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TMI BlogAmortisation of cost of production/cost of acquiring distribution rights of films - Assessments of film producers/distributors - General guidelines for allowance thereofX X X X Extracts X X X X X X X X Extracts X X X X ..... of the final results on the expiry of the exploitation period, the income/loss can be adjusted under section 154 by revising the figure of allowance in respect of cost of production and acquisition of distribution rights in the proportion of the earnings spread over the period of exploitation. 3. By way of a general guideline, in the case of producers the entire cost of production can be allowed in the year of release if the picture was fully exploited in that year. For example, if all the territories have been sold by way of outright sale in the year of release the entire cost of production will be allowed in computing the income of the year of release to the producer. In the case of pictures sold on minimum guarantee (M.G.) basis, if the entire collections have come in the year of release, the full cost of production will similarly be allowed in the year of release, as it can be said that the picture was fully exploited in that year. In cases where all the territories have not been sold either on M.G. basis or on outright sale basis, the picture cannot be said to have been exploited fully in that year and, therefore, the entire cost cannot be allowed in the year of release. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the first year may be framed provisionally by allowing a part of the cost of distribution rights on an estimated basis against the actual receipts in the year under consideration. The final adjustment in the case of the producer will be made after the exploitation period under section 154. However, if a distributor produces evidence to the satisfaction of the Income-tax Officer that a particular picture has failed at the box office in the year of release itself and there is no possibility of further collection in the following years, the entire cost of acquisition of distribution rights may be allowed in the first year itself. 6. All pending assessments may be regulated in accordance with the guidelines spelt out in this circular. In case where the assessments were completed in accordance with the instructions contained in Boards Circular No. 92 and the appeals are pending either before the Appellate Assistant Commissioner or the Appellate Tribunal, the Department may agree to such assessment being set aside to be reframed on the basis of the guidelines laid down in this circular and the concerned assessees have agreed to the adoption of such a course of action. Circular :No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase the film was released in the later half of the accounting year, the value of the film should be taken at 50 per cent of the cost of production at the end of that accounting year and the balance 50 per cent should be adjusted in the second year. 6. The Board has also decided that the cost of acquiring distribution rights should be treated in the hands of the distributor in the same way as the cost of production is treated in the hands of the film producer, the rates of the allowance and the manner being as indicated in paras 4 and 5 above. 7. If the producer sells the film outright for all the territories, the entire cost of production should be allowed as a deduction in the year of the sale irrespective of the category to which the film belongs. If the distributor after having acquired the film by way of outright purchase sells the film outright to another person in the first or subsequent years, he would be assessable on the profits made on that transaction by allowing the deduction for the price which he had paid to acquire the exploitation rights. 8. In cases where the producer or the distributor disposes of the exploitation rights of an A class film on mixed basis, i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year in which the picture is released and the cost of the film is written off in the books. 5. Boards Circular No. 4 (XI-3) D, dated 9-4-1959 is modified to the extent indicated above. Circular : No. 30 [F. No. 9/80/69-IT(A-II)], dated 4-10-1969. clarification 4 1. Attention is invited to Boards Circular No. 1-D, dated 4-1-1951 [Clarification 5] on the above subject. 2. For paragraph 2 of the above circular, the following shall be substituted : While it will not be right and may lead to tax evasion if the percentages mentioned in the standard formula are applied irrespective of the point of time a film is purchased or released for exhibition in a particular year, the Board feel that insistence on allowance of these percentages strictly on time-basis alone may not be fair in several cases and that, therefore, it would be desirable to also take into account the figures of collections in a particular period for determining the percentage of amortisation for that period. The Board, therefore, direct that amortisation in cases of films which conform to the norm of the three-year life should be worked out in the manner indicated in the following example : The accounting year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r cent, 25 per cent and 15 per cent should be treated as rates per annum. If, for example, the accounting year of a film producer is the year ended December 31, 1947 and film produced during that year came to be exhibited on October 1, 1947, the allowance for amortisation should be as follows: Accounting year Assessment year Rate of amortisation 1947 1948-49 15% ( of 60%) 1948 1949-50 45% ( of 60%); 6% ( of 25%) 1949 1950-51 18% ( of 25%); 3% (% of 15%) 1950 1951-52 11% ( of 15%)]. 3. The Board have also decided that the cost of acquiring distribution rights should be treated in the hands of the distributor in the same way as the cost of production is treated in the hands of the film producer, the rates of allowance and the manner of their application being as indicated in paragraph 2 above. Circular : No. 1-D [C. No. 9(48)-IT/48], dated 4-1-1951. clarification 6 After consulting the Commissioners, I have come to the conclusion that films in the hands of their producers and of their purchaser should be treated as stock-in-trade. In arriving at the closing stock valuation the assessees figure should be accepted if it appears reasonable. In this connection, it shou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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