A.K. FILMS P.LTD, MUMBAI V. ASST CIT 11(1), MUMBAI

CO 277/MUM/2013

• Counselvise Citation: [2013] 122 COUNSELVISE.COM (IT) 9169 (ITAT-MUMBAI)
• Duration Of Justice: 14 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-12-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2005-2006
• Appeal Filed On: 27-11-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: M L PERUMAL
• Assessee Lawyers: SANJIV M SHAH
• Keywords: Capital asset; Business expenditure; Question of law; Revenue expenditure; Capital expenditure
• Section: 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI , BEFORE SHRI D. MANMOHAN, VP AND SHRI SANJAY ARORA, AM I.T.A. NO.5980/MUM/2012 ( ASSESSMENT YEAR: 2005-06) ASST. CIT 11(1), ROOM NO.439, AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400 020 VS. A.K. FILMS PVT. LTD., C-101, PURVI APARTMENTS, SUNDER VAN, OFF LOKHANDWALA ROAD, ANDHERI (W), MUMBAI-400 058 ! ' ./PAN/GIR NO. AACCA 4742 Q ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) & $% C.O. NO.277/MUM/2013 ( ASSESSMENT YEAR: 2005-06) A.K. FILMS PVT. LTD., C-101, PURVI APARTMENTS, SUNDER VAN, OFF LOKHANDWALA ROAD, ANDHERI (W), MUMBAI-400 058 VS. ASST. CIT 11(1), ROOM NO.439, AAYAKAR BHAVAN, M.K. MARG, MUMBAI-400 020 ! ' ./PAN/GIR NO. AACCA 4742 Q ( $% /CROSS OBJECTOR ) : ( $%!# / RESPONDENT ) &'( / REVENUE BY : SHRI M. L. PERUMAL )*+,-'( / ASSESSEE BY : SHRI SANJIV M. SHAH . &/'-0 DATE OF HEARING : 02.12.2013 123'-0 / DATE OF PRONOUNCEMENT : 11.12.2013 2 ITA NO. 5980/M/12 & CO NO.277/M/13 A.K. FILMS PVT. LTD. (A.Y. 2005-06) 4 O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE AND CROSS OBJECTIO N BY THE ASSESSEE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-3, MUMBAI (CIT(A) FOR SHORT) DATED 26.07.2012, PARTLY ALLOWING THE AS SESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 2005-06 VIDE ORDER DATED 20. 12.2011. ARGUMENTS 2. AT THE VERY OUTSET, THE LEARNED AR WOULD CONTEND THAT THE ISSUE UNDER REFERENCE IS SQUARELY COVERED BY THE DECISION BY THE HONBLE JUR ISDICTIONAL HIGH COURT IN THE ASSESSEES OWN CASE (IN ITXA NO.1199/2010 DATED 14. 03.2011), ADDUCING A COPY OF THE SAME. THE HONBLE HIGH COURT HAS APPROVED THE SET A SIDE BY THE TRIBUNAL OF THE REVISION ORDER U/S. 263 ON THE SAME SET OF FACTS, FOLLOWING THE DECISION BY THE HONBLE COURT IN THE CASE OF CIT VS. MUKTA ARTS PVT. LTD. (IN ITA NO.584/2001 DATED 25/08/2008). COPY OF THE SAID ORDER WAS ALSO PLACED BY HIM ON RECORD. FURTHE R, PER ITS CROSS OBJECTION (CO), THE ASSESSEE SEEKS DEDUCTION U/S.80IB ON THE ENHANCED I NCOME, I.E., WERE THE ASSESSEES CLAIM FOR THE IMPUGNED LOSS ON ABANDONMENT ON A FILM PROJ ECT IS NOT ACCEPTED. THE SAME IS AN ALTERNATE CLAIM AND SHALL NOT SURVIVE IF THE REVENU ES APPEAL WERE TO BE DISMISSED, I.E., SHALL BECOME INFRUCTUOUS. THE LD. DR, ON BEING CONFRONTED WITH THE SAME BY TH E BENCH, CONCEDED TO THE ISSUE ARISING BEING THE SAME AS THAT BEFORE THE HON BLE HIGH COURT. FINDINGS 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 THE ONLY ISSUE ARISING IN THE INSTANT APPEAL IS THE MAINTAINABILITY IN LAW OF THE DISALLOWANCE OF THE EXPENDITURE IN THE SUM OF RS.88 ,31,000/- IN RELATION TO AN ABANDONED FILM BY THE ASSESSEE, A COMPANY IN THE BUSINESS OF PRODUCING FEATURE FILMS AND TELEVISION PROGRAMMES. THE ASSESSING OFFICER (AO) DISALLOWED T HE SAME ON THE GROUND OF A FEATURE 3 ITA NO. 5980/M/12 & CO NO.277/M/13 A.K. FILMS PVT. LTD. (A.Y. 2005-06) FILM BEING A CAPITAL ASSET IN THE HANDS OF THE PRODUCER, SO THAT THE LOSS ARIS ING ON IT BEING ABANDONED COULD NOT BE ALLOWED AS A REVENUE LOSS, R ELYING ON THE DECISION BY THE HONBLE JURISDICTIONAL HIGH COURT IN CASE OF SADICHA CHITRA VS. CIT [1991] 189 ITR 774 (BOM), HOLDING A FEATURE FILM TO BE A CAPITAL ASSET IN THE HANDS OF THE PRODUCER, BESIDES ON THE DECISIONS IN THE CASE OF RAM BAHADUR THAKUR LTD. VS. CIT [2003] 128 TAXMAN 599 (KER)(FB) / 261 ITR 390 AND CIT VS. NAVSARI COTTON & SILK MILLS [1981] 7 TAXMAN 411(GUJ) / [1982] 135 ITR 546. THE ASSESSEE, HOWEVER, FOUND FAVOUR WITH THE LD. C IT(A); A FILM IS TO BE TREATED AS A STOCK-IN-TRADE IN THE HANDS OF THE FILM PRODUCER AND, ACCORDINGLY, EXPENDITURE ON ITS WRITE OFF, I.E., ON BEING ABANDONED, WOULD BE A REV ENUE EXPENDITURE, AS HELD BY THE JURISDICTIONAL TRIBUNAL IN THE CASE OF MR. RAJESH KHANNA VS. ASST. CIT, MUMBAI (IN ITA NO.4804/BOM/2000 DATED 17.01.2003) . THE SAID DECISION HAS BEEN CONSISTENTLY FOLLOWED BY THE TRIBUNAL, CITING A NUMBER OF DECISIONS AT PA RA 2.3 OF HIS ORDER. THE AOS RELIANCE ON THE DECISION IN THE CASE OF SADICHA CHITRA (SUPRA) WAS ALSO SOUGHT TO BE MET BY HIM BY STATING THAT IN THAT CASE THE ISSUE INVOLVED WAS TA XABILITY OF THE SUBSIDY IN HANDS OF A FILM PRODUCER, AND THE OBSERVATIONS BY THE HONBLE COURT WITH REGARD TO A FEATURE FILM BEING A CAPITAL ASSET IN THE HANDS OF A FILM PRODUCER WERE IN THE NATURE OF OBITER DICTA . 3.2 WE HAVE GONE THROUGH THE DECISION IN THE CASE O F SADICHA CHITRA (SUPRA) IN ITS ENTIRETY. THOUGH NO DOUBT THE ISSUE IN THE SAID CAS E WAS THE TAXABILITY OR OTHERWISE OF THE SUBSIDY GRANTED TO THE MARATHI FILM PRODUCERS, THE BASIS OF THE SAID DECISION AND THE PRINCIPAL REASON FOR THE HONBLE COURT IN NOT ACCEP TING THE REVENUES RELIANCE ON THE DECISION IN CASE OF MEENAKSHI ACHI (V.S.S.V.) VS. CIT [1966] 60 ITR 253 (SC), WAS OF IT CONSIDERING A FEATURE FILM TO BE A CAPITAL ASSET IN THE HANDS OF A FILM PRODUCER . THE GRANT OR THE SUBSIDY, IN THE OPINION OF THE HONBLE COURT , WAS FOR ASSISTING FILM PRODUCERS OF THE MARATHI FILMS IN ACQUIRING A CAPITAL ASSET AND TO M EET A PART OF THE CAPITAL OUTLAY. THE SAID DECISION BY THE APEX COURT, WHEREIN THE GRANT WAS P RINCIPALLY FOR MAINTAINING RUBBER PLANTATION, I.E., REVENUE EXPENDITURE, AND THEREFOR E TAXABLE, WAS THUS DISTINGUISHABLE ON FACTS (REFER PAGES 780,782). THE HONBLE COURT IN F ACT RELIED UPON AND APPLIED THE 4 ITA NO. 5980/M/12 & CO NO.277/M/13 A.K. FILMS PVT. LTD. (A.Y. 2005-06) JUDGMENT IN THE CASE OF CIT VS. CHITRA KALPA [1989] 177 ITR 540 (AP) HOLDING THAT THE SUBSIDY GRANTED BY THE STATE GOVERNMENT TO THE PROD UCERS OF FEATURE FILMS IN THE STATE IS ONLY TOWARD INDUCEMENT FOR THE PRODUCTION OF A CAPI TAL ASSET AND, THEREFORE, NOT A REVENUE RECEIPT, FOR IT TO BE TAXABLE (PAGE 781). IN FACT, THE HONBLE COURT SOUGHT JUSTIFICATION AND EXPRESSED SURPRISE AT THE REVENUE PRESSING THE MATT ER DESPITE THE ACCEPTANCE BY IT, VIDE CIRCULAR NO. 541 DATED 25.07.1989 (REPORTED AT [198 9] 179 ITR (ST.30)) BY CBDT, OF THE SAID DECISION BY THE HONBLE HIGH COURT OF ANDHRA P RADESH (PAGES 779, 781). THE FINDINGS BY THE HONBLE COURT ARE SUMMED AT PAGES 7 79 & 780 OF THE REPORT IN THREE PARTS, BEING (A), (B) & (C), WITH THE PART (B) READING AS UNDER: (PAGE 780) (B) THE SAID SUBSIDY WAS GRANTED BY THE GOVERNMENT TO ASSIST THE ASSESSEE TO ACQUIRE A CAPITAL ASSET. FILM IS A CAPITAL ASSET IN THE HANDS OF THE PRODUCERS. IT HAS BEEN IN TERMS HELD IN PARAGRAPH 11 OF THE TRIBUNAL S JUDGMENT AS UNDER: THE FINANCIAL ASSISTANCE WAS RECEIVED BY THE ASSESS EE FOR THE PRODUCTION OF MARATHI PICTURES . WE ARE, IN VIEW OF THE FOREGOING, COMPLETELY UNABLE TO AGREE WITH THE BASIS OF OR THE DISTINGUISHING OF THE DECISION BY THE HONBLE JURIS DICTIONAL HIGH COURT IN CASE OF SADICHA CHITRA (SUPRA) BY THE LD. CIT(A), OR TO REGARD THE SAID D ECISION AS NOT RELEVANT. FURTHER, WE FIND THAT THE LD. CIT(A) HAS ALLOWED RE LIEF TO THE ASSESSEE, IN VIEW OF A NUMBER OF DECISIONS ON THIS ISSUE BY THE TRIBUNAL, HOLDING THE COST OF AN ABANDONED FILM TO BE A REVENUE LOSS FOR THE FILM PRODUCER, VIZ. RAJESH KHANNA (SUPRA); ASST. CIT VS. J. RADICAL ENTERTAINMENT (I) PVT. LTD . (IN ITA 4550/M/2004 DATED 31/01/2007); ASST. CIT VS. DREAM MERCHANTS ENTERPRISE (IN ITA NOS. 3243 AND 3245/M/2009 DATED 09/02/2010 ); ASST. CIT VS. RAJIV TOLANI (ITA NO.633/M/2010 DATED 30/09/2010 AND NO.2522/M/ 2010 DATED 27/04/2011) (REFER PARA 2.3 OF HIS ORDER). THE SAID DECISIONS ARE NOT ON RECORD . THERE WAS NO REFERENCE THERETO DURING HEARING. THE LD. CIT(A) HAS, APART FROM MENTIONING THE NAMES OF THE ORDERS, NOT REPRODUCED OR SPECIFIED THE FINDINGS BY THE TRIBUNAL, SO AS TO UNDERSTAND THE BASIS THEREOF OR IF THE DECISION IN THE CASE OF SADICHA CHITRA (SUPRA), WHICH IT WAS INCUMBENT ON THE TRIBUNAL TO , HAS BEEN CONSIDERED BY IT OR NOT. 5 ITA NO. 5980/M/12 & CO NO.277/M/13 A.K. FILMS PVT. LTD. (A.Y. 2005-06) THE ORDER BY THE HONBLE COURT IN THE CASE OF MUKTA ARTS PVT. LTD . (SUPRA) AND AGAIN, FOLLOWING IT, IN THE ASSESSEES CASE, ARE ON THE PREMISE THAT NO QUESTION OF LAW ARISES; IN FACT, THE HONBLE COURT GOES ON TO OBSER VE THAT THE APPEAL ITSELF IS MISCONCEIVED IN VIEW THEREOF AS WELL AS THE ADMITTED FACT OF THE FILM BEING A STOCK-IN-TRADE, SO THAT ON BEING ABANDONED ITS COST REPRESENTS A LOSS ON REVEN UE ACCOUNT. THE SAID DECISIONS, BEING EVEN OTHERWISE BASED ON CONCESSION, THEREFORE, CANN OT BE CONSIDERED AS LAYING DOWN ANY BINDING PRINCIPLE OR PROPOSITION OF LAW. IN VIEW TH EREOF, WE ARE UNABLE TO CONSIDER THE ISSUE AS A COVERED MATTER DESPITE THE CONCESSION BY THE LD. DR; IT BEING INCUMBENT ON US TO CONSIDER THE DECISION BY THE HONBLE JURISDICTIO NAL HIGH COURT HOLDING, IN FACT, OTHERWISE. WE ARE, IN VIEW OF THE FOREGOING, UNABLE TO REGARD THE ISSUE UNDER REFERENCE AS A COVERED MATTER DESPITE THE CONCESSION BY THE LD. DR ; IT BEING TRITE THAT IT IS THE CORRECT LEGAL POSITION THAT IS RELEVANT, AND NOT THE VIEW T HAT THE PARTIES MAY TAKE OF THEIR RIGHTS IN THE MATTER (REFER: CIT V. C. PARAKH & CO. (INDIA) LTD . [1956] 29 ITR 661 (SC); KEDARNATH JUTE MFG. CO. LTD. V. CIT [1971] 82 ITR 363 (SC)). 3.3 WE MAY NEXT CONSIDER THE LEGAL POSITION IN THE MATTER. WHETHER AN EXPENDITURE AND, ACCORDINGLY, COST OF A FEATURE FILM PRODUCED B Y A FILM PRODUCER IS A REVENUE EXPENDITURE OR CAPITAL EXPENDITURE, IS A MATTER OF FACT AND NOT OF LAW. THE PRINCIPLES GUIDING THE SAME ARE WELL SETTLED. SUCCINCTLY PUT, WHERE AN EXPENDITURE GIVES RISE TO A BENEFIT OR ADVANTAGE OF AN ENDURING NATURE, THE SAM E CAN BE SAID TO BE IN THE CAPITAL FIELD. AT THIS STAGE, WE MAY ADVERT TO RULE 9A OF THE INCO ME TAX RULES, 1962 (THE RULES HEREINAFTER), WHICH PRESCRIBE THE MANNER OF COMPUTATION OF THE PROFITS AND GAINS OF THE BUSINESS OF PRODUCTION OF FEATURES FILMS. IT ALLOWS DEDUCTION OF THE COST OF THE PRODUCTION (WHICH IS NEGATIVELY DEFINED TO INCLUDE ALL THE EXPENDITURE INCURRED ON THE PRODUCTION OF THE FILM OTHER THAN EXPENDITURE TOWAR DS PREPARING POSITIVE PRINTS AND THAT INCURRED ON THE ADVERTISEMENT OF THE FILM AFTER ITS CERTIFICATION BY THE BOARD OF FILM CENSORS), WHERE THE FILM IS EXHIBITED BY THE PRODUC ER OR SOLD BY HIM, I.E., AS THE CASE MAY BE, OR PARTLY BY ONE AND PARTLY BY THE OTHER, IN CA SE THE FILM IS RELEASED FOR EXHIBITION 6 ITA NO. 5980/M/12 & CO NO.277/M/13 A.K. FILMS PVT. LTD. (A.Y. 2005-06) DURING THE RELEVANT PREVIOUS YEAR FOR A PERIOD OF 9 0 DAYS OR MORE (R. 9A(2)). IF, HOWEVER, THE SAID PERIOD IS BELOW 90 DAYS, THE DEDUCTION QUA THE COST OF PRODUCTION IS TO BE ALLOWED ONLY TO THE EXTENT OF THE SUMS REALIZED ON SALE OR EXHIBITION, AS A CASE MAY BE, OR THE AGGREGATE OF THE TWO (R.9A(3)). THE FEATURE FIL M IS, THUS, REGARDED AS ANY OTHER COMMODITY, THE FULL COST OF PRODUCTION OF WHICH IS REALIZABLE WITHIN A PERIOD AS LOW AS 90 DAYS. IN FACT, THEREFORE, IF THE FULL COST IS REALI ZED, THE SAME IS TO BE ALLOWED EVEN IF THE EXHIBITION IS FOR A LESSER PERIOD. IN ANY CASE, THE UNREALIZED PART OF THE COST OF PRODUCTION IS TO BE CARRIED FORWARD AND ALLOWED AS DEDUCTION, IRRESPECTIVE OF ITS REALIZATION, IN COMPUTATION THE BUSINESS PROFIT FOR THE YEAR NEXT F OLLOWING. NO DOUBT, THE RULE IS SUBJECT TO SOME CONDITIONS, AS THAT THE FEATURE FILM IS TO BE CERTIFIED FOR RELEASE BY THE BOARD OF CENSORS. THE SAME, HOWEVER, IS TOWARD AND BY WAY OF A PROCEDURAL REQUIREMENT, WHICH DOES NOT IN ANY MANNER IMPINGE ON THE QUALITY OR TH E NATURE OF EXPENDITURE, DEDUCTIBILITY OF WHICH IS IN ISSUE. THE CONDITION IS PERHAPS EVEN SUPERFLUOUS AS ALL THE FILMS TO BE RELEASED HAVE TO BE NECESSARILY CERTIFIED BY THE BO ARD. THE SAME, IN OUR CONTEXT, IS BESIDES THE POINT AS IT CANNOT BE THAT WHILE THE CO ST OF PRODUCTION OF A CERTIFIED FEATURE FILM IS REVENUE EXPENDITURE, THAT OF AN UNCERTIFIED ONE WOULD, AND FOR THAT REASON, ASSUME THE CHARACTER OF A CAPITAL ASSET. AS SUCH, WHATEVER MAY HAVE BEEN THE POSITION EARLIE R, POST 1.4.1987, I.E., SINCE R. 9A IS OPERATIVE IN ITS PRESENT FORM, A FEATURE FILM IS NOT TO BE GIVEN A TREATMENT ANY DIFFERENT FROM THAT TO THE MANUFACTURE OR PRODUCTIO N OF AN ARTICLE OR THING, SO DONE FOR ITS SUBSEQUENT PROCESSING OR SALE, THE COST OF WHICH IS RECOVERABLE OR IS TO BE RECOUPED WITHIN A SHORT PERIOD OF TIME, I.E., ABOUT OF A YEAR AND , IN ANY CASE, WITHIN A YEAR OF ITS RELEASE. WE STATE SO AS ANY ADVANTAGE CANNOT CONCEIVABLY BE REGARDED AS LONG TERM OR AS ON CAPITAL ACCOUNT WHICH IS EXPECTED TO SUBSIST FOR TH AT LENGTH OF TIME. WE ARE, THEREFORE, CLEARLY UNABLE TO SEE AS TO WHY WHEN A FILM IS FOR ANY REASON UNABLE TO BE COMPLETED OR OTHERWISE RELEASED BY A FILM PRODUCER, AND IS THERE FORE ABANDONED BY HIM, PRODUCING FILMS AS A BUSINESS, COULD THE SAME BE REGARDED AS ANY DIFFERENTLY, I.E., OTHER THAN AS A STOCK-IN-TRADE OF THE SAID BUSINESS, WHICH HAS LOST ITS VALUE IN THE COURSE OF CARRYING ON THE BUSINESS OR AS AN INFRUCTUOUS EXPENDITURE (ON R EVENUE ACCOUNT) INCURRED FOR THE 7 ITA NO. 5980/M/12 & CO NO.277/M/13 A.K. FILMS PVT. LTD. (A.Y. 2005-06) PURPOSE AND IN THE COURSE OF THE BUSINESS. THE SAME , OR EQUIVALENTLY THE COST OF PRODUCTION OF THE INCOMPLETE PROJECT, IS, ACCORDING LY DEDUCTIBLE AS A BUSINESS EXPENDITURE ON ITS ABANDONMENT. THE ONLY CONDITION TO WHICH THI S WOULD BE SUBJECT AND, WITHOUT DOUBT, IS THAT THE ABANDONMENT IS NOT TEMPORARY, I. E., FOR THE TIME BEING, AS WHERE A PROJECT IS SHELVED FOR THE TIME BEING ON ACCOUNT OF SOME ANTICIPATED DELAYS IN ITS COMPLETION; SOME FINANCIAL PROBLEMS, ETC. THE GENER AL PRINCIPLES OF COMMERCIAL ACCOUNTING, AS WE HAVE FOUND, BEING SQUARELY APPLIC ABLE, SUCH TEMPORARY SUSPENSION OF WORK SHALL NOT RESULT IN THE EXPENDITURE BECOMING I NFRUCTUOUS OR THE WORK ON THE FILM PROJECT, I.E., TO THE EXTENT UNDERTAKEN, LOOSING IT S VALUE TO THE BUSINESS. REFERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISION IN THE CASE OF LORDS DAIRY FARM LTD. VS. CIT [1955] 27 ITR 700 (BOM.), WHEREIN THE HONBLE COURT HAS DISCUSSED THE LEGAL POSITION WITH REFERENCE TO A CLAIM IN RESPECT OF A BUSINESS LOSS ON THEFT OR EMBEZZLEMENT. IT STANDS CLARIFIED THAT SO LONG AS THERE IS A POSSIBILITY OF THE MONEY BEING RECOVERED FROM THE EMPLOYEE HAVING EMBEZZLED THE MONEY, THERE IS NO LO SS TO THE ASSESSEE (REFER PAGE 708). 3.4 HAVING DISCUSSED THE GENERAL PROPOSITIONS IN RE LATION TO THE ISSUE UNDER REFERENCE, WE MAY NOW ADVERT TO THE FACTS OF THE CASE AT HAND. THE ASSESSEE, DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, ALLUDING TO RULE 9A OF THE RULES, SOUGHT TO PLEAD FOR THE DEDUCTION OF EXPENDITURE ON AN ABANDONED FILM PROJE CT, EMPHASIZING ALSO ON THE BUSINESS PURPOSE OF ITS SHELVING, I.E., THAT THE CONTINUATIO N OF THE PROJECT WOULD HAVE LED TO A HIGHER LOSS. THE AO, ON THE OTHER HAND, DRAWING ON THE DEC ISION IN THE CASE SADICHA CHITRA (SUPRA), WAS OF THE VIEW THAT THE COST OF A FEATURE FILM IS A CAPITAL EXPENDITURE PRIOR TO ITS RELEASE. WE FIND THIS AS AMUSING AND A GROSS MISREA DING OF THE DECISION IN THE CASE OF SADICHA CHITRA (SUPRA). HOW COULD, WE WONDER, THE NATURE OF AN EX PENDITURE DEPEND ON THE FACT OF OR IN THE MANNER IN WHICH WORK UNDERTAK EN, FOR AND WITH VIEW TO ITS COMMERCIAL EXPLOITATION, IS SO DONE. FURTHERMORE, A ND AGAIN, WE WONDER AS TO HOW A FILM PROJECT, WHICH IF COMPLETED WOULD BE REGARDED AS ST OCK-IN-TRADE OF THE BUSINESS, COULD BE REGARDED AS CAPITAL IN NATURE WHERE INCOMPLETE AND ABANDONED ON IT BEING UNLIKELY TO BE COMPLETED. TO EMPHASIZE THE DICHOTOMY FURTHER, THE COST OF A COMPLETED FILM IS ALLOWABLE 8 ITA NO. 5980/M/12 & CO NO.277/M/13 A.K. FILMS PVT. LTD. (A.Y. 2005-06) AS A BUSINESS EXPENDITURE WHERE RELEASED (I.E., COM MERCIALLY EXPLOITED), WHILE NOT SO WHERE NOT COMPLETED AND, THUS, NOT RELEASED. HOW COULD, ONE MAY ASK, AN INCOMPLETE FILM BE RELEASED ? THE ONLY ISSUE OR CONSIDERATION, THEREFORE, FOR T HE ALLOWIBILITY OF ITS COST IS OF THE ABANDONMENT OF THE PROJECT, AND WHICH IS NOT IN DISPUTE. THE REVENUES STAND IS INCOMPREHENSIBLE AND CONTRADICTORY, AND ITS RELIANC E ON THE DECISION IN CASE OF SADICHA CHITRA (SUPRA) MISPLACED. FINALLY, THERE IS NO INDICATION OF THE SHELVING OF THE FILM PROJECT UNDER QUESTION AS BEING TEMPORARY AND NOT FINAL, SO THAT WE FIND NO REASON AS TO WHY ITS COST BE NOT ALLOWED AS A BUSINESS EXPENDITURE OR AS LOSS ON ITS ABANDONMENT DURING THE RELEVANT YEAR. THE ASSESSEES CO, RAISING AN ALTERN ATE CONTENTION, SHALL IN VIEW OF SAID DECISION BECOME INFRUCTUOUS. CONCLUSION 4. WE MAY CAPSULE OUR FINDINGS AND DECISION. WE HAV E FIRSTLY EXAMINED THE AVAILABLE DECISION BY THE HONBLE JURISDICTIONAL HIGH COURT ( I.E., IN SADICHA CHITRA (SUPRA)), HAVING BEEN IN FACT RELIED UPON BY THE REVENUE, TO FIND IT TO BE RELEVANT, SO THAT THE MATTER COULD NOT BE REGARDED AS COVERED, AS CONTENDED BEFORE US, WITHOUT OF COURSE SHOWING AS TO HOW THE SAID DECISION STANDS MET OR OTHERWISE DISTINGUI SHING IT. THE LATER DECISIONS BY THE HONBLE COURT BEING BASED ON CONCESSION, WITHOUT EX AMINING THE ISSUE ON MERITS AND DE HORS THE CONSIDERED DECISION BY THE SAID COURT IN THE C ASE OF SADICHA CHITRA (SUPRA) COULD NOT, THEREFORE, BE REGARDED AS ESTABLISHING A BINDI NG PRECEDENT. PER THE SAME (I.E., SADICHA CHITRA (SUPRA)), THE HONBLE COURT HAS CLEARLY HELD A FEATURE FILM TO BE A CAPITAL ASSET. TRUE, A FILM CO ULD RETAIN COMMERCIAL VALUE OR VIEWERSHIP APPEAL OVER TIME, INASMUCH AS ONLY VIEWE RSHIP WOULD PROVIDE VALUE OR YIELD REVENUE FOR ITS PRODUCER, EVEN YEARS AFTER ITS FIRS T RELEASE, I.E., YEARS AFTER ITS PRODUCTION, SO THAT IT CONTINUES TO BE AN ASSET OF THE BUSINESS . FILMS GENERALLY APPEAL ACROSS GENERATIONS AND, CONSEQUENTLY, HAVE AN ENDURING VAL UE. WHY, MASTER PIECES OR CLASSICS HAVE BEEN KNOWN TO TRANSCEND NOT ONLY TIME BARRIERS BUT ALSO OF LANGUAGE AND GEOGRAPHY. AS THE ADAGE GOES; A THING OF BEAUTY IS A JOY FOREV ER. IT IS PERHAPS THIS THAT PREVAILED WITH THE HONBLE COURT IN HOLDING A FEATURE FILM TO BE A CAPITAL ASSET. HOWEVER, EACH FILM IS A 9 ITA NO. 5980/M/12 & CO NO.277/M/13 A.K. FILMS PVT. LTD. (A.Y. 2005-06) UNIQUE PRODUCT AND ITS VIEWERSHIP POTENTIAL WHICH IS ITSELF A SUBJECTIVE MATTER, INCAPABLE OF AN OBJECTIVE ASSESSMENT WOULD VARY O N ACCOUNT OF A NUMBER OF FACTORS, INCLUDING ITS MARKETING, IMPINGING THEREON. IT IS P ERHAPS FOR THIS REASON THAT THE REVENUE HAS, IN EXERCISE OF THE POWERS U/S. 295(2)(A) OF TH E ACT, FORMULATED RULE 9A FOR ASCERTAINMENT AND DETERMINATION OF INCOME FROM THE BUSINESS OF FILM PRODUCTION I.E., FOR ITS UNIFORM APPLICATION ACROSS THE RELEVANT INDUSTR Y. THE SAME MANDATES FOR THE ALLOWANCE OF THE ENTIRE COST OF PRODUCTION OF A FEATURE FILM WHERE IT IS RELEASED FOR EXHIBITION FOR A PERIOD OF NINETY DAYS DURING THE RELEVANT PREVIOUS YEAR. A SHORTER PERIOD OF RELEASE WOULD MERIT A DEDUCTION TO THE EXTENT OF THE REVENUE REAL IZED, WITH THE BALANCE IN THE FOLLOWING YEAR. THE UNCERTAINTY OF THE COMMERCIAL BENEFIT OR VALUE THAT A FILM MAY YIELD IS PERHAPS THE GUIDING REASON FOR THE SAID RULE. DEFINITENESS OF ADVANTAGE OR VALUE TO THE BUSINESS IS A FUNDAMENTAL ATTRIBUTE AND, FURTHER, ON AN ENDURIN G BASIS, TO ASCRIBE CAPITAL NATURE TO AN EXPENSE OR COST. THE DECISION BY THE APEX COURT IN THE CASE OF ALEMBIC CHEMICAL WORKS CO. LTD. VS. CIT [1989] 177 ITR 377 (SC) COMES READILY TO MIND IN T HIS REGARD. AS SUCH, NOTWITHSTANDING THE DECISION IN THE CASE OF SADICHA CHITRA (SUPRA), A FEATURE FILM IS ONLY A STOCK-IN-TRADE OF HIS BUSINESS FOR A FILM PRODUCER. WHERE NOT RELEASED FOR EXHIBITION, I.E., SOLD DIRECTLY OR INDIRECTLY, THE SAME IS TO BE NE CESSARILY CARRIED OVER AS SUCH. ON THE OTHER HAND, WHERE SO, ITS COST SET OFF IN THE MANNE R PROVIDED, WHICH IS THUS CONSISTENT WITH THE ABIDING PERCEPTION OF INDEFINITENESS OF IT S VALUE OVER TIME; IN FACT, OF THE SAME DECLINING OR DWINDLING CONSIDERABLY WITHIN A SHORT PERIOD OF ITS RELEASE. THERE IS, THEREFORE, NO QUESTION OF THE SAME BEING REGARDED A S CAPITAL IN NATURE, WHERE THE FILM FOR SOME REASON CANNOT BE COMPLETED AND THE PROJECT IS SHELVED. THE ONLY CONDITION TO WHICH THIS WOULD BE SUBJECT IS OF THE SAID SUSPENSION OF WORK BEING NOT TEMPORARY, SO THAT THERE IS IN FACT NO LOSS OF VALUE, OF WHICH THOUGH THERE IS NO INDICATION IN THE PRESENT CASE. THE LOSS ENSUING THUS WOULD ONLY BE THE LOSS FOR THE YE AR OF ITS INCURRENCE, I.E., THE YEAR IN WHICH THE FILM PROJECT IS ABANDONED. ACCORDINGLY, W E FIND NO MERIT IN THE REVENUES CASE. THE ASSESSEES C.O., RAISING AN ALTERNATE CON TENTION, BECOMES THUS INFRUCTUOUS. WE DECIDE ACCORDINGLY. 10 ITA NO. 5980/M/12 & CO NO.277/M/13 A.K. FILMS PVT. LTD. (A.Y. 2005-06) 5. IN THE RESULT, BOTH THE REVENUES APPEAL AND THE ASSESSEES C.O. ARE DISMISSED. ,3-5&' 6)*+,-$% , 7- ORDER PRONOUNCED IN THE OPEN COURT ON DECEMBER 11, 2013 SD/- SD/- (D. MANMOHAN) (SANJAY ARORA) / VICE PRESIDENT / ACCOUNTANT MEMBER . 9/ MUMBAI; : DATED : 11.12.2013 A.K.PATEL ! ' #$%& '&$ / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. . ;- ( ) / THE CIT(A) 4. . ;- / CIT CONCERNED 5. <&=> $)-)?* , 0 ?*3 , . 9/ / DR, ITAT, MUMBAI 6. >+ @/ / GUARD FILE ! ( / BY ORDER, ) / (* + (DY./ASSTT. REGISTRAR) , . 9/ / ITAT, MUMBAI