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REGISTERED No. D. (D)-72

The Gazette of India

EXTRAORDINARY

PART II—Section 3—Sub-section (ii)

PUBLISHED BY AUTHORITY

No. 563] NEW DELHI, THURSDAY, DECEMBER 30, 1976/PAUSA 9, 1898

Separate paging is given to this Part in order that it may be filed as a separate compilation

CENTRAL BOARD OF DIRECT TAXES

NOTIFICATION

INCOME-TAX

New Delhi, the 30th December 1976

S.O. 842(E).—In exercise of the powers conferred by section 295 of the Income- tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the income-tax Rules, 1962, namely: —

1. These rules may be called the Income-tax (Seventh Amendment) Rules, 1976.

2. After rule 9 of the Income-tax Rules, 1962, the following rules shall be inserted, namely:—

'9A. Deduction in respect of expenditure on production of feature films.— (1) In computing the profits and gains of the business of production of feature films carried on by a person (the person carrying on such business hereafter in this rule referred to as film producer), the deduction in respect of the cost of production of a feature film certi- fied for release by the Board of Film Censors in a previous year shall be allowed—

(a) in the case of a feature film, being a regional language features film, in accordance with the provisions of sub-rule (2) to sub-rule (i)i

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(b) In the case of a feature film (not being a regional language feature film), in accordance with the provisions of sub-rule (B-) to sub- rule (7).

Explanation.—In this rule,—

(i) "Board of Film Censors" means the Board of ffilm Censors consti- tuted under the Cinematograph Act, 1952 (37 of 1852);

(ii) "cost of production", in relation to a feature film, means the ex- penditure incurred on the production of the film, not being—

(a) the expenditure incurred for the preparation, of the positive

prints of the film; and

(b) the expenditure incurred in connection with; the advertisement of the film after it is certified for release by the Board of Film Censors;

(lii) "regional language feature film" means- a feature film made in any language (other than Hindi or Urdu) specified in the Eighth. Schedule to the Constitution.

(2) Where a regional language feature film is certified for release by the Board of Film Censors in any previous year and in sucrs devious year,—

(a) the film producer sells all rights of exhibition of the film, the entire- cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year; or

(b) the film producer—

(i) himself exhibits the film on a commercial basis- in all or some of the areas; or

(11) sells the rights of exhibition, of the film in respect of some of the

areas; or

(iii) himself exhibits the film on a commercial basis in certain area* and sells the rights of exhibition of the film in respect of all or some of the remaining areas,

and the film is released for exhibition on a commercial basis at least ninety days before the end of such previous year, the entire cost of production of the film shall toe allowed as a deduction in. con> puling the profits and gains of such previous year.

(3) Where a regional language feature film is certified for release by the- Board of Film Censors in any previous vear and in such previous year, the film producer—

(a) himself exhibits the film on a commercial basis in all or some of the

areas; or

(b) sells the rights of exhibition of the film in respect of some of the

areas; or

(c) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect at an or some of the remaining areas,

and the film is not released for exhibition on a commercial basis at least ninety days before the end of such previous: year,, the coat of produc- tion of the film In so far as it does not exceed the amount realised by the film producer by exhibiting the film on a commercial basis or the amount for which the rights of exhibition are sold or, as the case may be, the aggregate of the amounts realised by the film produ- cer by exhibiting the- film and by the sale of the rights of exhibition, shall be allowed as a deduction in computing the profits and gains of such previous year; and the balance, if any, shall be carried for- ward to the next following previous year" and allowed as a deduc- tion in that year.

(4) Where, during the previous year in which a regional language feature film is certified for release by the Board of Film Censors, the flhr" producer does not himself exhibit the film on a commercial basis or does not sell the rights of exhibition of the film, no deduction shall be allowed in respect of the cost of production of the film in com- puting the profits and gaina of such, pxeviaua year; and the entire

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cost of production of the film shall be carried forward to ttie next following previous year and allowed as a deduction m that year.

(5) Where a feature film (not being a regional language feature film) ia certified for release by the Board of Film Censors in any previous year and in such previous year,—

(a) the film producer sells the rights of exhibition of the film in respect of all the Territories specified in the Table below sub-rule (11); (hereafter In thiB rule referred to as the said Table), the entire cost of production of the film shall be allowed as a deduction in computing the profits and Kains of such previous year; or

(b) the film producer—

(i) himself exhibits the film on a commercial basis in all the Territo- ries specified in the said Table; or

(ii) himself exhibits the film on a commercial basis in respect of some of the Territories specified in the said Table and sells the rights of exhibition of the film in respect of the remaining Territories thereof,

the entire cost of production of the film shall be allowed as a deduction in computing the profits and gains of such previous year.

Eplanation.—For the purposes of this sub-rule and sub-rule (6),—

(a) where the film producer has exhibited the feature film on a commer- cial basis in, or where the rights of exhibition of such Him have been sold by the film producer in respect of, the areas specified in any six or more of the items enumerated under Territory L in Explanation i to the said Table, the film shall be deemed to have been so exhibited or the rights of exhibition of such film shall be deemed to have been so sold'ln respect of all the areas specified in that Territory;

(b) where the film producer has exhibited the feature film on a commer- cial basis in, or where the rights of exhibition of such film have been sold by the film producer in respect of, the areas specified in less than six items enumerated under Territory L, the sum speci- fied In column (2) of the said Table against Territory L shall, be substituted by the sum arrived at by multiplying the number of such items by the figure "2".

(6) Where a feature film (not being a regional language feature film) is certified for release by the Board of Film CensorH in any previous year and in such previous year, the film producer,—

(a) himself exhibits the film on a commercial basis in some of the Terri-

tories specified in the said Table; or

(b) sells the rights of exhibition of the film in respect of some of the

Territories specified in the said Table; or

(c) himself exhibits the film, on a commercial basis In some of the Terri- tories specified in tfie said Table and sells the rights of exhibition of the film in respect of some of the remaining Territories thereof. the cost of production of the film to be allowed as a deduction in comput- ing the profits and gains of such previous year- shall be an appropri- ate fraction of the entire cost of production of the film; and the balance, if any, shall be carried forward to the next following previ- ous year and allowed as a deduction in that year.

Explanation,—For the -purposes of this sub-rule "appropriate fraction" means the fraction the numerator of which is the sum or, as the case may be, the aggregate of the sums, specified in column (2) of the said Table against the Territory or Territories specified in column (1) thereof in which the film producer has himself exhibited the feature film on a commercial basis, or in respect of which the film producer has sold the rights of exhibition of the feature film, or In which the feature film has been so exhibited and in respect of which the rights of exhibition have been sold during the previous year, and the denominator of which Is one hundred.

(7) Where, during the previous year In which a feature film (not being a regional language feature film) is certified for release by the Board of Film Censors, the film producer does not himself exhibit such feature film in any of the Territories specified in the said Table, or does not sell the rights of exhibition of such feature film in respect of any of the Territories specified in the said Table, no deduction shall be allowed in respect of the cost of production of the film in computing the profits and gains of such previous year; and the entire cost of production of the Him shall be carried forward to the next following previous year and allowed as a deduction in that year.

(8) 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) ha3 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 or in some of the Territories specified in the said Table, and has sold the rights of exhibition of the feature film in respect of all or some of the remaining areas or Territories,

the amount realised by exhibiting the film, or the amount for which the rights of exhibition have been sold or, ag 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 exhi- bition of the feature film on a minimum guarantee basis, the mini- mum amount guaranteed and the amount, if any, received or due in excess of the guaranteed amount or where the film producer follows cash system of accounting, the amount received towards the minimum guarantee and the amount, if any, received In excess of the guaranteed amount, are credited in the booKs of account maintained by him in respect of the year in which the deduction is admissible.

(9) Where the Income-tax Officer is of opinion that—

(a) the exhibition of the feature film on a commercial basis by the film producer in or the sale by the film producer of the rights of exhi- bition of the feature film in respect of, various Territories does not conform to the classification of Territories In the said Table; or

(b) the rights of exhibition of the feature film have been transferred by the film producer by a mode not covered by the provisions of this rule; or

(c) having regard to the facts and circumstances of any case, It is not practicable to apply the provisions of this rule to such case, deduction in respect of the cost of production of the film may be allowed £ the Income-tax Officer in such other manner as he may deem suit. able.

(10) For the purposes of thls rule,—

is delivered by the film producer to the film distributor.

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(11) Nothing contained in sub-rule (1) to sub-rule (10) shall apply

(a) in relation to any assessment year commencing on the 1st day of April, 1973, the 1st day of April, 1974, the 1st day of April 1975. or the 1st day of April, 1976, unless,—

(i) in a case where the assessment in respect of that year is pending before the Income-tax Officer, the film producer exercises an option by furnishing a declaration in writing to the Income-tax Officer (such option being final for that assessment year and for every subsequent assessment year) that the cost of production of the feature film may be allowed in accordance with the provi- sions of sub-rule (1) to sub-rule (10);

(ii) in a case where the assessment in respect of that year has been completed by the Income-tax Officer and the film producer has preferred or prefers an appeal or revision against the assess- ment made by the Income-tax Officer, the film producer exer. cises an option by furnishing a declaration in writing to the Appellate Assistant Commissioner, the Appellate Tribunal or, as the case may be, the Commissioner (such option being final for that assessment year and for every subsequent assessment year) that the cost of production of the feature film may be allowed in accordance with the provisions of sub-rule (1) to sub-rule (10); (b) in relation to any assessment year commencing before the 1st day

of April, 1973.

THE TABLE

Sum to be taken into account for tJetermininn the cost of production to be allowed as a deduction Territory in respect of which the rights of exhibition of the feature film have been sold during the previous year

(2)

(1)

17 16 17 8 7 4 4 5 44 24 3 12

Territory A Territory B Territory C Territory D Territory E Territory F Territory G Territory H Territory I Territory J Territory K Territory L

Explanation 1.—The Territories referred to in the foregoing Table shall have the following meaning, namely:—

Territory A:

(a) The areas comprised in the districts of Ahmednagar, Greater Bombay, Kolaba, Kolhapur, Nasik, Pune, Batnagiri, Sangli, Satara, Sholapur and Thane in the State of Maharashtra;

(b) the whole of the State of Gujarat; (c) the areas comprised in the districts of Belgaum, Bijapur, Dharwar and

North Kanara in the State of Karnataka;

(d) the whole of the Union territories of Dadra and Nagar Havell and Goa,

Daman and Diu.

Territory B:

(a) The whole of the Union territory of Delhi; (b) the whole of the State of Uttar Pradesh.

Territory C:

(a) The whole of the States of Assam, Bihar, Manipur, Meghalaya, Naga- land, Orissa, Trlpura, Sikkim and West Bengal;

(b) the whole of the Union territories of the Andaman and Nicobar Islands.

Arunachal Pradesh and Mizoram.

Territory D:

(a) The whole of the States of Haryana, Himachal Pradesh, JammU BflCi Kashmir and Punjab;

(b) the whole of the Union of Chandigarh.

Territory E:

(b) the areas comprised in the districts of Balaghat, Bastar, Betul, Bllaspur, Chhindwara, Damoh, Durg, Hoshangabad, Jabalpur. Khandwa (East Niwar), Mandla, Narsimhapur, Raigerh, Raipur, Raisen, Sagar, S'eoni an£ Surguja in the State of Madhya Pradesh.

Territory F;

The areas comprised in the districts of Bhind, Chattarpur, Datia, Dewas, Dhar Guna, Gwalior, Indore, Jhabua, Khargone (West Niwar). Mand'saur Morena, Parma, Rajgarh, Ratlam, Rewa, Satna, Sehore, Shahdol Shajapur, Shivpuri, Sidhi, Tikkamgarh, Ujjain and Vidisha in the State of Madhya Pradesh.

Territory G:

The whole of the State of Rajasthan,

Territory Jf:

(a) The areas comprised in the districts of Adilabad, Karimnagar, Kham- mam, Hyderabad, Medak, Mahbubnagar, Nalgonda, Nizamabad and Wara'ngal in the State of Andhra Pradesh;

fc) the areas comprised in the districts of Aurangabad, Bhir. Nandad, Osmanabad and Parbhani in the State of Maharashtra.

Territory I:

The areas comprised in the districts of Bangalore, Bellary, Chikmagalur, Chitaradurga, Coorg Hassan, Kolar, Mandya, Mysore, S'himoga, South Kanara and Tumkur in the State of Karnataka.

Territory J:

The areas comprised in the districts of Anantapur, Chittoor, Cuddapah, East Godavari Guntur Krishna, Kurnool, Nellore, Prakasam, Srikakulam, Vishakapatnam and West Godavari in the State of Andhra Pradesh.

Territory K:

(a) The whole of the States of Kerala and Tamil Nadu; (b) the whole of the Union territories of Pandicherry and Lakshadweep.

Territory L;

(i) United Kingdom and Ireland. (ii) Western Europe.

ttv) North Africa including Algeria, Morocco, Tunisia, Libya Mauritania, GuineaT Senegal, Mali Upper Volta, Ivorv Coast, Gabon, Togo, Daho- mey and Gibralter.

(Y) West Africa, including Ghana, Nigeria, Sierra Leone, Gambia, Cameroon and Liberia.

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(vi) East Africa, including Kenya, Uganda, Tanzania, Zambia, Malawi.

Mozambique, Seychelles, Ethiopia, Somalia, Rwanda and Conuo.

(vii) Mauritius, Madagascar (Malagasay Republic) and Reunion Islands, (viil) Aden, Yemen and Djibouti.

(ix) Middle East, including United Arab Republic, Sudan, Lebanon, Syria,

Jordan, Iran, Iraq and Turkey,

(x) Afghanistan,

(xi) Israel.

'(xii) Arabian Gulf, includinc Bahrain, Kuwait, Qatar, Saudi Arabia, United Arab Emirates (formerly called the Trucial States) and Oman.

(xiii) Sri Lanka. (xiv) Bangla Desh. (xv) Burma.

!

<(xx) West Indies, including Antigua, Barbados, Jamaica, Trinidad and Tobago, St. Lucia, St. Vincent, Panama, Surinam, Guyana and French Guyana.

(xxi) Bhutan and Nepal.

Explanation 2.—The reference to any district in Explanation 1 shall be con- strued as a reference to the areas comprised in that district on the date on which the Income-tax (Seventh Amendment) Rules. 1976 are notified, in the Official Gazette.

."9B. Deduction, in respect of expenditure on acquisition of distribution rights of feature films.—(1) In computing the profits and gains of the business of distribution of feature films carried on by a person (the person carrying on such business hereafter in this rule referred to as film distributor), the deduction in respect of the cost or acquisition of •a feature film ehall be allowed in accordance with sub-rule (2) to sub-rule (4).

Explanation.—For the purposes of "this rule, "cost of acquisition", in relation to a feature film, means the amount paid by the film distributor to the film producer as denned in rule 9A under an agreement entered into toy him with such film producer for acquiring the rights of exhibition and, where the rights of exhibition have been acquired on a minimum guarantee basis, the minimum amount guaranteed, not being—

(i) the amount of expenditure incurred by the film distributor for the preparation of the positive prints of the film; and

(ii) the expenditure incurred by him in connection with the advertisement of the film,

<(2) Where a feature film is acquired by the film distributor in any pre- vious year and in such previous year,—

{a) the film distributor sells all rights of exhibition of the film, the entire cost or acquisition of the film shall be allowed as a deduction in computing the profits and gains of such previous year; or

(b) the film distributor,—

(i) himself exhibits the film on a commercial basis in all or some of the areas; or

2 3 24 T HE GAZETTE OF INDIA EXTRAORDINARY PART II—SEC. 3(il|

and the film is released for exhibition on a cammercial basis at least ninety days before the end of such previous year, the entire cost of acquisition of the film shall be allowed as a deduction in com- puting the profits and gains of such previous year.

(3) Where a feature film in acquired by the film distributor in any previous.

year and in such previous year the film distributor—

(a) himself exhibits the film On a commercial basis in all or some of the

areas; or

(b) sells the rights of exhibition of the film in respect of some of the

areas; or

(c) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas,

and the film Is not released for exhibition on a commercial basis at least ninety days before the end of such previous year, the.cost of acquisition of the film in so far as it does not exceed the amount realised by the film distributor by exhibiting the film on a commercial basis or the amount for which the rights of exhibition have been sold or, as the case may be, the aggregate of the amounts realised by the film distributor by exhibiting the film and by the sale of the rights of exhibition, shall be allowed as a deduction in computing the profits and gains of such previous year; and the balance, if any, shall be carried forward to the next following previous year and allowed as a deduction in that year.

(4) Where, during the previous year in which a feature film is acquired by the film distributor, he does not himself exhibit the film on a commer- cial basis or does not sell the rights of exhibition of the film, no deduc- tion shall be allowed in respect of the cost of acquisition of the film in computing the profits and gains of such previous year; and the entire cost of acquisition shall be carried forward to the next follow-, ing previous year and allowed as a deduction in that year.

(5) Notwithstanding anything contained in the foregoing -or o visions of ihis

rule, the deduction under this rule shall not be allowed unless—

(a) in a case where the film distributor—

(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 distributor 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 or due in excess of the guaranteed amount, or where the film distri- butor follows cash system of accounting, the amount received to- wards the minimum guarantee and the amount, if any, received in excess of the guaranteed amount, are credited in the books of ac- count maintained by him in respect of the year in which the deduc- tion is admissible.

(6) For the purposes of this rule,—

(i) the sale of the rights of exhibition of fl feature film includes the lease of such rights or their transfer On a minimum guarantee basis;

(ii) the rights of exhibition of a feature film shall be deemeed to have been sold only on the date when the positive prints of the film are delivered by the film distributor to the purchaser of such rights.

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(7) Nothing contained in sub-rule (1) to sub-rule (6) shall apply—

(a) in relation to any assessment year commencing on the 1st day ot April, 1973, the 1st day of April, 1974, the 1st day of April. 1975, on the 1st day of April, 1970, unless—

(i) in a case where the assessment in respect of that year is pending before the Income-tax Officer, the film distributor exercises an option by furnishing a declaration in writing to the Income-tax Officer (such option being final for that assessment year and for every subsequent assessment year) that the cost of acquisition of the feature film may be allowed in accordance with the provisions of sub-rule (1) to sub-rule (6);

(ii) in a case where the assessment in respect ol that year has been completed by the Income-tax Officer and the film distributor has preferred or prefers an appeal or revision against the assessment made by the Income-tax Officer, the film distributor exer- cises an option bv furnishing a declaration in writing to the Appellate Assistant Commissioner, the Appellate Tribunal or, as the case may be,, the Commissioner (such option being final for that assessment year and for every subsequent assessment year) that the cost of acquisition of the feature film may be allowed In accordance with the provisions of sub-rule (1) to sub-rule (6); (b) in relation to any assessment year commencing before the 1st day of

April, 1973.*.

[No. 1602/F,No.l42(21)/76-TPLJ

S. N. SHENDE,

Secy.. Central Board of Direct Taxes.

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*33"

2334 T Ba Q A Z ¹ T TB ⁰ I! D f D lA KXTRAORDINABY PAST II—toe MM)

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2337 PK1NTED BY TUB GENERAL MANAGER, GOVERNMENT OF INDIA PRESS, MINTO ROAD, NEW DELHI AND PUBLISHED BY THB CONTROLLER OF PUBLICATIONS, DELHI, J976