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Issues Involved:
1. Whether gifts made by producers to the children of the assessee can be considered as income of the assessee. 2. Whether the sum of Rs. 1 lakh towards exploitation rights remaining unpaid for the assessment year 1985-86 should be allowed as a deduction. 3. Whether the total lease consideration received by the assessee should be assessed in the assessment year 1986-87. Issue-Wise Detailed Analysis: 1. Gifts Made by Producers to the Children of the Assessee: The primary issue revolves around whether the gifts made by film producers to the children of the assessee constitute income for the assessee. The Assessing Officer added the value of these gifts to the assessee's total income, arguing that they were part of the remuneration for professional services rendered by the assessee as a cine artiste. The Commissioner of Income-tax (Appeals) partially upheld this view, stating that gifts from producers with a business connection to the assessee during the relevant years should be considered part of the assessee's income. However, the Income-tax Appellate Tribunal (ITAT) disagreed, finding that the gifts were made to the assessee's children, not directly to the assessee, and that the donors had paid gift-tax on these amounts. The Tribunal concluded that there was no sufficient nexus between the professional services rendered by the assessee and the gifts received by his children, thereby excluding these gifts from the assessee's total income. The High Court held that the question of whether these gifts constitute income is a question of law and directed the Tribunal to state a consolidated case and refer the first common question of law for both assessment years. 2. Sum of Rs. 1 Lakh Towards Exploitation Rights Remaining Unpaid for Assessment Year 1985-86: This issue pertains to whether the unpaid sum of Rs. 1 lakh for exploitation rights should be allowed as a deduction. The assessee had entered into an agreement to lease distribution rights of a film, agreeing to pay Rs. 3 lakhs in total, of which Rs. 1 lakh remained unpaid during the relevant assessment year. The ITAT allowed the deduction, noting that the assessee followed a mercantile system of accounting and the liability to pay had accrued during the relevant year. The Revenue argued that rule 9B of the Income-tax Rules should apply, which the Tribunal had not considered. However, the Tribunal found that rule 9B was not applicable as the assessee was a lessee, not a distributor. The High Court upheld the Tribunal's decision, stating that the finding was based on materials and no referable question of law arose from it. 3. Total Lease Consideration Received by the Assessee for Assessment Year 1986-87: The final issue concerns whether the entire lease consideration should be assessed in the assessment year 1986-87. The assessee had leased out distribution rights for two films, with payments structured in annual instalments. The Commissioner (Appeals) and the ITAT held that only the first instalments due during the relevant year should be included in the total income, as subsequent instalments fell outside the assessment period. The Revenue contended that since the entire sum was received upfront, the assessee should be taxed on the entire amount. The High Court found that the question involved the interpretation of lease agreements and whether the entire amount became due at the time of signing the agreements. Therefore, it directed the Tribunal to state a case and refer this question of law for the assessment year 1986-87. Conclusion: The High Court directed the ITAT to refer the first common question of law regarding the gifts for both assessment years and the second question of law concerning the lease consideration for the assessment year 1986-87. The second question for the assessment year 1985-86 was rejected, and no costs were ordered.
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