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TMI Blog1991 (4) TMI 175X X X X Extracts X X X X X X X X Extracts X X X X ..... and one jeep 3,68,875 Expenses for fuel and petrol separately debited 5,010 Car repairs expenses separately debited 39,064 . 7,18,241 3. According to the ITO the total expenditure covered by the provisions of s. 37(3A), thus, came to Rs. 19,60,584. From out of the total expenditure, he singled out part of the expenditure for separate disallowance and then quantified the amount to be disallowed under s. 37(3A). The computation is as follows: . . Rs. Total items covered by provisions of s. 37(3A) . 19,60,584 Less: Portion of expenses separately disallowed: . . Fuel Petrol 1,273 . Car repairs 9,766 . Car repairs debited under produce expenses 46,109 . . 57,148 57,148 Less: Basic deduction . 19,03,436 Balance . 1,00,000 Disallowance at 20 per cent . 18,03,436 . . 3,60,687 As a result, the assessee suffered a disallowance of Rs. 3,60,687 as against the admitted amount of Rs. 2,28,468. Aggrieved, the assessee appealed. 4. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m because of two reasons. Cost of production of a feature film has been explained in r. 9A as follows: Explanation to r. 9A(1) is as follows: (i)............... (ii) "cost of production" in relation to a feature film, means the expenditure incurred on the production of the film, not being— (a) the expenditure incurred for the preparation of the positive prints of the film; and (b) the expenditure incurred in connection with the advertisement of the film after it is certified for release by the Board of Film Censors." The first reason is that the expenditure upto the stage of production of negative film is capital in nature. A negative film is one which is initially produced from out of which a number of positive films can be copied. It is the positive film that are exhibited and not the negative ones. Thus, the negative films partake of the nature of the mould or the castings as it were and, hence, the expenditure on the production of negative films can be classified only as capital expenditure. The second reason is that specific rules have been prescribed for deduction of expenditure on production of feature films. 8. Relevant rules for deduction of expenditur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly go into the trading account. It remains in the balance sheet subject to adjustment on account of depreciation (or amortization if one prefers that word) if any provided for. So far as the accounting part was concerned, it was common ground in the present case that the assessee had never brought what he produced, i.e., the negative, into the trading account as stock-in-trade. On the contrary, it was shown as work-in-progress (in the course of production) and on completion was shown as an asset in the balance sheet. Of course, though this fact was relevant, it might not be conclusive one way or the other. One had, therefore, to see how the assessee had dealt with this asset. There was substance in the assessee's claim that the asset in question, viz., the negative, had been all along treated by the assessee as his capital asset. He never parted with it. He entered into an agreement with a distributor for the distribution rights, the consideration being a share of the profits on commercial exploitation of the prints taken out from the negative. The value of the negative was never brought into the trading account and had been shown in the balance sheet as an asset. It may not be val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The next point at issue is whether the studio and the mobile outdoor unit bus constituted plants in the hands of the assessee on which the assessee is entitled to higher depreciation. Studio was treated as a building and the rate of depreciation applicable to the building was granted. 16. Shri Srinivasan contended that the studio is not a setting in which the business of the assessee is carried out. The assessee is a film producer and both the studio and the outdoor unit bus are plants in his hands. He relied on the following decisions: 1. CIT vs. Indian Metal Metallurgical Corpn. (1990) 182 ITR 460 (Mad) 2. Scientific Engineering House Pvt. Ltd. vs. CIT (1986) 157 ITR 86 (SC) 3. CIT vs. Coromandel Fertilisers Ltd. (1985) 156 ITR 283 (AP) 4. CIT vs. Oil India Ltd. (1983) 30 CTR (Cal) 85 : (1983) 143 ITR 848 (Cal) 5. Orissa Minerals Development Co. Ltd. vs. CIT (1979) 117 ITR 434 (Cal) 6. CIT vs. Elecon Engineering Co. Ltd. (1974) 96 ITR 672 (Guj) 7. Patel Enterprises vs. ITO (1986) 15 ITD 114 (Ahd) (TM) 8. V.N. Sarpotdar vs. ITO 9. Indian Hotels Co. Ltd. vs. IAC (1989) 34 TTJ (Bom) 526 10. Payal Theatre vs. ITO (1986) 26 TTJ (Jp) 273 11. Gar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e floor can be removed to yield cellars. The walls are made up of plywood, cardboard and canvass so that they can easily be removed and replaced for the movement of the trolley cameras in different scenes. The main floor contains asbestos roofing. In the floor itself at the time of visit we saw a cave made of bamboos mats. There are railings hanging from the roof and there are platforms also below the roof to enable the "Light boys" to move about and choose lines so that the picture comes out with proper lighting. Serpent shrines made of clay and caves made of bamboos mats and artificial cobwebs have also been designed. At the time of the visit the platforms were also artificially designed in such a manner that floor was converted into a cave shrine, etc., for a scene in a picture "Kadathanadan Ambadi". This is a picture which Mr. Appachan has to work on to complete the same and release it on the directions of the Supreme Court. The walls have the canvass on which colour is sprayed to create a sky scene or the horizon and it is even stated that in this floor the effect of a large sea could be made out. In a television serial on the Holy Bible which is being produced by Mr. Appachan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scenes, lodges, hotels, etc. The first floor of the building and the adjacent pucca building, in our opinion, cannot be considered as tools in the hands of the business. They are only buildings providing accommodation unlike the main floor. 20. The total written down cost of the building comes to Rs. 14,05,859 with the additions made in this year for the separate building in a sum of Rs. 3,99,608. From the accounts, it is not possible to bifurcate the cost of the main floor and the cost of other buildings because the assessee had debited all the expenditure in one account. Therefore, in the absence of details, a reasonable estimate would be necessary. Even if the matter is restored to the ITO to ascertain the cost of the main floor and other part of the building it has to be made only on an estimated basis. Therefore, no useful purpose will be served in remitting the issue. The first floor and annexe building which is treated as a building alongwith staircase consists of an area of about 2,800 sq. ft. (67x30+50x30—area of movable set). The main floor consists of about 12,000 sq ft. The first floor and other parts are pucca constructions. The sum of Rs. 3 lakhs and odd which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or vehicle. May be it is having special fittings. Though it is a plant, investment allowance is not available on motor vehicles. The ITO has already allowed 30 per cent depreciation on the same though it has been classified under the head Movie Lens. This requires verification. If the item refers to mini bus, it is entitled to 30 per cent depreciation which was already allowed by the ITO. This leads us to consider whether the assessee is entitled to the same rate of depreciation on the air-conditioners and the generators fitted in the bus. In CIT vs. Smt. Urmila Goyal (1986) 52 CTR (Del) 276 the question was whether depreciation on air-conditioner fixed in a bus was allowable at the rate applicable to the bus instead of the rate applicable to the air-conditioners when separate rate of depreciation had been provided for motor vehicles and air-conditioning plant respectively. The Delhi High Court answered the question in favour of the assessee holding that so long as the parts form part of the motor bus they are to be depreciated at the same rate as motor bus. 25. Shri Menon vehemently contended that the case before the Delhi High Court was that of a transport bus which earned inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is reproduction. Therefore, the assessee is entitled to extra shift allowance. 29. Shri Menon, on the other hand, contended that the entire machinery used in the exhibition and production of cinematograph films are not eligible for extra shift allowance and the items enumerated under sub-cl. (a) and (b) of cl. C under sub-heading III to part I of Appendix I are only illustrative and not exhaustive. Therefore, even if the movie camera is not considered as a reproducing equipment, it is still an equipment in the production of films and as such no extra shift allowance can be granted on the same. Moreover, for claiming extra shift allowance it is for the assessee to establish that the equipment was used for more than one shift and in the absence of particulars the claim cannot be entertained. 30. We find force in the submissions of the Revenue. The distinction sought to be made by Mr. Srinivasan that movie camera is not a reproducing equipment and such reproduction is made only through the projector equipment is not acceptable. The projecting equipment is associated with the exhibition of the film and that is covered by cl. (b) of sub-heading III. The list under the cinematograp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ief can be granted at this stage of the proceedings. However, on principle, we hold that the assessee would be entitled to extra shift allowance on the main floor of the studio, studio bulbs and the central air-conditioning plant. But the quantum of extra shift allowance would depend upon the number of days it worked double shift or triple shift. The matter is restored to the ITO to gather the particulars and determine the quantum. However, on the mobile unit with the air-conditioner and generator attached to it, we hold that the assessee is not entitled to extra shift allowance as the entire unit has to be viewed only as mini bus, entitled to 30 per cent depreciation. On the cinematographic equipments including the camera, the assessee is not entitled to extra shift allowance as these equipments or machinery belong to the category of NESA. 34. The assessee would be entitled to investment allowance on the studio building and the cinematographic equipments provided other conditions for the grant of such relief have been fulfilled by the assessee regarding the creation of the reserve, etc. If for some reason the reserve created by the assessee falls short of the reserve to be crea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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