TMI Blog1989 (2) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... into between the assessee and G. N. Velumani on April 22, 1966. On a consideration of the terms of the agreement as well as the letter, the Income-tax Officer found that a pucca agreement as contemplated by the letter dated January 10, 1968, had not been entered into between the assessee and G. N. Velumani incorporating the arrangement in the letter and, therefore, the purchase of the pictures by the assessee outright should be considered to have taken place only in the subsequent assessment year and, therefore, the distribution commission should also be included, and, accordingly, that amount was included for purposes of assessment. Aggrieved by this, the assessee preferred an appeal before the Appellate Assistant Commissioner, before whom it was contended that the collections in respect of the pictures had dwindled and the collection figures justified the matter being viewed from the business angle and as such, the distribution commission included should be deleted. The Appellate Assistant Commissioner found that having regard to the collections made as on April 13, 1967, it could not be considered that the potentialities of the pictures had been exhausted so that the appellant w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date of the distribution agreement, viz., April 22, 1966. The letter dated January 10, 1968, was characterised as a self-serving letter and it was stated that under the terms, of that letter, there was no question of any purchase of the pictures by the assessee retrospectively and further that the exhaustion of the potentialities of the pictures would not render the distribution commission income earned by the assessee during the accounting year unaccrued and, therefore, the Tribunal was in error in directing the Income-tax Officer to compute the income or loss on the basis of the trading results. In support of these submissions, learned counsel for the Revenue invited our attention to some decisions which will be referred to later in the course of this judgment. On the other hand, learned counsel for the assessee submitted that on a consideration of the terms of the agreement as well as the letter and the totality of the circumstances and the other materials, the Tribunal rightly concluded that the income by way of distribution commission should be viewed from a business stand point as that of a trader and on trading results and, therefore, the conclusion reached by the Tribunal w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts shall be entered into between the concerned parties as early as possible. There is an endorsement in the letter dated January 10, 1968, to the effect that the terms have been gone through and agreed to, presumably at the instance of G. N. Velumani. It is in the background of the terms of the agreement and the letter referred to above, that the question whether the claim of the assessee that the distribution commission should not have been included in its income for the assessment year 1967-68, but that it should be viewed on the basis of the trading results, is correct, has to be considered. In respect of the distribution commission payable to the assessee from out of the realisations of the pictures, under the terms of clause 9 (a) of the agreement read with the rate of commission as provided thereunder and clause 10, the assessee became entitled to such commission as and when collections were made by the distribution and exploitation of the pictures on producer's net share. In other words, by reason of clauses 9 and 10 of the agreement , without anything more, the distribution commission payable to the assessee became determined and quantified with reference to the producer's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 66 of the Indian Income-tax Act, 1922, in CIT v. K. R. M. T. T. Thiagaraja Chetty and Co. [1951] 19 ITR 261 (Mad), there was a difference of opinion. Satyanarayana Rao J. took the view that the amount was not money at the assessee's disposal nor could it be considered as having been held by the assessee for its benefit and use, while Viswanatha Sastri J., held that the sum having been irrevocably entered as a disbursement of commission to the assessee and had been appropriated towards the assessee's dues, it belonged to the assessee and had to be included in the computation of the profits and gains unless the assessee had regularly kept its accounts on cash basis which was not the case. Adverting to this difference of opinion between the learned judges, the Supreme Court upheld the view taken by Viswanatha Sastri J. and held that the sum of Rs. 2,26,850 was income which had accrued to the assessee and that it did not cease to be income by reason of the fact that it was carried to the assessee's suspense account by a resolution of the directors of the company and, therefore, it was assessable to tax. We may usefully refer to the following observations of the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and, as pointed out earlier, such distribution commission had also been ascertained in the accounts of the assessee, whether received or not, though not taken to separate commission account as such. We, therefore, hold that the distribution commission in terms of the agreement had accrued to the assessee during the accounting year in question. We now proceed to consider whether the letter dated January 10, 1968, stated to have been written by the assessee to G. N. Velumani would in any manner affect the distribution commission that had accrued to the assessee during the relevant accounting year. We do not consider it necessary to go into the question whether this letter is a self-serving one or not, for, it would suffice for purposes of this reference to consider its effect even on the assumption that such a letter had been written by the assessee to G. N. Velumani. The execution of a pucca agreement modifying and incorporating the terms of the arrangement come to in that letter had been envisaged in and by paragraph 9 of that letter. It is not in dispute that such an agreement had not been executed. Apart from it, in paragraph 2 of the letter, the conversion into outright basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e terms of the distribution agreement, the tax treatment of the distribution commission so accrued cannot be defeated by the assessee by projecting different rights by means of a letter several months after the closing of the accounting year, when the accounts themselves did not reflect that the contents of the letter dated January 10, 1968, providing for retrospective effect had been given effect to. Further, from the date of the agreement, i.e., April 22, 1966, till the end of the accounting year, i.e., April 13, 1967, the assessee could not have had rights as a distributor and also as a owner, as it is difficult to conceive of such a co-existence of rights. We may usefully refer in this connection to the observations in CIT v. S. Ramal Ammal [1982] 135 ITR 292, 298 (Mad), relied on by learned counsel for the Revenue. It was contended that the Tribunal was entitled to go behind the form and see the reality of a transaction for purposes of ascertaining the tax treatment of any consideration. This argument was repelled on the ground that so far as taxation is concerned, the substance of a transaction is how the parties thereto have thought it fit to bring it about by translating it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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