GEEVA FILMS Vs. INCOME TAX OFFICER
INCOME TAX APPELLATE TRIBUNAL
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G. Santhanam, Accountant Member -
(1.) THIS is an appeal by the assessee which is a firm consisting of two partners with previous year ending on 31-12-1984 relevant to the assessment year 1985-86. The appellant claimed a deduction of Rs. 14,96,000 as amortisation in respect of the film 'Arande Mulla Kochu Mulla'. The assessee has stated that it had entered into an agreement with M/s. Gajaraja Films, Trippunithara on 1-10-1984 for acquiring the distribution rights of the film by way of perpetual lease for a period of 99 years for a consideration of Rs. 14,96,000 and therefore the entire cost has to be amortised and allowed as deduction. The Assessing Officer went into the agreement dated 1-10 1984 and noticed that the assessee was required to pay only a sum of Rs. 6,95,799 at the time of granting the distribution rights and the balance amounts are to be paid in four instalments on the dates specified in the agreement. He also noticed that the film was released in Kerala on 31-8-1984 and the assessee had exhibited the film from 1-10-1984, i.e., more than 90 days prior to the close of the accounting year. Against this background, the Income-tax Officer looked into the provisions of rule 9B of the Income-tax Rules, which govern the deduction of amortisation of the cost of acquisition of distribution rights of the films. According to him rule 9B(2) provided that if the film is released at least 90 days before the end of the previous year, the entire cost of exhibition of the film is to be allowed as deduction but Explanation to sub rule (1) of rule 9B defined the cost of acquisition as the amount paid by the film distributor to the film producer. Therefore he held that only the amount paid can be considered as cost of acquisition. As only a sum of Rs. 8,45,799 was paid during the year, he held that that alone can be taken as cost of acquisition for purpose of deduction. The balance amount was disallowed. The assessee appealed without success and is in further appeal.
(2.) We have heard rival submissions and perused the records. The issue before us is in a short compass and relates to the meaning of the expression 'paid' as occurring in Explanation to Sub-rule (1) of rule 9B of the Income-tax Rules. Section 43(2) defines the expression 'paid' as follows :
'paid' means actually paid or incurred according to the method of accounting upon the basis of which the profits or gains are computed under the head 'Profits and gains of business or profession'.
Therefore, the expression 'paid' as occurring in Explanationto Sub-rule (1) of rule 9B of the Income-tax Rules should take its colour and meaning from the definition of the said expression as found in Section 43(2) of the Income-tax Act. Admittedly the assessee is following the mercantile system of accounting on which there is no dispute before us. The liability to pay the impugned amount of Rs. 14,96,000 arise under an agreement dated 1-10-1984. Some of the clauses relevant are as follows: In the recital it has been stated that all the entire right, title and interest including the world negative rights of the picture "Aarante Mulla Kochu Mulla" by way of perpetual lease for a period of 99 years from the date of the agreement was to be given for a consideration of Rs. 14,96,000.
Clause 2 of the agreement is as follows :
In consideration of the Lessors granting the Lessees the aforesaid rights, the Lessees agreed to pay to the Lessors consolidated consideration of Rs. 14,96,000 (Rupees Fourteen lakhs ninety-six thousand only) to be paid in the following manner :
1. A sum of Rs. 6,95,798.71 (Rupees Six lakhs ninety-five thousand seven hundred ninety-eight and paise seventy-one only) to be paid to M/s. Central Pictures, against the balance due to M/s. Central Pictures, Anand Theatre Buildings, Kottayam, in the account of granting the distribution rights of the picture in the territory of Kerala on commission basis to them as per the agreement dated 25-5-1984 between M/s. Central Pictures and the Lessors.
2. Rs. 1,00,000 (Rupees One lakh only) on or before 12-12-1984;
Rs. 50,000 (Rupees Fifty thousand only) on or before 21-12-1984;
(3.) RS. 1,00,000 (Rupees One lakh only) on or before 282-1985;;
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