1980 (12) TMI 75 - AT - Income Tax

Summary

Issues:
1. Whether the assessee is entitled to deduction for the expenditure incurred on acquiring rights for distributing motion pictures in its assessment for 1973-74.
2. Whether the deduction should be allowed in accordance with rule 9B.
3. Whether the assessee exercised the option under rule 9B.
4. Whether the CIT(A) was right in allowing unamortized expenditure in respect of certain films.

Analysis:
1. The appeal concerned the assessment of the assessee for 1973-74 and the allowance of unamortized expenditure for certain films. The key issue was whether the assessee, a firm engaged in the distribution of motion pictures, should be entitled to deduction for the expenditure on acquiring distribution rights for the films 'Bawarchi', 'Jai Jawan Jai Makkan', and 'Shehzada' in the assessment year. The primary question was whether the deduction should be allowed as per rule 9B, as determined by the Income Tax Officer (ITO).

2. Rule 9B, relevant to the case, was framed on December 30, 1976, after the ITO had made the assessment on March 23, 1976, based on CBDT instructions from December 5, 1974. The CIT(A) later directed that the cost of film acquisition be allowed in line with rule 9B, even though the rule was framed after the assessment. The provisions of rule 9B(7)(a)(ii) specified conditions for applying the rule, including the requirement for the film distributor to exercise an option by furnishing a declaration in writing to the Tribunal or Commissioner.

3. The Department contended that the assessee had not exercised the option under rule 9B. However, the representative for the assessee argued that there was substantial compliance with the requirement, citing a Bombay High Court decision emphasizing substantial compliance over strict literal adherence to the law. The representative asserted that the assessee had indeed exercised the option, which would be final for the assessment year 1973-74 and subsequent years. The Tribunal agreed with the representative's argument, finding merit in the contention and chose not to interfere with the CIT(A)'s directions based on different grounds.

4. Ultimately, the Tribunal dismissed the appeal, affirming the CIT(A)'s decision to allow the unamortized expenditure for the films in question. The Tribunal's decision was based on the representation that the assessee had exercised the option under rule 9B, as argued by the assessee's representative, despite the Department's assertion to the contrary.