COMMISSIONER OF INCOME TAX Vs. JYOTHI PICTURES

JUDGEMENT

(1.) The Income-tax Appellate Tribunal has referred the following question under section 256(1) of the Income-tax Act, referred the following question under section 256(1) of the Income-tax Act, 1961 :

(2.) The assessee was a registered firm engaged in distribution of films and also production and sale of pictures. It produced one picture known as "Adrusta Devatha" at a cost of Rs. 3,75,469. The picture was released on 30/06/1972. The accounting year followed by the assessee closed on September 30 of that year. The collections during the period of three months, i.e., between 30/06/1972, and 30/09/1972, came to Rs. 93,040. The assessee wrote off the entire cost of the picture as the picture ended in a flop. The Income-tax Officer, however, allowed amortisation allowance, according to the Board Circular, and, on that basis, disallowed a sum of Rs. 1,34,400. He added it back to the income returned. On appeal, the Appellate Assistant Commissioner upheld the assessees contention holding that the addition of Rs. 1,34,400 by the Income-tax Officer to the assessees income was not justified. Thereupon, the Revenue carried the matter in appeal to the Appellate Tribunal. The Appellate Tribunal, following the decision of the Bombay Bench of the Tribunal, as also the decision of the Hyderabad Bench of the Tribunal in the case of Sri N. T. Rama Rao (I. T. A. Nos. 2085 and 2086 (Hyd) of 1977-78) held that the assessees claim should be accepted in its entirety. The Tribunal also observed that the firm was forced to dissolve itself on account of serious setback in the collections. Accordingly, it affirmed the order of the Appellate Assistant Commissioner. The Tribunal was of the opinion that the circular issued by the CBDT, in September, 1972, (Circular No. 92 dated 18/09/1972 - [1972] 86 ITR (St.) 29) is not applicable to the accounting year relevant to the assessment year concerned herein, and that the earlier circular issued by the CBDT in October, 1969 (Circular No. 30 dated 4/10/1969 - [1969] 74 ITR (St.) 9) alone applies.

(3.) On the subject of amortisation of the cost of production and cost of acquiring distribution rights of films, the Central Board of Direct Taxes has been issuing circulars from time to time. We are, however, concerned only with the two circulars referred to above. Circular No. 30 dated 4/10/1969, recited in paragraph 2 that the film producers have represented to the Board that a cinema film no longer has an effective life of about 3 years as was presumed by the Income-tax Department when devising the formula for the amortisation of the cost of the films spelt out in the Circular dated A 9/04/1959, and that, thereupon - paragraph 3 says - the matter has been carefully considered by the Board and in view of the changed situation regarding the minimum guarantee system operating in the film industry at that time, it was thought appropriate to resort to the flexible rule in every case of amortisation of the cost of the film over a period of 3 years. The Board agreed that the effective and earning life of the large majority of the films seldom exceeds one year. In this view of the matter, it stated in paragraph 4 :