Revenue expenditure treatment for abandoned film script write-off confirmed, with Rule 9A held inapplicable.

Advance paid for purchase of a film script for an abandoned film was treated as allowable revenue expenditure because the cost of an abandoned film written off is revenue in nature. Rule 9A of the Income-tax Rules, 1962 was held inapplicable to abandoned feature films, and the related expenditure was not to be treated as capital expenditure. The write-off was therefore allowed under the Act in line with the binding Bombay High Court ruling in Venus Records and Tapes Pvt. Ltd. and CBDT Circular No. 16/2015 accepting that position.

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Issues: Whether the amount advanced and written off towards purchase of a film script for an abandoned film was allowable as revenue expenditure, and whether Rule 9A of the Income-tax Rules, 1962 applied to such abandoned film expenditure.

Analysis: The dispute was covered by the binding decision of the Bombay High Court in Venus Records and Tapes Pvt. Ltd., which held that the cost of an abandoned film written off is revenue expenditure. The CBDT, by Circular No. 16/2015 dated 06.10.2015, accepted that Rule 9A does not apply to abandoned feature films and that the expenditure incurred on such films is not to be treated as capital expenditure. On that basis, the write-off claimed by the assessee was treated as allowable under the Act.

Conclusion: The expenditure on advance paid for purchase of the film script for the abandoned film was held allowable as revenue expenditure, and Rule 9A of the Income-tax Rules, 1962 was held inapplicable.

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