DCIT 1(3), MUMBAI vs. WARNER BROS,. PICTURES (I) P. LTD, MUMBAI

This appeal by the Revenue is directed against the order of the CIT (Appeals)-2, Mumbai dt. 12/03/2014 for Asst. Year 2009-10.

2.1 The assessee, engaged in the import, duplication, distribution of foreign cinematographs and video films, activities for purchase and distribution of Indian films and business activities of trading in capacitors and investment in shares and securities, filed its return of income for Asst. Year 2009-10 on 29/09/2009 declaring total loss of Rs. 32,55,43,367/-. The return was processed u/s 143(1) of the Income Tax Act, 1961 (in short ‘the Act’) and the case was subsequently taken up for scrutiny. The assessment was completed u/s 143(3) of the Act vide order dt. 27/12/2011, determining the loss at Rs. 30,72,93,447/-, in view of inter alia , disallowance of Rs. 1,82,49,920/-, on account write off of expenses on account of purchase of film script, holding the same to be capital expenditure.

2.2 Aggrieved by the order of assessment for Asst. year 2009-10 dt. 27/12/2011, the assessee preferred an appeal before the CIT (Appeals)-2, Mumbai. The Ld. CIT(A) allowed the assessee’s appeal vide the impugned order dt. 12/03/2014, on the sole issue of write off of advance of Rs. 1,82,49,920/- for purchase of a film script, following the decision of the co-ordinate bench of this Tribunal in the case of Mukta Arts Pvt. Ltd in dt. 02/05/2001 and the decision of the Hon’ble Madras High Court in the case of B. Nagi Reddy (199 ITR 451)(Mad) holding that the expenditure incurred by the assessee in this regard was revenue expenditure and also in view of Rule 9A of IT Rules,1962.

3.1 Revenue, being aggrieved by the order of the CIT(A)-2, Mumbai dt. 12/03/2014 for Asst. year 2009-10 has preferred this appeal raising the following grounds:- “Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in holding that the expenditure of Rs. 1,82,49,920/- incurred by the assessee as advance paid for the purchase of a film script for the production of a feature film was revenue expenditure?”

The Ld. DR for revenue was heard in support of the grounds raised (supra) and placed strong where on the decision of the Assessing Officer (AO) on this issue.

3.2 Per Contra, the Ld. AR for the assessee supported the order of the Ld. CIT(A) and prayed for the decision therein to be upheld. Before us, the Ld. AR submitted that the issue in question, i.e. whether the expenditure incurred on advance paid /cost incurred for purchase of film script of an abandoned film written off is allowable as a revenue expenditure, is covered in favour of the assessee by the order of the Hon’ble Bombay High Court in the case of M/s. Venus Records and Tapes (P) Ltd, in of 2013 dt. 28/01/2015 and CBDT Circular No. 16/2015 dt. 06/10/2015 accepting the said decision.

3.3.1 We have heard the rival contention and have perused and carefully considered the material on record, including the judicial decisions, etc. cited. The issue for consideration and adjudication before us is whether, in the facts and circumstances of the case and in the light of judicial pronouncements in this regard, the write off of expenditure of Rs. 1,89,49,920/- incurred on account of advance for purchase of a film script for production of an abandoned film was allowable as revenue expenditure.

3.3.2 We find that a similar issue was before the Hon’ble High Court of Bombay in the case of M/s Venus Records and Tapes Pvt. Ltd. in dt. 28/01/2015, where the question for consideration was whether the cost of the abandoned film written off was revenue expenditure. The Hon’ble Court dismissed revenue’s appeal in that case and held in favour of the assessee that the cost of the abandoned film written off was revenue expenditure. In coming to this finding, the Hon’ble Court followed its own decisions rendered in CIT vs. Rajesh Khanna (ITA No. 3875/2010 dt. 14/09/2011) and CIT vs. Dream Merchant Enterprises (ITA No. 4343 & 4252 of 2010 dt. 20/09/2011).

3.3.3 The Ld. AR has also placed before the Bench a copy of CBDT Circular No. 16/2015 dy. 06/10/2015 ( F No. 279/Misc./140/2015- ITJ, wherein, consequent to the decision of the Hon’ble Bombay High Court in Venus Records and Tapes P. Ltd.(supra), it has been clarified that Rule 9A of the IT Rule, 1962 is not applicable in the case of abandoned feature films. The same is extracted hereunder:-

Circular No. 16/2015

F.No.279/Misc/140/2015-ITJ Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes ******

New Delhi, 6th October, 2015 Subject: - Non-applicability of Rule 9A of the income Tax Rules 1962 in the case of Abandoned Feature Films- 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 is provided in Rule 9A of Income Tax Rules, 1962.

2. In the case of abandoned films, however, since certificate of Board of Film Censors is not received, in some cases no deduction was allowed by applying Rule 9A of the Rules or by treating the expenditure as capital expenditure.

Consequently, it is clarified that Rule 9A does not apply to abandoned feature films and that the expenditure incurred on such abandoned feature films is not to be treated as a capital expenditure. The cost of production of an abandoned feature film, is to be treated as revenue expenditure and allowed as per the provisions of Section 37 of the Income- tax Act.