Law:

Section:

Rule 9B of the Income-tax Rules, 1962 - Feature films - Deduction in respect of expenditure on acquisition of distribution rights of feature films - Assessment year 1979-80 - Whether every producer has entire rights of picture and producer is free to give movie either on advance basis or on minimum guarantee basis - Held, yes - Whether matching concept of expenditure against estimated income should never be lost sight of and up-front payment cannot be allowed as deduction in its entirety - Held, yes - Whether in cases where a distributor makes up-front payment/advance, expenditure needs to be amortized/spread over in order to match with receipts, failing which true profits of a given year would get distorted - Held, yes - Under an agreement, assessee-distributor acquired distribution rights of a film from a producer for a period of 10 years on minimum guarantee payment - Subsequently, said agreement was modified and assessee paid a consideration of Rs. 4.25 lakhs to producer for clearing of producer's right in overflow profits for unexpired period of old contract and claimed such cost as deduction - Assessing Officer estimated collection and after amortising expenses of Rs. 4.25 lakhs, allowed deduction of Rs. 1.20 lakh proportionate to collection - Whether since assessee had failed to value unexploited rights of film for balance period, same would result in distortion of profits, and, therefore, Assessing Officer was right in apportioning expenses over period of contract - Held, yes Words and phrases - 'cost of acquisition' as defined in rule 9B(1) of the Income-tax Rules, 1962 FACTS The assessee-firm, engaged in business of distribution of films, entered into an agreement with a producer and acquired the distribution rights of his film for a period of 10 years on commission basis with minimum guarantee payment. The film achieved success and, subsequently, the original agreement was modified. Rs. 4.25 lakhs were paid by the assessee to the producer for clearing of the producer's rights in the overflow profits for unexpired period of contract. The assessee claimed deduction of the amount which was disallowed by the Assessing Officer on the ground that under…

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