1988 (11) TMI 137 - AT - Income Tax

Excess publicity expenses retained by assessee deemed business receipts. Appeal dismissed, surplus not refundable.

The Tribunal upheld the decision that the excess amounts retained by the assessee over the actual expenses incurred in publicity and advertisements were ... Assessment Year Issues:1. Whether the Income-tax Officer was justified in bringing to tax the excess amount retained by the assessee over the actual expenses incurred in publicity and advertisements.Analysis:The appeal before the Appellate Tribunal ITAT Hyderabad involved the issue of whether the Income-tax Officer was justified in taxing the excess amount retained by the assessee over the actual expenses incurred in publicity and advertisements. The assessee, a firm engaged in the distribution of feature films, had agreements with producers that outlined the minimum guarantees and publicity expenses to be incurred. In one case, the assessee had retained a surplus of Rs. 15,773 for one film and Rs. 45,387 for another film, over the budgeted publicity expenses. The Income-tax Officer brought these surplus amounts to tax, leading to an appeal by the assessee.In the agreements with the producers, it was stipulated that the assessee had to incur specific amounts for publicity expenses, and any excess expenditure without prior approval would be the sole responsibility of the assessee. The Commissioner (Appeals) noted that the assessee had not actually spent more than what was noted by the Income-tax Officer, and any surplus amounts need not be refunded to the producers. The Commissioner confirmed the additions made by the Income-tax Officer.The assessee contended on further appeal that the amounts retained towards publicity were part of the cost of acquiring distribution rights, entitling them to a deduction. They argued that since the publicity expenses were part of the agreements and were actually spent, they should be allowed the deduction. The Tribunal considered the submissions and observed that while publicity expenditure was intended to be part of the cost of acquisition of distribution rights, the agreement specified different methods of meeting the costs. The Tribunal noted that the surplus amounts saved from the budgeted expenditure need not be refunded to the producers as there was no clause in the agreement requiring such refunds. Therefore, the surplus amounts retained by the assessee were considered as receipts arising in the course of their film distribution business.Ultimately, the Tribunal dismissed the appeal, upholding the decision that the excess amounts retained by the assessee over the actual expenses incurred in publicity and advertisements were not required to be refunded to the producers and were considered as receipts in the business of film distribution.