B. R. Films vs. ACIT (ITAT Mumbai)

DATE: January 14, 2015 (Date of pronouncement)
DATE: January 21, 2015 (Date of publication)
AY: 2008-09
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Important law on recognition of revenue in the context of taxability of advance received for transfer of home video & satellite broadcasting for a period of five years explained

The Tribunal had to consider whether the advance received for transfer of rights (home video rights and satellite rights) of various films from the assessee to Moser Baer for a period of 5 years is assessable in the first year or over the life of the agreement. The AO held that as the assessee has transferred to the assignee i.e. MBIL all rights irrevocably and assessee has got irrevocable rights to use the advances received against the rights sold, the whole consideration should have been offered for taxation during the year itself and that the assessee was not entitled to defer revenue recognition by dividing the whole consideration over the period of the agreement. HELD by the Tribunal:

In CIT Vs Birla Gwalior Pvt. Ltd. 89 ITR 266, the Supreme Court had occasion to consider the question of accrual and the effect of subsequent events thereon. In this case Supreme Court made a distinction between “Real Income” and “hypothetical income” and stated that it is the real accrual of income that has to be taken into consideration and not a hypothetical accrual of income. On facts, the rights would commence in respect of each of the films on different dates and accordingly the assessee has offered the income in subsequent years. These facts are so clear and it is difficult to hold or even to contend that there was accrual in the very first year.

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