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Issues Involved:
1. Inclusion of Rs. 75,815 in the income of the assessee without allocation on a time basis. 2. Whether Rs. 32,683 amounts to a capital receipt not liable to be assessed. Issue-wise Detailed Analysis: Issue 1: Inclusion of Rs. 75,815 in the Income The first question referred to the court was whether the Appellate Tribunal was justified in including the entire amount of Rs. 75,815 in the income of the assessee without allocating the same on a time basis after allowing depreciation only at 60 percent. However, the assessee did not press for a decision on this point, and thus, the court found it unnecessary to offer an opinion on this matter. Issue 2: Nature of Rs. 32,683 as Capital Receipt The second question concerned whether Rs. 32,683 received by the assessee was a capital receipt not liable to be assessed. The amount in question arose from the assessee's involvement in the production of the Tamil film "Pulandiran." Initially, the assessee firm, consisting of two partners, entered into a partnership with Balaji Pictures to produce the film. The terms of the partnership included sharing production costs and collections in a 2:1 ratio. Subsequently, the assessee entered into a financial agreement with D. Rama Doss, who financed half of the assessee's share. Disputes arose, leading to the assessee's withdrawal from the venture in exchange for Rs. 37,500 under a release deed dated August 25, 1948. The total profit from the transaction was Rs. 32,642 after accounting for expenses. The primary issue was whether this receipt was a capital or revenue receipt. The court analyzed the purpose of the payment under the release deed, which stated that Rs. 37,500 was paid for the assessee giving up its interest in the picture. The Income-tax Officer, Appellate Assistant Commissioner, and the Tribunal all included the sum as a trade receipt liable to be assessed. The assessee contended that the amount represented compensation for giving up its rights in the partnership, thus constituting a capital receipt. The court referred to several precedents, including Commissioner of Income-tax v. Vazir Sultan and Sons and Godrej and Co. v. Commissioner of Income-tax, which distinguished between capital and revenue receipts based on the nature of the business and the agreement. The court concluded that the partnership for producing the film was a commercial transaction in the ordinary course of the assessee's business, not a fundamental profit-earning apparatus. Therefore, the compensation received was a revenue receipt. The court also considered the restrictive covenants in the release deed, particularly clauses 4 and 7, which prohibited the assessee from using certain recorded music and producing a similar film for ten years. These covenants were deemed incidental to the release of rights in the picture and not independent restrictive covenants. The court noted that if the consideration for the release included both the release of rights and restrictive covenants, an allocation might be necessary. However, there were no materials to show that the restrictive covenant was independent of the main contract of release, and the question was not raised before the Tribunal or authorities. Thus, the court could not allocate the consideration between capital and revenue. Conclusion: The court's answer to the second question was against the assessee, holding that the sum of Rs. 32,683 did not represent a capital receipt and was liable to be assessed.
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