TaxTMI 
TaxTMI 
2020 (11) TMI 217
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....4. The assessee himself exhibited film on commercial basis in certain areas. He also sold audio and TV rights of the film. The total amount received by the assessee during the year under consideration is given below:- a) Receipts from exhibition of film in certain areas by appellant Rs. 5,40,10,756/- b) Sale of audio rights Rs. 15,00,000/- c) Sale of T.V. Rights Rs. 5,60,00,000/- Total Rs. 11,15,10,756/- The assessee had incurred expenditure to the tune of Rs. 14,94,89,613/- on production of the film. The assessee computed his income from business as per Rule 9A(3)(c) of I.T. Rules, which permitted the assessee to set off the expenditure on production of film against gross receipts on exhibition of film on commercial basis and allowed carry forward of remaining unclaimed expenditure to the next year, if the film is not released on a commercial basis atleast 90 days before the end of the such previous year. We have noticed earlier that the film was released only on 13.1.2014 and hence the period of release during the previous year relevant to the assessment year 2014-15 was less than 90 days. Hence the assessee availed the benefit of Rule 9A(3)(c) of I T Rules. ....
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....t the receipt by way of sale of audio rights and TV rights does not fall under the category of "receipts from exhibition of films" prescribed under Rule 9A of IT Rules. Since Rule 9A allows deduction of production expenses against receipt from exhibition of films only, the AO did not allow set off of expenditure on production against the amount of Rs. 5.75 crores relating to sale of audio rights and TV rights. Accordingly, he assessed the above said amount of Rs. 5.75 crores as income of the assessee. 5. The Assessee challenged the above said addition by filing appeal before Ld. CIT(A). The first appellate authority agreed with the view of the AO that Rule 9A talks about the "areas". He held that "If the argument of the appellant that the sale of TV rights and sale of audio rights should also be considered as selling the rights of exhibition of the film, then the provisions of Rule 9A(3)(a)(b)(c) would become infructuous as the sale of TV rights and audio rights cannot be said to be in relation to the area not covered by (i) as above such rights will overlap with area covered by (i), i.e., where the film producer himself chooses to exhibit film on a commercial basis, as such TV ....
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.... CCH 0628 by ITAT Mumbai Bench to support its arguments. This issue has been discussed by the A.O. in para 4.4 and 4.5 of his order and he has distinguished the facts of the case. It is further noted that the specific provisions contained in rule 9A(7)(ii) of the IT Rules were also not discussed in the said case. So, the decision in the said case cannot be applied to the case under consideration. 4.8 The reliance of the appellant on the decision of Supreme Court in the case of Laxmi Video Theaters Vs. State of Haryana and others AIR 1993 SC 238 is also misplaced as the issue of taxability of income from production of feature film or applicability of rule 9A of the Income Tax Rule was never under consideration. In the said case, the SC held that exhibition of pictures using VCRs/VCP in the video parlours would require the exhibitor to obtain a license in accordance with the provisions of Cinematograph Act 1952. This is for the reason that VCR/VCP were being used for public screening of the films. In the case under consideration, the sale of T.V rights and audio rights in itself do not amount to public screening as the majority of viewership would be confined to homes. Even if the ....
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....to Rule 9A are relevant here and they are extracted below:- "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 reduced by the subsidy received by the film producer under any scheme framed by the Government, where such amount of su....
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.... hence the income has to be computed as per clause (c) of sub-rule (3) of Rule 9A. 11. We have noticed that the tax authorities have given importance to the word "areas" occurring in Rule 9A and accordingly, they have taken the view that the amount realised on exhibition of film on a commercial basis would cover only theatrical release made in various areas. The Ld CIT(A) has accordingly, held that the sale of TV rights would violate the condition of exhibition of films in different areas, i.e., exhibition through TV would violate area restrictions. The Ld CIT(A) has further held that the exhibition of films through positive prints alone would be covered by Rule 9A of I T Rules. 12. In the case of Laxmi video Theatres and Others (supra), question that arose before the Hon'ble Supreme Court was whether exhibition of films through pre-recorded cassette by way of VCR/VCP would be covered by Punjab Cinemas (Regulation) Act, 1952. It was held as under by Hon'ble Supreme Court:- "7. We are in agreement with this view. The definition of the expression 'cinematograph' contained in Section 2(c) of the Cinematograph Act, 1952 and Section 2(a) of the Act is an inclusive definition which i....
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....m to release through theatres, through TV channels and also through OTT platform. Hence, under the changing circumstances, it would not be appropriate to give literal meaning to Rule 9A(3)(c) of the IT Rules, which reads as under:- " the film producer himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas" i.e., it may not be correct to give importance to the word "areas" occurring in the above said provision and hold that there should be clear demarcation of the areas between the producer and distributors. In our considered view, the primary importance should be given to the expression "exhibition of film on a commercial basis". In fact, a careful perusal of the above said provision would show that the film producer can sell the rights of exhibition of film in respect of "all or some of the remaining areas", despite he himself exhibits the film on a commercial basis. The use of word "all" would show that there is no area restriction as observed by Ld CIT(A), i.e., it is the commercial convenience of the parties concerned. Hence the main thrust should be on "exhibition of ....
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....e produced for theatrical release only fell within the ambit of Rule 9A was not tenable. The ld. CIT(A) further held that Rule 9A was applicable where a feature film was exhibited by the producer himself and/or rights of its exhibition were sold, hence, when feature film was exhibited through the medium of television also fell within the ambit of Rule 9A. The ld. CIT(A) also held that the term 'feature film' was nowhere defined in the Income-tax Act and as per general understanding, it was full length film, to be shown in one go, hence, once this film was certified by the Censor Board as a feature film, Rule 9A became applicable. The ld. CIT(A) also held that the exhibition referred to in Rule 9A, did not mean the exhibition of feature film compulsorily in theatres only and once a film was, certified for release by Board of Film Censor in a previous year, cost of production of such film was to be allowed in accordance with the provisions of sub-rule (2) to sub-rule (4) of Rule 9A, hence, the assessee's case was to be examined in accordance with these provisions. Thereafter, the ld. CIT(A) examined the Agreement dated 23-2-1999 entered into by the assessee with M/s. Esse....
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....not meant for theatrical release. Hence, this contention of the assessee does not render any assistance to the cause of the assessee. The assessee has claimed that this film was produced for TV. However, as per commercial practice, films are produced in such a manner only when the producer enters into exclusive arrangement before hand and the cost of production as well as consideration for telecast rights is also settled before hand. However, in the present case, the assessee has entered into assignment agreement with Zee Tele Films on 23-4- 1999 i.e., much after the date of production as well as approval by the Censor Board. Hence, in the absence of any material on record to show contrary, claim of the assessee that this film was produced exclusively for TV is also rejected. From Schedule-II attached to the Assignment Agreement between the assessee and Zee Tele Film, it is noted that the Star Cast is Saif Ali Khan and Twinkle Khanna who at the relevant point of time, were not acting in the TV Serials or films made for TV telecast, hence, this fact also goes against the assessee's claims. It is also noted that the assessee has reduced cost of production of this film by Rs. 125 ....