The Bombay High Court has admitted an appeal filed by the IT authorities challenging an order of Income Tax Appellate Tribunal which had held that Rs 17.74 crore paid by Amitabh Bachchan Corporation Ltd (ABCL) to the actor and his wife Jaya in 1995 for their services was revenue expenditure and hence not taxable.
According to the appeal filed by the Income Tax Commissioner,the amount paid to the actors was a capital expenditure and hence taxable.
The court would now have to decide whether the money paid to the superstar and his wife was capital or revenue expenditure. The matter would be heard in due course.
ABCL had filed returns in 1995 showing a loss of Rs 17.74 crore on the ground that the amount paid to the actors was an expense following an agreement entered into by the company with Bachchans. The amount,ABCL said,was deductible from income as the company was in entertainment business.
In return for the payment,the Bachchans had allowed the company to use their names for diverse purposes and had also agreed to make themselves available to the company for 120 days a year,spanning ten years.
However,the assessment officer held that by making this payment,ABCL had acquired a brand. “It is a tool of the company and a new means of access for earning income. A new source acquisition is payment of capital nature,” the appeal contended.
Counsel for the Income Tax argued before Justice D Y Chandrachud and Justice M S Sanklecha that the payment made by ABCL for acquiring new asset and brand is source of earning income.
“He (Bachchan) is instrumental in earning income for the company and a source for earning profit; hence it is a capital expenditure”,the counsel contended.
By acquisition of the new brand,the company had facilitated or enabled the management to conduct the business efficiently and at the same time left the fixed income untouched,the appeal argued.
ABCL had moved the Commissioner of Income Tax (Appeals) that held that the expenditure was not capital but of revenue in nature which has to be spread over every year equally.
ABCL later filed a petition in Income Tax Tribunal seeking deduction of the entire amount in the same year which was allowed against which the IT moved the High Court by filing an appeal in 2006.