ACIT 11(1), MUMBAI V. V.R. ENTERTAINMENT P.LTD, MUMBAI

ITA 6032/MUM/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 5071 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2013
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2007-2008
• Appeal Filed On: 04-10-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Keywords: Capital asset

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL F BENCH, MUM BAI , , BEFORE SHRI SANJAY ARORA, A.M. AND SHRI AMIT SHUKL A, J.M. ./ I.T.A. NO. 6032/MUM/2012 ( / ASSESSMENT YEAR: 2007-08) ACIT, 11(1), R.NO.439 AAYKAR BHAVAN, M. K. ROAD, CHURCHGATE, MUMBAI-400 020 / VS. V.R. ENTERTAINMENT P. LTD. FLAT NO.1 &2, BUILDING NO.1, MAHADA COMPLEX, OPP. OSHIWARA POLICE STATION, NEW LINK ROAD, ANDHERI (W), MUMBAI 400 053 ' ./# ./PAN/GIR NO. AAACV8417D ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$ ' / APPELLANT BY : SHRI SURENDRA KUMAR %&'$ ( ' / RESPONDENT BY : SHRI SANJIV M. SHAH )* + ( , / DATE OF HEARING : 03.12.2013 -./ ( , / DATE OF PRONOUNCEMENT : 20.12.2013 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE AGITATING THE ORDE R BY THE COMMISSIONER OF INCOME TAX (APPEALS)-3, MUMBAI (CIT(A) FOR SHORT) DATED 10.07.2012, PARTLY ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S .143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A. Y.) 2007-08 VIDE ORDER DATED 24.12.2009. 2 ITA NO.6032/MUM/2012 (A.Y.2007-08) ACIT V/S. V.R. ENTERTAINMENT P. LTD. 2. AT THE VERY OUTSET, IT WAS SUBMITTED BY THE LD. AUTHORIZED REPRESENTATIVE (AR), THE ASSESSEES COUNSEL, THAT THE ISSUE AT HAND, I.E ., THE VALIDITY OF THE CLAIM OF EXPENDITURE U/S.37(1) OF THE ACT INCURRED ON AN ABANDONED FILM PROJECT, IS A MATTER SQUARELY COVERED BY A SERIES OF DECISIONS BY THE CO-ORDINATE BENCHES OF THE MUMBAI TRIBUNAL, ADDUCING ORDERS BY THE TRIBUNAL IN TWO CASES, I.E., ITO VS. ABDUL G. NADIADWALA (IN ITA NO.2896/MUM/2011 DATED 12.06.2003) AND ACIT VS. VENUS RECORDS AND TAPES (IN ITA NO.6667/MUM/2011 DATED 07.09.2012). THE LD. CIT(A) HAD ALSO ALLOWED RELIEF TO THE ASSESSEE ON THE SAME BASIS. UPON THIS, IT WAS BROUGHT TO HIS NOTICE THAT THE MA TTER COULD NOT BE CONSIDERED AS COVERED BY THE SAID DECISIONS IN VIEW OF THE DECISI ON BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SADICHHA CHITRA VS. CIT [1991] 189 ITR 774 (BOM), HOLDING A FEATURE FILM TO BE A CAPITAL ASSET IN THE HANDS OF A FILM P RODUCER, AS THE ASSESSEE, ENGAGED IN THE BUSINESS OF FILM PRODUCTION, I.E., APART FROM ANY P URCHASE AND SALE OF DVD/VCD RIGHTS. HE WOULD THEN ADVERT TO THE GROUNDS OF APPEAL RAISE D BY THE REVENUE IN VENUS RECORDS AND TAPES (SUPRA), WHERE THE SAID DECISION BY THE HONBLE CO URT HAD BEEN CITED IN THE GROUNDS OF APPEAL ASSUMED BY THE REVENUE ITSELF, SO THAT ITS RELIANCE ON THE SAID DECISION STANDS CONSIDERED BY THE TRIBUNAL IN RENDERING ITS DECISION IN THAT CASE. HE WAS, HOWEVER, ON A PERUSAL OF THE SAID ORDER, UNABLE TO SHOW US A S TO HOW THE SAID RELIANCE BY THE REVENUE ON THE DECISION BY THE HONBLE JURISDICTION AL HIGH COURT STANDS MET OR ANSWERED. HE COULD ALSO NOT SHOW ANY OTHER DECISION WHERE THE SAID DECISION BY THE HONBLE COURT, BINDING ON US, HAS BEEN CONSIDERED. IT WAS AT THIS STAGE BROUGHT TO HIS NOTICE THAT THE APPEAL ON THE SAME ISSUE HAS BEEN HEARD BY THE BENC H EARLIER, I.E., ON 02.12.2013, IN THE CASE OF ASST. CIT VS. A.K. FILMS PVT. LTD. (IN ITA NO. 5980/MUM/2012 & C.O. NO.277/MUM/2013), WHEREIN THE REVENUE HAD SPECIFICA LLY RELIED ON THE DECISION IN THE CASE OF SADICHHA CHITRA (SUPRA). AS SUCH, THE TRIBUNAL IS SEIZED OF THE MAT TER, AND A DECISION CONSISTENT WITH THE LAW AND THE FACTS, HAV ING REGARD TO ALL THE DECISIONS PLACED ON RECORD SHALL BE TAKEN. NO OTHER ARGUMENT WAS ADVANC ED BY THE LD. AR. THE LD. DEPARTMENTAL REPRESENTATIVE (DR), ON THE OT HER HAND, WOULD RELY ON THE ASSESSMENT ORDER. 3 ITA NO.6032/MUM/2012 (A.Y.2007-08) ACIT V/S. V.R. ENTERTAINMENT P. LTD. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 THE TRIBUNAL HAS SINCE I.E., VIDE ITS ORDER DATED 11/12/2013, DECIDED THE APPEAL IN THE CASE OF A.K. FILMS PVT. LTD. (SUPRA). IT, FIRSTLY, CONCLUDED THAT THE MATTER COU LD NOT BE SAID TO BE COVERED INASMUCH AS THE DECISIONS BY THE HONBLE HIGH COURT CITED BEFORE IT WERE BASED ON ADMISSION/CONCESSION. EXAMINING THE I SSUE ON FIRST PRINCIPLES, IT WAS CLARIFIED THAT A FEATURE FILM IS ONLY A STOCK-IN-TR ADE IN THE HANDS OF A FILM PRODUCER AND, THUS, THE LOSS OF VALUE UPON ABANDONMENT OF THE FIL M PROJECT, OTHER THAN WHERE TEMPORARY, IS ONLY A LOSS FOR THE YEAR OF ABANDONMENT INCURRED IN THE COURSE OF CARRYING ON THE BUSINESS OF FILM PRODUCTION. THE DECISION IN THE CA SE OF SADICHHA CHITRA (SUPRA) WAS ALSO CONSIDERED. WE REPRODUCE HEREIN-BELOW THE FINDINGS IN THAT CASE: CONCLUSION 4. WE MAY CAPSULE OUR FINDINGS AND DECISION. WE HAV E FIRSTLY EXAMINED THE AVAILABLE DECISION BY THE HONBLE JURI SDICTIONAL 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 MAT TER COULD NOT BE REGARDED AS COVERED, AS CONTENDED BEFORE US, WITHOUT OF COUR SE SHOWING AS TO HOW THE SAID DECISION STANDS MET OR OTHERWISE DISTINGUI SHING IT. THE LATER DECISIONS BY THE HONBLE COURT BEING BASED ON CONCE SSION, WITHOUT EXAMINING THE ISSUE ON MERITS AND DE HORS THE CONSIDERED DECISION BY THE SAID COURT IN THE CASE OF SADICHA CHITRA (SUPRA) COULD NOT, THEREFORE, BE REGARDED AS ESTABLISHING A BINDING 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 COULD RETAIN COMMERCIAL VALUE OR VIEWERSHIP APPEAL OVER TIME, IN ASMUCH AS ONLY VIEWERSHIP WOULD PROVIDE VALUE OR YIELD REVENUE FOR ITS PRODUCER, EVEN YEARS AFTER ITS FIRST RELEASE, I.E., YEARS AFTER IT S PRODUCTION, SO THAT IT CONTINUES TO BE AN ASSET OF THE BUSINESS. FILMS GEN ERALLY APPEAL ACROSS GENERATIONS AND, CONSEQUENTLY, HAVE AN ENDURING VAL UE. WHY, MASTER PIECES OR CLASSICS HAVE BEEN KNOWN TO TRANSCEND NOT ONLY T IME BARRIERS BUT ALSO OF LANGUAGE AND GEOGRAPHY. AS THE ADAGE GOES; A THING OF BEAUTY IS A JOY FOREVER. IT IS PERHAPS THIS THAT PREVAILED WITH THE HONBLE COURT IN HOLDING A FEATURE FILM TO BE A CAPITAL ASSET. HOWEVER, EACH F ILM IS A UNIQUE PRODUCT AND ITS VIEWERSHIP POTENTIAL WHICH IS ITSELF A SU BJECTIVE MATTER, INCAPABLE OF AN OBJECTIVE ASSESSMENT WOULD VARY ON 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 THE ACT, FORMULATED RULE 9A FOR ASCERTAINMENT AND DETERMINAT ION OF INCOME FROM THE 4 ITA NO.6032/MUM/2012 (A.Y.2007-08) ACIT V/S. V.R. ENTERTAINMENT P. LTD. BUSINESS OF FILM PRODUCTION I.E., FOR ITS UNIFORM A PPLICATION ACROSS THE RELEVANT INDUSTRY. THE SAME MANDATES FOR THE ALLOWA NCE OF THE ENTIRE COST OF PRODUCTION OF A FEATURE FILM WHERE IT IS RELEASED F OR 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 REVENU E REALIZED, WITH THE BALANCE IN THE FOLLOWING YEAR. THE UNCERTAINTY OF T HE 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 ENDURING BASIS, TO AS CRIBE 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 THIS REGARD. AS SUCH, NOTWITHSTANDING TH E DECISION IN THE CASE OF SADICHA CHITRA (SUPRA), A FEATURE FILM IS ONLY A STOCK-IN-TRADE O F HIS BUSINESS FOR A FILM PRODUCER. WHERE NOT RELEASED FO R EXHIBITION, I.E., SOLD DIRECTLY OR INDIRECTLY, THE SAME IS TO BE NECESSARI LY CARRIED OVER AS SUCH. ON THE OTHER HAND, WHERE SO, ITS COST SET OFF IN THE M ANNER PROVIDED, WHICH IS THUS CONSISTENT WITH THE ABIDING PERCEPTION OF INDE FINITENESS OF ITS VALUE OVER TIME; IN FACT, OF THE SAME DECLINING OR DWINDL ING CONSIDERABLY WITHIN A SHORT PERIOD OF ITS RELEASE. THERE IS, THEREFORE, N O QUESTION OF THE SAME BEING REGARDED AS CAPITAL IN NATURE, WHERE THE FILM FOR S OME REASON CANNOT BE COMPLETED AND THE PROJECT IS SHELVED. THE ONLY COND ITION 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 TH OUGH THERE IS NO INDICATION IN THE PRESENT CASE. THE LOSS ENSUING THUS WOULD ON LY BE THE LOSS FOR THE YEAR OF ITS INCURRENCE, I.E., THE YEAR IN WHICH THE FILM PROJECT IS ABANDONED. ACCORDINGLY, WE FIND NO MERIT IN THE REVENUES CASE . THE ASSESSEES C.O., RAISING AN ALTERNATE CONTENTION, BECOMES THUS INFRU CTUOUS. WE DECIDE ACCORDINGLY. 3.2 FURTHER, WE ALSO OBSERVE THAT THE DECISION IN T HE CASE OF VENUS RECORDS AND TAPES (SUPRA) WAS RENDERED RELYING UPON BY THE DECISION B Y THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RAJESH KHANNA (IN ITA NO.3875 OF 2010 DATED 14.09.2011) UPHOLDING THE ORDER BY THE TRIBUNAL, AND DREAM MERCHANT ENTERPRISES (IN ITA NOS. 4343 & 4252 OF 2010 DATED 20.09.2011), WHEREIN AGAIN SIM ILAR PROPOSITION WAS ENDORSED. THE SAID DECISIONS, OR EVEN THAT BY THE TRIBUNAL BEING APPEALED AGAINST, ARE NOT ON RECORD AND, AGAIN, IT IS NOT CLEAR IF THESE WERE ON MERITS, CON SIDERING THE CONTRARY VIEW EXPRESSED IN SADICHHA CHITRA (SUPRA). SO, HOWEVER, AS IT APPEARS, THE SAME REFLE CTS THE CONSISTENT VIEW OF THIS TRIBUNAL AS WELL AS OF THE HONBLE HIGH COU RT. THE TRIBUNAL HAS IN A.K. FILMS PVT. 5 ITA NO.6032/MUM/2012 (A.Y.2007-08) ACIT V/S. V.R. ENTERTAINMENT P. LTD. LTD. (SUPRA) EXPRESSED THE SAME VIEW, AFTER TAKING NOTE OF THE DECISION IN SADICHHA CHITRA (SUPRA). WE, THEREFORE, HAVE NO HESITATION IN ACCEP TING THE ASSESSEES CLAIM, THEREBY ENDORSING THE IMPUGNED ORDER IN RESPECT OF THE COST OF THE UNRELEASED FILM, SHELVED MIDWAY. THE CLAIM UNDER REFERENCE, I.E., RS.10,06,5 70/-, HOWEVER, ALSO INCLUDES, AS WE FIND FROM A PERUSAL OF THE ASSESSMENT ORDER, THE CO ST OF THE PILOT EPISODES OF A TV SERIAL KRISHNA. NO SPECIFIC ARGUMENTS IN RESPECT THEREOF WERE ASSUMED BEFORE US; RATHER, THIS ASPECT OF THE MATTER WAS NOT BROUGHT TO OUR NOTICE DURING HEARING. THE SAME CANNOT BE TREATED AS AT PAR WITH AN ABANDONED FILM PROJECT, F OR THE AFORE-CITED DECISIONS TO BE APPLICABLE THERETO. IN FACT, WE FIND THAT THE MATTE R HAS NOT BEEN APPROPRIATELY CONSIDERED OR DEALT WITH BY BOTH THE AUTHORITIES BELOW, PERHAP S IN THE ABSENCE OF FULL FACTS. 3.3 UNDER THE CIRCUMSTANCES, THEREFORE, WE ONLY CON SIDER IT FIT AND PROPER THAT THE MATTER QUA THE LOSS IN RELATION TO THE COST OF THE PILOT PROJ ECTS OF THE TV SERIAL UNDER REFERENCE IS RESTORED BACK TO THE FILE OF THE A.O. FOR AN ADJUDICATION AFRESH IN ACCORDANCE WITH THE LAW PER A SPEAKING ORDER AND AFTER ALLOWIN G DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE REVENUES APPEAL IS PARTLY AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON DECEMBER 20, 2013 SD/- SD/- (AMIT SHUKLA) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER 0+ MUMBAI; 1) DATED : 20.12.2013 *.)../ ROSHANI , SR. PS 6 ITA NO.6032/MUM/2012 (A.Y.2007-08) ACIT V/S. V.R. ENTERTAINMENT P. LTD. !' # $%&' (!'% / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. 4*5 6 %)78 , , 78/ , 0+ / DR, ITAT, MUMBAI 6. 6 9: ; + / GUARD FILE !' ) / BY ORDER, */)+ , (DY./ASSTT. REGISTRAR) , 0+ / ITAT, MUMBAI