Star Time Communication (I) Pvt. Ltd. Vs CIT (Bombay High Court)
5% of Bills or 5% of Receipts? Bombay HC Picks Reality Over Hype- No Receipts, No Percentage! HC Rejects 5% on Gross Bills Claim
The assessee-company, incorporated in April 1992, entered into an agreement dated 27.07.1992 with Prime Time Media Services Pvt. Ltd. Clause-3 of this agreement required the assessee to pay 5% of its total receipts from advertising to Prime Time. For AY 1993-94, the assessee filed its return declaring income of ₹7,57,746 & disclosed advertising income of ₹63,43,480 in its Profit & Loss account, out of which ₹4,66,068 remained outstanding as on 31.03.1993.
During assessment, the assessee claimed ₹22,36,544 as “infrastructure fee” based on 5% of gross advertising bills raised (₹4.47 crore approx.). The Assessing Officer rejected this working, holding that as per the agreement only 5% of the receipts actually received could be allowed, & therefore restricted the deduction to ₹2,93,870, being 5% of ₹58,77,412 (actual receipts).
On appeal, CIT(A) held that 15% of the actual receipts would be a reasonable payment & computed allowable expenditure at ₹8,81,611. The disallowance was thus reduced & partial relief was granted. The assessee, still aggrieved, appealed to the Tribunal. The Tribunal, however, upheld the approach of computing on actual receipts & dismissed the appeal.
