327. Rule 9A of the Income-tax Rules, 1962 - Whether subsidy received by producers of regional feature films, which has not been charged to tax, shall not be reduced from cost of production of the film
Circular No. 541 was issued by the Central Board of Direct Taxes on 25 July 1989. Its subject is 327. Rule 9A of the Income-tax Rules, 1962 - Whether subsidy received by producers of regional feature films, which has not been charged to tax, shall not be reduced from cost of production of the film.
Takes State subsidy to regional feature film producers out of tax, but requires it to be knocked off the cost of production. Income-tax authorities had been taxing the subsidy as a revenue receipt incidental to film production; the Tribunal Benches were divided and the Andhra Pradesh High Court in CIT v. Chitra Kalpa [1989] 177 ITR 540 held it to be capital in character. To avoid controversy and litigation, the Board decides such subsidy is not to be charged as a revenue receipt. The Explanation to rule 9A(1), as amended by the Income-tax (Seventh Amendment) Rules, 1989 with effect from 7 July 1989, requires the cost of production of a feature film to be reduced by a subsidy received under a Government scheme where that subsidy has not been included in computing total income, so the untaxed subsidy comes off the cost of production. Both the rule amendment and this concession, which is tied to it, apply from assessment year 1990-91 onwards.
The Board had representations against the taxation of subsidies granted by State Governments to producers of feature films in regional languages, and acted to avoid controversy and litigation.
327. Rule 9A of the Income-tax Rules, 1962 - Whether subsidy received by producers of regional feature films, which has not been charged to tax, shall not be reduced from cost of production of the film
1. The Board has received representations against the taxation of the subsidy granted by the State Governments to producers of feature films in regional languages.
2. The income-tax authorities have been treating the subsidy as revenue receipt incidental to the carrying on of the business of film production and have been charging it to tax. Different Benches of the Income-tax Appellate Tribunal are divided on this issue. The Andhra Pradesh High Court, in the case of CIT v. Chitra Kalpa [1989] 177 ITR 540 held that the subsidy has the character of a capital receipt.
3. With a view to avoiding controversy and litigation in the matter, the Board has decided that such subsidy received by producers of regional feature films should not be charged to tax as revenue receipt.
4. In this connection, it may, however, be pointed out that the Explanation to sub-rule (1) of rule 9A of the Income-tax Rules, 1962, as amended by the Income-tax (Seventh Amendment) Rules, 1989 with effect from 7th July, 1989, provides, inter alia, that the cost of production of a feature film shall be reduced by the subsidy received by the film producer under any scheme framed by Government, where such amount of subsidy has not been included in computing the total income of the assessee for any assessment year. Conversely the amount received by producers of regional feature films, which has not been charged to tax, shall be reduced from the cost of production of the film for the purpose of rule 9A of the Income-tax Rules, 1962.
5. The aforesaid amendment which has come into force with effect from 7th July, 1989 will apply in relation to the assessment year 1990-91 and subse- quent assessment years. Similarly, the concession provided under paragraph 3 of this Circular, which is intimately linked with the amendment of the aforesaid rule 9A, will also apply in relation to the assessment year 1990-91 and subsequent years.
Source : Circular No. 541, dated 25-7-1989, as amended by, Circular No. 544, dated 15-9-1989.
In the assessment of a film producer where a State subsidy has been taxed as revenue or where the cost of production has not been reduced by an untaxed subsidy.
Rules it names. Rule 9A of the Income-tax Rules, 1962. The 1962 Rules were replaced by the Income-tax Rules, 2026, which renumbered nearly everything: a rule number quoted here almost never means the same rule today.
Source: the Income Tax Department’s own published text — its page for this instrument.