JUDGMENT
1. August 27, 2004.The Income-tax Appellate Tribunal, New Delhi, has referred the following question of law under Section 27(1) of the Wealth-tax Act, 1957, hereinafter referred to as "the Act", for the opinion to this court :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that though the right to exploit a particular film for a particular period is property, it is not such an asset whose value can be added by making adjustments in the balance-sheet while acting under the provisions of Section 7(2)(a) of the Wealth-tax Act ?"
2. The present reference relates to the assessment year 1975-76. By a consolidated order, the Tribunal has referred the aforementioned question of law in respect of three assessees, namely, Narendra Kumar Gupta, Prem Kumar Gupta and Smt. Krishna Kumari, who were the partners, in the firm, M/s. Film Angels, hereinafter referred to as the "firm".
3. Briefly stated the facts giving rise to the present reference are as follows :
4. All the aforementioned three persons, as stated hereinabove, were the partners in the firm which was deriving income from distribution, exploitation and exhibition of cinema films in the territory of Delhi and Uttar Pradesh. For the purposes of wealth-tax the valuation date is March 31, 1975. The wealth-tax returns had been filed on the basis of the interest of the three partners in the above firm. During the course of assessment, the Wealth-tax Officer, however, found that at the relevant time the firm was having distribution rights in respect of four films particulars of which are as under:
5. The Wealth-tax Officer was of the view that the value of the distribution rights over the unexploited period under the various agreements was an asset of the firm, that asset was not indicated in the balance-sheet and consequently not in the net wealth returned by them. He found that the right of distribution, exhibition and exploitation of the said picture was for a period of ten years from the date of delivery of prints of the said picture to the distributor. In the agreement, the sums to be paid for the above rights and manner in which it was to be paid and the stages at which the instalments were to be paid was further specified. According to him, the term "property" and the term "asset" had widest import and included property of every description and the rights of the firm to exploit the cinema film for a particular period was an asset on the relevant valuation date and such asset has to be taken into consideration in ascertaining the net wealth of the firm and consequently of the partners. Relying upon a decision of the apex court in the case of CIT v. A. Krishnaswami Mudaliar [1964] 53 ITR 122, he held that the value of the unexploited period is to be treated as assets which was valued by him at Rs. 24 lakhs with corresponding share of each of the partners at Rs. 8 lakhs. Accordingly, an addition of Rs. 8 lakhs was made to the wealth of each of the partners. However, in appeal, the Appellate Assistant Commissioner taking note of the Rule 9B of the Income-tax Rules deleted the addition. In further appeal before the Tribunal, the Tribunal after considering various case laws has held that the right to exploit a cinema film in a particular territory for a particular period is an asset which might have some value depending upon the circumstances of the case. The value of the asset had to be determined according to the provisions of the rules framed thereunder. It has held that Section 7(2) of the Act was applicable and Rule 2B of the Wealth-tax Rules (hereinafter referred to as "the Rules") was not applicable as the asset has not been disclosed in the balance-sheet. It has further held that the provisions of Rule 2C of the Rules is not applicable as the asset which is not required to be disclosed in the balance-sheet cannot be covered under this Rule unless specifically provided. The Tribunal was of the view that where the particular expenditure was to be treated as a revenue expenditure, the assessee cannot be required to ascertain expenses of this right and its value for disclosing it in the balance-sheet and the principle laid down by the apex court in the case of A. Krishnaswami Mudaliar [1964] 53 ITR 122 stands modified as a result of insertion of Rule 9B as the Wealth-tax Act and the Income-tax Act are cognate enactments.
6. We have heard Sri Shambhu Chopra, learned standing counsel appearing for the Revenue and Sri P. K. Jain, learned counsel appearing for the respondents.
7. Learned counsel for the Revenue submitted that the Tribunal had itself come to the conclusion that the right to exploit a cinema film in a particular territory is an asset and has some value. Since it was not reflected in the balance-sheet as under the Income-tax Act it was treated as revenue expenditure, the provisions of Rule 2C of the Wealth-tax Rules were clearly attracted and, therefore, the value of the right to exploit a cinema film ought to have been included in the net wealth of the partners. He relied upon the following decisions :
1. CIT v. A. Krishnaswami Mudaliar [1964] 53 ITR 122 (SC) ;
2. Mrs. Khorshed Shapoor Chenai v. Asst. CED [1980] 122 ITR 21 (SC) ; and
3. CWT v. U. C. Mehatab [1998] 231 ITR 501 (SC).
8. Sri P. K. Jain, learned counsel for the respondents-assessees, however, submitted that under the Act, the firm was entitled to claim the entire expenses incurred for the exploitation and distribution rights of the film as a revenue expenditure. He submitted that prior to insertion of Rule 9B in the Income-tax Rules, in terms of the circulars issued by the Central Board of Direct Taxes, a distributor was entitled to claim the entire expenses incurred in the distribution rights of a film as revenue expenditure. He, thus, submitted that if an expenditure is being treated as' revenue expenditure there is no question of it being treated as having some value or an asset having some value at the relevant valuation date. He, therefore, submitted that the Tribunal has correctly upheld the deletion of the sum of Rs. 8 lakhs each in the case of three partners.
9. Having heard learned counsel for the parties, we find that the apex court in the case of Ahmed G. H. Ariff v. CWT [1970] 76 ITR 471 has held that the "property" is a term of the widest import and subject to any limitation which the context may require, it signifies every possible interest which a person clearly holds and enjoys. There is no justification or reason to give any restricted meaning to the word "asset" as defined by Section 2(e) when the language employed shows that it was intended to include property of every description.
10. The apex court in the case of A. Krishnaswami Mudaliar [1964] 53 ITR 122 has held that even in the case of a trading venture by exploitation of a wasting asset which in the present case was exploitation of a motion picture the assessees' stock-in-trade value of the unexpired exploitation rights at the end of the accounting period is to be taken into consideration while computing the profits and gains of the business.
11. It is true that prior to the insertion of Rule 9B of the Income-tax Rules, under the circulars issued by the Central Board of Direct Taxes the entire expenses for exploitation/distribution of motion pictures were allowed as deduction while computing the income of the firm. None the less it remains the stock-in-trade, which is an asset under Section 2(e) of the Act. Since the entire cost of acquiring distribution rights had been allowed as revenue expenditure, its value has not been reflected in the balance-sheet. Once it is held that the right to exploit the film was a valuable right and has rightly been so held by the Tribunal, the value of such right had to be included in the wealth of the firm and consequently of the partners. In such a situation, the provisions of Rule 2C of the Rules are fully attracted and under Clause (d) of Rule 2C its market value on the valuation date has to be taken into consideration. The apex court in the case of Mrs. Khorshed Shapoor Chenai [1980] 122 ITR 21 has held that the right to receive compensation for lands compulsorily acquired would be property, the value of which is to be taken into consideration of the purposes of estate duty. The aforesaid decision has been followed by the apex court in the case of U. C. Mehatab [1998] 231 ITR 501 wherein the apex court has held that the moment an assessee's land is acquired or otherwise vested in the State, he becomes entitled to compensation and merely because the amount of compensation is not determined immediately, it cannot be said that there is no right to compensation in the erstwhile holder and it constitutes an "asset" within the meaning of Section 2(e) of the Act.
12. It may be mentioned here that under the Income-tax Act various incentives, deductions and expenditures are allowed in Order to encourage a particular industry or to safeguard interest of a class of persons. Merely because an item of expenditure is 100 per cent, allowable under the Income-tax Act while computing the income it does not automatically mean that such item ceases to be an asset or has no value. It will still remain an asset and will have some market value which in appropriate cases may be brought to tax under the provisions of the Act.
13. The Andhra Pradesh High Court in the case of CWT v. Pachigolla Narasimha Rao [1982] 134 ITR 640 while considering as to whether the accrued interest is "property" as defined in Section 2(e) of the Act and is liable to be valued as an asset for the computation of net wealth, has held that the fact that the assessee is maintaining his accounts on cash basis and has not received the interest is not relevant. The analogy of the Income-tax Act cannot be extended to the Wealth-tax Act, because the Wealth-tax Act by means of Section 2(m) read with Section 2(e) defines what constitutes "net wealth" and an "asset". The indicia of ownership is enough to qualify the accrued interest as an "asset".
14. Applying the principles laid down by the apex court in the aforesaid decisions to the facts of the present case, we find that the value of unexpired period of exploitation rights of the motion pictures constitutes an "asset" which is determined in accordance with the provisions of Rule 2C(d) of the Rules as the same has not been shown in the balance-sheet.
15. In view of the foregoing discussion, we answer the question of law referred to us in the negative, i.e., in favour of the Revenue and against the assessees. However, the parties shall bear their own costs.