2012 (4) TMI 269 - AT - Income Tax

Disallowance u/s. 40(a)(ia) - TDS u/s 194C or u/s 194J deleted by CIT(A) production of cinematographic films - held that - Fundamentally, there is no difference between production of film for broadcasting and telecasting except that cinemotograph films are exhibited in theatres for viewing by the public. - The payment made by the assessee would fall for consideration only under the provisions of Sec. 194-C of the Act. Since the provisions of Sec.194-C of the Act were not applicable to individuals prior to 1.4.2007, the assessee was under no obligation to deduct tax at source for the period under consideration and therefore no disallowance could be made u/s. 40(a)(ia) of the Act. Addition u/s 41(1) - remission of liability - held that - there is no material on record to show that there was cessation of liability or remission of liabilities and that the assessee derived benefit by such remission or cessation of liabilities. In fact, the facts and record go to show that the liabilities were only one year old. In these circumstances, we are of the view that the addition sustained by the CIT(A) deserves to be deleted. Additional grounds - new claim - CIT(A) rejected the Additional Ground raised by the Appellant - held that - he Hon ble Delhi High court in the case of Jai Parabolic Springs Ltd. (2008 (4) TMI 3 - DELHI HIGH COURT) has taken the view that there is no prohibition on the powers of the Tribunal to entertain any additional ground for a just decision of the case. The Hon ble Delhi High Court distinguished the decision of the Supreme Court in the case of Goetz (India) Ltd. (5171). We, therefore, hold that the CIT(A) ought to have admitted the additional ground for adjudication. Expenditure on production of feature films - Rule 9A - held that - the claim made by the assessee was rightly accepted by the CIT(A). Even if Rule 9A is applied, the assessee was entitled to claim the un-recouped cost of production in terms of Rule 9A(3) of the Rules. This un-recouped cost has been determined at a sum of ₹ 2,93,73,793/- by the AO in the assessment of the firm for asst. year 2004-05 and the same has become final. It is not open to the AO of the assessee to re-determine the cost of production in the assessment of the assessee.

Issues Involved:
1. Disallowance under Section 40(a)(ia) r.w.s. 194J of the Income-tax Act.
2. Addition under Section 41(1) of the Income-tax Act.
3. Rejection of additional ground for allowance of expenditure in respect of TDS paid.
4. Disallowance of un-recouped cost of production brought to tax in the hands of the assessee.

Issue-wise Analysis:

1. Disallowance under Section 40(a)(ia) r.w.s. 194J of the Income-tax Act:

The assessee, engaged in the business of film production, made payments to Bhairav Films without deducting tax at source under Section 194J, arguing that the payments fell under Section 194C. The AO disallowed Rs. 3,67,28,299, treating the payments as fees for technical services under Section 194J. The CIT(A) upheld this view, stating that film production involved technical services. However, the Tribunal found that the payment should be considered under Section 194C, not Section 194J, as per the Delhi High Court's decision in Prasar Bharati's case, which held that production of programs for broadcasting falls under Section 194C. Consequently, since Section 194C was not applicable to individuals before 1.4.2007, the assessee was not obligated to deduct tax at source, and the disallowance under Section 40(a)(ia) was not justified. Additionally, the Tribunal noted that even in cases of short deduction, Section 40(a)(ia) would not apply, as per the Kolkata Bench's decision in S.K. Tekriwal's case.

2. Addition under Section 41(1) of the Income-tax Act:

The AO added Rs. 20,39,066 under Section 41(1), considering certain liabilities outstanding since 1-4-2004 as no longer payable. The CIT(A) partially upheld this addition, but the Tribunal disagreed, stating that Section 41(1) requires cessation or remission of liability, which was not evidenced in this case. The liabilities were only one year old, and there was no material to show cessation or remission. Thus, the Tribunal deleted the addition.

3. Rejection of additional ground for allowance of expenditure in respect of TDS paid:

The assessee claimed a deduction of Rs. 1,14,17,827 under the retrospective amendment to Section 40(a)(ia), which allows TDS payments made before the due date for filing returns. The CIT(A) rejected this claim, citing the Supreme Court's decision in Goetz (India) Ltd., which restricts new claims without a revised return. However, the Tribunal held that the CIT(A) should have admitted the additional ground, as it arose from a retrospective amendment. The Tribunal directed the CIT(A) to consider the claim in accordance with the law.

4. Disallowance of un-recouped cost of production brought to tax in the hands of the assessee:

The AO disallowed Rs. 1,11,26,960 out of Rs. 3,01,53,195, treating certain expenses as post-production costs not covered under Rule 9A. The CIT(A) deleted this disallowance, noting that the un-recouped cost of production had been accepted in the assessment of the firm M/s. Karma Entertainment for AY 04-05. The Tribunal upheld this view, stating that the AO could not re-determine the cost of production in the assessee's assessment. Even if Rule 9A was applied, the un-recouped cost determined in the firm's assessment should be allowed. The Tribunal confirmed the CIT(A)'s order and dismissed the Revenue's appeal.

Conclusion:

The Tribunal allowed the assessee's appeal partly, granting relief on the disallowance under Section 40(a)(ia) and the addition under Section 41(1), and directed the CIT(A) to consider the additional ground for TDS expenditure. The Revenue's appeal was dismissed, upholding the CIT(A)'s deletion of the disallowance of un-recouped cost of production.

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