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Issues Involved:
1. Whether the entire amount of Rs. 2,25,000 or only Rs. 18,265 incurred by the assessee towards publicity expenses is allowable as a deduction for the assessment year 1968-69. Issue-wise Detailed Analysis: 1. Deductibility of Publicity Expenses: The primary issue revolves around the interpretation of the agreement dated December 25, 1965, and whether the entire amount of Rs. 2,25,000 sanctioned for publicity expenses by the producer should be allowed as a deduction in the assessment year 1968-69 or only the amount actually spent, which was Rs. 18,265. The assessee, a film distributor, entered into an agreement with the producer for the distribution of the film "Phool aur Patthar" in the Bengal Circuit for ten years. Under the agreement, the assessee was obligated to spend Rs. 2,25,000 on pre-release, release, and post-release publicity and theatre decoration. Tribunal's Decision: The Tribunal held that the entire amount of Rs. 2,25,000 should be allowed as a deduction. It relied on the Supreme Court's decision in Calcutta Co. Ltd. v. CIT [1959] 37 ITR 1, which stated that "profits and gains" must be understood in a commercial sense, and there could be no computation of profits until the necessary expenditure for earning the receipts was deducted. The Tribunal concluded that since the liability for the publicity expenses had accrued, the entire amount should be deductible. High Court's Analysis: The High Court disagreed with the Tribunal's decision. It emphasized that the relevant assessment year was 1968-69, and the agreement was signed on December 25, 1965, falling within the previous year ending on June 30, 1966. Therefore, if a definite liability for Rs. 2,25,000 had arisen upon signing the agreement, it should have been claimed as a deduction in the assessment year 1967-68, not 1968-69. The Court noted that the assessee was obligated to spend Rs. 2,25,000 over a period of ten years, not just in the year of the film's release. The actual expenditure incurred during the relevant previous year was only Rs. 18,265, which was allowed by the Income-tax Officer. The Court emphasized that a definite financial commitment must be made by the assessee, such as placing orders for advertisements, to claim the deduction on an accrual basis. The Court also highlighted that the agreement provided for recoupment of the publicity expenses from the film's proceeds. Therefore, the assessee had a right to recover the expenditure, and it could not be considered an immediate liability. Calcutta Co. Ltd. v. CIT Distinction: The High Court distinguished the present case from Calcutta Co. Ltd. v. CIT. In Calcutta Co., the assessee had shown the entire amount of profits receivable and debited the estimated expenditure from these profits. In contrast, the assessee in the present case did not offer the entire amount receivable under the contract as its profits and sought to deduct the entire expenditure without showing the entire accrued income. Conclusion: The High Court concluded that the assessee could not claim the entire amount of Rs. 2,25,000 as a deduction in the assessment year 1968-69. The deduction must be based on actual expenditure incurred, and the assessee had only incurred Rs. 18,265 during the relevant previous year. Therefore, the question referred by the Tribunal was answered in the negative and against the assessee. There was no order as to costs, and the judgment was concurred by both judges.
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