Supreme Court of India
COMMISSIONER OF INCOME TAX, THIRUVANANTHAPURAMversusJOSEPH VALAKUZHY
- Citation
- 2008 INSC 587
- Decided
- 6 May 2008
- Disposal
- Dismissed
- Bench
- ASHOK BHAN
Holding
The balance of the production cost of a feature film not exhibited for 180 days may be carried forward to the next assessment year under Rule 9A(3) and is not a business loss governed by Section 80.
Summary
The appellant, the Commissioner of Income Tax, challenged the assessment of film producer Joseph Valakuzhy who claimed a carry‑forward of amortisation expenses under Rule 9A of the Income Tax Rules for a feature film that was not exhibited for 180 days and did not recover its production cost. The revenue argued that the loss fell under Section 80 of the Income Tax Act and that, because the return was not filed within the period prescribed by Section 139(3), the carry‑forward should be disallowed. The High Court held that the special provision of Rule 9A(3) governs the deduction and that the balance of production cost may be carried forward to the next assessment year, independent of Section 80. The Supreme Court affirmed this view, stating that the deduction is not a business loss subject to Section 80 and that the balance may be carried forward under Rule 9A(3). The appeal was dismissed.
Issues considered
- Whether amortisation loss on a feature film under Rule 9A is subject to the provisions of Section 80 and Section 139(3) of the Income Tax Act.
- Whether the balance of the cost of production of a film not exhibited for 180 days can be carried forward to the next assessment year.
- Interpretation of Rule 9A(3) in relation to the carry‑forward of unamortised production costs.
Legislation cited
- Income Tax Act, 1961s. 139(3), s. 143(3), s. 260, s. 263, s. 80
- Income Tax Ruless. 9A(2), s. 9A(3), s. 9A(4)
Subjects
income taxRule 9Afilm productionamortisationcarry forwardSection 80Section 139assessment yearcommercial exhibition
Judgment
[2008] 7 S.C.R. 752
A COMMISSIONER OF INCOME TAX,
THIRUVANANTHAPURAM
v.
JOSEPH VALAKUZHY
(Civil Appeal No. 7750 of 2002)
B MAY 6, 2008
[ASHOK BHAN AND DALVEER BHANDARI, JJ.]
Income Tax Rules - r. 9A - Deduction in respect of
c expenditure incurred on production of feature film -Assessee
doing the business of producing feature films - Film produced
by assessee not exhibited for 180 days in the previous year,
and, did not cover the cost of production of the film - Held:
Assessee entitled to carry forward the balance of the cost of
production to the next following previous year and claim
D
deduction of the same in that year.
Respondent-assessee is a film producer. A feature
film produced by him was not exhibited for 180 days
during the previous year and did not cover the cost of
E production of the film.
The question which arose for consideration in the
present appeal is whether the Respondent-assessee was
entitled to carry forward the business expenditure
incurred on production of the feature film over the next
F assessment year.
Dismissing the appeal, the Court
HELD:1.1. r.9A of the Income Tax Rules provides for
deduction of expenditure incurred on production of
G feature films. r.9A would appropriately be applicable to the
present case, as the respondent is doing the business of
producing feature films. [Para 12] [759-H] ) <
\...
1.2. The rule, as it now stands, provides that in such
H 752
COMMNR. OF INCOME TAX, THIRUVANATHAPURAM v. 753
JOSEPH VALAKUZHY
cases, deduction of the cost of production of the film is to fl
be allowed to the extent of the amount realized during
the number of days of commercial exhibition in that year
and the balance has to be allowed in the next year. r.9A(2)
provides that where a feature film is certified by the Board
of Film Censors for release in any previous year, and in B
that previous year the film is released for exhibition for at
least 180 days, before the end of that 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. r.9A(3) provides that where the film is not c
released for exhibition for 180 days in the previous year,
deduction of the cost of production is to be allowed to
the extent of the amount realized during the period of
commercial exhibition in that year and the balance shall
be allowed in the next year. [Para 13) [760-B-D]
D
1.3. In the present case, the film had not been
>: -exhibited for foofe than·1ao days in the previous Yea·r: -··
While computing the income or loss for the relevant
assessment year 1992-93, the assessing officer had to take
into account the number of days on which the film was E
commercially exhibited and then allow the deduction for
cost of production of the film to the extent of the
collections made during the period of exhibition only. The
balance cost of production will be amortized under Rule
9A(2) and then that will be allowed as deduction for the F
nextyear. It is not a business loss. If a film is not released
for exhibition on a commercial basis at least 180 days
before the end of such previous year, the cost of
production of the film insofar as it does not exceed the
amount realized by the film producer by exhibiting the film G
on a commercial basis, is to be allowed as a deduction in
computing the profits and gains of such previous year
and the balance, if any, is to be carried forward to the next
following previous year and allowed as a deduction in that
year. In the present case, the film in question was not
H
754 SUPREME COURT REPORTS [2008] 7 S.C.R.
A exhibited for a period of 180 days in the previous year,
and, had not covered the cost of production of the film,
the assessee was entitled to carry forward the balance of
the cost of production to the next following previous year
and claim deduction of the same in that year. (Para 14]
B [760-E-H; 761-A]
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7750 of 2002.
From the final Judament and Order dated 27 .11.2001 of
c the High Court of Kerala at Ernakulamin I.TA. No. 105/1999
Parag P. Tripathi, ASG, Arti Gupta, Vismai Rao, A.K.
Shrivastava (for B.V. Balaram Das) for the Appellant.
T.L.V. Iyer, Subramonium Prasad and Jay Kishore Singh
for the Respondent.
D
The Judgment of the Court was delivered by j
BHAN, J. 1. With the leave of the Court the Revenue has
filed the present appeal, against the judgment and order dated
2ih November, 2001 of the High Court of Kerala in ITA No. 105/
E
1999, rejecting the appeal filed by the appellant under Section
260 of the Income Tax Act, 1961 (for short "the Act").
2. The respondent-assessee (for short "the assessee")
is a film producer. In his income tax return for the assessment
F year 1992-93, the assessee claimed the benefit of carry forward
of Rs.39,43,830/- as amortization expenses. The Assessing
Officer allowed the claim of amortization. On appeal, the "'
Commissioner of Income Tax, in exercise of his iurisdiction
under Section 263 of the Act, set aside the assessment and
G directed the Assessing Officer to withdraw the benefit of carry
forward granted to the Assessee on the ground that, as the
provisions of Section 80 of the Act are applicable. the benefit of
)<
carry forward of the expenses was not admissible to the ,_
assessee as the assessee had failed to file the income tax return
in accordance with Section 139(3) of the Act. Appeal filed against
H
COMMNR. OF INCOME TAX, THIRUVANATHAPURAM v. 755
JOSEPH VALAKUZHY {BHAN, J.]
_j
the aforesaid order before the Income Tax Appellate Tribunal A
(for short "the Tribunal") was dismissed.
3. Thereafter, the Assessing Officer implemented the
directions issued by the Commissioner of Income Tax by
passing a fresh order under Section 143(3) withdrawing the
benefit of carry forward of amortization expenses granted to B
·~
the assessee. The assessee being aggrieved filed an appeal
before the CIT (Appeals). CIT {Appeals) accepted the appeal.
It was found that the computation of the amortization expenses
to be carried forward, as shown by the assessee, was not
correct. The assessee had claimed amortization expenses in c
respect of the two films, namely, (i) Ex Kannikcodi and (ii)
Santhwanam. It appears that in the first film the assessee
incurred heavy loss and to make up that loss the assessee
ventured to produce the second film. Rule 9A of the Income Tax
Rules (for short "the Rules") provides for deduction in respect of D
): the expenditure incurred on production of feature films. Having
found that the computation of amortization expenses to be
carried forward as shown by the assessee was not correct, CIT
(Appeals) gave directions to the Assessing Officer to obtain
separate accounts in respect of the different films produced by E
the assessee and determine the claim of the amortization in
accordance with rule 9A of the Rules. It was clarified that in case
there was loss in respect of the old film on such computation,
that would have to be subject to the provisions of Sections 139(3)
and 80 of the Act. In other words, it was held that in respect of F
old films if there was loss. the same would be eligible for carrying
<+· forward only if the return of income was filed within the statutory
period. In regard to the second film, it was held that the
amortization allowance for the next year was not subject to the
provisions of Section 80 and Section 139(3) of the Act. It was
G
the finding of the appellate authority that the amortization
expenses relating to the second year would have to be allowed
,, separately while computing the income for the next year and
....( not at the time of computation of the income for the current year.
Being aggrieved against the order passed by the CIT (Appeals).
H
756 SUPREME COURT REPORTS [2008] 7 S.C.R.
~
A Revenue filed an appeal before the Tribunal, which was
dismissed with certain clarifications.
4. The revenue thereafter filed an appeal under Section
260 of the Act in the High Court. The High Court framed the
following substantial question of law in the said appeal for its
B consideration:
"Whether on the facts and in the circumstances of the
case the amortization loss computed under Rule 9A is
subject to or not subject to the provisions of section 80
c and section 139 of t:ie Income Tax Act?"
5. Making a distinction between the carrying forward of
the business loss, as provided under Section 80 of the Act,-and
carrying forward of the expenditure over the income for the
relevant assessment year in which the film was not exhibited
D for more than 180 days as provided under rule 9A(3) of the
Rules, it was held that the present case would be governed :<
by tfie prOVTsiorfs of RUle 9A(3) of the Rules and notby
Section 80 of the Act. It was found that the second film produced
by the assessee was not exhibited for 180 days during the
E previous year, therefore the assessee was entitled tb carry
forward the business expenditure over the next assessment
year.
6. Section 80 finds its place in Chapter VI dealing with
Aggregation of Income and Set off by carry forward of loss
F which, prevalent during at the relevant assessment year, read
as under:
"Section 80
SUBMISSION OF RETURN FOR LOSSES. ,
G
Notwithstanding anything contained in this Chapter, no
loss which has not been determined in pursuance of a
return filed in accordance with the provisions of sub-section
._ ' )
(3) of section 139, shall be carrie.d forward and set off
under sub-section (1) of section 72 or sub-section (2) of
H
COMMNR. OF INCOME TAX, THIRUVANATHAPURAM v. 757
JOSEPH VAL..AKUZHY [BHAN, J.]
section 73 or sub-section (1) or sub-section (3) of section A
74 or sub-section (3) of section 74A."
7. Section 80 at the relevant time provided that no loss
which has not been determined in pursuance of a return filed
under sub-section (3) of Section 139, can be carried forward
and· set off under sub-section ( 1) of Section 72 or sub-section 8
(2) of section 73 or sub-section (1) or sub-section (3) of Section
74 or sub~section (3) of Section 74A.
8. Evidently, Chapter VI deals with carry forward of
business losses. c
9. Rule 9A of the Rules, which deals w~h deduction of
expenditure on production of feature films (which is a special
provision) at the relevant time, read as under:
"9A. Deduction in respect of expenditure on D.
production of feature films.
),-
(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 E
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,- F
"1-
(i) "Board of Film Censors" means the Board of Film
Censo1s constituted under the Cinematograph Act,
1952 (37 of 1952);
(ii) "cost of production··, in relation to a feature film, means G
the expenditure incurred on the production of the film,
.'
....I
(a)
not being-
the expenditure incurred for the preparation of the
positive prints of the film; and
H
758 SUPREME COURT REPORTS [2008] 7 S.C.R.
A (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
B 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.
c (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
D 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
E 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
F 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 one
hundred and eighty days before the end of such
G 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
H Board of Film Censors in any previous year and in such
COMMNR. OF INCOME TAX, THIRUVANATHAPURAM v. 759
JOSEPH VALAKUZHY [BHAN, J]
previous year, the film producer- A
(a) himself exhibits the film on a commercial bas;s 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 B
.... (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,
c
and the film is not released for exhibition on a commercial
basis at least one hundred and eighty 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
D
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 E
following previous year and allowed as a deduction in that
year.
(4) .............. "
10. Counsel for the parties have been heard. F
-.;
.... 11. It is not disputed before us that a film is a capital asset
in the hands of a film producer and the subsidy given by the
State Government to a film producer is a capital receipt. Section
80 falls under Chapter VI, which deals with aggregation of
G
income and set off or carry forward of loss.
.
'\
.....
12. Rule 9A provides for deduction of expenditure incurred
on production of feature films. Rule 9A would appropriately be
applicable to the present case, as the respondent is doing the
business of producing feature films. The deduction for H
760 SUPREME COURT REPORTS [2008] 7 S.C.R.
A expenditure incurred on production of feature films is
appropriately governed by rule 9A of the Rules.
13. The rule, as it now stands, provides that in such cases,
deduction of the cost of production of the film is to be allowed to
the extent of the amount realized during the number of days of
B commercial exhibition in that year and the balance has to be
allowed in the next year. Rule 9A(2) provides that where a feature )<
film is certified by the Board of Film Censors for re~se in any
previous year, and in that previous year the film is released for
exhibition for at least 180 days, before the end of that previous
c year, the entire cost of production of the film shall be allowed as
a deauction in computing the profits and gains of such previous
year. Rule 9A(3) provides that where the film is not released for
exhibition for 180 days in the previous year, deduction of the
cost of production is to be allowad to the extent of the amount
D realized during the period of commercial exhibition in that year
and the balance shall be allowed in the next year.
14. Admittedly, in the present case, the second film namely,
"Santhwanam" had not been exhibited for more than 180 days
in the previous your. While computing the income or loss for the
E relevant assessment year 1992-93, the assessing officer had
to take into account the number of days on which the film was
commercially exhibited and then allow the deduction for cost of
production of the film to the extent of the collections made during
the period of exhibition only. The balance cost of production will
F be amortized under Rule 9A(2) and then that will be allowed as
deduction for the next year. It is not a business loss. That if a film
is not released for exhibition on a commercial basis at least
. .~
180 days before the end of such previous year, the cost of
production of the film insofar as it does not exceed the amount
G realized by the film producer by exhibiting the film on a
commercial basis, is to be allowed as a deduction in computing
the profits and gains of such previous year and the balance. if
I '
any. is to be carried forward to the next following previous year ).._
and allowed as a deduction in that year. Admittedly, in the present
d case. as stated above, second film "Santhwanam" was not
COMMNR OF INCOrylE TAX, THIRUVANATHAPURAM v. 761
JOSEPH VALAKUZHY [BHAN, J.]
exhibited for a period of 180 days in the previous year, and, A
had not covered the costofproduction of the film, the assessee
was entitled to carry forward the b·alance of the cost of produGtion
to the next following previous year and claim .deduction of the
same in that year. :
15. For the reasons stated above, we do not find any merit B•
in the present appeal and dismiss the same leaving the parties
to bear their own costs.
B.B.B. Appeal dismissed
c
E·
F.
G
.....
\
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