1. Attention is invited to Board’s Circular No. 4 (XI-3) D, dated 9-4-1959 [Clarification 4] on the above subject.
2. The film producers have represented to the Board that a cinema film no longer has an effective life of about 3 years as was presumed by the Income-tax Department when devising the formula for the amortisation of the cost of the films spelt cut in the circular mentioned above.
3. The matter has been carefully considered by the Board. In view of the changed situation regarding the minimum guarantee system operating in the film industry at present, it is perhaps inappropriate to resort to the inflexible rule in every case of amortisation of the cost of the film over a period of 3 years. The Board also agree that the effective and earning life of the large majority of the present-day cinema films seldom exceeds one year.
4. It has, accordingly, been decided that if the producer of a film does not wish to write off the cost of the film in his books in the manner indicated in Board’s circular mentioned above, then he may be permitted to write off the entire cost in the year in which the picture is released. On his doing so, the entire cost of the film will be allowed as an admissible deduction in the year in which the picture is released and the cost of the film is written off in the books.
5. Board’s Circular No. 4 (XI-3) D, dated 9-4-1959 is modified to the extent indicated above.
Circular : No. 30 [F. No. 9/80/69-IT(A-II)], dated 4-10-1969.
JUDICIAL ANALYSIS
COMMENTED UPON – The abovesaid circular was commented upon in CIT v. N.T. Ramarao (HUF) [1987] 163 ITR 453 (AP), with the following observations :
“. . . We are of the view that the circular that was in force during the year of assessment is the circular that should be applied while granting deductions under the relevant provisions of the Income-tax Act. The 1969 circular (see Circular No. 30) was admittedly in force during the relevant assessment years corresponding to January 1, 1970 to December 31, 1970 and January 1, 1971 to December 31, 1971. The revised circulars were issued only in September, 1972 (see Circular No. 92) and later in 1974. These circulars which were issued subsequent to the relevant period cannot be applied to a period anterior thereto. In this view, we are fortified by a Full Bench decision of the Kerala High Court in CIT v. B.M Edward, India Sea Foods [1979] 119 ITR 334. . . .” (p. 456).
See also CIT v. Prasad Productions (P.) Ltd. [1989] 179 ITR 147 (Mad.).
EXPLAINED IN – The above circular was explained and applied in Shakti Raj Films Distributors v. CIT [1995] 213 ITR 20 (Bom.) with the observation that Circular dated October 4, 1969 would be applicable to the assessment of the assessee for the assessment year 1972-73. This circular evidently was a beneficial circular. It gave an option to the assessee to write off the cost of the film in its books either in the manner indicated in the circular dated April 9, 1959, or to write off the entire cost in the year in which the picture was released. It stated in clear and unambiguous language that on his doing so, the entire cost of the film would be allowed is an admissible deduction in the year in which the picture was released and the cost of the film was written off. The circular conferred a valuable right on the assessee in the matter of computation of his income for the purpose of assessment and levy of income-tax. The assessee, on fulfilment of the condition set out therein, was entitled to claim deduction of the entire cost of the film in the year of release and the Income-tax Officer was bound to allow the same. Modifications of the above circular during the pendency of the assessment were not relevant. Such assessment for the assessment year 1972-73 had to be completed by following the circular dated October 4, 1969.
