1986 (7) TMI 145 - AT - Income Tax

Issues Involved:
1. Disallowance of interest claim under section 80V of the Income-tax Act, 1961.
2. Taxability of deferred annuities received by the assessee.
3. Allegation of benami transactions involving Balaji Film Finance & Distribution Co. (P.) Ltd.
4. Claim of loss in the distribution of the film 'Jay Vijay'.

Issue-wise Detailed Analysis:

1. Disallowance of Interest Claim under Section 80V:
The IAC disallowed the assessee's claim for interest paid to Prasad Productions and Shree Laxmi Pictures, amounting to Rs. 64,649, under section 80V of the Income-tax Act, 1961, on the grounds that the provisions of section 80V were introduced after 1-4-1976. The Commissioner (Appeals) allowed the claim but restricted it to Rs. 48,487. The learned counsel for the department argued that the borrowings were not made during the year of account and could not be related to the payment of tax. The assessee contended that the borrowed money was utilized for tax payment, and the interest was paid during this year as the assessee follows a cash system of accounting. The Tribunal upheld the Commissioner (Appeals)'s decision, stating that no limitation can be read into the statutory provisions that the borrowings must be made during the previous year or after 1-4-1976.

2. Taxability of Deferred Annuities:
The IAC added Rs. 4,93,000 as the income of the assessee, considering the deferred annuities received from three producers (Megha Movies, A. R. Productions, and Modern Films) as taxable income. The Commissioner (Appeals) held that there was nothing to indicate that Balaji Film Finance & Distribution Co. (P.) Ltd. represented a benami to the assessee and deleted the addition. The department argued that the payments to Balaji Film Finance & Distribution Co. (P.) Ltd. amounted to a virtual receipt by the assessee of income. The Tribunal found nothing irregular in the payment made by the producers on a deferred annuity basis and upheld the Commissioner (Appeals)'s decision, stating that the agreements were genuine and there was no evidence to support the claim of benami transactions.

3. Allegation of Benami Transactions:
The IAC treated Balaji Film Finance & Distribution Co. (P.) Ltd. as a benami of the assessee, adding Rs. 4,93,000 as unaccounted professional fees. The Commissioner (Appeals) held that Balaji Film Finance & Distribution Co. (P.) Ltd. was not a benami of the assessee and deleted the addition. The learned Judicial Member disagreed, citing the Supreme Court decision in McDowell & Co. Ltd. v. CTO, arguing that the agreements were a device to evade tax. The Third Member, however, agreed with the Vice President (Accountant Member) that there was no evidence to support the claim of benami transactions and upheld the Commissioner (Appeals)'s decision to delete the addition.

4. Claim of Loss in the Distribution of Film 'Jay Vijay':
The assessee claimed a loss of Rs. 6,33,979 in the distribution of the film 'Jay Vijay'. The IAC disallowed the claim, stating that the assessee was not a distributor and that the transaction was not genuine. The Commissioner (Appeals) held that the transaction was genuine and deleted the addition. The department argued that the assessee purchased the picture knowing it was a flop to set off his high income for the year. The Tribunal upheld the Commissioner (Appeals)'s decision, stating that the transaction was a normal business incident and there was no evidence to show that it was a bogus claim.

Conclusion:
The Tribunal dismissed the departmental appeal, upholding the Commissioner (Appeals)'s decisions on all points, except for the addition of Rs. 4,93,000 as unaccounted professional fees, where the learned Judicial Member dissented. The Third Member concurred with the Vice President (Accountant Member), leading to the final decision that the addition was not justified and should be deleted.

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