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Rule 273Published

Rule 273: Deduction for the cost of acquiring film distribution rights

Rule 273 is the distributor's counterpart to Rule 272. It sets out how a film distributor deducts the cost of acquisition of a feature film (essentially the amount paid to the producer or another distributor for exhibition rights). The timing depends on what the distributor does with the film in the tax year in which it is acquired: selling all exhibition rights, or exhibiting the film or selling rights and releasing it at least ninety days before the year ends, gives a full deduction in that year; a later release limits the deduction to the amounts realised, with the balance carried forward; and if the film is not exploited in that year, the whole cost moves to the next tax year. Receipts must be credited in the books of account.

Official notified Income-tax Rules, 2026

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Bare law

Rule 273 - Deduction in respect of expenditure on acquisition of distribution rights of feature films

(1) In computing the profits and gains of the business of production of feature films carried on by a person (herein referred to as the film distributor), the deduction in respect of the cost of acquisition of a feature film certified for release by the Board of Film Censors in a tax year shall be allowed in accordance with the provisions of sub-rules (2) to (4).

(2) Where a feature film is acquired by the film distributor in any tax year and in such tax year,—

(a) the film distributor sells all rights of exhibition of the film, the entire cost of acquisition of the film shall be allowed as a deduction in computing the profits and gains of such tax year; or

(b) the film distributor—

(i) himself exhibits the film on a commercial basis in all or some of the areas; or

(ii) sells the rights of exhibition of the film in respect of some of the areas; or

(iii) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas, and the film is released for exhibition on a commercial basis at least ninety days before the end of such tax year, the entire cost of acquisition of the film shall be allowed as a deduction in computing the profits and gains of such tax year.

(3) Where a feature film is acquired by the film distributor in any tax year and in such tax year, the film distributor—

(a) himself exhibits the film on a commercial basis in all or some of the areas; or

(b) sells the rights of exhibition of the film in respect of some of the areas; or

(c) himself exhibits the film on a commercial basis in certain areas and sells the rights of exhibition of the film in respect of all or some of the remaining areas, and the film is not released for exhibition on a commercial basis at least ninety days before the end of such tax year, the cost of acquisition of the film, in so far as it does not exceed—

(i) the amount realised by the film distributor by exhibiting the film on a commercial basis; or

(ii) the amount for which the rights of exhibition are sold; or

(iii) the aggregate of the amounts realised by the film distributor by exhibiting the film and by the sale of the rights of exhibition, shall be allowed as a deduction in computing the profits and gains of such tax year and the balance, if any, shall be carried forward to the next following tax year and allowed as a deduction in that year.

(4) Where, during the tax year in which a feature film is acquired by the film distributor, and–

(a) he does not himself exhibit the film on a commercial basis; or

(b) does not sell the rights of exhibition of the film, no deduction shall be allowed in respect of the cost of acquisition of the film in computing the profit and gains of such tax year and entire cost of acquisition shall be carried forward to the next following tax year and allowed as a deduction in that year.

(5) Irrespective of anything contained in sub-rules (1) to (4), the deduction under this rule shall not be allowed unless,—

(a) in a case, where the film distributor—

(i) has himself exhibited the feature film on a commercial basis; or

(ii) has sold the rights of exhibition of the feature film; or

(iii) has himself exhibited the feature film on a commercial basis in some areas and has sold the rights of exhibition of the feature film in respect of all or some of the remaining areas, the amount realised by exhibiting the film, or the amount for which the rights of exhibition have been sold or, as the case may be, the aggregate of such amounts, is credited in the books of account maintained by him in respect of the year in which the deduction is admissible; and

(b) in a case, where the film distributor has transferred the rights of exhibition of the feature film on a minimum guarantee basis, the minimum amount guaranteed and the amount, if any, received or due in excess of the guaranteed amount or where the film distributor follows cash system of accounting, the amount received towards the minimum guarantee and the amount, if any, received in excess of the guaranteed amount, are credited in the books of account maintained by him in respect of the year in which the deduction is admissible.

(6) For the purposes of this rule,—

(a) the sale of the rights of exhibition of a feature film includes the lease of such rights or their transfer on a minimum guarantee basis;

(b) the rights of exhibition of a feature film shall be considered to have been sold only on the date when the positive prints of the film are delivered by the film distributor to the purchaser of such rights;

(c) distributor shall include a sub-distributor; and

(d) "cost of acquisition", in relation to a feature film, means the amount paid by the film distributor to the film producer or to another distributor under an agreement entered into by the film distributor with such film producer or such other distributor, as the case may be, for acquiring the rights of exhibition and, where the rights of exhibition have been acquired on a minimum guarantee basis, the minimum amount guaranteed, not being—

(i) the amount of expenditure incurred by the film distributor for the preparation of the positive prints of the film; and

(ii) the expenditure incurred by him in connection with the advertisement of the film.

Rule breakdown

Scope: Rule 273(1)

The rule applies when computing profits and gains in respect of the deduction for the cost of acquisition of a feature film by the person referred to as the film distributor, in accordance with sub-rules (2) to (4).

As printed, sub-rule (1) refers to "the business of production of feature films carried on by a person (herein referred to as the film distributor)" and to a feature film "certified for release by the Board of Film Censors in a tax year", while sub-rules (2) to (4) are framed around the tax year in which the film is acquired by the distributor. The text is reproduced as printed.

Full deduction in the year of acquisition: Rule 273(2)

If, in the tax year of acquisition, the distributor sells all rights of exhibition of the film, the entire cost of acquisition is allowed in that tax year.

If, in that tax year, the distributor exhibits the film himself on a commercial basis in all or some areas, sells the exhibition rights for some areas, or does both, and the film is released for exhibition on a commercial basis at least ninety days before the end of the tax year, the entire cost of acquisition is allowed in that tax year.

Late release: deduction limited to realisations: Rule 273(3)

Where the distributor exhibits the film or sells exhibition rights in the year of acquisition but the film is not released at least ninety days before the end of that tax year, the deduction for that year is capped.

The cap is the amount realised by exhibiting the film, the amount for which exhibition rights are sold, or the aggregate of both, as the case may be.

Any balance of the cost of acquisition is carried forward to the next following tax year and allowed as a deduction in that year.

No exploitation in the year of acquisition: Rule 273(4)

Where, in the tax year of acquisition, the distributor does not himself exhibit the film on a commercial basis, or does not sell the exhibition rights (as the clauses are worded), no deduction is allowed in that tax year.

The entire cost of acquisition is carried forward to the next following tax year and allowed as a deduction in that year.

Receipts must be credited in the books: Rule 273(5)

Whatever sub-rules (1) to (4) say, the deduction is not allowed unless the relevant receipts are credited in the books of account maintained by the distributor for the year in which the deduction is admissible.

Where the distributor exhibited the film or sold rights, the amounts realised or the sale amounts (or their aggregate) must be credited.

Where rights were transferred on a minimum guarantee basis, the minimum amount guaranteed and any amount received or due in excess of it must be credited; a distributor following the cash system credits the amount received towards the minimum guarantee and any excess received.

Definitions and clarifications: Rule 273(6)

A sale of exhibition rights includes a lease of those rights or their transfer on a minimum guarantee basis.

Rights are treated as sold only on the date the distributor delivers positive prints of the film to the purchaser.

A distributor includes a sub-distributor.

Cost of acquisition is the amount paid by the distributor to the film producer or another distributor under an agreement for acquiring exhibition rights (and, in a minimum guarantee case, the minimum amount guaranteed), excluding expenditure on preparing positive prints and expenditure on advertising the film.

Points reproduced as printed in the gazette

Sub-rule (4): the lead-in ends "and–" (an en dash in the official text) and clause (b) reads "profit and gains"; both are reproduced as printed.

Sub-rule (5)(a) ends with "; and" before clause (b), whereas the corresponding clause in Rule 272(5)(a) ends with "; or". The text is reproduced as printed.

Unlike Rule 272, this rule has no Assessing Officer discretion clause and no reduction for Government subsidy; the term "Board of Film Censors" is defined in Rule 272(8)(a), which applies to that rule.

Key takeaways

Year of acquisition

Timing is tested in the tax year in which the distributor acquires the film.

Ninety-day test

Release at least ninety days before the year ends allows the full cost of acquisition that year.

Carry forward

A late release caps the deduction at realisations; the balance moves to the next tax year.

What is excluded

Positive-print and advertising expenditure are not part of cost of acquisition.

Practical checklist

  • Record the date of acquisition, the commercial release date and the end of the tax year to apply the ninety-day test.
  • Keep the agreement with the producer or other distributor showing the amount paid or minimum guarantee for exhibition rights.
  • Credit realisations and minimum guarantee amounts in the books for the year in which the deduction is claimed.

Avoid

  • Do not include positive-print or advertising expenditure in cost of acquisition.
  • Do not treat rights as sold before positive prints are delivered to the purchaser.

FAQs

Does Rule 273 apply to sub-distributors?

Yes. For the purposes of the rule, distributor includes a sub-distributor (Rule 273(6)(c)).

What is the cost of acquisition where rights are taken on a minimum guarantee basis?

The amount paid for the exhibition rights and, where they were acquired on a minimum guarantee basis, the minimum amount guaranteed, excluding expenditure on positive prints and advertisement of the film (Rule 273(6)(d)).

What if the film is released less than ninety days before the end of the year of acquisition?

The deduction for that year is limited to the amounts realised from exhibition and/or sale of rights; the balance is carried forward to the next following tax year and allowed in that year (Rule 273(3)).

When are rights treated as sold by a distributor?

Only on the date the distributor delivers positive prints of the film to the purchaser of the rights (Rule 273(6)(b)).

What must be credited in the books?

The amounts realised from exhibition or sale of rights, or, for minimum guarantee transfers, the minimum amount guaranteed and any excess received or due (received, under the cash system), for the year in which the deduction is admissible (Rule 273(5)).

Glossary

Film distributor
The person referred to in Rule 273(1); for the rule, distributor includes a sub-distributor (Rule 273(6)(c)).
Cost of acquisition
Amount paid to the producer or another distributor for exhibition rights and, in a minimum guarantee case, the minimum amount guaranteed, excluding positive-print and advertising expenditure (Rule 273(6)(d)).
Sale of exhibition rights
Includes a lease of the rights or their transfer on a minimum guarantee basis (Rule 273(6)(a)).

Official sources

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