9911796707
TMI Blog1988 (2) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... as carried on by the assessee under the name of "Shanmuga Pictures" In the assessment year 1968-69, the assessee claimed business loss to the extent of Rs. 2,10,000. The said amount was also claimed as bad debt due from one RM. Ramanathan Chettiar of Uma Pictures, Madras, which amount was advanced by the assessee to Uma Pictures under an agreement dated September 16, 1957. The total advances up to September 5, 1961, which is the date of the agreement which is relevant, came to a little over Rs. 2,18,000. The first agreement dated September 16, 1957, between the assessee and Uma Pictures, provided for an advance of Rs. 1 lakh to be made by the assessee according to the requirements of Uma Pictures for producing film, the name of which was later given as "Chittoor Rani Padmini". As security for the due repayment of this advance together with a commission of Rs. 25,000 which is described as finance commission to be paid to Shanmuga Pictures, the agreement provided that the financiers shall have first and permanent charge and control over the entire "World negative rights" of the picture and all realisations therefrom. The agreement also fixes the time for repayment of the amount of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement with Adaikkappa Chettiar. Since this agreement is of some importance for the purpose of the decision of the question raised, we shall refer to it in some detail. This is an agreement for leasing out to Messrs. Shanmuga Pictures by the producers the rights of exploitation of the film for the Revenue Districts of Madurai, Ramnad and Tirunelveli including Kanyakumari for a period of ten years. In lieu of these rights, Shanmuga Pictures agreed to pay a sum of Rs. 3,25,000 to the producer. This amount of Rs. 3,25,000 was to be accounted for in two parts. Rs. 1,15,000 and sales commission were to be paid to Messrs. South India Films in whose favour there was already an agreement dated October 25, 1958, with regard to the distribution rights. The balance amount was to be credited in the account of the producer. The material part of this clause is as follows : "The party of the SECOND PART (Shanmuga Pictures) agree to pay to the party of the FIRST PART (producer) as consideration for the exploitation, distribution and exhibition rights of the said picture a sum of Rs. 3,25,000 (Three lakhs and twenty-five thousand only) in the manner set out below. Rs. 1,15,000 and sales comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the advance remained unrecovered from out of the net film hire realisations within period of one year from the date of release of the film in the distribution area, the unrecovered portion of the advance amount and other expenses due to the distributors together with interest thereon at the rate of 12% until the date of payment shall be paid by the principals to the distributors within a week from the date of expiry of one year from the date of release of the film. The distributors could exercise rights under this agreement for a period of five years. It appears that K. T. Subbiah filed a suit claiming a sum of Rs. 1,68,504 from the assessee because the picture had failed. The matter was, however, amicably settled. Under these circumstances, the assessee claimed to have written off a sum of Rs. 2,10,000 due from the producer. The Income-tax Officer disallowed this claim on the ground that when the assessee credited the accounts of the producer with Rs. 2,10,000 and debited the film purchase account, the debit was extinguished. The Income-tax Officer took the view that the assessee having exploited the film, if he had incurred any loss in the process of exploitation, that was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g off any debt which had ceased to be due because, according to learned counsel, Rs. 2,10,000 was credited to the account of the debtor on September 5, 1961, and Rs. 3,25,000 was debited to the film purchase account by the assessee. Thus, according to learned counsel, the debt transaction was already squared up and if any loss had been incurred, it was incurred in the process of distribution rights. Learned counsel further contended that film exhibition is not a line of activity of the assessee and if any loss had been incurred in the exploitation of the film, it was really a capital loss. Learned counsel appearing on behalf of the assessee, however, contended that the subsequent transaction with regard to the acquisition of distribution rights must be referable to the agreement dated September 16, 1957, itself, and reliance was placed on clause 12 of the agreement which provided for the exclusive control of the financiers in respect of the distribution, exhibition and exploitation of the picture. The view taken by the Tribunal is sought to be supported by learned counsel for the assessee and it is contended that all the transactions must be considered as part of, the scheme to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned by the agreement dated September 5, 1961. This was clearly a case, in our view, in which the provisions of section 62 of the Contract Act would be attracted. Section 62 of the Contract Act provided that if the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. In respect of the amount which was owed by Ramanathan Chettiar to the assessee under the agreement dated September 16, 1957, a new agreement had taken its place. That debt has been wiped out, with the result that the debtor was not bound to perform or discharge any of his obligations provided under the agreement dated September 16, 1957. Under the new agreement dated September 5, 1961, the debtor's liability was not only wiped out but the assessee had also undertaken to pay a sum of Rs. 1,50,000 to Messrs. South India Films. It is true that Messrs. South India Films is not a party to the agreement but as between the assessee and the previous debtor, the liability which the debtor owed to Messrs. South India Films under the agreement dated October 25, 1958, was sought to be dealt with as the assessee had taken over the liability also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder the agreement, a sum of Rs. 50,000 was advanced by the assessee to the producer on condition that out of the realisations, the assessee should first reimburse himself to the extent of the sum of Rs. 50,000 which he had advanced, and he will be entitled, further to a commission in respect of the realisations over and above Rs. 50,000. It was also agreed that in the event of the realisations (less the commission) falling short of Rs. 50,000, the producer should pay back the amount advanced to the assessee. The assessee, later, entered into an agreement for sub-distribution on similar conditions. The picture failed and the sub-distributor instituted a suit against the assessee for the recovery of Rs. 44,634 impleading the producer also as a party and a consent decree was passed in that suit under which the assessee agreed to pay Rs. 37,800 to the sub-distributor. A sum of Rs. 41,915 was due to the assessee from the producer and the assessee wrote off this sum as bad debt in his accounts and claimed deduction of this amount and litigation expenses. The Appellate Assistant Commissioner allowed deduction of litigation expenses of Rs. 2,500 and a sum of Rs. 36,300 in computing the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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