Brief of the case: The ITAT Chennai in the case of M/s AVM Films Studios held that entire lease rental received in first year of assignment of film rights with a condition that the same is not refundable in any circumstances is taxable in that year itself and cannot be spread over the period of lease.
Facts of the case:
- The assessee is engaged in the business of production of feature films, serials, running and maintaining film studios.
- During the course of assessment proceedings , AO noted that assessee received an amount of Rs. 2,65,28,535/- on account of transfer of lease rights of films etc for a certain period of time.
- The assessee has spread over the lease income during the lease period though the assessee had received the entire amount during the previous year under assessment.
- AO rejected the treatment made by assessee and assessed the entire receipts for lease in the previous year on the ground that the rights have been assigned under the condition of no refund in any case.
Contention of Assessee:
- The amount received from lessees was an advance for assigning the rights for distribution and execution of films assignment of video etc. The lease agreements are for the period of 5/10/15/20 years.
- The assessee has collected the advance lease rent for the balance tenure of lease in the first year which cannot be taxed in the first year itself.
- The assessee thus, as usual followed the mercantile system of accounting and offering the proportionate income in first year.
- Further, the terms of agreement also indicate that amount received by the assessee towards assignment of rights for a particular periods means amount of income that particular film would fetch over that period and therefore the entire receipts cannot be offered in one year merely because the assessee has received the entire amount during the previous year.
Contention of Revenue:
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