TMI Blog1981 (4) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... .G. Kuckreja, D.G. Kuckreja, H.G. Kuckereja and C.G. Kuckreja each having 12 1/2 per cent shares. This firm started business of acquiring rights of distribution, exhibition and exploitation of cinematographic films. The initial step was that this firm took over rights of distribution etc. in 16 films which had already been acquired by another firm M/s Desai Company Chandani Chowk, Delhi which was comprised of the three partners of the Desai Group who have mentioned above. The entire management of the partnership business was exclusively given over to the partners of the Desai group and in lieu thereof they were given remuneration calculated at the rate of 1.33 per cent each of the net collections of each pictures acquired, distributed, exhibited and exploited by the assessee firm. it was also stated in the deed that these three partners of the Desai group could exploit the pictures through M/s Desai Company on such terms and conditions as they may deem fit and proper as per trade practice and utilise the services of M/s Desai Company for-day-to-day management. M/s Desai Co. had been in this line for the last three decades and had thus sufficient experience and therefore, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commission was paid to the firm M/s Desai Company, since this firm was comprised of only 3 members of the Desai Group, who are partners in the assessee firm, it was virtually a payment by the assessee firm to the partners and, therefore, the provisions of s. 40(b) were applicable. ITO rejected the assessee's contention that the commission was paid to an independent entity and not to the partners and, therefore s. 40(b) could not be applied on the ground that if these were the intentions then it would have been clearly stated in the partnership deed of the assessee firm and similarly a change a would have been made in the deed by which M/s Desai Co. was constituted but no such changes had been made. Proceedings on these conclusions the ITO held that s. 40(b) was applicable and he added back in the computation of the assessments of the firm the amounts of Rs. 75,410 and Rs. 55,227. 4. The assessee appealed to the CIT (A). It was urged before the ld. Commr. That our M/s Desai Company was a separate and distinct entity too which commission had been paid by virtue of the agreement dt.31st Oct., 1973between the two firms and as such there was no question of applying s. 40(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business. Keeping this in view the three members of the Desai group were authorised by the firm to exhibit the films through b M/s Desai Company on such terms and conditions as may be considered fit having regard to trade practice. The authority so given to the three members of the Desai group who were to manage the business exclusively resulted in the agreement dt.31st Oct., 1973between the two firms. Under this agreement the exhibition of the films was to be done through M/s Desai Company on payment to them 4 per cent exploitation commission. The ld. counsel submitted that even though in cl. 6 of the partnership deed it had been provided that in view of management of the business, the three partners of the Desai group were to be paid commission at the rate of 1.33 per cent each of the net collections in the aforesaid circumstances the arrangement was modified and the entire commission which came to 4 per cent was actually paid to the firm M/s Desai Company. It was urged by the ld. counsel that the arrangement was made in a bona fide manner and there was no intention to defraud the Revenue. The payment to M/s Desai Company, therefore, could not be treated as a payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tners of the Desai group and in lieu they were to be paid commission at the rate of 1.33 per cent each of the net collections from exhibition of the films but at the same time, the members of Desai group were authorised to exhibit the picture through M/s Desai Company on such terms and conditions as may be deemed fit having regard to trade practice. By virtue of this authority the members of the Desai group utilised the services of M/s Desai Company for the exhibition of the films. Terms and conditions were ladi down in the agreement dt.31st Oct., 1973made between the two firms. These are the circumstances under which the commission at 1.33 per cent each to be paid to the three partners of Desai group was actually paid to M/s Desai Company in view of the services rendered by it in the exploitation of the films. Considering the fact that M/s Desai Company was experienced in the line and had all the equipment necessary for carrying on the business, it was only natural that the three members of the Desai group utilised the services experience and equipment of M/s Desai Company. There was nothing wrong in the manner in which agreement was entered into between the two firms si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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