of the CIT(A), the Revenue filed
an appeal before the Tribunal. Both the appeals were taken up together for
hearing by the Tribunal and were dismissed with certain clarifications.
The High Court held that the amortisation loss computed under
Rule 9A was not subject to the provisions of S. 80 and S. 139 of the Act.
On appeal, the Supreme Court held that the balance cost of
production which amortised under Rule 9A(2) and allowed as deduction for the
next year is not a business loss. Admittedly, the second film Santhwanam 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 therefore entitled to carry
forward the balance of the cost of production to the next following previous
year and claim deduction of the same in the year. The Supreme Court therefore
dismissed the appeals.
