TaxTMI 
TaxTMI 
1974 (7) TMI 30
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....ng movie films. In August, 1955, it purchased the processing and printing laboratory known as "Film Centre" from M/s. Patel India Ltd. Three months later, by an agreement dated 1st of November, 1955, the assessee-company purchased the film "Pomposh" from M/s. Patel India Ltd. for a sum of Rs. 60,000 the value of which was shown in the account books of the year at Rs. 72,000 by the vendor. It appears that the first gevacolour film "Pomposh" was purchased in 1953 by M/s. Films of India, a proprietary concern of Mr. I. A. Patel. It was released for exhibition through M/s. Patel India Ltd. who had purchased it for a sum of Rs. 1,90,000. It appears that the assessee-company had distributed the above picture on the basis of 15% commission. It further appears that during the period between November, 1955, and March, 1956, the gross collections realised from the exhibition of the picture amounted to Rs. 1,169. in other words, the picture was a flop. For the assessment year 1956-57, the assessee-company claimed Rs. 15,000 as amortization cost. That claim was disallowed by the Income-tax Officer as he doubted the bona fides of the assessee-company in purchasing the film. The Income-tax Offic....
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....n also could not be allowed because the picture was not a stock-in-trade. When the matter was carried to the Tribunal in second appeal, the Tribunal accepted the department's contention that the assessee-company did not carry on business of film exhibition, that it did not purchase the film "PomPosh" for business purpose and that the film was not its stock-in-trade. In this view of the matter the Tribunal upheld the disallowance of the claim for amortization. 4. However, an alternative claim was put forward on behalf of the assessee-company before the Tribunal. It was contended that the film was purchased to serve as a model colour film and for the purpose of showing to its customers the way in which colour processing was done and that the picture, though not exhibited by the assessee-company as a film exhibitor, was exhibited to its customers who had come to it for colour processing and as such the expenses incurred for acquiring the said film should be allowed as business expenditure. This alternative claim was opposed on behalf of the revenue by contending that if the assessee-company really wanted to exhibit a colour film for the purpose of attracting more customers inte....
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....not be in the nature of capital expenditure. He, therefore, contended that since the acquisition of the film, "Pomposh", was an acquisition of a capital asset with the help of which the assessee-company was going to carry on its future business, the expenditure incurred should be regarded as in the nature of capital expenditure and, therefore, not a permissible deduction under section 10(2)(xv) of the Act. 6. On the other hand, Mr. Kolah, appearing for the assessee-company, has urged before us that the Tribunal had found as a fact that the assessee-company had purchased the colour laboratory in question from M/s. Patel India Ltd. as also the film, "Pomposh", which was the first gevacolour film processed by M/s. Patel India Ltd. in that laboratory, and that the said film has been purchased by the assessee-company to serve as a model for exhibition to its customers by way of advertisement, that is to say, it had been purchased to prove to its customers by showing the same to them that by use of the same machinery and laboratory, colour films of that type and mark could be produced. He, therefore, urged that since the film had been acquired by the assessee-company for advertisement....
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....ee-company had purchased the processing and printing laboratory known as Film Centre from M/s. Patel India Ltd. It is also not in dispute that about three months later, that is to say, three months after the acquisition of the Film Centre laboratory, by an agreement dated 1st November, 1955, the assessee-company had purchased the film, "Pomposh", from M/s. Patel India Ltd. for sum of Rs. 60,000. Admittedly, the film, "Pomposh", was not purchased by the assessee-company for doing any business of exhibiting that film in the sense in which exhibition of a film is normally understood. It was purchased by the assessee-company for the purpose of advertisement in order to attract future customers for its business of doing colour processing work at the Film Centre laboratory. In our view, it cannot be disputed that even for advertisement purpose assets can be acquired by incurring expenditure in that behalf and, in the instant case, the film, "Pomposh", will have to be regarded as having been acquired as a capital asset by the assessee-company by incurring expenditure of Rs. 60,000 in that behalf. The asset, viz., the film, "Pomposh", could not be said to have been acquired as an asset in ....