Rule 273 of the Draft Income-tax Rules, 2026 prescribes the conditions for allowing deduction of expenditure incurred by film distributors on acquiring distribution or exhibition rights of feature films while computing business profits. The rule applies to feature films certified for release by the Board of Film Censors and acquired by a distributor in a tax year. If the distributor sells all exhibition rights of the film in the same tax year, the entire cost of acquisition is allowed as a deduction in that year. Similarly, where the distributor commercially exhibits the film in all or some areas, sells exhibition rights for certain areas, or combines exhibition and sale of rights, the entire acquisition cost is deductible in that tax year if the film is released for commercial exhibition at least ninety days before the end of the tax year. If the film is not released at least ninety days before the end of the tax year, deduction is limited to the amount realised from exhibition or sale of exhibition rights during that year, and the remaining cost is carried forward and allowed as a deduction in the next tax year. Where the distributor neither exhibits the film commercially nor sells exhibition rights during the tax year in which the film is acquired, no deduction is allowed in that year and the entire cost of acquisition is carried forward. Deduction is allowed only if the amounts realised from exhibition or sale of rights, including transfers on a minimum guarantee basis, are credited in the books of account. The rule further clarifies that sale of exhibition rights includes lease or transfer on a minimum guarantee basis, that such rights are considered sold when positive prints are delivered to the purchaser, and that “cost of acquisition” refers to the amount paid for acquiring exhibition rights, excluding expenditure on preparation of positive prints and advertisement of the film.
Extract of Rule No. 273 of Draft Income-tax Rules, 2026
Rule 273
Deduction in respect of expenditure on acquisition of distribution rights of feature films.
(1) In computing the profits and gains of the business of production of feature films carried on by a person (hereinafter in this rule referred to as “film distributor”), the deduction in respect of the cost of acquisition of a feature film certified for release by the Board of Film Censors in a tax year shall be allowed in accordance with the provisions of sub-rule (2) to (4).
(2) Where a feature film is acquired by the film distributor in any tax year and in such tax year,—
(a) the film distributor sells all rights of exhibition of the film, the entire cost of acquisition of the film shall be allowed as a deduction in computing the profits and gains of such tax year; or
(b) the film distributor-
(i) himself exhibits the film on a commercial basis in all or some of the areas; or
(ii) sells the rights of exhibition of the film in respect of some of the areas; or
(iii) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas,
and the film is released for exhibition on a commercial basis at least ninety days before the end of such tax year, the entire cost of acquisition of the film shall be allowed as a deduction in computing the profits and gains of such tax year.
(3) Where a feature film is acquired by the film distributor in any tax year and in such tax year, the film distributor—
(a) himself exhibits the film on a commercial basis in all or some of the areas; or
(b) sells the rights of exhibition of the film in respect of some of the areas; or
(c) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas,
and the film is not released for exhibition on a commercial basis at least ninety days before the end of such tax year, the cost of acquisition of the film in so far as it does not exceed-
(i) the amount realised by the film distributor by exhibiting the film on a commercial basis; or
(ii) the amount for which the rights of exhibition are sold; or
(iii) the aggregate of the amounts realised by the film distributor by exhibiting the film and by the sale of the rights of exhibition;
shall be allowed as a deduction in computing the profits and gains of such tax year and the balance, if any, shall be carried forward to the next following tax year and allowed as a deduction in that year.
(4) Where during the tax year in which a feature film is acquired by the film distributor, and–
(a) he does not himself exhibit the film on a commercial basis; or
(b) does not sell the rights of exhibition of the film
no deduction shall be allowed in respect of the cost of acquisition of the film in computing the profit and gains of such tax year and entire cost of acquisition shall be carried forward to the next following tax year and allowed as a deduction in that year.
(5) Irrespective of anything contained in the foregoing provisions of this rule, the deduction under this rule shall not be allowed unless,—
(c) in a case where the film distributor—
(iv) has himself exhibited the feature film on a commercial basis; or
(v) has sold the rights of exhibition of the feature film; or
(vi) has himself exhibited the feature film on a commercial basis in some areas and has sold the rights of exhibition of the feature film in respect of all or some of the remaining areas,
the amount realised by exhibiting the film, or the amount for which the rights of exhibition have been sold or, as the case may be, the aggregate of such amounts, is credited in the books of account maintained by him in respect of the year in which the deduction is admissible;
(d) in a case where the film distributor has transferred the rights of exhibition of the feature film on a minimum guarantee basis, the minimum amount guaranteed and the amount, if any, received or due in excess of the guaranteed amount or where the film distributor follows cash system of accounting, the amount received towards the minimum guarantee and the amount, if any, received in excess of the guaranteed amount, are credited in the books of account maintained by him in respect of the year in which the deduction is admissible.
(6) For the purposes of this rule,—
(a) the sale of the rights of exhibition of a feature film includes the lease of such rights or their transfer on a minimum guarantee basis;
(b) the rights of exhibition of a feature film shall be considered to have been sold only on the date when the positive prints of the film are delivered by the film distributor to the purchaser of such rights;
(c) distributor shall include a sub-distributor. (7) For the purposes of this rule,
(a) “cost of acquisition”, in relation to a feature film, means the amount paid by the film distributor to the film producer or to another distributor under an agreement entered into by the film distributor with such film producer or such other distributor, as the case may be for acquiring the rights of exhibition and, where the rights of exhibition have been acquired on a minimum guarantee basis, the minimum amount guaranteed, not being—
(i) the amount of expenditure incurred by the film distributor for the preparation of the positive prints of the film; and
(ii) the expenditure incurred by him in connection with the advertisement of the film.
(b) distributor shall include a sub-distributor.
