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TMI Blog1982 (9) TMI 154X X X X Extracts X X X X X X X X Extracts X X X X ..... o do only in such pictures as the company might direct him to do so, (iii) not to negotiate with any other film producer, (iv) to assign to the company the benefits of all contracts he earlier entered into with another firm called Sathya Combines, or by himself before 1st Oct., 1974 and (v) finally not to receive any amount directly from any film producer but only to receive remuneration from the company. On the very same day (i.e., 1st Oct., 1974), another agreement was entered into between the assessee and the said company, under which, as compensation for restraining in acting in any film, a compensation of Rs. 4,05,000 was to be paid. The relevant terms and conditions of this agreement are : 1) that the assessee agreed that he would forbear from acting or accepting any arrangements for acting independently excepting as per the directions of the company, Emgeeyar Pictures Pvt. Ltd., (ii) that the assessee would not in any manner allow his name as an artist to be associated with any picture produced except those undertaken by the company under the service agreement entered into and referred to earlier and (iii) that in consideration of the artist undertaking in the manner referre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... books of the company, that the sum of Rs. 50,000 being the first instalment became virtually a payment to eo instanti. When the assessee, aggrieved by this addition, appealed to the CIT (A),he found by tracing the professional career of the assessee and the history of the assessments in the past, that the arrangement he entered into with the said company, was a sham arrangement. He enhanced the assessment by Rs. 5.96 lakhs. The main reason that prevailed with the CIT (A) is: 6. 1. The earlier history showed that the assessee first entered into a service agreement on 31st Dec., 1956, which was to run for a period of ten years. That agreement was terminated on 1st April, 1965. The assessee became a free person in the sense that he could Act wherever he liked and his reputation has gone up by leaps and bounds, and he was getting income from profession of acting running into few lakhs. At that point of time, i.e., on 11 Feb., 1970, he again entered into a service agreement with a firm which came into existence on 9th Feb., 1970 styled as M/s Sathya Combines which consisted of nine partners all of whom were closely associated and are dependent on the assessee. That agreement was to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctures Pvt. Ltd. without executing any document cancelling the earlier arrangement with the firm, could not but be a device to evade income that accrued to the assessee by interposing the company as an intermediary which was nothing but a one man show of the assessee. He found that before the agreement was entered into with the said company, and under the agreement entered into with the firm which he later conceded to, be his own, he was to receive Rs. 6,25,000. This amount, he voluntarily surrendered in exchange for a five year contract which provided for an annual remuneration of Rs. 60,000 which is very unlikely for any professional artist to do. While the legal and enforceable contract with the firm was current, and had still over five years to run, the turning of the assessee to the company was rather unenforceable in law. This was unilateral decision for which there was no good reason or provocation. The firm which consisted of nine partners who were all strangers to the company, assigned their rights to it without a rupee of compensation. The firm, M/s Sathya Combines, under the service agreement was only to pay Rs. 6,25,000 from the various producers. He was thus of the opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is employed as a facade to conceal true income. He found with reference to the assessment records and the references made to the IAC under s. 144B of the IT Act while submitting the draft assessment order for the preceding assessment year that these questions were raised, discussed with the IAC and then brought on record. Therefore, these questions could not be questions not considered by the ITO. The fact that there was no reference to consideration of these issues in the assessment order, does not mean that they were not considered. Relying upon the decision of the Supreme Court in CIT vs. Shapporji Pallonji Mistry (1962) 44 ITR 891 (SC), he held that the appellate authority's disability while deciding an appeal, was to travel outside the record for the purpose of enhancement of income. Since the records included the return made by the assessee and the assessment order passed by the ITO which included the agreements entered into, and since the ITO had gone into that question and determined the income under the head "profits and gains of business or profession", it was open to the CIT (A) to go into that question and decide whether the income from that source had been properly a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity of the sum of Rs. 50,000 but also whether anything more could be taxed under that agreement. For the asst. yr. 1975-76, the assessee filed a return disclosing total income of Rs. 1,64,275 which consisted of salary of Rs. 30,000 received from M/s Emgeeyar Pictures Pvt. Ltd. from 1st Oct., 1974 to 31st March, 1975. Interpreting these very agreements, the ITO was concerned with the question whether they would permit him legally to assess a sum of Rs. 3 lakhs as income accrued. In the agreement he entered into with M/s Emgeeyar Pictures Pvt. Ltd., his services, apart from being exploited exclusively by company for a period of five years from 1st Oct., 1974, the rights, he acquired under various agreements entered into by him directly or through M/s Sathya Combines before 1st Oct., 1974 were to be assigned to M/s Emgeeyar Pictures Pvt. Ltd., and he should take necessary steps to get written consent of M/s Sathya Combines giving up their claims over the services of the assessee foregoing the benefits under those agreements. He should also get written consents agreeing to deal with the Emgeeyar Pictures Pvt. Ltd. directly. Under those agreements, the said company received between 1s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l" or "collateral" examination of any matter by the ITO in the process of assessment order to show that the ITO applied his mind to the particular subject-matter or the particular source of income with a view to its taxability or to its non-taxability and not to any incidental connection." The facts in that case are: In proceedings for the asst. yr. 1952-53, the assessee claimed, on the basis of entries in the books of his Forbesgani branch, that he had borrowed three sums of Rs. 2,50,000, Rs. 1,50,000 and Rs. 30,000 from three parties. In conferring the genuineness of these borrowings the ITO noticed that the respondent had withdrawn at Calcutta on 31st March, 1952 the sum of Rs. 5,30,000 from a Calcutta bank and had sent on same day to enable that branch to make payments including repayments of the sum of Rs. 2,50,000. The ITO discussed the impossibility of amount having reached Forbesganj in Bihar on the very same day. He, therefore, treated the entries in the books as not genuine and added to the assessable income the sum of Rs. 2,50,000 Rs. 1,50,000 and Rs. 30,000. When the assessee took the matter in appeal, the AAC considered that the amount of Rs. 5,85,000 should also be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Supreme Court in a latter case and was applied in Addl. CIT vs. Gurjargravures P. Ltd. 1978 CTR (SC) 1: (1978) 111 ITR 1 (SC). Since in these appeals, the ITO did not consider the genuineness of the agreement it is difficult to concede that the CIT (A) had the requisite power to go into genuineness of the agreement and pronounce on it,. In coming to this conclusion, we are persuaded by the fact, that though the ITO had considered the agreement to be genuine, and proceeded to interpret it, the angle from which the CIT (A) had looked, at it was totally different, and even outside the record of assessment. It is possible to argue, that when the document was taken as genuine, it is also open to say that the document is not genuine, since both genuineness and non-genuiness are like two sides of a coin. The consideration of the obverse side of the coin, could not in the circumstances, be said to be a new consideration, because consideration of the other side includes the exclusion of the obverse. This is so by implication. But the dictum of Supreme Court is that each side is distinct and separate, and that there should be active consideration of both the sides, and that is possibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered by ITO was, whether under the impugned agreement, the income accrued to the said company or to the assessee. The ITO held that the income accrued to the said company, not on the ground that the agreement was not genuine, or a facade, but, on the view that the benefits of the agreement the assessee had earlier entered into with the firm of M/s Sathya Combines, could not have been transferred to the said company, without prior termination of earlier agreements. Here, the ground, or the view of the ITO was totally different. That view proceeded on the basic postulate that the agreement was genuine. The IAC, on reference under s. 144B of the Act, did not agree with this view. He held that the income accrued to the said company. He gave a positive direction to this effect and directed the ITO to delete the proposed addition. But for the year under appeals, the ITO proceeded not only on the ground that the agreement was genuine, but also on the ground that the income under the earlier agreements entered into with M/s Sathya Combines accrued to the said company. It is this thinking the CIT (A) desired, and on examination of the evidence, he considered relevant to upset by comi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That agreement, not dissimilar to the present one, was not found to be facade but accepted by the Revenue for over two decades, with breaks here and there, while the power of the CIT to pierce a corporate veil, in case it is adopted to defraud the Revenue, to circumvent tax obligations, is to be accepted, no such attempt was made in this case, except to state that the shareholding showed that the said company was the one-man show of the assessee. 18. Since we are of the view that the CIT (A) had not properly exercised the power of enhancement, the addition made, as consequence thereof, is to be deleted. We though it absolutely unnecessary to examine the merits of the conclusion reached by CIT(A). The observations, we made earlier, touching upon this aspect of the matter, should not be considered as pronouncing our views on merits because they are referred to only with a view to facilitate reaching our conclusion on the exercise of the powers of enhancement. 19. Now, adverting to the addition opposed by assessee, we think, the addition is rightly made. We are in entire agreement with that portion of the CIT 's order where he discussed and opined, that the amount received under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a debit of Rs. 3,37,357 was transferred to this account from the current account of the assessee, in the said company. In the current account, there were so many heavy withdrawals which amply covered the amount of the sum due under the agreement. This, the CIT (A) opined out in his order in para 8.4, which is reproduced: "The second objection against the addition of Rs. 50,000 on the basis of actual receipt, needs less discussion. The transfer entries of Rs. 5,54, 761 and Rs. 1,67,124 have been made before the commencement of this accounting year. Despite these substantial credits, which was responsible for this substantial opening credit-balance of Rs. 2,64,417 the amount withdrawn by the assessee during the year presently under consideration is Rs. 4,09,273. Even if the opening credit balance of Rs. 2,64,417 in the assessee's account is attributed wholly to aforementioned adjustment entries, there is still a net withdrawal of Rs. 1,44,856 from the personal account. This amount can certainly be held to include the half-yearly instalment of Rs. 50,000 which had fallen due in this year. The fact that there is no withdrawal from the separate, Goodwill A/c makes no difference in th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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