2005 (1) TMI 606 - AT - Income Tax

Summary

Issues Involved:
1. Justification of addition of Rs. 4,75,00,000 as income for the year.
2. Taxation of gross amount without deducting relevant costs.
3. Levy of interest under section 234B.

Issue-Wise Detailed Analysis:

1. Justification of Addition of Rs. 4,75,00,000 as Income for the Year:
The primary issue was whether Rs. 4,75,00,000 received by the assessee from the sale of music rights of the film "Ek Rishta" should be taxed in the assessment year 2001-02. The assessee contended that the amount should be taxed in the next year when the film was completed and released. The Assessing Officer (AO) argued that the amount was due and received during the relevant year, thus taxable in that year. The Tribunal noted the following key points:
- The agreement stipulated payments of Rs. 3,00,00,000 on signing, Rs. 1,00,00,000 on shooting/progress, and Rs. 75,00,000 on delivery of the master tape.
- The entire sum of Rs. 4,75,00,000 was received during the relevant year.
- The assessee followed the mercantile system of accounting, obliging him to show income when it became due and enforceable.
- Rule 9A of the Income-tax Rules, which deals with the deduction of expenditure on the production of feature films, does not apply to the sale of music rights.
- The Tribunal concluded that the income from the sale of music rights accrued and was received during the relevant year, making it taxable in that year.

2. Taxation of Gross Amount Without Deducting Relevant Costs:
The assessee argued that taxing the gross amount of Rs. 4,75,00,000 without deducting relevant costs was unfair. The Department contended that the music rights, being a by-product of the feature film, had no separate element of cost over the production cost of the feature film, which was allowable under Rule 9A. The Tribunal agreed that:
- Music in a film is a by-product capable of independent transfer and commercial exploitation.
- The same expenditure cannot be deducted twice: once as expenditure on music production and again as part of the feature film's production cost.
- The income from the sale of music rights should not be taxed twice.
- The Tribunal set aside the orders of the lower authorities and remanded the matter to the AO to ensure that the same income is not taxed twice and that the corresponding expenditure is allowed once.

3. Levy of Interest Under Section 234B:
The assessee challenged the levy of interest under section 234B. The Tribunal noted that the levy of interest under this section is mandatory and automatic, following the operation of law as held in CIT v. Anjum M.H. Ghaswala. Since the Tribunal had set aside the orders of the lower authorities and remanded the matter for fresh assessment, the issue of interest levy was consequential. The AO was directed to levy interest on the income assessed as a result of the fresh assessment.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to ensure that the income from the sale of music rights is not taxed twice and that the corresponding expenditure is allowed once. The levy of interest under section 234B was to follow the fresh assessment.