2003 (1) TMI 64 - HC - Income Tax

(i) Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the Income-tax Officer was wrong in valuing closing stock in respect of the film Anpadh applying the provisions of sub-rules (3) and (11) of rule 9A of the Income-tax rules, rejecting the assessee s valuation based upon realisation in the market ? - (ii) Whether, on the facts and circumstances of the case, the Tribunal was right in deleting the disallowance of Rs. 57,587, the amount spent for publicity expenses, holding that the business of film production is and industrial undertaking falling under section 37(3D) ? - we answer question No. 1 in the negative, i.e., in favour of the Department and against the assessee. Question No. 2 is answered in the affirmative, i.e., in favour of the assessee and against the Department.

Summary

Issues:
1. Valuation of closing stock under rule 9A of the Income-tax Act, 1961.
2. Disallowance of publicity expenses under section 37(3D) for film production business.

Valuation of Closing Stock (Issue 1):
The case involved the valuation of closing stock of a movie produced by the assessee for the assessment year 1979-80. The Income-tax Officer valued the closing stock at Rs. 4,48,279 under rule 9A(5), which the Commissioner of Income-tax (Appeals) confirmed. The Tribunal, however, allowed the appeal, directing the value of the closing stock to be taken at Rs. 1.45 lakhs. The Tribunal reasoned that the Income-tax Officer had discretion under rule 9A(6) to adopt an appropriate method for writing off the cost of production, especially when it was not feasible to strictly apply the table in rule 9A. The Tribunal opined that the producer was not obligated to write off the cost as per the table if there were valid reasons for not selling distribution rights in certain territories. The court analyzed rule 9A provisions, emphasizing that the cost of production is deductible only if the movie is exhibited or sold, and the producer must credit the sale proceeds in the accounts to claim deduction. The court found that the Income-tax Officer was justified in allowing the write-off at Rs. 4,48,279 as per rule 9A, as the total realisation declared by the assessee was sufficient to apply the table for valuation.

Disallowance of Publicity Expenses (Issue 2):
The second issue revolved around the disallowance of Rs. 57,587 spent on publicity expenses for the film production business. The Tribunal had deleted this disallowance, considering film production as an industrial undertaking falling under section 37(3D). The court upheld the Tribunal's decision citing a previous judgment in Filmyug Pvt. Ltd. v. CIT, where it was established that film production qualifies as an industrial undertaking under section 37(3D). Therefore, the court answered question No. 2 in favor of the assessee and against the Department based on the precedent set by the earlier judgment. The reference was disposed of accordingly, with no order as to costs.

In conclusion, the High Court of BOMBAY addressed the issues of the valuation of closing stock and the disallowance of publicity expenses in the context of film production business under the Income-tax Act, 1961. The judgment provided a detailed analysis of the relevant rules and legal provisions to determine the correct application of deductions and allowances in the given circumstances, ultimately ruling in favor of the Department on the valuation of closing stock and in favor of the assessee regarding the treatment of publicity expenses.