Deductibility of Short-Lived Production Costs: Revenue write-off allowed where accounting method reflects true profits in period.

Cost of positive film prints that are demonstrably short-lived and exhausted within the accounting year may be treated as revenue expenditure and written off where the assessee's consistent accounting practice fairly reflects true profits; accordingly the full claim for positives on the facts was allowed. Retainer payments to legal advisers are deductible only to the extent they accrued in the accounting year; part of the disputed payment related to prior periods or duplication and was disallowed, with a specified portion allowed as deduction. The proviso to the relevant tax provision was not attracted on these facts.

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Issues: (i) Whether the cost of positive prints of two films amounting to Rs. 3,53,863 is deductible in the assessment year 1957-58 in whole or in part independent of amortisation; (ii) Whether Rs. 4,000 (part of Rs. 10,000 paid to legal advisers) or any part thereof was in law due to the assessee's lawyers on the basis of the directors' resolution so as to constitute a deduction in the assessment year 1957-58.

Issue (i): Whether the cost of positive prints (Rs. 3,53,863) is deductible in the assessment in whole or in part independent of amortisation.

Analysis: The positives were taken and exhibited during the accounting year and evidence (uncaught) established that a positive print's useful life is exhausted by roughly 300 shows (about six months). The assessee's long-established accounting method treated positives exhibited beyond six months as revenue expense and others as stock; there was no finding that that method prevented ascertainment of true profits. The Central Board circulars prescribe amortisation for negatives on a three-year/time basis, but those circulars do not reasonably apply to positive prints whose life is demonstrably much shorter. Absent a finding that the assessee's method obstructed computation of true profits, the proviso to section 13 is not attracted.

Conclusion: Issue (i) answered in favour of the assessee; the cost of positive prints (Rs. 3,53,863) is deductible (write-off) for the assessment year 1957-58 on the facts found.

Issue (ii): Whether Rs. 4,000 paid to legal advisers was in law due in the relevant accounting year so as to be deductible.

Analysis: The directors' resolution fixed a monthly retainer effective from October 1, 1955, increasing remuneration; payments made in the accounting year included amounts attributable to both prior and current periods. The liability accrued during the accounting year only to the extent properly attributable to that year; part of the Rs. 4,000 related to periods outside the accounting year or duplicated amounts made effective by the new scale.

Conclusion: Issue (ii) answered partly in favour of the assessee; Rs. 3,000 of the disputed Rs. 4,000 is allowable as a deduction for the assessment year 1957-58, but the full Rs. 4,000 is not allowable.

Final Conclusion: The departmental disallowance is set aside in part: the full claim for positives is allowed on the facts; the legal fees disallowance is varied so that Rs. 3,000 is allowable. The proviso to section 13 does not apply on these facts.

Ratio Decidendi: Where an assessee's consistently employed accounting method fairly reflects true profits, the proviso to section 13 cannot be invoked; distinct short-lived assets (positive prints) whose useful life is exhausted within the accounting year may be written off as revenue expenditure rather than amortised under multi-year rates applicable to negatives.

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