9911796707
TMI Blog1973 (8) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... e was examined on January 12, 1959, by the Income-tax Officer in this regard. He denied having engaged himself in currency smuggling activities. However, subsequently, he gave a letter on October 25, 1959, to the Income-tax Officer stating, inter alia, that with a view to purchase peace he was prepared to be assessed on a sum of Rs. 1,000 or Rs. 1,500 on this account for each of the assessment years 1957-58 and 1958-59. This letter of the assessee war construed by the Income-tax Officer as an admission on his part that he was engaged in currency smuggling activities and he estimated the turnover of those activities at, Rs. 3,00,000 each, year, yielding a profit at 10 per cent. He, therefore, included in the income returned a sum of Rs. 30,000 as undisclosed income from these activities in the assessment for 1958-59. The assessee had purchased a film called " New Life " for Rs. 50,000. He thereafter entered into a partnership agreement with three persons on March 1, 1954, under the name and style of " Nityakalyani Films " for the purpose of exploiting that picture. As per the terms of the said agreement, the other three partners paid Rs. 10,000 each towards the cost of the film. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal, however, felt that the profit rate at 10 per cent. adopted by the Income-tax Officer was too high and that a rate of 3 per cent. alone could be justified. The Tribunal, therefore, restricted the addition towards currency smuggling at Rs. 10,000. On the question of the assessee's claim for loss, the Tribunal observed that, having regard to the circumstances of this case, the assessee might have been in a position to claim his share of the loss as a business loss but for the fact that he himself had treated his share of the purchase price of the film as an investment and, therefore, it should be taken to be the loss of investment or capital and, therefore, the claim of the assessee has rightly been disallowed. Aggrieved against the decision of the Tribunal, the assessee has sought a reference to this court, and the following questions have been referred in T.C. No. 3 of 1968 : "1. Whether, on the facts and in the circumstances of the case, the addition of Rs. 10,000 as income of the assessee from currency smuggling business for the assessment year 1958-59 is justified? 2. Whether, on the facts and in the circumstances of the case, the disallowance of the assessee's cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee had currency smuggling activities, the letter dated October 25, 1959, given by the assessee admitting liability in part cannot be completely ignored in considering the levy of penalty, that a careful reading of the letter showed that the assessee had earned some income from such activities, that the letter could be taken to establish the department's case that the assessee had earned some income from the said source, and that, therefore, he was guilty of concealment in respect of that income. The Tribunal, however, took the view that the assessee can be taken to have concealed only a sum of Rs. 1,500 on the basis of the said letter. In this view the Tribunal took the concealed income in respect of all the three items at Rs. 11,046 (Rs. 8,317 for item No. 1, Rs. 1,500 for item No. 2 and Rs. 1,229 for item No. 3) and directed the Inspecting Assistant Commissioner to work out the amount of penalty on the said basis. At the instance of the assessee, the following questions have been referred to this court in T.C. No. 12 of 1968: 1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee had co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only to the sum of Rs. 1,500 referred to in the letter. The first question in T.C. No. 3 of 1968 is, therefore, answered in the affirmative and against the assessee. As regards the second question as to whether the assessee is entitled to claim a sum of Rs. 17,630 as trading loss, the learned counsel for the assessee refers to the following observations of the Tribunal: " It is true that if the assessee had purchased the film and exploited it himself, the result of the transaction might have been a business loss. Or, if all the four persons had worked the venture as an association, the total cost price may have been deductible from the resultant profits and the assessee might have been in a position to claim his share of the loss as a business loss " and contends that the disallowance of the assessee's claim was only on the basis that as per the accounts maintained by the assessee the sum of Rs. 20,000 represented the assessee's capital investment in the partnership which had exploited the film " New Life " and that, therefore, the loss in question should be taken to be loss of capital. The learned counsel urges that the revenue and the Tribunal are in error in not looking at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in revenue cases one must look at the substance of the thing and not at the manner in which the account is stated." It is on the basis of the above decisions the learned counsel for the assessee contends that in whatever manner the assessee has shown the said sum of Rs. 20,000 utilised for the purchase of the film " New Life " it represents only the value of the film which is a stock-in-trade purchased by him, that, therefore, the loss in the value of the stock-in-trade is admissible as a trading loss, that merely because the assessee has shown the sum of Rs. 20,000 as having been invested in the partnership which exploited the film that cannot be taken as conclusive and that the Tribunal has proceeded to disallow the claim of the assessee only because the said sum has been shown in the accounts as an investment in the film. The learned counsel referred to the decision of the Supreme Court in B. D. Barucha v. Commissioner of Income-tax, in support of this plea that even if the assessee had joined with others in exploiting the film, the loss incurred in the course of the exploitation of the film can be taken only to be a trading loss. In that case the assessee advanced initially ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilm as an investment in that firm. We are, however, of the view that whatever be the manner and the method of treatment of the sum of Rs. 20,000 utilised for the purchase of the film by the assessee in his books of account, the true character of the transaction cannot be lost sight of or ignored for the purpose of ascertaining the tax liability under the statute. If really the assessee has utilised the sum of Rs. 20,000 as his share of the purchase price of the film and has actually suffered loss in exploiting the said film, it will definitely amount to a loss in the film business. The fact that the assessee has shown the amount of Rs. 20,000 as capital invested in the firm will not make much difference, for it is not in dispute that the firm has been constituted only for the purpose of exploitation of the said film and that is the only solitary venture. It is also not in dispute that there is no separate assessment on the firm, and that the firm being a foreign firm it is not assessable. Further, on the facts of this case it could be taken that the film in question is a joint purchase by the assessee along with others and his share of the loss in the exploitation of the film by h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to the producer are in the nature of a business or trading expense." In that case it was held that the advances made are independent of the actual trading activity, that is the exhibition of film, and, therefore, the advances which have become irrecoverable cannot be treated as business or trading loss. In this case it is not possible to say that the sum of Rs. 20,000 utilised for the purchase of the exhibition rights in the film is independent of the assessee's activity as an exhibitor of the film and that the utilisation of Rs. 20,000 for the purchase of the distribution rights in the film is independent of the trading activity in question. It is, therefore, clear that the assessee is entitled to claim the said sum as a business loss. The second question in T.C. No. 3 of 1968 is, therefore, answered in the negative and in favour of the assessee. All the questions referred in T.C. No. 12 of 1968, relate to the penalty proceedings initiated against the assessee for concealment of certain particulars of income and as already stated the concealed items are three in number. The assessee has, right from the beginning, disputed the addition made by the Income-tax Officer in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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