MALAYALA MANORAMA CO.LTD. vs. ASST.COMMISSIONER OF INCOME TAX, KTM

ITA/80/2010HC KeralaKLHC01026772201026 June 2018Author: HONOURABLE MR.JUSTICE K.VINOD CHANDRAN,HONOURABLE MR. JUSTICE ASHOK MENON9 pages
AI SummaryDismissed

What were the facts?

The assessee, Malayala Manorama Co. Ltd., is in appeal before the High Court of Kerala against an order of the Income Tax Appellate Tribunal (ITAT), Cochin Bench. The assessment year in question is 2005-06. The dispute concerns the assessee's claim for deduction of expenditure incurred in the financial year 2003-04 for the acquisition of satellite distribution rights for three Malayalam films. The Assessing Officer rejected this claim, and the Commissioner of Income Tax (Appeals) upheld the rejection. The ITAT also dismissed the assessee's appeal, leading to the present High Court appeal.

What did the High Court hold?

The High Court held that the deduction under Rule 9B is permissible only if the film has been commercially exploited and income has been received and credited to the books of account. Rule 9B(5), which starts with a non-obstante clause, mandates that deduction shall not be allowed unless amounts realized by exhibiting the film are credited in the profit and loss account. Sub-rule (4) permits carrying forward the cost of acquisition, but this deduction can only be claimed if there is income generated by the film and credited to the accounts as per Rule 9B(5). Since it was an admitted case that the feature films were never exhibited and generated no income, the claim for deduction fails. The Court respectfully agreed with the Bombay High Court's decision in CIT v. Prakash Pictures, which held that deduction is admissible only qua receipts credited in the profit and loss account. Therefore, the orders of the lower authorities and the Tribunal were upheld. The questions of law were answered in favour of the Revenue and against the assessee.

What were the issues?

1. Whether the Hon'ble Tribunal was right in law and on facts in finding that Rule 9B(4) of the Income Tax Rules, 1962, does not entitle the appellant to claim a deduction in respect of the expenditure on the acquisition of distribution rights of feature films during the previous year relevant to assessment year 2005-06? 2. Whether the Tribunal ought to have found that as per the express provision of Rule 9B(4), in cases where there was no exhibition or sale of rights during the previous year of acquisition or the next following year, the deduction should be granted in the previous year next following the year of acquisition? 3. Whether the Hon'ble Tribunal was right in law and on facts in upholding the orders which held that Rule 9B(5) has an overriding effect over Rule 9B(4), especially when they operate in separate fields and are not contrary? Assessee's Contentions: The assessee argued that under Rule 9B(4), the cost of acquisition made in 2003-04 should be carried forward and allowed as a deduction in the subsequent year (2004-05) because the film was not commercially exploited in the year of acquisition. They contended that the non-obstante clause in Rule 9B(5) does not apply to situations covered by Rule 9B(4) and that Rule 9B(5) only restricts deduction when there is realization of income. Revenue's Contentions: The Revenue contended that the non-obstante clause in Rule 9B(5) operates to avoid the effect of all contrary provisions, implying that deduction is only permissible if income is generated and credited to the books of account.

Which sections of the Income-tax Act were involved?

Rule 9B(4), Rule 9B(5)

AI-generated summary — verify with the full judgment below

C.R. IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN & THE HONOURABLE MR. JUSTICE ASHOK MENON TUE AY, THE 26TH DAY OF JUNE 2018 / 5TH ASHADHA, 1940 ------------------- AGAINST THE ORDER/JUDGMENT IN ITA 17/COCH/2009 of I.T.A.TRIBUNAL, COCHIN BENCH APPELLANT(S)/APPELLANT: ----------------------- MALAYALA MANORAMA CO.LTD., K.K.ROAD, KOTTAYAM. BY ADVS.SRI.E.K.NANDAKUMAR SRI.P.BENNY THOMAS SRI.P.GOPINATH SRI.K.JOHN MATHAI SRI.RAJA KANNAN RESPONDENT(S): ------------- ASST.COMMISSIONR OF INCOME TAX, CIRCLE-1, KOTTAYAM. R, BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) R, BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 25-05-2018, THE COURT ON 26-06-2018 DELIVERED THE FOLLOWING:

------------------- APPENDIX APPELLANT(S)' ANNEXURES: ----------------------- ANNEXURE A: COPY OF THE ASSESSMENT ORDER DATED 21-12-2007. ANNEXURE B: COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) DATED 22-10-2008. ANNEXURE C: COPY OF THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, COCHIN B

The order continues below.

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