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Issues Involved:
1. Whether the CIT(Appeals) erred in not appreciating the concept of spread over of royalty on the lease of the film 'Gentleman'. 2. Whether the entire amount of Rs. 70 lakhs received from M/s. Rachana Pictures should be treated as income for the assessment year 1994-95. Issue-wise Detailed Analysis: 1. Concept of Spread Over of Royalty: The assessee, a film producer, leased out the distribution rights of the film 'Gentleman' to M/s. Rachana Pictures for Rs. 70 lakhs. The assessee declared only Rs. 9,33,333 as income for the assessment year 1994-95, claiming that the lease consideration was to be apportioned over five years. The Assessing Officer (AO) observed that the assessee had claimed the entire cost of production of the film as a deduction under Rule 9A of the Income-tax Rules, and thus, should have shown the entire amount realized by way of sale rights as income for the assessment year under consideration. Consequently, the AO included the entire Rs. 70 lakhs in the assessee's total income. 2. Entire Amount of Rs. 70 Lakhs as Income: The CIT(Appeals) upheld the AO's decision, stating that the accrual of income cannot be postponed by accounting jugglery. The CIT(Appeals) found it difficult to believe that income did not accrue for the specific territory just because of a contrived agreement. The CIT(Appeals) confirmed that the entire amount of Rs. 70 lakhs should be treated as income for the assessment year 1994-95. The assessee argued that the lease agreement stipulated a yearly royalty basis, and the entire sum of Rs. 70 lakhs was collected as an interest-free deposit towards lease consideration for five years. The assessee contended that the royalty should be accounted for as per the terms of the agreement, which allowed for a spread-over basis. The assessee relied on previous Tribunal decisions to support this claim. Tribunal's Findings: The Tribunal carefully considered the facts, material on record, and arguments from both parties. The Tribunal noted that the assessee had shown the entire lease consideration from other lessees as income for the assessment year 1994-95. However, for M/s. Rachana Pictures, only Rs. 9,33,333 was shown as income based on the agreement terms. The Tribunal emphasized that under Section 5(1) of the Income-tax Act, 1961, the total income includes all income received or accrued during the year. The Tribunal referred to the case of CIT v. Stanton & Stavely (Overseas) Ltd., where the nomenclature given by the parties in an agreement is not conclusive while interpreting the document. The real character of the receipt must be considered, not just the terms used in the agreement. The Tribunal found that the amount of Rs. 70 lakhs was not a deposit but a payment towards the lease of the film 'Gentleman'. The Tribunal noted that the amount was neither refundable nor did it carry any interest, indicating it was not a deposit. The Tribunal held that the entire amount of Rs. 70 lakhs accrued to the assessee and was received in the previous year relevant to the assessment year 1994-95, making it includible in the total income. The Tribunal also examined the case from another angle, noting that the entire cost of production of the film 'Gentleman' was debited to the profit and loss account. If the amount of Rs. 70 lakhs was considered a deposit, the balance amount of Rs. 60,66,667 would constitute the value of the closing stock of the film, which should be credited to the profit and loss account. This would still result in the same income enhancement. Conclusion: The Tribunal rejected the grounds raised by the assessee and dismissed the appeal, affirming that the entire amount of Rs. 70 lakhs was rightly includible in the assessee's total income for the assessment year 1994-95. The Tribunal emphasized that the terms of the agreement could not override the provisions of the Income-tax Act.
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