By TIOL News Service

MUMBAI, MAY 27, 2016: THE issue is - Whether 'script writing' is an intellectual work of director only, and not of a company being an artificial entity. YES is the answer.

Facts of the case

A) The assessee company engaged in the business of provision of technical services in connection with cine equipments had filed its return of income for A.Y. 2009-10 declaring Nil total income. The assessee company claimed that it was in the process of producing films, preferred to sell the script since it was unable to complete the film due to financial difficulties as well as nonavailability of artists. The Assessee had claimed that the sale of script is part of the film making activities which is the main object of the company and therefore the income of Rs.32 ,00,000 /- from sale of scripts ought to be treated as normal business income. The assessment u/s 143(3) was completed wherein the income was determined at Rs.32,00,000/- by treating the receipt for sale of film scripts as 'income from other sources' instead of income from business as claimed by the assessee , and thereby disallowing the claim of various expenses claimed by the assessee . The CIT( A) had disposed off the assessee's appeal allowing the assessee partial relief of Rs.1,00,000. The AO and CIT( A) had treated same as 'income from other sources' and disallowed the claim of various expenses made by the assessee .

Having heard the parties, the Tribunal had held that

++ the CIT( A) has disallowed the claim of various expenses made by the assessee in the impugned order holding that it is observed by AO that a company, being an artificial entity, cannot write a cine script and script writing is .a human activity; and that sale was made by the assessee company since the asset (cine script) was an intellectual work of director, and not the company. Thus ,it is held that there was no business transaction involved during the year in the hands of the assessee company, and, hence, the income of Rs.32,00,000/- should be assessed as "income from other sources". Further, since it was held that there was no business activity during the year in the case of the assessee company, the AO disallowed the entire claim of expenses made by the appellant company, holding that the appellant could not establish the reasonableness of the various expenses claimed. Accordingly, he assessed the entire amount of Rs.32 ,00,000 /- under the head "income from other sources", without allowing any expenditure. It is held that script writing by the company is nowhere mentioned as an object of the company. In the incidental or ancillary objects of the company also, writing of script is nowhere mentioned. Thus, the company never intended to do the business of script writing. In its submissions, this fact has been admitted by the appellant by stating that the Directors wanted to keep the morale of the employees, for which either this activity or other activity was not material. In view of these facts, the income derived from sale of cine scripts amounting to Rs.32,00,000/- cannot be considered to have been out of the business activity of the assessee and, hence, the same cannot be taxed under the head 'business income'. Once it has been held that the income is not taxable as business income and there is a receipt of income, the same has to be taxed under the residual head, i.e. under the head 'income from other sources' u/s.56. As per Sec. 57(iii ), the expenditure laid out or expended wholly and exclusively for the purpose of making or earning such income is to be allowed as deduction;

++ it is observed that the CIT(A) has, inter alia , considered the records of assessment as also the submissions placed before and which form part of the assessee's paper book. It is also found that the assessee has failed to place on record any material evidence to controvert the findings of the learned CIT(A)/AO that the income from sale of film scripts is to be treated as 'income from other sources' and not business income as claimed and consequent disallowance of various expenses claimed by the assessee . In this view of the matter, it is opinioned that there is no sufficient reason for us to interfere with or deviate from the findings in the impugned order of the CIT( A) and therefore uphold the same.

(See 2016-TIOL-880-ITAT-MUM)