Rule 273 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 273 of the Income-tax Rules, 2026 mirrors rule 272 for the film distributor, allowing the entire cost of acquisition where all rights are sold or the film is released ninety days before the year end — but it differs from rule 272 in four material ways.
The common structure
Rule 273 is drafted as a near-copy of rule 272, with cost of acquisition in place of cost of production and the film distributor in place of the film producer. The 1962 parallel is rule 9B. The three outcomes are identical in shape:
| Situation in the year of acquisition | Deduction under rule 273 | Carry forward |
|---|---|---|
| Distributor sells all rights of exhibition — sub-rule (2)(a) | Entire cost of acquisition | None |
| Distributor exhibits himself, sells some areas, or both, and the film is released commercially at least ninety days before the year end — sub-rule (2)(b) | Entire cost of acquisition | None |
| Same activity, but not released ninety days before the year end — sub-rule (3) | Capped at the amount realised by exhibition, the amount for which rights were sold, or the aggregate | Balance to the next following tax year |
| Distributor neither exhibits nor sells — sub-rule (4) | Nil | Entire cost to the next following tax year |
Sub-rule (5) imposes the same crediting condition: the amounts realised, or the minimum guaranteed amount and any excess received or due — or, on the cash system, amounts received — must be credited in the books for the year in which the deduction is admissible.
This is the first substantive difference and it is easy to miss because the wording is otherwise so close. Rule 272 measures everything from the year the film is certified for release by the Board of Film Censors. Rule 273 measures from the year the film is acquired by the film distributor. For a distributor who buys rights in a later year than certification — the ordinary case for a re-sale or a territory picked up after release — the relevant year, and therefore the ninety-day computation, is his own acquisition year.
The second difference — one delivery test, not two
Sub-rule (6)(b) of rule 273: the rights of exhibition are 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.
Rule 272(7)(b) has two limbs — delivery of positive prints, or, where the agreement provides that the distributor will make the prints, delivery of the negative. Rule 273 has only the first. A distributor who parts with a negative rather than prints has no equivalent provision fixing the date of sale, and must fall back on the general facts.
The third difference — the sub-distributor
Sub-rule (6)(c): "distributor shall include a sub-distributor". Rule 272 has no such provision, because it does not need one. In rule 273 the effect is to bring the whole chain within the rule: a sub-distributor acquiring territory rights from a distributor computes his deduction the same way, and the definition of cost of acquisition in sub-rule (6)(d) expressly contemplates an amount paid "to the film producer or to another distributor".
The fourth difference — no residual discretion
Rule 272(6) lets the Assessing Officer allow a producer's deduction in such other manner as he considers suitable where the rights were transferred by a mode the rule does not cover, or where applying the rule is not practicable. Rule 273 contains no such provision. The consequence for a distributor with a modern licensing arrangement that maps onto neither "exhibits the film on a commercial basis" nor "sells the rights of exhibition" is that sub-rule (4) applies on its terms — no deduction that year, entire cost carried forward — with no discretionary route out. That asymmetry between two otherwise parallel rules is worth knowing before structuring a deal.
Cost of acquisition
Sub-rule (6)(d): "cost of acquisition" means the amount paid by the film distributor to the film producer or to another distributor under an agreement for acquiring the rights of exhibition — and where the rights were acquired on a minimum guarantee basis, the minimum amount guaranteed — not being:
- expenditure incurred by the distributor on the preparation of positive prints; and
- expenditure incurred by him in connection with the advertisement of the film.
Sub-rule (6)(a) adds that sale of rights includes their lease or transfer on a minimum guarantee basis.
Rule 272(8)(b)(ii) excludes advertising expenditure incurred after the film is certified for release — so pre-certification publicity sits inside a producer's cost of production. Rule 273(6)(d)(ii) excludes advertising expenditure with no time qualifier at all. For a distributor, all advertising spend is outside cost of acquisition. That is not a disallowance — it remains ordinary deductible business expenditure — but it stays outside the deferral machinery of rule 273 and is therefore allowable in the year incurred.
Source note on the drafting
First, sub-rule (1) of rule 273 reads: "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)". Rule 272(1) uses the identical phrase for the producer. On its face rule 273 describes the wrong business — it should read distribution. Nothing else in the rule supports a production reading, and every operative sub-rule speaks of acquisition.
Second, sub-rule (5) joins its two cases with "and" — "(a) in a case where the film distributor ... and (b) in a case where the film distributor has transferred the rights on a minimum guarantee basis". Rule 272(5) uses "or". The two cases are mutually exclusive alternatives, so "and" cannot be read literally without making the condition impossible to satisfy.
Both are reproduced here rather than silently amended. Neither creates real doubt about the intended operation, but both are worth knowing before quoting the rule in a submission.
Worked example
| Facts | Position under rule 273 |
|---|---|
| Distributor acquires rights in July; sells all rights in September | Entire cost of acquisition — no release test |
| Acquires in May; film released 1 November; year ends 31 March | Entire cost — more than ninety days |
| Acquires in January; film released 10 March | Capped; balance to the next year |
| Acquires in March; neither exhibits nor sells by year end | Nil; entire cost to the next year, with no discretionary relief |
| Film certified in an earlier year than acquisition | The acquisition year governs |
| Sub-distributor acquires a territory from the distributor | Within the rule — sub-rule (6)(c) |
| Distributor delivers a negative rather than prints | No date-of-sale provision covers it, unlike rule 272 |
| Minimum guarantee due but uncredited in the year | Deduction fails — sub-rule (5) |
| Distributor's print costs | Outside cost of acquisition |
| Distributor's pre-release publicity spend | Outside cost of acquisition — no time qualifier |
Compliance checklist
- Fix the tax year of acquisition — rule 273 runs from it, not from certification.
- Establish whether all rights were on-sold, which removes the release test.
- Count the ninety days back from the year end.
- Where capped, quantify amounts realised and rights consideration and carry the balance forward one year.
- Credit the corresponding receipts in the same year's books.
- Date an on-sale by delivery of positive prints.
- Treat a sub-distributor as within the rule.
- Keep print and all advertising costs outside cost of acquisition, and remember there is no sub-rule (6) discretion to fall back on.
Common mistakes
- Running the year from certification instead of acquisition.
- Expecting an Assessing Officer discretion that rule 273 does not contain.
- Importing rule 272's negative-delivery test into a distributor's computation.
- Including advertising spend in cost of acquisition.
- Overlooking a sub-distributor in the chain.
- Failing to credit a minimum guarantee in the year of deduction.
Which year this governs
The Income-tax Rules, 2026 are made under the Income-tax Act, 2025. The 1962 parallel to rule 273 is rule 9B, given for tracing only. Verify the current text before finalising a distributor's computation.