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Issues:
1. Whether film hire derived by the assessee under fixed sum agreements in Indian States is exempt from excess profits tax. 2. Whether film hire derived by the assessee under percentage agreements in Indian States is exempt from excess profits tax. Analysis: The case involved the interpretation of the third proviso to Section 5 of the Excess Profits Tax Act regarding the exemption of film hire profits accrued in Indian States from excess profits tax. The assessee, a public limited company producing and distributing films, entered into contracts with exhibitors in Indian States for film exhibition either for fixed hire charges or a percentage of collections. The Income-tax Appellate Tribunal referred two questions to the court for determination. The crucial issue was whether the profits accrued entirely in an Indian State or not. The Tribunal found that under percentage-based contracts, the assessee's share of profits was paid only after collections were made in the Native State. Similarly, under lump sum contracts, payment was received upon delivery of the film in the Native State. The department argued that since contracts were entered into in British India, profits accrued there. However, the court disagreed, emphasizing that the assessee received no payment until the film was delivered to the exhibitor in the Native State. Therefore, profits accrued wholly in the Native State, exempting them from excess profits tax under the Act. The court rejected the department's contention for apportionment of profits between British India and Native States under the Act. It noted that the question of apportionment was not raised before the Appellate Tribunal or the Commissioner. As per legal precedent, questions must arise from the Tribunal's order, and since the apportionment issue was not raised at prior stages, it could not be considered by the court. The court held that the questions referred to it pertained solely to the place of profit accrual in Indian States, which was found to be entirely in the Native State, leading to a favorable ruling for the assessee. In conclusion, the court ruled in favor of the assessee, affirming that film hire profits derived under both fixed sum and percentage agreements in Indian States were exempt from excess profits tax as they accrued entirely in the Native State. The court declined to entertain the apportionment issue, emphasizing that it was not raised before the relevant authorities and did not form part of the questions referred to the court by the Tribunal.
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