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TMI Blog1976 (4) TMI 27X X X X Extracts X X X X X X X X Extracts X X X X ..... distributors to warrant the application of section 10(4)(b) of the Indian Income-tax Act, 1922 ?" The assessee is a registered firm. The firm was reconstituted under a deed dated December 20, 1955. In the reconstituted firm, the partners were T. S. Srinivasa Iyer, C. S. Mani and S. Balasubramanian, each having 2/15ths share and Messrs. Gemini Pictures Circuit Private Ltd., having 9/15ths share. The assessee-firm was constituted for the business of production and distribution of cinema films. However, it carried on the business of only production of pictures. The distribution part was passed on and entrusted to Messrs. Gemini Pictures Circuit Private Ltd., one of the partners. That limited company was mainly engaged in the distribution of cinema films, not only the films produced by the assessee-firm but also the films produced by several other producers. As far as the assessee was concerned, it entered into agreements with Messrs. Gemini Pictures Circuit Private Ltd. in connection with the distribution of the pictures produced by it. The first of the agreements is dated 13th May, 1955, which is annexure "A" to the statement of the case. This agreement was modified by a letter d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re only a partner of the assessee-firm, that, therefore, the commission taken by the distributors would come within the scope of section 10(4)(b) of the Indian Income-tax Act, 1922, and that consequently that amount should not have been deducted in computing the income of the assessee-firm. On this basis, the assessments for the earlier years, namely, 1957-58 to 1962-63 were reopened. The assessee objected to the reopening of the assessments both on the ground of limitation and on the merits. The assessee contended that all that it received was only the net amount to which it was entitled under the agreement entered into between it and the distributors and that the commission taken by the distributors cannot be said to be payment made by the assessee to one of its partners so as to attract the provisions of section 10(4)(b) of the Indian Income-tax Act, 1922. The Income-tax Officer rejected the case of the assessee and reassessed the income of the assessee for the years 1957-58 to 1962-63, by applying section 10(4)(b) of the Indian Income-tax Act, 1922, with regard to the commission taken by the distributors in respect of the pictures produced by the assessee. The assessee prefe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the firm. The second is, out of the said income the payment must be made to a partner. The very object of the total bar of payment of interest of salary or commission or remuneration to a partner under section 10(4)(b) of the Act with reference to the computation of the income of the firm is to prevent diversion of the profits of the firm to the hands of its partners. Therefore, it must first be established that the payment was made by the firm to its partner out of the income of the firm. Hence, we shall first consider the question whether there was any income of the assessee-firm out of which commission was paid to Messrs. Gemini Pictures Circuit Private Ltd., Madras. As we have pointed out already, Messrs. Gemini Pictures Circuit Private Ltd. were carrying on business as film distributors in their own right. They were not distributing the films produced by the assessee-firm only and they were distributing the films produced by several other producers also. This fact was not in controversy. As a matter of fact, the Tribunal itself has annexed an agreement entered into by Messrs. Gemini Pictures Circuit Private Ltd. with the Modern Theatres, Salem, as annexure "E" to the state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pictures of the various producers were so realised on behalf of the various producers and that it is the moneys of those producers which came into their hands. If so, the position cannot be different with regard to the assessee and the character of the receipt of the money by the company will not change simply because the distributor happened to be a partner of the assessee. It may be that having regard to the obligation undertaken by Messrs. Gemini Pictures Circuit Private Ltd. under the distribution agreements entered into between them and the various producers, they may have to render accounts of the collections, so that they may pay the net realisations to the producers concerned as stipulated in the agreements. That is far different from saying that when Messrs. Gemini Pictures Circuit Private Ltd. realised moneys by way of exhibition, exploiting and distributing the pictures, they realised the moneys of the producers with reference to whose pictures the amounts had been realised. Consequently, the very first requirement, namely, that the amount out of which the commission is paid must be the income of the firm of which the recipient is a partner is absent in the present case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of commission" attracting section 10(4)(b) of the Indian Income-tax Act, 1922, and, therefore, our answer is in the negative and against the department. We may also point out that with regard to the assessment year 1963-64, it was not even section 10(4)(b) of the Indian Income-tax Act, 1922, that applied and it is section 40(b) of the Income-tax Act, 1961, that applied and probably by oversight no reference was made to that section in the third question. As far as the first question is concerned, both the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal have taken the view that the assessments in respect of 1957-58 and 1958-59 could not be reopened and that they were time-barred. In this connection it is relevant to refer to the date of the notice under section 148 of the Act. For both the assessments 1957-58 and 1958-59, notice was issued on November 11, 1963, and reassessments were completed on December 31, 1963. It is not in dispute that the notices were issued beyond the period of four years prescribed under section 147(b). If only action was taken under section 147(a), the notice issued on November 11, 1963, could be said to be in time. Both ..... X X X X Extracts X X X X X X X X Extracts X X X X
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