2019 (3) TMI 1271

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....s on account of advertisement expenses and positive prints. The Assessing Officer while passing the order of assessment did not disturb these claims. However, in the appeal against the order of assessment, the Commissioner of Appeals was prima facie of the view that such expenses were not allowable. Therefore, after putting the assessee to the notice, in his appellate order, he disallowed such claim in terms of Rule 9A of the Income Tax Rules. He was of the opinion that any expenditure which was not allowable under Rule 9A could not be granted in terms of Section 37 of the Income Tax Act, 1961 ("the Act" for short). He made a detailed discussion why in his opinion, such expenditure was covered by Rule 9A of the Rules. He concluded as under :- "From the above observations of Hon'ble jurisdictional High Court, it may be noted that where as a reaction to disallowance under Rule 9A claim u/s. 37 was made, the same was not allowable. The case laws relied upon also do not support the cause of the appellant, since they relate to the issues of commercial expediency, genuineness of expenditure, etc., allowable u/s. 37, i.e. Chapter-IV. The decision in the case of Mukta Arts relates t....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....llowed in terms of Rule 9A of the Rules. 6. Rule 9A of the Rules reads as under:- "[Deduction in respect of expenditure on production of feature films. 9A. [(1) In computing the profits and gains of the business of production of feature films carried on by a person (the person carrying on such business hereafter in this rule referred to as film producer), the deduction in respect of the cost of production of a feature film certified for release by the Board of Film Censors in a previous year shall be allowed in accordance with the provisions of sub-rule (2) to sub-rule (4). Explanation : In this rule,- (i) "Board of Film Censors" means the Board of Film Censors constituted under the Cinematograph Act, 1952 (37 of 1952); (ii) "cost of production", in relation to a feature film, means the expenditure incurred on the production of the film, not being- (a) the expenditure incurred for the preparation of the positive prints of the film; and (b) the expenditure incurred in connection with the advertisement of the film after it is certified for release by the Board of Film Censors:] [Provided that the cost of production of a feature film, shall be re....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... that year. (4) Where, during the previous year in which a ^68[***] feature film is certified for release by the Board of Film Censors, the film producer does not himself exhibit the film on a commercial basis or does not sell the rights of exhibition of the film, no deduction shall be allowed in respect of the cost of production of the film in computing the profits and gains of such previous year; and the entire cost of production of the film shall be carried forward to the next following previous year and allowed as a deduction in that year. [(5)] Notwithstanding anything contained in the foregoing provisions of this rule, the deduction under this rule shall not be allowed unless,- (a) in a case where the film producer- (i) has himself exhibited the feature film on a commercial basis; or (ii) has sold the rights of exhibition of the feature film; or [(iii) has himself exhibited the feature film on a commercial basis in some areas and has sold the rights of exhibition of the feature film in respect of all or some of the remaining areas,] the amount realised by exhibiting the film, or the amount for which the rights of exhibition have been sol....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... Explanation to sub-rule (1) explains the term "cost of production" in relation to feature film as to mean expenditure incurred for preparation of the film but excluding (a) expenditure incurred in preparing positive prints and (b) expenditure incurred in connection with advertisement of the film after it is certified for release by the Board of Film Censors. The sub-rules (2) to (4) of Rule 9A makes special provisions for deduction in respect of profits and gains of the business of production of feature film. For example, in terms of sub-rule (2) of Rule 9A, where a feature film is certified for release by the Board of Film Censors in any previous year and in such previous year, the film producer sells all rights of exhibition of the film, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year. However, for the film producer either himself exhibits the film on a commercial basis or sells the rights of exhibition of the film in respect of some of the areas or he himself exhibits the film in certain areas and sells the rights in the rest and the film is released for exhibition at least 90 days before the end....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....r words, if the cost is cost of production of the feature film, it would be governed by Rule 9A. If it is not it would be governed by the provisions of the Act. The Commissioner was, therefore, wholly wrong in holding that the expenditures in question were covered under Rule 9A of the Rules and therefore, not allowable. The Tribunal was correct in coming to the conclusion that such expenditure did not fall within the purview of Rule 9A and therefore, the assessee's claim of deduction was governed by Section 37 of the Act. 11. The Madras High Court in case of CIT Vs. Prasad Productions P. Ltd. [1989] 179 ITR 147 (Madras) had occasion to consider somewhat similar issue. It was a case in which the assessee was carrying on the business of production and exhibition of feature films. The assessee had claimed a cost towards preparing positive prints in respect of feature film. The question before the High Court was whether such cost was allowable deduction. The Court held that in view of explanation (ii)(a) to Rule 9A(1) of the Rules, the expenditure incurred for the preparation of the positive prints of the film could not be included within the expression "cost of production". The....