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TMI Blog1974 (6) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... been referred to us by the Tribunal under section 256(1) of the Income-tax Act, 1961 : "Whether, on the facts and circumstances of the case, the assessee is not entitled to the deduction of the sum of Rs. 1,00,000 in the computation of its business income under section 36(1)(vii) or section 28 of the Income-tax Act, 1961, for the assessment year 1962-63 ? " The assessee is a private limited company engaged in the financing of film production and in film distribution. Under an agreement dated 7th May, 1959, the assessee advanced a sum of Rs. 1,00,000 to one film producer, K. Munirathnam, hereinafter called " the producer ", carrying on business of film production under the name and style of " Sivakami Pictures ". In consideration of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are these : The producer has to produce the first picture within 12 months from the date of the agreement and the three next pictures at an interval of 8 months between each picture. Six positive prints were to be given to the assessee at the cost of the producer. Option was given to the assessee either to take or refusing the lease of any picture if it was not satisfied. In the event of the assessee refusing to take on lease any picture the producer has to be paid Rs. 1,00,000 for such a picture. If the producer failed to produce the first picture within a period of one year, then until such picture is produced the producer has to pay the assessee a sum of Rs. 16,750 per month with interest at 18 per cent. per annum from April 21, 1961, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. " For the assessment year 1962-63, the assessee declared a loss of Rs. 70,444 after claiming a deduction of the sum of Rs. 1,00,000 as bad debt. The Income-tax Officer considered the terms of the various agreements set out above and held that under the terms of the first agreement the right to proceed against the producer has not become barred and the amount has not become irrecoverable, and, therefore, the assessee was not entitled to treat the said sum as a bad debt and claim deduction in relation to the same. Aggrieved against the order of the Income-tax Officer, the assessee appealed to the Appellate Assistant Commissioner. It was contended on behalf of the assessee that it had lost once and for all the right of collection of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a bad debt or business loss of the year under consideration, that the so-called remission of Rs. 1,00,000 which has been given under the agreement dated 7th May, 1959, was only in consideration of acquisition of certain valuable rights in the form of the lease rights of certain pictures in respect of the districts of Trichy and Tanjore including Karaikal, that the effect of the agreement dated 9th October, 1961, was to substitute the loan agreement dated 7th May, 1959, for Rs. 1,00,000 with a fresh agreement under which the assessee was to get lease rights in certain pictures which are to be produced by the producer for certain districts. The Tribunal also found that there was nothing to show that the rights acquired in consideration of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure called " Kumara Raja " which was then under production. We are not inclined to agree with the contention of the learned counsel for the assessee that the lease rights provided for under the agreement as consideration for the remission should not be taken into account in considering the question whether the sum of Rs. 1,00,000 is a bad debt or a trade loss and that such lease rights are merely rights in future which cannot be valued during the relevant assessment year. Whether the lease rights were of any value during the assessment year or not is not a relevant matter for considering the question at issue. The question is whether the sum of Rs. 1,00,000 was given up by the assessee as a bad debt or whether it has become a trade loss. Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Clause 8 of the agreement specifically confers a right on the assessee to appropriate and retain such surplus collections from the four pictures over and above Rs. 4 lakhs and odd as remuneration and royalty. It also specifically provides that the producer shall not be entitled to any surplus collections from the assessee in view of the concession given to him by the assessee. On the specific terms in which the agreement is couched it is not possible for us to treat the sum of Rs. 1,00,000 as having been in fact remitted, though the word " remission " has been used. What in fact has taken place is to substitute the assessee's right to collect the sum of Rs. 1,00,000 immediately with fresh rights such as the lease, right in the four pictures ..... X X X X Extracts X X X X X X X X Extracts X X X X
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