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TMI Blog1989 (1) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal was right in holding that the cost of positive prints should be allowed as business expenditure under section 37 of the Incometax Act, 1961 ?" The assessee carries on the business of production and exploitation of feature films and had produced two feature films and released those pictures on April 7, 1970, during the accounting year September 1, 1969, to August 31, 1970, relevant to the assessment year 1971-72. Similarly, during the previous year September 1, 1970, to August 31, 1971, relevant to the assessment year 1972-73, the assessee produced a feature film and also acquired rights in three other pictures. During the accounting years relevant to the assessment years 1971-72 and 1972-73 and on the first day of the assessment years in question and when the feature films produced by the assessee were released, Board Circular No. 30 dated October 4, 1969, was in force. According to paragraph 4 of that circular, if the producer of a film does not wish to write off the cost of the film in his books in the manner indicated in Board's Circular No. 4 (XI-3)D of 1959, dated April 9, 1959, then, he may be permitted to write off the entire cost in the year in which the picture ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt of the assessee, the benefit of the Board's Circular No. 30, dated October 4, 1969, could be denied to it. Accordingly, the Appellate Assistant Commissioner, applying the Board's Circular No. 30, dated October 4, 1969, directed that the entire cost of production of the films be allowed as deduction in the assessment year 1971-72 in respect of the feature films produced and released by the assessee. Consequent upon the conclusions so arrived at, the Income-tax Officer was directed to make suitable modifications in the computation of the total income of the assessee. In the appeals before the Tribunal at the instance of the Revenue, the Tribunal considered the views taken by the Bombay, Hyderabad and the Madras Benches of the Tribunal and held that the assessee can take advantage of the Board's Circular No. 30, dated October 4, 1969, as it was in force during the relevant accounting years and assessment years and that the assessee was well within its rights in writing off the entire cost of production of the feature film in the year of release itself and that the Board's Circular No. 92, dated September 18, 1972, which was prejudicial to the assessee, cannot be invoked. In the res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 119 of the Act. Section 119(1) of the Act empowers the Board to issue such instructions or directions to the income-tax authorities as it may deem fit and proper for the administration of the Act and the authorities and other persons engaged in the execution of the provisions of the Act are bound to observe and follow such orders, instructions and directions. The proviso to section 119(1) of the Act catalogues cases with reference to which such orders, instructions and directions shall not be issued. Section 119(2)(a) of the Act enables the Board to issue from time to time general or special orders for the purpose of the proper and efficient management of the work of assessment and collection of revenue in respect of any class of incomes or class of cases, setting forth directions or instructions (not being prejudicial to the assessee) as to the guidelines, principles or procedures to be followed by the income-tax authorities in relation to the assessment or collection of revenue or the initiation of proceedings for the imposition of penalty and these general or special orders may also be published and circulated in the prescribed manner for general information in public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e any reason as to why that cannot be regarded as applicable even in respect of the directions and instructions issued by the Board under section 119 of the Act and intended for the benefit of an assessee. We may now refer to decisions to which our attention has been drawn. In CIT v. B. M. Edward, India Sea Foods [1979] 119 ITR 334 (Ker) [FB], the assessee was a partner in two firms in one of which his wife was also a partner. For the assessment year 1971-72, the business of the firm in which the assessee's wife was a partner ended in a loss and in the assessment for the earlier years, the income of the wife from the firm of which she was a partner along with her husband, was included in the assessee's income and assessed under section 64 of the Act. The assessee claimed that in respect of the assessment year 1971-72, the loss incurred by, or debited to, his wife, should be set off against his other income and that was disallowed by the Income-tax Officer as not permissible under section 64 of the Act, as it contemplated the "income" of a spouse and not loss. This view was not, however, accepted by the Appellate Assistant Commissioner on the footing that a circular of the Board u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n appeal. But the Tribunal held that the assessee was entitled to 100% deduction on the basis of Circular No. 30, dated October 4, 1969. It was held that Circular No. 30, dated October 4, 1969, was admittedly in force during the assessment years in question corresponding to January 1, 1970, to December 31, 1970, and January 1, 1971, to December 31, 1971, and it was, therefore, applicable and the assessee was entitled to the benefit of deduction of the entire cost of production of the film as well as the cost of purchase of lease rights. This decision also, in our view, clearly supports the stand taken by the assessee. In CIT v. Jyothi Pictures [1988] 169 ITR 412 (AP), the assessee, who was engaged in the production, sale and distribution of films, produced a film at a cost of about 3.75 lakhs of rupees and released the picture in June, 1972. The accounting year followed by the assessee closed on September 30 of that year and the assessee wrote off the entire cost of the picture and claimed deduction of the entire cost under Board's Circular No.30, dated October 4, 1969. However, the Income-tax Officer took the view that the Board's Circular No. 92, dated September 18, 1972, applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisement after the film was certified for release by the Board of Film Censors, the entire amount was deductible. The Appellate Assistant Commissioner was of the view that for purposes of deduction, even the cost of positive prints in computing the total income will have to be deducted and the Income-tax Officer was directed to allow the entire amount of Rs. 13,67,675 as deduction and to modify the computation of the total income accordingly. The Tribunal, however, held that it was not clear from the order of the Appellate Assistant Commissioner as to how much was incurred by the assessee for making positive prints, but, nevertheless, such expenditure is allowable under section 37 of the Act and remitted the matter to the Income-tax Officer to find out the amount incurred for making positive prints and it was also further directed that if such cost was incurred during the assessment year 1973-74, that had to be allowed in that year. Learned counsel for the Revenue contended that in view of the option exercised by the assessee under rule 9A(11)(a)(ii) of the Rules, the cost of positive prints cannot be included in the cost of production and further that if that item of expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prints for the purpose of exhibition or he may not take steps for the exhibition of the film having produced it. The production and exhibition of a feature film constitutes two distinct and separate stages and while the former would take in all activities which culminate in the production of a feature film, the latter contemplates stage subsequent to the completion of the production of the film, viz., exhibition of the film produced. Viewed thus, any expenditure incurred in connection with the preparation of the positive prints for purposes of exhibition would really be post-production expenses and also an item of expenditure in relation to the business of production and exhibition of feature films and would, therefore, qualify for deduction as expenditure laid out or expended wholly and exclusively for the purpose of the business. We have not been referred to any provision in the Act or the rules disallowing such expenditure as an item of business expenditure for the purpose of section 37 of the Act. Though learned counsel for the Revenue placed considerable reliance upon the decision in CIT v. Carborundum Universal Ltd. [1977] 110 ITR 621 (Mad), we are of the view that that decis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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