JUDGMENT (BHAN, J.)

1. With the leave of the Court the Revenue has filed the present appeal, against the judgment and order dated 27th November, 2001 of the High Court of Kerala in ITA No. 105/1999, rejecting the appeal filed by the appellant under Section 260 of the Income Tax Act, 1961 (for short "the Act").

2. The respondent-assessee (for short "the assessee") is a film producer. In his income tax return for the assessment year 1992-93, the assessee claimed the benefit of carry forward of Rs.39,43,830/- as amortization expenses. The Assessing Officer allowed the claim of amortization. On appeal, the Commissioner of Income Tax, in exercise of his jurisdiction under Section 263 of the Act, set aside the assessment and directed the Assessing Officer to withdraw the benefit of carry forward granted to the Assessee on the ground that, as the provisions of Section 80 of the Act are applicable, the benefit of carry forward of the expenses was not admissible to the assessee as the assessee had failed to file the income tax return in accordance with Section 139(3) of the Act. Appeal filed against the aforesaid order before the Income Tax Appellate Tribunal (for short "the Tribunal") was dismissed.

3. Thereafter, the Assessing Officer implemented the directions issued by the Commissioner of Income Tax by passing a fresh order under Section 143(3) withdrawing the benefit of carry forward of amortization expenses granted to the assessee. The assessee being aggrieved filed an appeal before the CIT (Appeals). CIT (Appeals) accepted the appeal. It was found that the computation of the amortization expenses to be carried forward, as shown by the assessee, was not correct. The assessee had claimed amortization expenses in respect of the two films, namely, (i) Ex Kannikcodi and (ii) Santhwanam. It appears that in the first film the assessee incurred heavy loss and to make up that loss the assessee ventured to produce the second film.

4. Rule 9A of the Income Tax Rules (for short "the Rules") provides for deduction in respect of the expenditure incurred on production of feature films. Having found that the computation of amortization expenses to be carried forward as shown by the assessee was not correct, CIT (Appeals) gave directions to the Assessing Officer to obtain separate accounts in respect of the different films produced by the assessee and determine the claim of the amortization in accordance with rule 9A of the Rules. It was clarified that in case there was loss in respect of the old film on such computation, that would have to be subject to the provisions of Sections 139(3) and 80 of the Act. In other words, it was held that in respect of old films if there was loss, the same would be eligible for carrying forward only if the return of income was filed within the statutory period. In regard to the second film, it was held that the amortization allowance for the next year was not subject to the provisions of Section 80 and Section 139(3) of the Act.

5. It was the finding of the appellate authority that the amortization expenses relating to the second year would have to be allowed separately while computing the income for the next year and not at the time of computation of the income for the current year. Being aggrieved against the order passed by the CIT (Appeals), Revenue filed an appeal before the Tribunal, which was dismissed with certain clarifications.

6. The revenue thereafter filed an appeal under Section 260 of the Act in the High Court. The High Court framed the following substantial question of law in the said appeal for its consideration:

"Whether on the facts and in the circumstances of the case the amortization loss computed under Rule 9A is subject to or not subject to the provisions of section 80 and section 139 of the Income Tax Act?"

7. Making a distinction between the carrying forward of the business loss, as provided under Section 80 of the Act, and carrying forward of the expenditure over the income for the rel