Vijaykumar Thimmegowda v. ITO [ITA No. 2928/Bang/2017, dt. 2-11-2020] : 2020 TaxPub(DT) 4766 (Bang.-Trib.)

Movie making business -- Amount received from sale of TV rights whether "receipt on exhibition of film on commercial basis" under Rule 9 of Income Tax Rules

Facts:

Assessee was a movie producer and was in receipt of the below monies by producing a movie --

Expenditure was incurred for Rs. 14.94 crores in the making of the film and since the movie was released on 13-1-2014 and ran below 90 days the unclaimed expenditure was carried forward to next year under rule 9A(3)(c) for Rs. 3.79 crores.

The assessing officer held that the sale of audio rights and TV rights cannot be construed as amount realized from "exhibition of film on commercial basis" and was taxed as business income separately. Commissioner (Appeals) sustained the addition. On higher appeal --

Held in favour of the assessee that the word "area" used in the IT Rule 9 should be read taking into account changes happening in the environment, thus even sale of TV rights/audio rights/OTT rights are also different distribution areas in the current scheme of things. The addition made by the assessing officer/Commissioner (Appeals) was quashed.

Applied:

Vieshesh Films (P) Ltd. v. DCIT (2008) 26 SOT 64 (Mum) : 2009 TaxPub(DT) 0787 (Mum-Trib)

M/s. Laxmi Video Theatres and others v. State of Haryana and others (1993) 3 SCC 715 (SC)

"Rule 9A. (1) In computing the profits and gains of the business of production of feature films carried on by a person (the person carrying on such business hereafter in this rule referred to as film producer), 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-rule (2) to sub-rule (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:]

[Provided that the cost of production of a feature film, shall be reduced by the subsidy received by the film producer under any scheme framed by the Government, where such amount of subsidy has not been included in computing the total income of the assessee for any assessment year.]

(2) Where a [***] feature film is certified for release by the Board of Film Censors in any previous year and in such previous year, --

(a) the film producer sells all rights of exhibition of the film, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year; or

(b) the film producer --

(i) himself exhibits the film on a commercial basis in all or some of the areas; or

(ii) sells the rights of exhibition of the film in respect of some of the areas; or

(iii) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas, and the film is released for exhibition on a commercial basis at least [ninety] days before the end of such previous year, the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year.

(3) Where a feature film is certified for release by the Board of Film Censors in any previous year and in such previous year, the film producer --

(a) himself exhibits the film on a commercial basis in all or some of the areas; or

(b) sells the rights of exhibition of the film in respect of some of the areas; or

(c) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas, and the film is not released for exhibition on a commercial basis at least [ninety] days before the end of such previous year, the cost of production of the film in so far as it does not exceed the amount realised by the film producer by exhibiting the film on a commercial basis or the amount for which the rights of exhibition are sold or, as the case may be, the aggregate of the amounts realised by the film producer by exhibiting the film and by the sale of the rights of exhibition, shall be allowed as a deduction in computing the profits and gains of such previous year; and the balance, if any, shall be carried forward to the next following previous year and allowed as a deduction in that year."