Amitabh Bachchan Corporation case
Amitabh Bachchan Corporation case
Amitabh Bachchan Corporation case
Commissioner of Income-Tax
Amitabh Bachchan Corporation
Date - 22 January, 2003
citations - 182 CTR Bom 350, 2003 261 ITR 45 Bom
Bench - S Kapadia and J Devadhar
1. The Department has come by way of appeal under Section 260A of the Income-tax Act, 1961, in respect of the assessment year 1995-96. The following question of law arises for our determination in this case.
"Whether, on the facts and circumstances of the case and in law, the Tribunal was justified in discussing the Department"s appeal against the order of the Commissioner of Income-tax (Appeals), deleting the addition made under Section 143(1)(a) of the Income-tax Act as it then stood, relying on the ratio of the judgment in the case of Khatau Junkar Ltd. v. K. S. Pathania  196 ITR 55 (Bom), without appreciating the Board Circular No. 689, dated August 24, 1994 (see  209 ITR (St.) 75), which permits prima facie disallowance on the basis of the information available in the return, accounts and documents annexed to it ?"
2. In the computation of the income for the assessment year 1995-96, the assesse-company claimed a loss of Rs. 17, 74, 85,826, after claiming expenditure of Rs. 18 crores. The assesse-company entered into entertainment business on and from September 1, 1994. Prior thereto, the main income of the assesse was by way of dividend only. As stated above, we are concerned with the year ending March 31, 1995, corresponding to the assessment year 1995-96. Therefore, during the accounting year in question, the assesse entered into entertainment business. The Department disallowed the expenditure of Rs. 18 crores on the ground that it was on capital account. In this connection, it is important to note the following facts. A sum of Rs. 15 crores was paid by the assessee to Shri Amitabh Bachchan and Rs. 3 crores was paid by the assessee-company to Smt. Jaya Bachchan, in all aggregating to Rs. 18 crores for using their brand value for a period of ten years as per the agreements entered into by the assessee. Accordingly, the assessee claimed deduction under Section 37(1) of the Act. As stated above, the assessee"s claim for deduction came to be rejected by the Assessing Officer. The matter was carried in appeal to the Commissioner of Income-tax (Appeals); the first appellate authority took the view that in this case, the central issue was whether Rs. 18 crores constituted expenditure on revenue or capital account. That such an issue cannot be decided by way of adjustment under Section 143(1) (a) of the Income-tax Act, as it stood at the relevant time. Therefore, without going into the merits, the Commissioner of Income-tax (Appeals) allowed the appeal. This decision was confirmed by the Tribunal. Hence, the Department has come by way of appeal to this court under Section 260A of the Income-tax Act.
3. Under Section 143(1) of the Income-tax Act, as it stood at the relevant time, the Income-tax Officer was required to make a summary assessment. Therefore, if the Income-tax Officer wanted to make such an assessment on the basis of the return, he had to take the return on its face value. However, under Section 143(1) the Income-tax Officer had no power to make adjustments. Therefore, after April 1, 1971, Section 143(1) (a) was brought on the statute book and as a result, if the Income-tax Officer wanted to make an assessment on the basis of the return, as filed, he was entitled to make certain adjustments to the income or loss declared in the return. Under Section 143(1) (a), the Income-tax Officer could rectify arithmetical errors in the returns or accounts. Under Section 143(1) (a), he could allow any deduction, allowance or relief on the basis of the information available in the return or accounts and documents, which were prima facie admissible, but not claimed. Similarly, he could disallow deduction, allowance or relief claimed in the return which, on the basis of the information available, in such return, accounts or documents, was, prima facie, inadmissible [see Khatau Junkar Ltd. v. K. S. Pathania  196 ITR 55 (Bom)].
4. The question which arises in this case is--whether the Department was justified in disallowing expenditure of Rs. 18 crores under Section 143(1) (a) on the ground that the expenditure stood incurred on capital account and, therefore, was inadmissible. In this connection, the Assessing Officer has drawn an adjustment sheet under Section 143(1) (a) of the Income-tax Act. On a perusal of the adjustment sheet, one finds that on the basis of the balance-sheet and the notes to accounts, the Assessing Officer disallowed the expenditure of Rs. 18 crores under Section 143(1) (a) on the ground that it was on capital account. The Assessing Officer came to the conclusion, on the facts, that the expenditure was incurred, not for expansion of business, but to enter into a new line of business, namely, entertainment business. It is important to bear in mind and it is well settled by various decisions of the Supreme Court that in order to ascertain whether expenditure was on revenue account or capital account, the Assessing Officer must consider the totality of facts and circumstances of each case. In the present case, the assessee is in entertainment business. In the present case, the brand is acquired for ten years and the outlay has been shown as miscellaneous expenditure. In the note to accounts, the auditors have certified that the brands are charged to revenue over the period of agreement. This is disbelieved by the Income-tax Officer, who has come to the conclusion that the note of the auditor was not correct because it was an outlay incurred for acquiring a benefit of enduring nature.
5. The narrow question which we are required to decide in this case is--whether, on the facts and circumstances of the case, the Assessing Officer was justified in disallowing expenditure of Rs. 18 crores as per adjustment sheet prepared by him under Section 143(1) (a) as it stood at the relevant time. In this case, as stated above, during the assessment year in question the assessee was in entertainment business and in the course of business, the assessee had acquired from the two actors, their brand value for ten years. This point required in depth examination, including the nature of business of the assessee, the terms and conditions of the agreement, the accounts of the assessee, etc. Whether an expenditure was on revenue account or capital account is required to be examined in the light of the totality of all facts for this purpose. Evidence would be required in the form of documents and accounts and also, it would require proper appreciation of the terms and conditions of the agreement between the assessee and the two actors. That, by merely looking at the balance-sheet and profit and loss account, one cannot infer the nature of the expenditure. That, such an exercise generally cannot be done by way of adjustments to the returns under Section 143(1) (a) of the Act. That, such a point cannot be deciphered by merely looking at the return, supported by balance-sheet and profit and loss account. In the circumstances, the Tribunal was justified in coming to the conclusion that the Income-tax Officer was not right in disallowing the expenditure by way of adjustment under Section 143(1) (a). The judgment of the Bombay High Court in the case of Khatau Junkar Ltd.  196 ITR 55 is, therefore, squarely applicable. Before concluding, we make it clear that in this case, we have not gone into the merits of the matter. Our judgment is confined only to the applicability of Section 143(1) (a) of the Act.
6. Consequently, the above question is answered in the affirmative, i.e., in favour of the assessee and against the Department.
7. The appeal, accordingly, stands disposed of. No order as to costs.