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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: September 10, 2014
+ ITA 501/2014
COMMISSIONER OF INCOME TAX -X
..... Appellant
Through Mr.N.P.Sahni, Sr. Standing Counsel with
Mr.Nitin Gultai, Advocate
versus
SMT. ACHILA SABHARWAL
..... Respondent
Through
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V. KAMESWAR RAO
SANJIV KHANNA, J. (ORAL)
1. The present appeal by the revenue pertains to assessment year 2010-11.
The respondent assessee had filed return declaring income of Rs.44,65,471 on
14.10.2010 and subsequently the return was taken up for scrutiny assessment.
The assessee has claimed depreciation of Rs.1.20 Crores on cinematographic
films @ 100%. The assessment order records that the assessee was required to
file evidence in the form of copies of agreement entered into with the parties.
The Assessing Officer observed that the assessee did not purchase any
cinematographic films for consumption but what was purchased were
ITA No. 501/2014 Page 1 of 5
broadcasting/exhibition rights, satellite rights etc. and, therefore, in terms of
Section 32 of the Income Tax Act, 1961, depreciation should be allowed @
25% instead of 100% depreciation as claimed. There is no other discussion in
the assessment order, though the assessee had relied upon Rule 9B of the
Income Tax Rules, 1962 and had stated that the rights in the feature films were
sold to different parties like National Film Development Corporation,
Doordarshan at Mumbai, Srinagar, Shimla and Lucknow and the film rights
were also sold to other distributors and parties. The Assessing Officer rejected
the said contention by recording that the assessee had not fulfilled the necessary
conditions of Rule 9B, which obviously had reference to the fact that the
Assessing Officer observed that the assessee did not purchase cinematograph
films for her own consumption but they were purchased for
broadcasting/exhibition rights, satellite rights etc. As noticed below, this finding
of the Assessing Officer for non-application of Rule 9B is wrong and erroneous.
2. The Commissioner of Income Tax (Appeals) accepted the assessee's plea,
and after reference to the contention of the respondent assessee observed as
under:-
4.1 The facts emanating from the order of the AO and the
submissions of the assessee is that the assessee is in business of
purchase and sale and distribution of old cinematographic films
and songs. The assessee purchases the rights over the films and
songs and the same are sold to various parties. During the year the
assessee has purchased the rights of the films for Rs 1,20,00,000/-
and the same has been sold during "the year and the assessee has
ITA No. 501/2014 Page 2 of 5
claimed depreciation/deduction @ 1000/0 (Sic 100%) as the cost of
acquisition under Rule 9B(2). The AO has allowed the depreciation
u/s 32(1) @ 25% only after treating the commercial rights as
intangible assets and accordingly, the AO has allowed the
depreciation @ 25% of Rs 30.00.000/- and has disallowed the
balance depreciation/deduction of Rs 90,00,000/- (Rs 1.20,00,000/-
(-) Rs 30.00,000/-) vide the order of the AO.
4.2 XXXXXX
"4.3 I have considered the order of the AO and the submissions of
the assessee and I find considerable merit in the submission of the
assessee that in the case of purchase and sale of cinematographic
films and songs etc the provisions of Rule 9B is applicable and the
assessee is eligible to claim the deduction of the entire cost of
purchase if the films are sold in the same year. In the present case,
the assessee had made the purchase of Rs 1,20,00,0001- and the
entire films has been sold as discussed above and as such the
assessee is eligible for full deduction @ 100% as provided under
Rule 9B(2). After considering all the case facts and circumstances
of the case, I am of the view that there is no merit in the addition
made by the AO and as such the addition made by the AO are
without any justification and accordingly, the same are deleted.
3. The said finding has been affirmed by the Income Tax Appellate Tribunal
by the impugned order dated 24.01.2014.
4. Before us, learned Sr. Standing Counsel has produced photocopies of
order sheet, profit and loss account, balance sheet etc. of the respondent
assessee and a new factual plea is raised that the assessee may not have sold the
films during the year in question. It is also stated that Rule 9B would not be
applicable, if conditions of sub Rule 5 were not satisfied. It is accordingly
ITA No. 501/2014 Page 3 of 5
submitted that if the assessee had not sold or transferred the rights of exhibition
of films etc., benefit under Rule 9B(2) would not be applicable.
5. We find that the aforesaid plea cannot be and should not be permitted to
be raised in an appeal under Section 260A of the Income Tax Act, 1961 for the
first time as it requires examination and verification of fact before any legal
opinion can be formed. As noticed above, the Assessing Officer had proceeded
altogether on a different basis. Before the Tribunal also, where revenue was the
appellant, no such submission was raised and made.
6. The Commissioner of Income Tax (Appeals) in his order has specifically
noted and recorded that the films were sold. He has also recorded that films had
been sold to different Doordarshan Kendras as also to National Film
Development Authority, which are independent third parties and not closely
related to the respondent assessee. These were also sales to other parties. There
is no finding in the assessment order that the purchase and sale had not taken
place and, therefore, Rule 9B(2)(a) relied upon by the assessee was not
applicable. The Assessing Officer did not dispute the contention of the
respondent assessee that the exhibition rights in the films were purchased during
the year and also sold. On the other hand as noticed above, the Assessing
Officer took a very narrow view on the term `distribution rights' and held that
exhibition rights, television rights or satellite rights cannot be treated as
distribution rights. We do not agree with the said view as what was purchased
ITA No. 501/2014 Page 4 of 5
and sold by the respondent assessee were the `distribution rights'. The said right
would include and consist of acquisition and transfer of rights to exhibit,
broadcast and satellite rights. These rights are integral and form and represent
rights of a film distributor. Even otherwise, if Rule 9B would not be applicable,
purchase and sale of the film would result in a business transaction i.e. sale
consideration received less purchase price paid.
7. The appeal is accordingly dismissed.
SANJIV KHANNA, J
V. KAMESWAR RAO, J
SEPTEMBER 10, 2014/km
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