TMI Blog1994 (10) TMI 90X X X X Extracts X X X X X X X X Extracts X X X X ..... e dated 23-8-1984 with M/s. Usha Movies and the other dated 24-8-1984 with M/s. Amar Jyoti Industrial Promotion Ltd. From the preamble of these two agreements it appears that the assessee, in order to distribute, exhibit and exploit the picture 'Bindiya Chamkegi' approached the other two parties for financial assistance against the payment liable to be made by the assessee to M/s. Guru Dutt Films towards royalty. Among other terms and conditions it was stipulated that out of the profits or losses arising out of the distribution of the picture the assessee would part with 50% in favour of Usha Movies and 25% in favour of Amar Jyoti Industrial Promotion Ltd. In clause 11 of these two agreements it was stipulated that the agreement shall be purely a joint venture agreement between the parties and shall not in any manner be construed as giving rise to a partnership. The other clauses of the agreements will be dealt with at the proper place. 3. In the statements accompanying the return of income for the assessment year 1985-86 the assessee furnished details of the picture which was released on 7-9-1984. After taking into account the amounts paid as royalty and after adding the expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He was further of the view that under section 77(2) of the Income-tax Act it was only the Association of Persons which was entitled to carry forward the business loss and no member of the Association of Persons was entitled to do so. Inasmuch as the Income-tax Officer had failed to disallow the entire loss of Rs. 1,36,667 on this ground but had restricted the disallowance only to Rs. 30,000 on estimate, the assessment for the assessment year 1985-86, according to the D.C. (Appeals) required enhancement. Since the Income-tax Officer had set off the loss brought forward from the assessment year 1985-86 against the income under the head 'Business' for the assessment year 1986-87 which set off was also against the provisions of section 77(2), the assessment for the assessment year 1986-87 also required enhancement. In this view of the matter, the D.C. (Appeals) issued notice of enhancement dated 11-2-1991. The assessee filed an elaborate reply dated 20-2-1991. It is not necessary to go into this reply in detail. Suffice it to say that the assessee resisted the enhancement on two grounds. The first was that there was no Association of Persons and the second was that since the department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Full Bench decision of the Andhra Pradesh High Court in the case of CIT v. B.R. Constructions [1993] 202 ITR 222. 9. Regarding the merits of the disallowance of Rs. 30,000 it was submitted that full details of the expenses claimed against the picture realisation had been given before the Income-tax Officer. Our attention was also drawn to such details filed in the paper book. 10. The learned counsel for the assessee, therefore, contended that the enhancement of the income for both the years under appeal was invalid and the assessee's claim should be accepted. 11. The learned Departmental Representative at the outset made it clear that the department was not seeking to assess the A. O. P., but all that was being held by the D.C. (Appeals) was that the assessee is not entitled to have his share of the loss adjusted against his other income. He argued that not only there was no provision in the Income-tax Act enabling such set off, but, on the other hand, there was a statutory bar imposed on such claim by section 77(2) of the Act. He drew our attention to the judgment of the Calcutta High Court in the case of Ganga Metal Refining Co. (P.) Ltd. v. CIT [1968] 67 ITR 771. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o provided for sending of the monthly business statements by the two parties to the assessee on or before 20th of every succeeding month. The bad debts arising out of the joint venture was also to be shared in proportion to the profit sharing ratio. It will thus be seen from the terms of the relevant agreements that there was a combination of the enterprise and efforts of all the three parties in the exploitation of the distribution rights. Though the preamble to the agreements recited that the object is for procuring finance for the assessee, an association or combination with the object of producing income can be spelt out by the other terms of the agreements. The fact that in clause 11 it was stated that the agreement shall only be a joint venture agreement and cannot be construed as a partnership agreement does not advance the assessee's case. The joint venture agreement may also give rise to an A.O.P. though not a partnership. We are, therefore, of the considered opinton that there was an A.O.P. constituted by the assessee Usha Movies and Amar Jyoti Industrial Promotion Ltd. for the exploitation of the distribution rights of the picture 'Bindiya Chamkegi'. 13. The next ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sense that that was not a case of an A.O.Ps. but was a case of an unregistered partnership firm. This is made clear in the discussion of the facts at page 775 of the report. In this page the High Court noticed that the fact found was that there was a partnership of three companies and that such a partnership was an unregistered firm under the Income-tax Act. The other distinction between the facts of the present appeals and the decision of the Calcutta High Court is that whereas we are concerned with a set-off claim under section 70 of the new Act, in the case before the Calcutta High Court the assessee had claimed the set off of the share of loss from an unregistered firm against its income under another head in accordance with section 24(1) of the old Act. A reference to section 24(1) of the old Act clearly shows that that section provides for a set off of the loss under one head of income against the income from another head. We have earlier seen that the forerunner of section 77(2) of the new Act was the second proviso to section 24(1) of the old Act. The High Court itself considered that section 24(1) of the old Act would not be applicable to the case of an A.O.P. (please ..... X X X X Extracts X X X X X X X X Extracts X X X X
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