TMI Blog1997 (4) TMI 55X X X X Extracts X X X X X X X X Extracts X X X X ..... of three films, namely, "Saheli", "Sagaai" and "Aaye Din Bahar Ke" for their distribution, exhibition and exploitation in the territories of Delhi and U. P. On September 1, 1965, it entered into a partnership with eight partners and the firm was styled as "Films Friends". The business of the firm was to take over the above three films for the purpose of exploitation. As per the terms of the partnership, the distribution and exploitation of the films was to be done exclusively by the assessee, who was to sign the agreement of exhibition with cinemas in its own name and also to deal with the producers. For such distribution, the assessee was to receive five per cent. as commission on the collections of the films on screening. Subsequently, the assessee signed agreements with the producers of three more films for their distribution, exploitation and exhibition in the above territories. The share of the assessee in the firm was to be 25 per cent. and the remaining 75 per cent. was to be distributed amongst other partners. Besides the above, the assessee also signed two more agreements with the producers of two films, namely, "Saajan" and "Aaya Sawan Jhoom Ke", for their distribution, e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, the consideration received on their sale formed part of the assessee's business receipts and, therefore, it was business income. Being dissatisfied with the decision of the Appellate Assistant Commissioner, the assessee took a second appeal to the Income-tax Appellate Tribunal. Before the Tribunal, on behalf of the assessee it was reiterated that the amount received represented the capital receipt of the assessee inasmuch as it was a receipt for relinquishment of the assessee's interest in the two firms, namely, Films Friends and Film Enterprises. On the other hand, on behalf of the Revenue, it was urged that the assessee in fact sold the film prints which formed part of the firm's stock-in-trade and, therefore, the receipt represented business receipt. It was also contended on behalf of the Revenue that the assessee could not legally sell its right in the firm to an outsider and, therefore, there was no question of any capital receipt. In the alternative, it was submitted that in any case the receipt represented capital gain to the assessee as it had parted with its capital asset, as claimed, and section 47(ii) had no applicability to the facts of the case. The T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our of S/Shri B. N. Gupta and Vijay Sharma. He has thus contended that the amount received was in the nature of a revenue receipt in the hands of the assessee. The question whether a receipt is capital or revenue in nature has invariably presented difficulties in solution despite the fact that attempts have been made time and again to enunciate various principles to distinguish a capital receipt from a revenue receipt. But, as observed by the Supreme Court in CIT v. Rai Bahadur Jairam Valji [1959] 35 ITR 148 and often repeated thereafter, it is not possible to lay down any single or exhaustive test as infallible or any single criterion as decisive for determination of the question. The authorities having some bearing on the question are valuable only as indicating the broad factors to be taken into consideration for reaching a conclusion. The character of a receipt cannot, thus, be adjudged by applying some set principles. It has to be determined on a proper appreciation of guiding factors of each transaction with reference to facts and circumstances of each case, which may differ from case to case. Broadly stated, to determine the character of a receipt in such like cases what h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing more. They had absolutely no part to play in the distribution and exploitation of the films. Such arrangements are normal features in the film trade to raise finance. On a conspectus of these facts, we feel it difficult to hold that the two partnerships were the structure of the profit earning apparatus of the assessee. In our view, these two ventures were for the limited purpose of carrying on the assessee's existing business of film distribution and exploitation more effectually and effectively by taking the financial help of others. Though the deeds of partnership seek to reflect the acquisition of films for distribution and exploitation as joint ventures in effect these were only entered into by the assessee for the limited purpose of obtaining and securing commercial assets in the form of the aforementioned films, which were undoubtedly stock-in-trade of the assessee in the first instance and later of the two firms. Any compensation received for relinquishing interest in such an asset would be a revenue receipt. It is in the light of this background that we have to consider the nature of the transaction which the assessee has entered into with S/Shri B. N. Gupta and Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with a case of a receipt of compensation for transferring a managing agency, that obviously was a payment for its extinction as it had resulted in putting an end to the entire profit earning apparatus of that assessee. That is not, as noticed above, the case in hand. The decision in A. K. Sharfuddin's case [1960] 39 ITR 333 (Mad), is thus, clearly distinguishable on facts. Some support to this view is lent by a judgment of the Supreme Court in CIT/CEPT v. South India Pictures Ltd. [1956] 29 ITR 910. In that case the assessee was primarily in the business of distribution of films. It was its practice to produce or purchase films and distribute the same for exhibition. In the course of the business, the assessee advanced monies to a film-producing concern and under the agreement with the concern acquired certain rights of distribution over three films produced by them. After exploiting the rights of distribution of those films for some time and after the monies advanced by the assessee had been fully repaid, an agreement was entered into by the assessee with the producers, cancelling the agreement relating to the distribution rights of the films, in consideration of which the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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