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TMI Blog2000 (12) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of CIT vs. P.J. Chemicals (1994) 121 CTR (SC) 201 : (1994) 210 ITR 830 (SC). However, the AO rejected the claim of the assessee on the ground that the subsidy received by the assessee under any scheme of the Government was to be reduced from the cost of production in view of the proviso to r. 9A inserted w.e.f. 7th July, 1989. 3. The matter was carried before the CIT(A), who agreed with the AO that decision of the Supreme Court in the case of P.J. Chemicals was not relevant as it was entirely in different context, i.e., the depreciation on plant and machinery and not with reference to the production of film. Further, the decision of Bombay High Court in the case of Sadichha Chitra vs. CIT (1990) 90 CTR (Bom) 135 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovision which may authorise the taxing authority to tax on capital receipt. Therefore, the proviso to r. 9A should be interpreted in consonance with the spirit of the Act. If so construed, the subsidy referred to in the proviso to r. 9A would mean only subsidy in the nature of revenue. According to him, if the interpretation as put forth by the Department is accepted, then it would amount to taxing the capital receipt which is not permissible under the Act. He also drew our attention to the proviso to r. 9A and submitted that the words "where such amount of subsidy has not been included in computing the total income of the assessee for any other year" appearing in the said proviso itself suggest that intention of rule making authority was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of subsidy has not been included in computing the total income of the assessee for any other year" appearing in the said proviso only safeguard the assessee against double taxation where such subsidy had been taxed earlier. It was further submitted by him that Board decided that subsidy need not be charged to tax on the basis that it is revenue receipt, but it should be directly reduced from the cost of production itself. In view of these submissions, it was prayed that order of CIT(A) may be upheld. 6. The rival submissions of the parties have been considered carefully. There is no dispute between the parties that subsidy received by the assessee from the Government of Maharashtra is a capital subsidy. Even otherwise, this issue stand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent of its cost after one year, 15 per cent after two years and nil thereafter. The other suggestion was that it should be valued at 30 per cent of the cost after first year, 10 per cent after two years and 5 per cent after three years. However, the final decision was left to the ITO considering the life of each film. Thereafter, various guidelines in this regard were issued by the Board from time to time in the form of circulars dt. 4th Jan., 1951, 9th April, 1959, 4th Oct., 1969, 18th Sept., 1972, and 5th Dec., 1974. Finally, the Board decided to allow the entire cost of film in the first year of release itself and inserted r. 9A subject to certain condition w.e.f. 1st April, 1976. 9. Another controversy which arose between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), the deduction in respect of the cost of production of a feature film certified for release by the board of film censors in a previous year shall be allowed in accordance with the provisions of sub-r. (2) to sub-r. (4). Explanation: In this rule, (i) "Board of film censors" means the Board of film censors constituted under the Cinematograph Act, 1952 (37 of 1952); (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; Provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the IT Act, 1961. Rule 9A cannot be allowed to override the provisions of the Act. Reference can be made to the Supreme Court judgment in the case of CIT vs. Tajmahal Hotel (1971) 82 ITR 44 (SC), wherein it has been held that rules are meant only for the purpose of carrying out the provisions of Act and they cannot take away what is conferred by the Act or whittle down its effect. Considering this principle in mind, we are of the view that the proviso to r. 9A would be applicable only to such subsidy which are in the nature of revenue. The later part of the proviso "where such amount of such subsidy has not been included in computing the total income of the assessee for any assessment year" also supports the conclusion arrived at by us b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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