1988 (12) TMI 67 - HC - Income Tax

Film distributor's tax option binding for assessment year and beyond; court rejects revision attempt.

The High Court of PUNJAB AND HARYANA held that once an option is exercised by a film distributor under rule 9B(7) of the Income-tax Rules, it is final for ... Assessment, Film Distribution Business Issues: Interpretation of rule 9B(7) of the Income-tax Rules regarding the exercise and revision of option by a film distributor for the applicability of new rules in assessing income from films.Analysis:The High Court of PUNJAB AND HARYANA addressed a case where the assessee, a film distributor, had released three films during the relevant accounting year. The distribution rights for one film were obtained on a minimum guarantee basis, while the other two were acquired on an outright purchase/royalty basis. The assessee exercised an option under rule 9B(7) of the Income-tax Rules through a letter to the Income-tax Officer, specifying the application of new rules for all three films and even stating that the new rules may apply in subsequent years. The Income-tax Officer assessed the income based on this option for all films. The issue arose when the assessee later attempted to revise the option for one film only. The Tribunal initially allowed the revision of the option but concluded that the revised option could not apply to subsequent assessment years.The Court analyzed rule 9B(7) which states that once an option is exercised by a film distributor, it is final for that assessment year and all subsequent years. The rule allows for exercising the option only once and does not provide for its revision. The Court held that the Tribunal erred in allowing the revision of the option before the final assessment by the Income-tax Officer. However, the Court agreed with the Tribunal that the assessee could exercise the option for one or more films, but once exercised, it would apply to all subsequent years. As of April 1, 1977, the new rules would apply, rendering Circular No. 154 inapplicable.The Court emphasized that the assessee's initial letter clearly indicated the exercise of the option for all three films and the applicability of new rules in subsequent years. Therefore, the attempt to revise the option for one film later was deemed invalid. The Court ruled in favor of the Revenue on the first question, stating that the option cannot be revised before the final assessment. On the second question, the Court affirmed the Tribunal's decision that the assessee could choose which films the new rules would apply to, but once chosen, it would be consistent for subsequent years. The judgment concluded by leaving the parties to bear their own costs.