2015 (10) TMI 17 - AT - Income Tax

Reopening of assessment - pre-received income undisclosed - Held that - As decided in assessee s own case for the assessment year 2008-09 the assessee was bifurcating the trading receipts of one year into five years, thereby shifting the profits of one year into five years which was not a correct method of computing the profits and gains of business. When the assessee had debited the entire cost of acquisition of rights of distribution, exploitation and exhibition of the films to the profit and loss account, there was no reason why the entire amount received by her from the lessees on account of sale of lease rights of the films should not be credited to the profit and loss account in one year. There was no estoppels in these matters and the Assessing Officer was not bound by the incorrect method of accounting followed by the assessee or even accepted by the department in earlier years. The Assessing Officer therefore correctly made addition because the whole amount had accrued to the assessee and received by her in all the accounting years. See Smt. G. Krishnammal. Versus DCIT 1997 (8) TMI 122 - ITAT MADRAS-C - Decided against assessee.

Summary

Issues:
1. Assessment year 2007-08: Treatment of income from sale of film rights.
2. Assessment year 2011-12: Similar treatment of income from sale of film rights.

Assessment year 2007-08:
The appellant, engaged in film studio business, filed a return admitting income of Rs. 2,163. However, the Assessing Officer observed discrepancies in the income declared due to the sale of film rights. The appellant claimed a significant portion of the income as pre-received, not to be taxed in the current year. The Assessing Officer completed the assessment under section 143(3) by determining the total income at Rs. 84,02,649. The appellant appealed to the CIT(A), who upheld the Assessing Officer's decision, emphasizing that the nature of income received must be taxed in the year of receipt. The appellant then appealed to the Tribunal, acknowledging that the issue was against them based on a previous judgment for the assessment year 2008-09.

Assessment year 2011-12:
The appellant's appeal for this assessment year raised similar grounds regarding the treatment of income from the sale of film rights. Citing the decision for the assessment year 2007-08, the Tribunal dismissed the appeal for 2011-12 as well. The Tribunal relied on previous judgments emphasizing that income received from the sale of film rights should be taxed in the year of receipt, regardless of attempts to defer or spread out the income over multiple years. The Tribunal upheld the Assessing Officer's decision to tax the entire receipts during the relevant assessment years.

In both assessment years, the Tribunal affirmed the principle that income arising from the sale of film rights should be taxed in the year of receipt, rejecting the appellant's arguments for deferring or spreading out the income over multiple years. The Tribunal emphasized that the nature of income received determines its taxability, irrespective of the nomenclature used by the appellant. The judgments referred to highlighted that attempts to manipulate the timing of income recognition for tax purposes, such as through agreements or categorizations like "pre-received income," are not acceptable if the income has accrued and been received during the relevant financial year. The Tribunal's decisions were guided by the legal provisions and precedents that prioritize the actual nature and timing of income over attempts to artificially defer or distribute income for tax advantages.