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TMI Blog1974 (6) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... ed company engaged in the financing of film production and in film distribution. Under an agreement dated 7th May, 1959, the assessee advanced a sum of Rs. 1,00,000 to one film producer, K. Munirathnam, hereinafter called " the producer ", carrying on business of film production under the name and style of " Sivakami Pictures ". In consideration of this financial assistance, it was provided in the agreement that the assessee was to be paid interest at 12 per cent. and a share of six annas in the rupee from the net profits realised by exploitation of the picture to be produced. Another agreement came to be executed on the 6th July, 1960, between the assessee and the producer where under the assessee was to advance further sums and in conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee refusing to take on lease any picture the producer has to be paid Rs. 1,00,000 for such a picture. If the producer failed to produce the first picture within a period of one year, then until such picture is produced the producer has to pay the assessee a sum of Rs. 16,750 per month with interest at 18 per cent. per annum from April 21, 1961, till such a picture was produced and released. If there was a default in payment of the said amount of Rs. 1,00,000 or the monthly payment of Rs. 16,750 as set out above, the assessee would be entitled to take proceedings for the recovery of the entire sum of Rs. 4,07,611.99 together with interest at 18 per cent. per annum. In respect of the pictures produced by the producer and taken on lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, the assessee was not entitled to treat the said sum as a bad debt and claim deduction in relation to the same. Aggrieved against the order of the Income-tax Officer, the assessee appealed to the Appellate Assistant Commissioner. It was contended on behalf of the assessee that it had lost once and for all the right of collection of the said amount of Rs. 1,00,000, that the debtor was not a man of means, that it was a genuine remission that was allowed by the assessee purely out of commercial consideration and expediency and that, therefore, it should be treated as an allowable item. The Appellate Assistant Commissioner, however, agreed with the Income-tax Officer and rejected the assessee's appeal holding that under the agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... October, 1961, was to substitute the loan agreement dated 7th May, 1959, for Rs. 1,00,000 with a fresh agreement under which the assessee was to get lease rights in certain pictures which are to be produced by the producer for certain districts. The Tribunal also found that there was nothing to show that the rights acquired in consideration of the so-called remission of Rs. 1,00,000 under the agreement dated 9th October, 1961, were not valuable rights. The question referred to us involves mainly the interpretation of the three agreements whose terms have been set out in brief earlier. The amount of Rs. 1,00,000 has been remitted by the assessee under the third agreement in consideration of the assessee getting the lease rights in the four ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghts in future which cannot be valued during the relevant assessment year. Whether the lease rights were of any value during the assessment year or not is not a relevant matter for considering the question at issue. The question is whether the sum of Rs. 1,00,000 was given up by the assessee as a bad debt or whether it has become a trade loss. Under the terms of the agreement the assessee gave up his right to collect the sum of Rs. 1,00,000 from the producer on consideration of getting certain lease rights in relation to certain pictures to be produced by the producer. We are not here to see whether the arrangement entered into by the assessee is really beneficial or not. What is material is that the giving up of the sum of Rs. 1,00,000 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n which the agreement is couched it is not possible for us to treat the sum of Rs. 1,00,000 as having been in fact remitted, though the word " remission " has been used. What in fact has taken place is to substitute the assessee's right to collect the sum of Rs. 1,00,000 immediately with fresh rights such as the lease, right in the four pictures to be produced and to have them exploited in the districts referred to above and to retain and appropriate the excess collections over and above the sum of Rs. 4 lakhs and odd. It cannot, therefore, be stated that the sum of Rs. 1,00,000 was given up by the assessee irrecoverable during the year in question. As already stated, though one lakh of rupees has been treated as an amount remitted under th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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