2004 (8) TMI 51

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....value can be added by making adjustments in the balance-sheet while acting under the provisions of section 7(2)(a) of the Wealth-tax Act?" The present reference relates to the assessment year 1975-76. By a consolidated order, the Tribunal has referred the aforementioned question of law in respect of three assessees, namely, Narendra Kumar Gupta, Prem Kumar Gupta and Smt. Krishna Kumari, who were the partners, in the firm, M/s. Film Angels, hereinafter referred to as the "firm". Briefly stated the facts giving rise to the present reference are as follows: All the aforementioned three persons, as stated hereinabove, were the partners in the firm which was deriving income from distribution, exploitation and exhibition of cinema films ....

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.... date and such asset has to be taken into consideration in ascertaining the net wealth of the firm and consequently of the partners. Relying upon a decision of the apex court in the case of CIT v. A. Krishnaswami Mudaliar [1964] 53 ITR 122, he held that the value of the unexploited period is to be treated as assets which was valued by him at Rs. 24 lakhs with corresponding share of each of the partners at Rs. 8 lakhs. Accordingly, an addition of Rs. 8 lakhs was made to the wealth of each of the partners. However, in appeal, the Appellate Assistant Commissioner taking note of the rule 9B of the Income-tax Rules deleted the addition. In further appeal before the Tribunal, the Tribunal after considering various case laws has held that the righ....

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..... Since it was not reflected in the balance-sheet as under the Income-tax Act it was treated as revenue expenditure, the provisions of rule 2C of the Wealth-tax Rules were clearly attracted and, therefore, the value of the right to exploit a cinema film ought to have been included in the net wealth of the partners. He relied upon the following decisions: 1. CIT v. A. Krishnaswami Mudaliar [1964] 53 ITR 122 (SC); 2. Mrs. Khorshed Shapoor Chenai v. Asst. CED [1980] 122 ITR 21 (SC); and 3. CWT v. U. C. Mehatab [1998] 231 ITR 501 (SC). Sri P. K. Jain, learned counsel for the respondents-assessees, however, submitted that under the Act, the firm was entitled to claim the entire expenses incurred for the exploitation and distribution ....

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....hts at the end of the accounting period is to be taken into consideration while computing the profits and gains of the business. It is true that prior to the insertion of rule 9B of the Income-tax Rules, under the circulars issued by the Central Board of Direct Taxes the entire expenses for exploitation/distribution of motion pictures were allowed as deduction while computing the income of the firm. None the less it remains the stock-in-trade, which is an asset under section 2(e) of the Act. Since the entire cost of acquiring distribution rights had been allowed as revenue expenditure, its value has not been reflected in the balance-sheet. Once it is held that the right to exploit the film was a valuable right and has rightly been so hel....