COMMISSIONER OF INCOME TAX Vs. MODERN THEATRES LIMITED

JUDGEMENT

(1.) IN T. C. No. 90 of 1960 the following questions have been referred to us under section 66 of the Indian Income -tax Act at the instance of the Commissioner of Income -tax, Madras :

(2.) THE assessee is a public limited company carrying on business as producers and distributors of films. During the year ended September 30, 1956, the previous year of for the assessment year 1957 -58, it produced and released two films called "Maheshwari" and Alibaba and Forty Thieves." The first of these two films was released on November 13, 1955, and the second on January 12, 1956. A number of positives were taken from the negatives of these films and they were distributed simultaneously with the release. The cost of production up to the stage of negatives and the cost of positives of these films are as follows :

(3.) ANY expenditure incurred subsequently for replacing any of the positive prints may, however, in the opinion of the Income -tax Officer, constitute a revenue expenditure, as that is expenditure incurred for replacing the damaged positive prints. Under the Board of Revenue circular amortisation at the rate of 60% can be claimed by the assessee in the first year of exhibition and this 60% would be available only if the film had run for 365 days, that is, throughout the year. If the film had not been exploited for the whole of that year proportionate amortisation based on "time basis" would only be allowed. We shall refer to the details of the circular a little later. Adopting therefore this basis of amortisation of 60% on "time basis" for the first year of exhibition, the Income -tax Officer made the following computation of allowance in respect of these films.