AI Drafter 
TaxTMI 
TaxTMI 
2016 (6) TMI 47
X X X X Extracts X X X X
X X X X Extracts X X X X
.... scripts as income from other sources instead of income from business as claimed by the assessee, and thereby disallowing the claim of various expenses claimed by the assessee. 2.2 Aggrieved by the order of assessment for the assessment year 2009-10, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals)-40, Mumbai who disposed of the assessee's appeal allowing the assessee partial relief of Rs. 1,00,000. 3. In the present appeal, the assessee has raised the flowing grounds : "1. The learned Commissioner of Income-tax (Appeals) failed to appreciate that the assessee-company was in process of producing feature film, which was unable to do due to finance as well as non- availability of artists, preferred to sell the script, all this to attain the main objects of the company and to keep the company running with activity. The individual activity and the entire film making is very well covered under the main objects of the company, therefore, it should have been treated as normal business income instead of income from other sources. 2. The learned Commissioner of Income-tax (Appeals) guided by wrong impression that the expenses in pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ipt is part of the film making activities which is the main object of the company and, therefore, the income of Rs. 32,00,000 from sale of scripts ought to be treated as normal business income and not as income from other sources as held by the learned Commissioner of Income-tax (Appeals)/Assessing Officer (AO). It is further contended that the learned Commissioner of Income-tax (Appeals) disregarded the fact that all the day-to-day expenses, directors remuneration and other expenses were incurred since the assessee wanted to produce a film and in spite of failure on the part of the assessee to do so, the expenses incurred are to be adjusted against the income of the company to arrive at the net profit of the company. 5.2 The learned Departmental representative was heard in the matter and he placed strong reliance and support on the findings rendered by the authorities below in their respective orders. The learned Departmental representative also submitted that he had gone through the paper book (pages 1 to 79) filed on February 4, 2016, and submitted that all the details therein are part of the records of assessment and that of the learned Commissioner of Income-tax (Appeals). ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....and script writing is a human activity ; and that sale was made by the appellant-company since the asset (cine script) was an intellectual work of Mr. Ajay Tuli, director, and not the company. In view of the same, the Assessing Officer held that there was no business transaction involved during the year in the hands of the appellant-company, and, hence, the income of Rs. 32,00,000 should be assessed as income from other sources. Further, since it was held that there was no business activity during the year in the case of the appellant-company, the Assessing Officer disallowed the entire claim of expenses made by the appellant-company, holding that the appellant could not establish the reasonableness of the various expenses claimed. Accordingly, he assessed the entire amount of Rs. 32,00,000 under the head 'Income from other sources', without allowing any expenditure. 3.3 During the course of appellate proceedings, the appellant made the following submissions, vide letter dated October 29, 2012 : '(1) As such, it cannot be said that the company was engaged in writing of cine script and the same was never shown as an asset/ work-in-progress by the afores....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. Any activity can be said as personal because personal touch is necessary but it is intention that this working is done for company becomes the activity of the company. If Mr. Ratan Tata deals on behalf of the company, he is doing an activity where he is personally involved but it is for the company. Even sales man of the company is selling the product, he is doing activity personally but it is for the company. For doing the activity, the directors, employees of the company will use funds of the company, place of the company, human resources of the company and above all the intention from the beginning that it is activity of the company and not of personal, which matters most. In our case, we have written script as we were interested to make films under the banner of the company but it could not materialise as it requires lot of funds and we could not arrange financial partners. However, the script and plots on situations were liked by other directors/producers, so they shown their interest to purchase the script. They wanted us to come on set of the film but directors have refused flatly as they do not wish to work as script writer but ready to sell the script/plotting ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... loans, to keep alive established contacts with the producers/directors and with the industry. Therefore, it was necessary to have some film related activity which they know, they have requisite strength and the objects are achieved, so the directors decided to do various activities, services to film fraternity. One of activity clicked was of script/plotting of situation/dialogue. It is further submitted that the directors have not taken any film or film related activity in their personal capacity for the last several years and they have always worked for the company and face of the company was used for such activity. The directors have taken directors remuneration as usual, so it was more of even moral binding for the directors to give value back to the company. The directors used company, the staff of company, place of company, did various expenses and try to create value for the company in terms of sale of script and realised the money. This way the company is survived and is in the film related activity and keeping contacts alive with film/TV industry which will help in future. The company started doing various activities related to film business but script/st....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... entitled to all expenses ? So there was not even any kind of thought from tax planning point of view. Therefore, under no circumstances it can be said of individual activity or can be said individual income was diverted to company at any point of time. If name of the company is kept going and alive tomorrow by doing film related activities, the company can obtain bank loan, the contacts of the company will be alive which are prized contacts and if the goodwill of the company is kept intact, somebody can join hands with them for film production, film equipment or any other film related activity in a big way. By doing scattered activity in personal name such things cannot be achieved rather name of the company and its goodwill will fizzle out which is not in the interest of directors or the company. Once again we say that no company can be run by itself and has to be run by some individuals. Any activity can be said as personal because personal touch is necessary but it is the intention that this working is done for the company becomes the activity of the company. If Mr. Ratan Tata deals on behalf of the company, he is doing an activity where he is personally invol....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e learned Assessing Officer was expected to do justice beyond simply his belief and understanding. The Assessing Officer cannot believe that such income can be without any expenses and even if the company is not doing anything some expenses still will be justified. Finally, we are surprised how the income is treated in the hands of the company as income from other sources, when the same was treated as individual income and nowhere it is mentioned that it is on protective basis. The company sold the scripts on as is where is basis and received Rs. 32 lakhs as gross income. Out of this, the company has given directors remuneration of Rs. 12 lakhs. The learned Assessing Officer is silent on the same. One income is tax in different hands, twice even thrice, which cannot and is not the object of the Income-tax Act, 1961. The learned Assessing Officer has also initiated proceedings under section 271(1)(c) of the Income-tax Act as he feels that company has furnished inaccurate particulars of income. There are many such issues which are not consistent or contradictory. We can only say that the scripts were made for film production but that was requiring ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ists/director/artist's previous track record. During the process the concept/plotting were getting better and better by way discussions and their inputs for additions or modifications. After vigorous efforts to discuss the same for 8-10 months the proper presentable film script came to existence. Finally, when film production was not possible but as film idea/concept was in circulation, some film directors/producers shows interest in the concept for their production. The party to whom movie was sold had discussion for joint venture but they wanted to give different treatment and there were many differences which was different than our thinking, cost consideration, etc. It was felt if they cannot produce and if a party is interested in the concept/script, why not sell the script. So it was business decision by the company through their directors to sell the film scripts. Therefore, no remuneration as specific was paid to any of the director or employee which can be assigned as remuneration for writing script. The directors have received director remuneration and employees were getting their salaries for day-to-day company work and idea was to produce the film. The sale ....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 2. Copy of the memorandum and articles of association of the company. 3. Copy of the sale agreement of film script with Perfect Film Pvt. Ltd. 4. There were two film scripts were sold to M/s. Picture Thoughts Pvt. Ltd. for Rs. 32 lakhs. (a) Film script for super natural thriller-Lady enters into body of lawyer and one after murder. This will be very good with special effects. (b) Film script for underworld romance-Don Daughter is in love with somebody else.' 3.4.1 I have gone through the assessment order, perused the submissions and also discussed the case with the authorised representative of the appellant. The Assessing Officer noted that during the year, the business of the appellant-company, i.e., letting out of camera and other equipment, etc., as in earlier years, had come to an end due to sale of equipment. The income of Rs. 32,00,000 shown by the appellant was claimed to be out of sale of two scripts. The Assessing Officer objected that writing of cine scripts was not the business of the appellant and was never shown as asset/work-in-progress in the balance-sheet. The Assessing Officer was also of the opinion that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... run the company and took directors' remuneration and above all, they were assessed to tax as employees of the company. Since the Assessing Officer has not given any reason for holding the income out of script writing as income of one director, I find considerable force in this argument. Also the sale of the script, out of which income of Rs. 32,00,000 was received, is not disputed by the Assessing Officer. The appellant further claimed that the company was engaged in film/T. V. related activity and was successfully doing activity of hiring and providing technical services with the broad objective of film related activities, including making of films. It was claimed that on the same line, script was written but the same had to be sold on as is where is basis, and, hence, the business activity was of the company and not of the individual. In this regard, let us have a look into the clauses of the memorandum of association and articles of association of the appellant-company. The main object of the company as per the memorandum of association reads as under : 'To make feature film/T. V. serial/Ad film/documentaries, audio and/or visual cassettes, distribution of film....
X X X X Extracts X X X X
X X X X Extracts X X X X
....thers 2,12,797.00 0.00 Equipment hire charges 0.00 47,96,889.00 Bank charges 6,192.44 0.00 Conveyance 34,722.00 0.00 Electricity expenses 2,14,797.00 0.00 Insurance Equipment 0.00 3,43,940.00 Insurance 81,267.00 0.00 Petrol expenses 36,867.17 0.00 Professional fees 55,150.00 0.00 Prepayment charges 20,690.19 0.00 Audit fees 55,150.00 0.00 Rent 3,00,000.00 0.00 Staff welfare 60,561.97 0.00 Stationery and printing 3,972.00 0.00 Telephone expenses 1,71,273.59 0.00 Travelling expenses 4,90,495.48 0.00 Office expenses 2,405.00 0.00 Books and periodicals 6,618.00 0.00 33,93,508.84 61,90,879.00 From the above, it may be noted that salaries and allowances, repairs and maintenance, bank charges, conveyance, electricity expenses, insurance, petrol expenses, professional fees, pre-payment charges, audit fees, rent, staff welfare, stationery and printing, telephone expenses, travelling expenses, office expenses, books and periodicals did not exist in the last year when the appellant was having full-fledged ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... We observe from the relevant portion of the impugned order extracted (supra) that the learned Commissioner of Income-tax (Appeals) has, inter alia, considered the records of assessment as also the submissions placed before him, vide letter dated October 29, 2012, and November 2, 2012, and which form part of the assessee's paper book (pages 1 to 56). We also find that the assessee has failed to place on record any material evidence to controvert the findings of the learned Commissioner of Income-tax (Appeals)/Assessing Officer that the income from sale of film scripts is to be treated as "Income from other sources" and not "Business income" as claimed and consequent disallowance of various expenses claimed by the assessee. In this view of the matter, we are of the opinion that there is no sufficient reason for us to interfere with or deviate from the findings in the impugned order of the learned Commissioner of Income- tax (Appeals) and therefore uphold the same. Consequently grounds at S. Nos. 1 to 3 of the assessee's appeal are dismissed. 6. Ground No. 4 : Charging of interest under section 234A, section 234B, section 234C and section 234D of the Act. 6.1 In this gr....