Circular No. 30 — Amortisation of cost of production/cost of acquiring distribution rights of films - Assess

What this is

Circular No. 30 was issued by the Central Board of Direct Taxes on 4 October 1969. Its subject is Amortisation of cost of production/cost of acquiring distribution rights of films - Assessments of film producers/distributors - General guidelines for allowance thereof.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Lets a film producer write off the whole cost of a film in the year of release. Circular No. 4 (XI-3) D dated 9 April 1959 had prescribed a formula amortising film cost over about three years, on the footing that a film has an effective life of that length. Producers represented that this is no longer so. Given the changed situation regarding the minimum guarantee system then operating in the industry, the Board accepts that an inflexible three-year rule is inappropriate and that the effective earning life of most present-day films seldom exceeds one year. It decides that a producer who does not wish to write off the cost in the manner of the earlier circular may write off the entire cost in the year the picture is released, and on his doing so the entire cost is allowed as a deduction in the year of release and of the write-off in the books. The 1959 circular is modified to that extent.

Why it was issued

Film producers represented to the Board that a cinema film no longer has an effective life of about three years, as the earlier formula had presumed.

Who it reaches

Film producers writing off cost of production
Distributors and producers working under the minimum guarantee system
Assessing Officers dealing with film amortisation claims
Producers who continue on the earlier three-year formula, which remains available

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

Amortisation of cost of production/cost of acquiring distribution rights of films - Assessments of film producers/distributors - General guidelines for allowance thereof

1. Attention is invited to Board’s Circular No. 4 (XI-3) D, dated 9-4-1959 [Clarification 4] on the above subject.
2. The film producers have represented to the Board that a cinema film no longer has an effective life of about 3 years as was presumed by the Income-tax Department when devising the formula for the amortisation of the cost of the films spelt cut in the circular mentioned above.
3. The matter has been carefully considered by the Board. In view of the changed situation regarding the minimum guarantee system operating in the film industry at present, it is perhaps inappropriate to resort to the inflexible rule in every case of amortisation of the cost of the film over a period of 3 years. The Board also agree that the effective and earning life of the large majority of the present-day cinema films seldom exceeds one year.
4. It has, accordingly, been decided that if the producer of a film does not wish to write off the cost of the film in his books in the manner indicated in Board’s circular mentioned above, then he may be permitted to write off the entire cost in the year in which the picture is released. On his doing so, the entire cost of the film will be allowed as an admissible deduction in the year in which the picture is released and the cost of the film is written off in the books.
5. Board’s Circular No. 4 (XI-3) D, dated 9-4-1959 is modified to the extent indicated above.
Circular : No. 30 [F. No. 9/80/69-IT(A-II)], dated 4-10-1969.

What to watch

The deduction follows the books: the full write-off is allowed in the year of release only if the cost is actually written off in the books of that year.
It is an option, not a compulsion — the earlier circular's method survives for a producer who prefers it.
The year that matters is the year the picture is released, not the year the cost was incurred.
The subject line also mentions distributors acquiring distribution rights, but the operative decision speaks of the producer of a film.

Where you meet it

In a film producer's assessment where the whole cost claimed in the year of release is spread back over years by the Assessing Officer.

← Circular No. 31 · Circular No. 16 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.