TMI Blog1997 (6) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... 'Gentleman' to Sri K.T. Kunjumon, proprietor of M/s. Rachana Pictures for the areas of Madras city, North Arcot, South Arcot, Chenglepet Districts and Kerala for Rs. 70 lakhs. The assessee declared only a sum of Rs. 9,33,333 as realisation. It was claimed before the Assessing Officer that the assessee has leased out the film 'Gentleman' for a period of five years and the lease consideration of Rs. 70 lakhs was apportioned for a period of five years and the proportionate lease rent of Rs. 9,33,333 was shown in the return of income for the assessment year 1994-95 as lease consideration. The Assessing Officer observed that the assessee had claimed the entire cost of production of the said film as deduction under Rule 9A of the Income-tax Rules and this being so the assessee should have shown the entire amount realised by way of sale rights as his income, for the assessment year under consideration. Therefore, the Assessing Officer treated the entire amount of Rs. 70 lakhs received from M/s. Rachana Pictures as income of the assessee for the assessment year 1994-95 and included the same in the assessee's total income. 3. In first appeal, the CIT(Appeals) confirmed the action of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 9,33,333 has to be treated as income of that year, arising out of North Arcot, South Arcot, Chinglepet Districts of Tamilnadu and Kerala State received from M/s. Rachana Pictures and the balance amount of Rs. 60,66,667 as an advance from distributors shown in the liability side of the balance sheet, for the year ended 31-3-1994. According to the ld. counsel, the royalty is required to be accounted as per the terms of the agreement with Sri K.T. Kunjumon, proprietor of Rachana Pictures. The assessee admitted the total royalty amount received from others (other than Sri K.T. Kunjumon of Rachana Pictures) its income for the year wherein no such terms and conditions are stipulated. The reason for stipulating the terms and conditions on the spread over basis is that the area conveyed for exploitation on outright basis is wide one. The ld. counsel for the assessee relied on the orders of the Tribunal in the case of G.S.R. Krishnamurthy for the assessment years 1985-86 and 1986-87 in [IT Appeal Nos. 4141, 4043, 3738 and 3195 of (Mad.) 1989, dated 18-2-1994] and IT Appeal No. 1661 (Mad.) of 1989 for the assessment year 1986-87 in the case of Smt. G. Indira Devi (order dated 23-5-1995). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... starring Arjun, Madhubala, Goundamani and others Music by A.R. Rahman and directed by Shankar by way of yearly lease as provided in cl. 6. 2. The area covered by this agreement, for which the sole and exclusive lease rights have been granted by the lessor shall be the territories of Madras City, North Arcot, South Arcot and Chenglepet districts and Kerala generally known in film trade excluding Chitoor and Tirupathi now in Andhra Pradesh. 3. The lease period shall be 5 years from 3-7-1993 and shall remain valid upto 29-7-1998. 4. In consideration of the lease granted to the Lessee the Lessee agrees to deposit a sum of Rs. 70,00,000 which amount shall not carry any interest and shall be adjusted towards the yearly lease as provided in cl. 6 hereunder. 5. The lessee agreed to pay the interest free deposit of Rs. 70,00,000 which shall be adjusted towards the yearly lease of the said picture. 6. The lessee hereby agreed to pay the lessor the yearly lease as detailed hereunder :--- Year For the year Amount First 30-7-93 to 31-3-94 Rs. 9,33,333 Second 1-4-94 to 31-3-95 Rs. 14,00,000 Third 1-4-95 to 31-3-96 Rs. 14,00,000 Fourth 1-4-96 to 31-3-97 Rs. 14,00,000 Fifth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year; or (c) accrues or arises to him outside India during such year : Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-section (6) of section 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India ". It is clear from the provisions of section 5(1) reproduced above, that whatever income is received or deemed to be received in India by an assessee, or on behalf of an assessee, or whatever income accrues or arises or is deemed to accrue or arise to him in India by an assessee, is taxable in that year. 7. In the case of CIT v. Stanton Stavely (Overseas) Ltd. [1984] 146 ITR 405/[1983] 13 Taxman 162 (Cal.), the brief facts of the case were that the assessee entered into an agreement with Indian Iron Steel Co. Ltd. (IISCO for short) on 9-10-1956, Under that agreement the assessee was entitled to receive commission from IISCO. It was claimed by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be called fees for rendering technical services. Commission, on the other hand, would take in payments like broker's remuneration, agent's remuneration, or payments, according to the Tribunal. The Tribunal found that the receipts in question would be more appropriately covered by the term 'royalties' and 'fees' rather than by the expression 'commission'. On a reference, the Hon'ble Calcutta High Court held that it cannot be said that the Tribunal come to an improper or unreasonable or illegal conclusion or violated any principle of law in construing the provisions. Their Lordships pointed out that the nomenclature given by the parties in an agreement which is not defined in the Act, would not been conclusive while interpreting the document. [Emphasis supplied] Therefore, in the aforesaid case, the Hon'ble Calcutta High Court confirmed the finding of the Tribunal that amounts described as commission in the agreement between the assessee and IISCO were in the nature of royalties and fees for the technical services and not commission, though the word 'commission' was used in the agreement between the parties. 8. Similarly, in the case of Eklingji Trust v. CIT [1986] 158 ITR 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the devices for what they really are and to refuse to give judicial benediction." The parties to the agreement may frame the terms of the agreements in such a manner as to override the provisions of law and in such a case the issue cannot be decided merely on the basis of the terms of the agreement, if such terms override the provisions of the law. Under the Income-tax Act, as already stated, in view of section 4 of the Act the total income is chargeable to tax in accordance with the provisions of the Act. The assessee has shown total receipt from all the other lessees, to whom the film 'Gentleman' has been leased out for commercial exploitation, in different areas in the assessment year 1994-95. But in case of Sri K.T. Kunjumon, proprietor Rachana Pictures, only a sum of Rs. 9,33,333 was shown as income on the basis of the agreement. After perusing that terms and conditions of the agreement between the parties, we are of the considered opinion that the total income of Rs. 70 lakhs has accrued as well as has been received by the assessee in the previous year relevant to the assessment year 1994-95. Therefore, there is no question of not including the entire sum of Rs. 70 lakhs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70 lakhs for lease of the film 'Gentleman' for commercial exploitation by Rachana Pictures, which is not in the nature of royalty, but is in the nature of lease or sale consideration for the commercial exploitation of the said film. Therefore, even the Accounting Standard issued by the Institute of Chartered Accounts of India, relied on by the assessee's counsel, is not applicable. It may also be clarified that no accounting standard could override the provisions of law and the amount of Rs. 70 lakhs has accrued to the assessee and has also been received by the assessee in the previous year relevant to the assessment year 1994-95, which is correctly includible in his total income for the assessment year under consideration. 10. We have looked at the case of the assessee from another angle also. The assessee has debited the entire cost of production of the film 'Gentleman' to the profit and loss account but only a sum of Rs. 9,33,333, has been credited to the profit and loss account. When the assessee is carrying on business of film production and entire cost of production of the film 'Gentleman' is debited to his profit and loss account, then there is no justification for not sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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