Case Law Details
Case Name : M/s. AVM Film Studios Vs ITO (ITAT Chennai)
Appeal Number : IT Appeal No.- 2000/2012
Date of Judgement/Order : 08/07/2015
Related Assessment Year :
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:
- Revenue placed reliance on the co-ordinate Bench decision of this tribunal in the case of DCIT Vs. G.Krishnammal in which on identical facts, the tribunal held that amount received for grant of rights of exploitation, distribution and execution of films is assessee’s income accrued during that particular assessment year itself and it cannot be spread over during the lease period.
- It is why because the amount received by assessee in one shot for entire lease period and once the amount received is not refundable in any circumstances. Such condition make the entire amount received as income accrued u/s 5(1) for the year of receipt.
Held by ITAT Chennai:
- The point of dispute that whether amount received by assessee for grant of rights of exploitation, distribution and execution of films, video copy rights and home video copy rights etc. would be taxable in the year of receipt or to be spread over lease period.
- The tribunal followed the decision of co-ordinate bench of this tribunal in the case of Smt. G.Krishnammal vs. DCIT and held that the entire amount received by the assessee was neither refundable by the assessee nor could be claimed by the lessees from the assessee under any circumstances. The amount received is neither advance nor a deposit but was a price paid by the lessees towards the cost of exploitation, distribution and exhibition rights of the film for five years.
- Further , the terms of agreement providing that there is direct linkage between the lease rent of a year and income earned by assignee could not be a basis to spread lease rent received in one shot over lease period. It is why because the terms of agreement cannot override the provisions of Act.
- Thus, the amount received by assessee is includible in total income for the previous year in which the same has been received as per Sec 5(1) of the Act.
- In result the appeal of assessee is dismissed.