1990 (7) TMI 196 - AT - Income Tax

Summary

Issues Involved:

1. Deduction of cost of production of feature film under Rule 9A.
2. Disallowance of selling commission.
3. Treatment of subsidy received from the Orissa Government.

Issue-wise Detailed Analysis:

1. Deduction of Cost of Production of Feature Film under Rule 9A:

The appeals pertain to the assessment year 1986-87, involving the application of Rule 9A of the Income Tax Rules, 1962. The CIT(A) held that sub-rule (7) of Rule 9A applied, thus disallowing the deduction of the cost of production of the feature film for the year and directing it to be carried forward to the next year. The assessee argued that sub-rule 6(b) of Rule 9A should apply, allowing the ITO discretion in deduction due to impracticality of applying the rule under the given circumstances. However, the CIT(A) upheld the disallowance, stating that sub-rule (7) was applicable since the film was not commercially exploited. The Tribunal concluded that Rule 9A was applicable, specifically sub-rule (7), as the film was not exploited commercially, thus supporting the CIT(A)'s decision. The Tribunal rejected the assessee's contention that sub-rule 9(c) should apply, as there were no exceptional circumstances making it impracticable to apply Rule 9A.

2. Disallowance of Selling Commission:

The assessee claimed a selling commission paid to M/s. Super Products Manufacturing Co. Pvt. Ltd., which was disallowed by the Assessing Officer under section 40A(2) of the Income Tax Act, 1961, due to lack of evidence of services rendered and the relationship between the assessee and the company. The CIT(A) upheld this disallowance, agreeing with the Assessing Officer's findings. The Tribunal noted that the evidence of services rendered by the agency company was neither established by the assessee nor disproved by the Assessing Officer. The Tribunal found that the affidavits and other evidence provided by the assessee were not considered by the authorities and thus remanded the issue back to the Assessing Officer for fresh consideration and adjudication in accordance with the law.

3. Treatment of Subsidy Received from the Orissa Government:

The assessee received a subsidy of Rs. 35,725 from the Orissa Government, which was adjusted against the cost of production of the feature film. The CIT(A) held that since the assessee had claimed only the net expenditure after adjusting the subsidy, there was no question of further allowing the subsidy as a deduction. The Tribunal agreed with the CIT(A), stating that the subsidy reduced the cost of production and thus the net amount was correctly claimed as a deduction. The Tribunal upheld the CIT(A)'s decision on this point, concluding that the subsidy was correctly treated as a reduction in the cost of production and not as a separate capital receipt.

Conclusion:

The Tribunal partly allowed the assessee's appeal for statistical purposes by remanding the issue of selling commission back to the Assessing Officer for fresh consideration. The revenue's appeal was dismissed, with directions to ascertain the actual cost of production and admissibility of expenses when considering the deduction in the subsequent year as per sub-rule (7) of Rule 9A. The decisions on the application of Rule 9A and the treatment of the subsidy were upheld in favor of the revenue.