TMI Blog1988 (8) TMI 137X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to give you the Distribution, Exploitation and Exhibition Rights of out Picture' Production No. only in 35 mm forDelhi, UP territory as known in the film trade. (ii) That you will pay us a sum of Rs. 13,70,000 towards NET M.G. AMOUNT and the mode of payment will be as under: Rs. 25,000 on signing of this agreement Rs. 6,45,000 As per the progress of the picture. Rs. 5,00,000 Against delivery of 14 colour prints of the said picture. Rs.2,00,000 to be retained by you for the release and pre-rlease publicity. Rs. 13,70,000 Total (iii) That we shall be paying you a consolidate amount of Rs. 3,81,250 as your Distribution Commission on the above said amount, i.e. Rs. 13,70,000. (iv) That after realisation of the M.G. Amount of Rs. 13,70,000 plus your commission of Rs. 3,81,250 which amounts to Rs. 17,51,250 you shall be entitled to a commission of 50 per cent on all the further realisations of the said picture in the Said Territory and shall remit us our share of 50 per cent by Demand Draft on Bombay Banks together with the monthly Business Statement before 28th of every month. (v) That no commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng into account the said commission, the firm still showed a loss of Rs. 3,37,638 which was divided by it amongst its partners. According to the assessee, no income form the picture Ek Se Bad Kar EK, accrued to the assessee after the accounting period ending on31st March, 1977, because the recovery from the exhibition of the said picture never exceeded the sum of Rs. 17,51,250. 10. The authorities below have, however, not accepted the above case of the assessee. According to them, the mode of payment was the essence of the agreement dt. 31st Jan., 1979 and, according to it, Rs. 11,70,000 should have been paid in the manner indicated in cl. (2) of the said agreement, and, if that was not paid in the manner indicated, the commission in question would not become due to it, not at least in the accounting period ending on 31st March, 1977. They, accordingly, excluded the income of Rs. 3,81,250 from the receipt side of the assessee's profit and loss account and determined the loss of the firm at Rs. 7,16,095, as against the loss of Rs. 3,37,637 returned by the assessee firm for the asst. yr. 1977-78. In respect of asst. yr. 1978-79, 1979-80 and 1980-81 Rs. 2,59,970 being the realisatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own commission aggregating in all Rs. 17,51,250 by the promoter and it was only after the aggregate collections from the exhibition of the said film exceeded the aforesaid amount, that the question of further sharing of the realisation from the exhibition of the said film between the assessee and the producer in the ratio of 50:50 would arise. In the present case, that limit was never reached and so the question of the assessee making further payment to the producer in terms of c. (4) of the agreement did not arise. In fact, the assessee had not been able to recover its own commission in full from the exhibition of the said film. The accrual of the commission should, however, not be confused with the realisation of the commission by the assessee, The assessee has been maintaining mercantile system of accounting and, under it, it had to bring to its credit a right which had accrued in its favour as soon as it accrued and it could not postpone its crediting to the assessee's P L Account till it was, in fact, relaized. That was the basic distinction between the mercantile system and cash system of accounting. In total disregard of his system of accounting, the Revenue has tried to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which it had paid for Distribution Rights to the Producer, but also its commission income amounting to Rs. 3,81,250. The only objection of the learned CIT(A) against the above reasoning of the assessee has been, that the assessee never paid Rs. 11,70,000 to the producer. In fact, only Rs. 11,57,676 had been paid in cash by the assessee to the Producer. Therefore, according to the learned CIT(A) the commission of Rs. 3,81,250 could not accrue and arise to the assessee firm, during the accounting period under consideration. His observation in this regard were as below: "In view of this, it is clear that the so-called commission accrues to the appellant only after the collections crossed Rs. 13,70,000 and this stage reached only during the accounting year relating to the asst. yr. 1979-80. The effect of this would be that, in this and in subsequent years, instead of showing the amount realised in excess of Rs. 13,70,000 as collections, it would be showing as commission. In short, the appellant firm was not entitled to any commission in the year relevant to the asst. yr. 1977-78." 16. In our opinion, the above finding of the learned CIT(A) is not in consonance with the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts which are by way of adjustment of the claim of the assessee against the producer. Thus, on11th Oct., 1976a sum of Rs. 2,456.65 has been adjusted against the Producer on account of Hotel bill of the Producer paid by the assessee. Similarly, on10th March, 1977, a sum of Rs. 220 has been adjusted against the Producer by the assessee because it had to claim it from the Producer on account of cost of tickets. No objections can be taken to such adjustments between the two parties, when they are real. If they are fictitious, certainly they are to be ignored. The adjustment of Rs. 12,324 by the assessee against the amount of Rs. 3,81,250, which the Producer had agreed to give to the assessee by way commission was entirely in order from the accounting angle, more particularly, when both the sides agreed to the adjustment. To say, therefore, that as Rs. 11,70,000 had not been paid in cash so, the sum of Rs. 3,81,250 did not become due to the assessee by way of commission would not in our opinion, be correct. The letter of Dynamo International dt.10th March, 1977confirms the above position. The said firm concedes that commission of Rs. 3,81,250 was payable by it to the assessee and that R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o steps to recover the said amount. In these circumstances, the ITO disallowed the claim of bad debt. 21. The position is no better before us. This being the state of facts, the claim of the assessee was very correctly rejected by the authorities below and we decline to interfere with this part of the orders. 22. Rs. 13,500 were included as interest income due from M/s. J.S. Films. The learned CIT(A) has himself accepted in his order that the said J.S. Films had fallen on bad days and were not able to repay the amount and that because of this, it was not possible to tax Rs. 13,500 by way of income from interest from the said party and yet the addition of said amount of Rs. 13,500 was upheld by him by way of current interest income. The relevant observations of the order of the CIT(A) may be extracted here as below: "The appellant firm claimed that an amount of Rs. 13,500, taxed as accrued interest on the amount of Rs. 75,000 advanced to M/s. J.S. Films, which was taxed on accrual basis in the earlier years became irrecoverable. so far as the writing off of the amount of Rs. 13,500 being interest from M/s. J.S. Films during the assessment proceedings, a letter dt.12th March, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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