Income Tax cases of Film Stars

Jackie Shroff

Issue -1 : Advances received by film actor from producers would be taxed in year of receipt or  in year of release of film ?

Decision : Advances received by film actor from producers would be taxed in year of receipt and not in year of release of film

It is the case of the assessee that the advances are taken as income in the year of the release of the films which in itself is a faulty practice as the release of the films are not in the hands of the assessee as it is the sole prerogative of the producers of the films, whereas the assessee is enjoying the fruits of the advances from the day he gets them. In the film line, producers sign actors and pay for their services as per their box office reputation, therefore any payment received by the actor is according to his USP at the box office which is determined at the time of the signing of the agreements. We find that during the year under consideration the assessee has received Rs.1,10,10,062 out of which he has already offered Rs. 53,52,000 in the computation of income. The counsel pointed out that the assessee has also offered Rs. 27,58,062 in the assessment year 2006-07 and Rs. 2,50,000 in the assessment year 2007-08 out of the advance of Rs. 1,10,10,062. In our humble opinion this issue needs further verification at the assessment stage, we therefore restore this issue back to the files of the Assessing Officer. The Assessing Officer is directed to verify the claim of the assessee that he has offered out of the total advance of Rs. 1,10,10,062, Rs. 27,58,062 in the assessment year 2006-07 and Rs. 2,50,000 in the assessment year 2007-08 and if found correct only the balance amount should be taxed in the year under consideration, to avoid double taxation of the same income. This will also cover the decision of the Delhi Bench in the case of Asstt. CIT v. Fox Mandal & Co., in I. T. A. 3377/Del/2006, daed 11-1-2008] relied upon by the assessee.

Issue -2 :- Whether  Interest paid by assessee, who was a film actor, on loan taken from bank for discharge of his personal liabilities was allowable expenditure ?

Decision :-The assessee being a film star had to maintain a certain set of standard of living for which he may require money from time to time. Even assuming that the assessee had borrowed money to purchase luxurious car, that would be justified looking to the nature of profession of the assessee.

Case Reference : IN THE ITAT MUMBAI BENCH ‘J’ : Jackie Shroff v.  Income-tax Officer, D.K. AGRAWAL, JUDICIAL MEMBER  AND N.K. BILLAIYA, ACCOUNTANT MEMBER ,IT APPEAL NOS. 6457 & 6468 (MUM.) OF 2008 [ASSESSMENT YEAR 2005-06] AUGUST  29, 2012

Amitabh Bachchan Corpn. Ltd

Issue : Assessee was running business in the name and style of “M/s. Sopan Leasing Pvt. Ltd.”. Subsequently the name was changed to “M/s Amitabh Bachchan Corporation Limited” (‘ABCL’ for short). On 1-10-1994, pursuant to amalgamation, another Private Limited company owned by Shri Bachchan in the name of M/s. Saraswati Auto Visual Pvt. Ltd. was amalgamated with ABCL. This was approved by the jurisdictional High Court vide order dated 31-8-1995 on application No. 79 of 1995 filed by the assessee.

While framing the assessment order, Assessing Officer noticed, an amount of Rs. 18 crores, being aggregate of amounts of Rs. 15 crores and Rs. 3 crores, was paid to Shri Amitabh Bachchan and Smt. Jaya Bachchan and the amount was paid in terms of agreements entered with them and claimed as deductible, in view of company entering into entertainment business.

Assessing Officer did not allow the claim of deduction under section 37(1) and treated it as capital expenditure being payment for a new asset  acquired, i.e., brand of the star, which is the tool for earning the income.

Held

Undoubtedly, the payment to acquire right, title and interest exclusively of cinema theatre can only be treated as acquisition of source itself. However, the payment to Amitabh Bachchan and Jaya Bachchan, artists, was a payment for use of their artistic talents. It was not acquisition of source itself. Source would exist independently and they were also free to perform for others, except for the time and duration which was acquired by the assessee by virtue of the payments in question. [Para 59]

The agreement was for the performance of 120 days in a year for ten years and the payment was made in lump sum. For each year, the artists were exclusively available to the assessee. For the remaining days over the entire period of ten years they were free to perform for others. It was an agreement to pay for the performance and the assessee had no exclusive hold on them. The assessee was free to enter into agreement with other artists even for similar nature of performance. Had the assessee engaged the artists without this agreement for each and every engagement, the assessee had to make independent payment. In the instant case, the payment was consolidated and paid in lump sum. By making that payment in lump sum the assessee, in fact, saved a recurring payment, which was otherwise to be treated as revenue payment. [Para 60]

The assessee made the payment to avail the performance of the artists when it was expedient to get the artists in the interest of trade and, therefore, the same was deductible expenditure. The payment made to avail the possibility of an advantage should be considered as a payment made to remove a possible disadvantage and it is not a payment to acquire an enduring advantage. [Para 62]

Hence, the payment in question was allowable as a revenue expenditure under section 37(1). [Para 64]

Case Referece : IN THE ITAT MUMBAI BENCH ‘I’ , Amitabh Bachchan Corpn. Ltd. v. Deputy Commissioner of Income-tax, Central Circle 13, Mumbai, K.P.T. THANGAL, VICE PRESIDENT AND K.K. BOLIYA, ACCOUNTANT MEMBER IT APPEAL NO. 4452 (MUM.) OF 2000 C.O. NO. 271 (MUM.) OF 2003 [ASSESSMENT YEAR 1995-96] JUNE 5, 2006

Ms. Aishwarya Rai

Issue

Amounts received from film producers were shown as advances for by the assessee  the reason that the shooting of those films were not commenced. When the assessee had not accomplished her contract work she thought that it was not proper for her to treat such receipt as income. Therefore, the amounts were treated as advance amount. Later on, on better professional advice, the assessee decided to follow the usual practice prevalent in film industry and offered the entire receipts on cash basis as income.

The Assessing Officer initiated penalty proceedings under section 271(1)(c) on the ground that the assessee has filed inaccurate particulars of her income.

Held

Even though the assessee has not offered those advances as income, there is no question of furnishing any inaccurate particulars as far as this issue is concerned. Neither was there any question of concealment. The Assessing Officer has no dispute on the details furnished by the assessee regarding the professional receipts she had earned during the previous year. There is no dispute on the question of receipts. The assessee has accounted the receipts in a proper manner and they were all accepted by the Assessing Officer. The only question remained was whether the entire receipts were to be treated as the income of the assessee for the impugned assessment year or a portion of the receipts should be treated as advances to be treated as income for future assessment years. As the assessee was following mercantile system of accounting and her contractual obligations in respect of certain assignments were not accomplished during the relevant previous year, the assesseebona fidely adopted a view that the relevant amounts would be in the nature of advances as far as the impugned assessment year is concerned. We cannot make out a case of concealment ofincome or furnishing of inaccurate particulars as far as the above proposition initially made out by the assessee is concerned.

In the course of assessment proceedings, the assessee shifted her stand and offered the advances as income for taxation accepting the general practice followed in the film industry. What exactly happened in the present case is that in spite of a different view, the assessee opted for falling in line with the regular practice followed by the film personalities and to cooperate with the Assessing Officer to complete the assessment. Nothing more was happened in the course of assessment. The Assessing Officer has not detected any concealment. The Assessing Officer was not waiting for any particulars. The Assessing Officer has not pointed out what were the inaccurate particulars furnished by the assessee. An earlier view of the assessee was changed to a more popular view. This change of view cannot be the basis for imposing penalty under section 271(1)(c). If every addition made in the course of an assessment under section 143(3) is mechanically treated as the basis for imposing penalty, then there is no meaning for an assessment under section 143(3). An assessment under section 143(3) presupposes an assessment after enquiries. It is quite natural that there will be a number of adjustments either by way of additions or by way of disallowances. In certain cases, the assessee himself may come forward and offer some additional amount for assessment on the basis of the impression gathered at the time of assessment proceedings. These are all matters of common knowledge. These types of additions and disallowances will not make out a case of concealment or furnishing of inaccurate particulars. If the view of the Revenue is to be accepted, every addition or disallowance made in the course of an assessment would invariably result in imposing penalty which is nowhere implied as the intention of law.

Case Reference :- IN THE ITAT MUMBAI BENCH ‘D’ ,Deputy Commissioner of Income-tax, Cent. Cir. 2, Mumbai.  v. Ms. Aishwarya Rai, OK NARAYANAN, ACCOUNTANT MEMBER AND RAJPAL YADAV, JUDICIAL MEMBER, IT APPEAL NO. 2637 (MUM.) OF 2002 [ASSESSMENT YEAR 1998-99], AUGUST 25, 2006

Shashi Raj Kapoor

Issue :

ITAT Spl. Bench’s in N.M. Shah’s case held  that in the case of assessee’ s maintaining accounts on cash basis, the outstanding fees could not be included in the net wealth of the assessee on the valuation date.

The Tribunal following the Tribunal’s Special Bench Bombay’s decision in N.M. Shah v. Second WTO [1982] 1 ITD 244 and Rajendra Kumar Tuli v. Eighth WTO[1982] 1 ITD 213 , held that the outstanding remunerations due to the assessee, a film star, in the previous year relevant to the assessment years in question were not assessable. The Tribunal further held that the market value of the annuity policies was also not assessable.

Decision

The aforesaid decision of the Special Bench of Tribunal in N.M. Shah’s case (supra) stands overruled by the Supreme Court’s decision in the case of CWT v. Vysyaraju Badreenarayana Moorthy Raju [1985] 152 ITR 454 where it was held that what accrued as a right also fell to be included in the assets of an assessee under the Wealth-tax Act, 1957 and the system of accounting, mercantile, cash or hybrid, was of no relevance for the purpose of determining the assets of the assessee and even though the accounts of the assessee were maintained on cash basis, income which had accrued, though not realised, was liable to be included in the net wealth of the assessee. Accordingly, the aforesaid order of the Tribunal was not justified and, the error was to be rectified.

As the quantum of the wealth in respect of outstanding remuneration and annuities has not been adjudicated upon by CWT(A), we have to restore this matter to his file to go into the quantum of the aforesaid additions for the two years. In this context, CWT(A) should also take into consideration the decision inCWT v. Yuvraj Amrinder Singh [1985] 156 ITR 525 (SC) where it was held that annuity policy was exempt under section 5(1)(vi) as it was a type of insurance policy. In this context, CWT(A) will have to take into consideration that proviso to the said clause (vi) of section 5(1) was introduced with effect 1-4-1975 and the Supreme Court in the aforesaid decision in Yuvraj Amrinder Singh’s case (supra) was dealing with the years 1964-65 and 1965-66 which preceded 1975. In this context, CWT(A) will have to examine the annuity policies to further see that the following words added in paranthesis by Finance Act 1974 with effect from 1-4-1975 to section 2(e)(ii) are taken into consideration :

“(not being an annuity purchased by the assessee or purchased by any other person in pursuance of a contract with the assessee)”.

Case Reference : -[1987] 21 ITD 406 (BOM.)  IN THE ITAT BOMBAY BENCH ‘E’ Income-tax Officer v. Shashi Raj Kapoor  RAJENDRA, ACCOUNTANT MEMBER AND J.P. BENGRA, JUDICIAL MEMBER ,MISC. APPLICATION NO. 98 (BOM.) OF 1985 [ARISING OUT OF WT APPEAL NOS. 672 AND 673 (BOM.) OF 1982] [ASSESSMENT YEARS 1975-76 AND 1976-77] MARCH 11, 1987