1986 (3) TMI 24 - HC - Income Tax

Summary

Issues:
1. Proper deductions for amortization claimed for assessment years 1971-72 and 1972-73.
2. Validity of the method of writing off the cost of distribution rights of the film in the year of acquisition.
3. Sustainability and reasonableness of the method of accounting adopted by the assessee.

Analysis:
The High Court of MADRAS addressed multiple issues in this judgment. Firstly, the court considered the proper deductions claimed for amortization for the assessment years 1971-72 and 1972-73. The court noted that the assessee had consistently adopted a method of writing off the cost of acquisition of film distribution rights in the year of acquisition, regardless of the year of release, and valuing the closing stock as "nil." This method had been accepted by the Department until a certain assessment year when a circular by the Board led to a dispute. The Income-tax Officer and the Appellate Assistant Commissioner had differing views on the allowable amortization. However, the Tribunal ultimately upheld the assessee's method, stating that it had been consistently followed and was acceptable for deducing profits and gains. The High Court affirmed this decision, emphasizing that the Income-tax Officer cannot impose his own method if the assessee's method is appropriate for deducing income.

Secondly, the court examined the validity of the method of writing off the cost of distribution rights in the year of acquisition itself. The Revenue argued that a circular by the Board prescribed a specific amortization basis, but the court held that the circular was not statutory and that the Tribunal's finding supported the adequacy of the assessee's method for determining profits. The court also referenced a previous decision where the assessee's accounting method had been approved, further solidifying the validity of the method adopted.

Lastly, the court addressed the sustainability and reasonableness of the accounting method employed by the assessee. It was established that the method consistently used by the assessee was reliable for ascertaining profits, thereby negating the application of section 145 of the Income-tax Act, 1961. Consequently, the court ruled in favor of the assessee on all three issues, requiring the Revenue to bear the costs of the reference. The judgment highlighted the importance of consistency in accounting practices and the authority of the assessee to choose a suitable method for calculating profits.