L.N. Poddar vs ITAT and Another

L.N. Poddar (hereinafter referred to as "the assessee"), derived income from various partnership firms as also from Poddar Pictures. He is its proprietor. He had produced a Bhojpuri film named Kajari. Its production cost is Rs. 11,50,000. The film was certified for release by the Board of Film Censor on 27-9-1989. It was released on commercial basis on 23-3-1990. It is an admitted position that the assessee maintained the books of account for the period ending on March 31-3-1989 and 31-3-1990. However, the assessee has not maintained the books of account for the year in which the film was released. According to him, non-maintenance of account had occasioned on account of the fact that he received a single sum of Rs. 10,000 against the total production cost of Rs. 11,50,000. The assessee claimed deduction in respect of expenditure on production of the feature film as provided under Rule 9A of the Income Tax Rules, 1962 (hereinafter referred to as "the Rules").

The assessing officer did not grant deduction on his finding that the assessee has not maintained the books of account. On appeal preferred by the assessee, the Commissioner (Appeals) accepted the contention of the assessee and held that the bank account is the books of account and deduction in respect of expenditure on production of the film was fit to be allowed. The revenue carried the matter in appeal before the Patna Bench of the Income Tax Appellate Tribunal (hereinafter referred to as "the Tribunal"), which held that the bank account cannot be equated with the books of account and, accordingly, held that the assessee is not entitled to claim deduction in respect of expenditure on production of the film.

Aggrieved by the same, the assessee has preferred this appeal u/s 260A of the Income Tax Act, 1961.

By order dated 15-9-2006, the appeal has been admitted on the following substantial question of law:

Whether the Tribunal is correct in law in holding that a bank account is not a books of account in the context of the single entry of receipt of film business in the bank account?

Whether the Tribunal is correct in law in holding that the use of non obstante Clause in Sub-rule (5) of Rule 9A saddled with the liability to maintain books account and the use of word shall therein make the provisions mandatory and not directory?

Mr. D.V. Pathy, appearing on behalf of the assessee submits that the maintenance of books account may be mandatory to claim a deduction in respect of expenditure on a production of a feature film, but in the present case the assessee received only Rs. 10,000, which was entered in the pass book maintained by the bank, it is fit to be treated as books account. He contends that Rule 9A of the Rules being a subordinate legislation, a liberal construction is called for. He submits that it would have served no purpose, had the entry made in the pass book is entered in the books of account.

Mr. Rishi Raj Sinha, appearing on behalf of the revenue, however, contends that the pass book maintained by the bank cannot be said to be the books of account maintained by the assessee and the condition precedent for claiming deduction under Rule 9A of the Rules having not been satisfied, the Tribunal did not err in disallowing the deduction.

Rule 9A(5) of the Rules, which is relevant for the purpose, reads as follows:

9A. (5) Notwithstanding anything contained in the foregoing provisions of this rule, the deduction under this rule shall not be allowed unless,-

(a) in a case where the film producer-

(i) has himself exhibited the feature film on a commercial basis; or

(ii) has sold the rights of exhibition of the feature film; or

(iii) has himself exhibited the feature film on a commercial basis in some areas and has sold the rights of exhibition of the feature film in respect of all or some of the remaining areas, the amount realised by exhibiting the film, or the amount for which the rights of exhibition have been sold or, as the case may be, the aggregate of such amounts, is credited in the books of account maintained by him in respect of the year in which the deduction is admissible;

(b) in a case where the film producer has transferred the rights of exhibition of the feature film on a minimum guarantee basis, the minimum amount guaranteed and the amount, if any, received ordue in excess of the guaranteed amount or where the film producer follows cash system of accounting, the amount received towards theminimum guarantee and the amount, if any, received in excess ofthe guaranteed amount, are credited in the books of account maintained by him in respect of the year in which the deduction isadmissible.

This rule starts with non obstante clause. It provides that deduction under this rule shall not be allowed unless the amount realised by exhibiting the film is credited in the books of account maintained by the film producer. A pass book is not a books of account maintained by the film producer. In the face of the language of Rule 9A(5) of the Rules, the deduction shall only be allowed when the film producer has credited in the books of account maintained by him the amount realised by exhibiting the film. When the rule has provided for allowing deduction on fulfilling of certain conditions, i.e., maintenance of books of account by the film producer, we are of the opinion that the number of credits made in the pass book shall be no consequence. Further, the books of account to claim deduction under Rule 9A(5) is to be maintained by the producer of the film. Undisputedly, the pass book maintained by the bank and not the film producer. As such it cannot be said that the pass book is the books of account maintained by the assessee.

Accordingly, our answer to the first question is in the affirmative and it is held that the Tribunal is correct in law in holding that the pass book maintained by the bank is not a books of account.

In fairness to Mr. Pathy, he concedes that maintenance of books of account is mandatory for claiming deduction under Rule 9A(5) of the Rules, but his contention is that the pass book maintained by the bank be treated as a books of account. We have already negatived this contention.

Accordingly, we are of the opinion that the maintenance of books of account under Rule 9A(5) of the Rules is mandatory for seeking deduction. Resultantly, answer to the second question is also in the affirmative, against the assessee and in favour of the revenue and it is held that the Tribunal was right in law in holding that maintenance of books of account is mandatory.

In the result, we do not find any merit in the appeal and it is dismissed accordingly, but without any order as to costs.