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COMMISSIONER OF INCOME TAX -X Vs. SMT. ACHILA SABHARWAL
September, 20th 2014
$~3
*        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




ITA No. 501/2014                                                          Page 5 of 5

 
 
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