Rule 9B - Whether exhibition rights, broadcasting rights and satellite rights are to be construed as distribution rights - YES: HC

THE issues before the Bench are - Whether exhibition rights, television rights or satellite rights can be treated as 'distribution rights'. And the verdict goes against the Revenue.

Facts of the case

The assessee is an individual. She had declared income at Rs.44,65,471. During assessment, the AO noticed that the assessee had claimed depreciation of Rs.1.20 Crores on cinematographic

films @ 100%. But the AO observed that the assessee did not purchase any cinematographic films for consumption but what was purchased were broadcasting/exhibition rights, satellite rights, therefore held that depreciation should be allowed @ 25% instead of 100% depreciation.

Aggrieved, the assessee explained that that the rights in the feature films were sold to different parties like National Film Development Corporation, Doordarshan and also sold to other distributors and parties. The AO rejected such submission and held that the assessee had not fulfilled the necessary conditions of Rule 9B. On appeal, the CIT(A) allowed the assessee's appeal and held that the assessee was eligible to claim the deduction of the entire cost of purchase if the films were sold in the same year and the assessee who had fulfilled the said condition was eligible for the same. The Tribunal confirmed the same.

On appeal, it was argued that the assessee had not sold the films during the year in question and also stated that Rule 9B would not be applicable, if conditions of sub Rule 5 were not satisfied. It further submitted that if the assessee had not sold or transferred the rights of exhibition of films, benefit under Rule 9B(2) would not be applicable.

On appeal, the HC held that,

++ we find that the aforesaid plea cannot be and should not be permitted to be raised in an appeal under Section 260A for the first time as it requires examination and verification of fact before any legal opinion can be formed. As noticed above, the Assessing Officer had proceeded altogether on a different basis. Before the Tribunal also, no such submission was raised and made;

++ the CIT(A) in his order has specifically noted and recorded that the films were sold. He has also recorded that films had been sold to different Doordarshan Kendras as also to National Film Development Authority, which are independent third parties and not closely related to the assessee. These were also sales to other parties. There is no finding in the assessment order that the purchase and sale had not taken place and, therefore, Rule 9B(2)(a) relied upon by the assessee was not applicable. The AO did not dispute the contention of the assessee that the exhibition rights in the films were purchased during the year and also sold. On the other hand as noticed above, the AO took a very narrow view on the term ‘distribution rights’ and held that exhibition rights, television rights or satellite rights cannot be treated as distribution rights. We do not agree with the said view as what was purchased and sold by the assessee were the ‘distribution rights’. The said right would include and consist of acquisition and transfer of rights to exhibit, broadcast and satellite rights. These rights are integral and form and represent rights of a film distributor. Even otherwise, if Rule 9B would not be applicable, purchase and sale of the film would result in a business transaction i.e. sale consideration received less purchase price paid.