9911796707
|
Home
Issues Involved:
1. Whether the sum of Rs. 50,000 received by the assessee under the second agreement was taxable as income. 2. Whether the CIT (A) had the jurisdiction to enhance the income by declaring the agreements as sham. 3. Whether the restrictive covenant in the agreements constituted a sterilisation of the source of income, making the receipt capital in nature. 4. Whether the assessee received the instalment of Rs. 50,000 under the cash system of accounting. Issue-wise Detailed Analysis: 1. Taxability of Rs. 50,000 under the Second Agreement: The Income Tax Officer (ITO) determined that the sum of Rs. 50,000 received by the assessee under the second agreement was taxable as income. The ITO noted that both agreements covered the same subject, i.e., the exclusive employment of the assessee's services by M/s Emgeeyar Pictures Pvt. Ltd. The ITO concluded that the restrictive covenant did not mean the assessee's source of income had been sterilised, given up, or dried up, thus converting the amount received into compensation as a capital asset. The appellate authority agreed with this view, holding that the amount received under the restrictive covenant was not for the sterilisation of the source of income but was instead a part of exercising the source of income, making it taxable as revenue. 2. Jurisdiction of CIT (A) to Enhance Income: The CIT (A) enhanced the assessment by Rs. 5.96 lakhs, declaring the agreements as sham and a facade to divert income. The assessee contended that the enhancement was unjust and without jurisdiction, relying on Supreme Court decisions that an appellate authority cannot consider a question not dealt with by the ITO. The Tribunal found that the ITO had considered both agreements while assessing the sum of Rs. 50,000 but had not questioned the genuineness of the agreements. The Tribunal concluded that the CIT (A) lacked jurisdiction to enhance the income by declaring the agreements as sham since the ITO had not applied his mind to this aspect, and such consideration was outside the record of assessment. 3. Nature of the Restrictive Covenant: The assessee argued that the payment of Rs. 4.05 lakhs was compensation for the sterilisation of the source of income and thus capital in nature. The ITO and CIT (A) disagreed, noting that the agreements did not sterilise the source of income but merely changed the mode of exploitation. The Tribunal upheld this view, stating that the assessee did not give up acting entirely but agreed to act only in pictures booked by the company, thus continuing to exercise his profession. Therefore, the sum of Rs. 4.05 lakhs was not a capital receipt but taxable as revenue. 4. Receipt of Instalment under Cash System of Accounting: The assessee claimed that under the cash system of accounting, only sums actually received could be taxed, and the instalment of Rs. 50,000 had not been received. The CIT (A) demonstrated that the assessee had received the money through withdrawals from the current account, which covered the amount due under the agreement. The Tribunal agreed, noting that the combined effect of the assessee's accounts indicated that the money had been withdrawn, making the sum of Rs. 50,000 taxable. Conclusion: The appeal by the assessee for the assessment year 1976-77 was partly allowed, and the appeal by the Revenue for the assessment year 1977-78 was dismissed. The Tribunal held that the CIT (A) lacked jurisdiction to enhance the income by declaring the agreements as sham but upheld the taxability of the sum of Rs. 50,000 received under the second agreement.
|
