SECOND INCOME-TAX OFFICER Vs. G HANUMANTHA RAO

JUDGEMENT

(1.) In this appeal by the revenue the issue involved is, whether the disallowance of publicity expenditure under section 37(3A) of the Income-tax Act, 1961 (the Act) is justified or not. The connected issue is, whether in the case of the assessee section 37(3D) applied or not. The facts of the case lie in a small compass.

(2.) The assessee was a partner of the firm, Padmalaya Pictures, Bangalore. That firm produced a picture by the name Patnavasam. After producing the firm the first was dissolved with effect from 28-2-1978. The assessee acquired the exploitation rights of the film as per dissolution deed dated 1-3-1978. During the accounting year ending on 31-3-1979 the assessee exploited the film through Sree Films, Vijayawada. The assessee claimed publicity expenses of Rs. 1,81,862. Applying the provisions of section 37(3A), the ITO disallowed Rs. 27,279. On appeal, the AAC was of the view that the assessees business was an industrial undertaking for the manufacture or production of articles and, therefore, the provisions of section 37(3D) applied and, consequently, the disallowance under section 37(3A) was not called for. In this regard he has relied on the decision of the Commissioner (Appeals) in the case of Dhakshayani Combines [IT Appeal No. 38 of 1980-81, dated 30-9-1981] wherein it has been held that production of cine films constituted manufacture of an industrial product and, therefore, it was an industrial undertaking. The learned product and, therefore, it was an industrial undertaking. The learned departmental representative has reiterated the grounds taken by the revenue in this appeal and urged that inasmuch as the assessee did not produce any film during the relevant accounting year but only exploited the rights of film already produced by the dissolved firm, the provisions of section 37(3D) were not attracted and alternatively contended that production of motion picture or films did not constitute manufacture or production of an article by an industrial undertaking in terms of section 37(3D). It was further contended that the AAC failed to appreciate that there should be a setting up of an industrial undertaking which should be continued in the succeeding years and this condition was not satisfied by the assessee. Therefore, he urged that the order of the AAC should be set aside and that of the ITO be restored.

(3.) The learned counsel for the assessee contended that it was the assessee who produced the film and, therefore, the provisions of section 37(3D) were attracted and consequently, supported the order of the AAC.