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TMI Blog1997 (3) TMI 37X X X X Extracts X X X X X X X X Extracts X X X X ..... n right remaining unpaid for the assessment year 1985-86 ?" T. C. P. Nos. 72 and 73 of 1996 (assessment year 1986-87) : "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law and had valid materials in holding that gifts made by the producers to the children of the assessee cannot be construed as consideration received by the assessee for the professional services rendered by him and accordingly in excluding these gifts from the total income of the assessee ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law and had material in holding that out of total consideration of Rs. 1,45,000 towards lease consideration received by the assessee only a sum of Rs. 29,000 is to be assessed for the assessment year 1986-86 ?" The first question in T. C. P. Nos. 70 and 71 of 1996 is a common question for other two T. C. P. Nos. 72 and 73 of 1996. The second question found in T. C. P. Nos. 70 and 71 of 1996 is different from the second question in T. C. P. Nos. 72 and 73 of 1996. Hence, we propose to deal with the common question arising out of T. C. P. Nos. 70 to 73 of 1996 together and deal with the other two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for whom the assessee had rendered professional service during the relevant accounting years. The assessee as well as the Revenue preferred separate appeals against the order of the commissioner (Appeals) to the Income-tax Appellate Tribunal. The Appellate Tribunal, after hearing the arguments of the assessee as well as the Revenue, held that the recipients of the gifts were the children of the assessee and the donors were also verifiable. The Appellate Tribunal held that the mere fact that the assessee had rendered certain professional service would not be sufficient to hold that the gifts were made by the producers towards the professional fees payable to the assessee. The Appellate Tribunal also noticed that the donors have submitted their gift-tax returns which were accepted by the Department and gift-tax was also paid by them, The other finding that was given by the Appellate Tribunal was that the donors have not claimed in their account any deduction against the cost of the production of films any of the amounts gifted, The Appellate Tribunal also found that the donors realised the gifts through bank accounts. The Appellate Tribunal, from the above findings, came to the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make gifts year after year to the children of the assessee. According to learned counsel for the Revenue, the Department has established that there was a nexus between the gifts made by the producers to the children of the assessee and the professional service rendered by the assessee to such producers and the Appellate Tribunal was not correct in holding that there was no nexus at all between the gifts and the services rendered by the assessee to the film producers. Therefore, he submitted that a question of law does arise out of the order of the Appellate Tribunal. Mr. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that the Tribunal has come to the correct conclusion on the facts of the case. He has submitted that the Tribunal noticed that the producers have filed their gift-tax returns which were accepted by the Revenue and the Department has also collected gift-tax from them. The Tribunal also noticed that the producers have not claimed the money gifted as cost of production expenses of the films. Further, he has submitted that the donees have also realised the amount by way of cheque. According to counsel for the assessee, the finding giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also. The Commissioner of Income-tax (Appeals) held that the gifts were received from the producers who had business connection with the assessee during the relevant accounting years. He deleted certain additions made in which the assessee had some business connection. in subsequent years. The Appellate Tribunal held that the recipients of the gifts are the children of the assessee and the gifted amounts were realised through bank account. The Appellate Tribunal also held that the donors have filed gift-tax returns and paid gift-tax on the amounts gifted. The Appellate Tribunal also found that the donors did not claim as deduction the amount gifted to the children of the assessee as a part of production cost of the films. The Appellate Tribunal further held that the Department was not able to establish any link between the service rendered and the gifts made by the producers to the children of the assessee. Therefore, the Appellate Tribunal drew an inference that the amounts gifted to the children of the assessee cannot be regarded as income of the assessee at all. We are of the opinion that the inference drawn by the Appellate Tribunal whether a particular amount can be regarded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts is not a question of law. Admittedly, the Tribunal found certain facts and on the basis of the facts, it has drawn a certain inference. Hence, the question whether a particular receipt is of an income nature or not can be decided only on appreciation of the well established principles applicable to the facts of the case and, hence, the question raised can be regarded as a question of law. What is required to be decided in the present case is whether the gifts received by the children of the assessee are the income of the assessee and for that purpose, it is necessary to examine the nature of the transaction and whether the receipt has any connection with the business carried on by the assessee and whether the receipt arose because of the business or the profession carried on by the assessee. In our view, the question has to be decided on the application of legal principles to the facts found by the Appellate Tribunal and hence, we are of the opinion that a question of law does arise out of the order of the Tribunal. Therefore, we hold that the first question sought for by the Revenue for both the assessment years arises out of the order of the Appellate Tribunal. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax Rules are applicable to the facts of the case, and under rule 9B of the Rules, the assessee is not entitled to claim deduction of the said sum of Rs. 1 lakh. It is seen in the order of the Tribunal that rule 9B was not invoked before the Appellate Tribunal. Further, rule 9B of the Rules deals with the case of profits and gains in the business of distribution of feature films carried on by a person. Here, according to learned counsel for the assessee, the assessee was only a lessee of a film distributor and hence rule 9B is not applicable to the facts of the case. Mr. C. V. Rajan, learned counsel for the Revenue, has not seriously disputed the above position canvassed on behalf of the assessee. Therefore, once rule 9B is out of operation, then, the question of taxability of the expenditure has to be considered on the basis of the system of accounting maintained by the assessee. It is seen that the assessee was maintaining the mercantile system of accounting and it is also seen that the liability to pay the sum of Rs. 1 lakh had accrued during the previous year relevant to the assessment year in question. Accordingly, the view of the Appellate Tribunal that the assessee was entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal has come to the above conclusion on the basis of the specific recitals contained in the lease deeds. The contention of learned counsel for the Revenue is that the assessee has already received the entire sum and under clause 3 of the agreement, it is open to the assessee to adjust the yearly lease amount against the amount of deposit made by him. According to learned counsel for the Revenue, since the amounts have already been received, the assessee is liable to be taxed on the entire amount of instalments paid. Mr. Janarthana Raja, learned counsel for the assessee, on the other hand, submitted that the finding of the Appellate Tribunal does not involve any question of law and no reference is called for on the said question. However; we are not able to accept the contention of learned counsel for the assessee. The question involves interpretation of agreements as to when the amount became due. It is significant to notice that the assessee has received the entire lease amount and under the lease deeds, it is open to him to adjust the lease income against the amount already received by the assessee. The question whether in such cases, the entire amount became due even on the da ..... X X X X Extracts X X X X X X X X Extracts X X X X
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