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TMI Blog1977 (12) TMI 52X X X X Extracts X X X X X X X X Extracts X X X X ..... istribution and exploitation rights in eastern circuit consisting of the States of West Bengal, Orissa, Assam, Burma excluding the territories of Bihar, Nepal and East Pakistan with the stipulation that the profits and losses would be shared to the extent of 50:50. Thus the assessee firm became a co-venturer with M/s. Neptune Pictures (P) Ltd; and agreed under the terms of this indenture to meet the capital cost for acquisition of 'Bobby' film to the extent of Rs. 3,32,500. The assessee remitted Rs. 2,00,000 to M/s. Neptune Pictures (P) Ltd., as a part of their share of commitment. This sum of Rs. 2,00,000 was met as under: Out of share capital Rs. 14,000 By M/s. R.B. Films Rs. 65,000 From financiers the payments to whom are in dispute. Rs. 1,21,000 Total Rs. 2,00,000 The amount of Rs. 65,000 was paid by M/s. R.B. Films, Gauhati as they were allotted by the assessee exploitation rights for Assam Territory and this amount was later on adjusted. The agreement between the assessee and M/s. Neptune Picture (P) Ltd., was for a longer period. But the assessee in order to obtain immediate finance entered into separate ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by obtaining a loan of the same amount from Shri Bejoy Ryndem, that the other three financiers were related to the partners and as such the payments were disallowed by virtue of the powers invested in him under s. 40A (2a). However, the ITO held that, "it would be fair and reasonable to allow interest on the loans obtained, at the rate of 12 per cent per annum allowed by the Department, as in any other business and commercial activities there being no reason for not treating the loans so received as not having been received in the ordinary course of business and as pointed out earlier there being no capital risk, involved" (page 6). This amount of interest he worked out at Rs. 13,261. Having deducted this from Rs. 1,50,386 he disallowed the balance of Rs. 1,37,125. 6. In appeal, the AAC confirmed the addition of this amount by agreeing with the reasons recorded by the ITO and by pointing out that the commission payments, "are over excessive and totally unrelated to prevailing market conditions". His order is now under challenge before us. 7. It was contended by the learned counsel for the assessee that the ITO has categorically stated that the amounts received from the financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to point out that the terms of the agreements with the financiers were quite risky and the commission was fully justified. He submitted that depending upon the nature and the success of the film the commission would become payable on the gross billings. The financiers had committed to keep their amount with the assessee for three years and if the picture had flopped, the assessee was entitled to keep the amount for three years without any payment. It is, therefore, not proper and tenable to say that no risk was involved for the financiers as they would be losing substantial return on the capital invested by them. At the point of time when the agreements were entered into either the assessee nor the financiers could foresee the substantial amounts that they came to realise. In this context he particularly brought to our notice that by an investment of Rs. 14,000 only as capital of the firm and by making arrangement with the financiers and others, the assessee had earned gross income of Rs. 6,45,396. In this context he queried whether the receipt of Rs. 1,50,385 by the financiers in return to their amount of Rs. 1,21,000 could be considered excessive or unreasonable. He submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take up this new issue. It was also submitted that the finance was not easily available in the market and with the attendant risk the ordinary institutions would not like to finance the film industry including its distribution system. Thus from this seenario of facts, figures, contentions and counter-contentions, we proceed to decide the issue before us. 10. Before we proceed to decide the merits of the issue, we would take up to consider the new angle attempted to be given by the Revenue in its contention obliquely suggesting that the transactions are sham. We have perused the orders coming from below and do not find any justification any where for this altogether new angle required to be given at this stage to these proceedings. In this impugned order, the ITO had unequivocally stated just before the computation of interest on the loans to be allowed that there was no reason for not treating the loans so received as not having been received in the ordinary course of business. His observation coupled with the factum of allowance of interest at 12 per cent on these loans in the computation of the total income of the assessee puts a seal of finality from the side of the Revenue th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee and the benefit derived therefrom. The un-controverted facts brought to our notice are that the assessee entered into an agreement with the co-venturers M/s. Neptune Pictures (P) Ltd., Calcutta, and was required to contribute a sum of Rs. 3,32,300. But the assessee made certain arrangements to make immediate contribution of Rs. 2,00,000 out of which it met a portion of Rs 1,21,000 from the loans received from the financiers under the agreement recorded supra. The assessee also took some loan from M/s. R.B. Films and were given certain distribution rights in Assam Territory. From these arrangements, it becomes apparent that the assessee was trying to derive a maximum benefit out of its existing resources as well as by augmenting these resources by borrowings and thereby reducing the hazards of business operations in filed known for its vicissitudes of fortunes depending upon the box office receipts representing the whim of the masses or cinegoers. We, therefore, find that the action of the assessee was that of a prudent business-man. The Revenue has argued that the assessee could have found finance from other sources which were not scarce and at less expensive rates. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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