9911796707
TMI Blog1986 (7) TMI 145X X X X Extracts X X X X X X X X Extracts X X X X ..... nued to be utilised by assessee. The dates of the loans were 3-12-1971 and 4-12-71. It was for the assessee to establish that it was the same money which it borrowed that it paid towards tax. Apart, therefore, from the claim being not relevant for the year under appeal, according to the learned, counsel, the borrowing cannot also be related to the payment of tax. For the assessee, it is pointed out that the accounts clearly indicated two borrowings of Rs. 50,000 each on 3-12-1971 and 4-12-1971. On 13-12-1971, a sum of Rs. 74,778 was paid into the Reserve Bank of India towards income-tax. The accounts clearly indicated that this amount could not have been paid but for the borrowals. It is clear, therefore, that the borrowed money was utilised only for tax payment. The interest on this amount was paid during this year and the claim is made because the assessee is following a cash system of accounting. 4. As correctly pointed out by the Commissioner (Appeals), no limitation can be read into the statutory provisions to the effect that the borrowings must be made during the previous year or even after 1-4-1976. In fact, if a stipulation were to be made that interest can be allowed onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g with interest. If he did not pay any instalment, the guarantor had to pay the amount to the assessee. The IAC also found that Balaji Film Finance Distribution Co. (P.) Ltd. was constituted by three shareholders : the assessee's brother-in-law and two of his uncles. It had only a equity capital of Rs. 7,500. The company had invested the total amount of Rs. 4,93,000 for the purchase of lease rights in some theatres in Bombay, etc. Some loans had also been advanced to concerns in which the assessee's family and relatives were interested. From these and other facts peculiar to situations, the IAC came to the conclusion that these amounts should be treated as clear realisation of income by the assessee himself. The producers had already made due payment to the assessee by an arrangement which for all practical purposes resulted in a constructive receipt to the assessee from his profession. The IAC, therefore, added the sum of Rs. 4,93,000 as the income of the assessee. On appeal, the Commissioner (Appeals) held that there was nothing to indicate that Balaji Film Finance Distribution Co. (P.) Ltd. represented a benami to the assessee. This party actually stood as a guarantor for ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Co. (P.) Ltd. have been disclosed to the ITO in full. The ITO assessing that concern has not even hinted at any benami transactions or made protective assessments in that party's case. Merely because some of the relatives of the assessee are the shareholders of that company, the assessee cannot be regard as the person carrying on the business done by them. 8. The issues before us are : (1) Whether there is anything irregular in the payment made by the producers on a deferred annuity basis ? (2) Whether Balaji Film Finance Distribution Co. (P.) Ltd. are benamies of the assessee ? and (3) Whether the payment made by the producers to Balaji Film Finance Distribution Co. (P.) Ltd. can be regarded as payment to the assessee ? On the first issue, we can see nothing against the assessee. A producer may make a payment on the spot in cash or at stipulated periods including on a future date. The latter payment he can make either in a lump sum or in instalments. Thus, it would be incorrect to say that there was anything wrong in Megha Movies remunerating the assessee by making payments of Rs. 16,000 each on 10 instalment dates in the future. 9. As regards the charge of Balaji Film F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee would have no remedy. In our view, this does not support the case of benami. The learned counsel for the department was asked by us to produce even a minimum of evidence to support its case of benami. Nothing other than a reference to the relationship is put up in this connection. We see nothing whereby the assessee could have the control or has any control over Balaji Film Finance Distribution Co. (P.) Ltd. On the evidence, therefore, it cannot be held that this company is a benamidar of the assessee. Naturally, an amount received by it and merely as a guarantor cannot be treated as income of the assessee. We, therefore, uphold the decision of the Commissioner (Appeals) on this point. 10. The assessee claimed a sum of Rs. 6,33,979 as loss in the distribution of film 'Jay Vijay'. The facts of the case are that the assessee was an artist in the abovementioned film. The distributor S. R. Bros. entered into an agreement with the producer Prasad Productions for distribution of the film in the territory of C. P. Berar and C. I. Krishna Film Enterprises, a family concern of the assessee had entered into an agreement with S. R. Bros. on a 50 per cent partnership in the distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terations and in respect of the other areas, it would appear the picture was sold out. The assessee took out the distribution rights for one particular area, namely, C. P. Berar. The loss has to be computed for the year because of the application of rule 9B where the entire cost is claimed as a deduction for a picture released for exhibition for more than 90 days in the year. As a matter of fact, for the assessment year 1980-81, this picture has fetched receipts of Rs. 2,67,318. The entire distribution mechanism of this picture after the assessee took over his claim to have been directed by the assessee in his area. No evidence is available to show that this is a bogus claim or inaccurate. As stated above, the assessee directed the distribution in the area for subsequent year also netting a high figure of receipts of nearly Rs. 3 lakhs. In the face of these and other facts mentioned by the Commissioner (Appeals), the assessee's transaction has to be treated as a normal business incident. As against his loss, in fact, the assessee has taken credit for his professional fees from the picture also. The subsequent years result were also not bad. In fact, even in the year 1983-84, rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e easily inferred that he is fully aware of rules and regulations, practice and procedures relating to its exemption from taxation. (ii) The important feature of the Board's exemption policy is that the concerned annuity policy embodies that neither was the surrender value thereof nor were the annuities payable thereunder commutable. Thus, the underlying idea is that the lump sum payment made by the producer must lie in the coffers of the Government. (iii) The Balaji Film Finance Distribution Co. (P.) Ltd. has not taken out any annuity policy for deferred payment to the assessee for which purpose alone the producer provided the necessary funds. The producers made over the full payment in accordance with the terms of the contract with the assessee and, therefore, one wonders at the three clauses of the guarantee agreement reproduced above. Thus, the operative clauses seem to vitiate the whole arrangement as also the claim made by the assessee for exemption in terms of Board's instruction. (iv) The assessee's guarantors received lump sum payments from the producers and as shown above the funds have been used away in various investments and advances for the purpose of making i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir respective films. But, at the same time, one cannot ignore the legal principles that mere agreement is not enough to decide the rights. Sometime in view of the facts and circumstances related to a particular issue, it has to be seen as to what is the real intention of the parties or whether there is any collusion to avoid tax. In this case, it is claimed that the producers have made the deposits with Balaji Film Finance Distribution Co. (P.) Ltd. The shareholders of this company, as mentioned earlier, are closely related with the assessee. It means, when the payment which is due to the assessee for the his performance in the respective films is made by producers to Balaji Film Finance Distribution Co. (P.) Ltd., it is a payment in effect made to the assessee's brother-in-law and uncles. Admittedly, this Balaji film Finance Distribution Co. (P.) Ltd. has no other business except its entering into agreements with the producers to take guarantee for the payments to be made by the producers to the assessee. It was the argument of Shri Harish that as the film artist has a very short period, for earning in film line, so for the future safety he entered into these agreements. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urial and in that very country, where the phrase 'tax avoidance' had originated, the judicial attitude towards tax avoidance has changed and the smile, cynical or even affectionate though it might have been at one time, has now frozen into a deep frown. The courts are now concerning themselves not merely with the genuineness of a transaction, but with the intended effect of it on fiscal purpose. No one can now get away with a tax avoidance project with the mere statement that there is nothing illegal about it." Their Lordship have further observed : "We think that the time has come for us to depart from the Westminster principle as emphatically as the British Courts have done and to dissociate ourselves from the observations of shah J. and similar observation made elsewhere. The evil consequences of tax avoidance are manifold. First, there is substantial loss of much needed public revenue, particularly in a welfare state like ours. Next, there is the serious disturbance caused to the economy of the country by the piling up of mountains of black money, directly causing inflation. Then there is 'the large hidden loss' to the community (as pointed out by Master Sheatcroft in 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, the amounts paid by the producers of that company are nothing but the income of the assessee and the agreement is just a device payment of tax in the hands of the assessee. 6. The agreement, a copy of which is at pages 18 to 23 of the assessee's compilation, says that the producer will have to pay to the assessee a sum of Rs. 16,000 in each year commencing from 1984 to 1993. Clause 2(b) of the agreement says that the producer shall deposit a sum of Rs. 95,000 with the guarantor as and by way of security for the due performance by the producers. In clause 2(b) it is said that : "(b) If any instalment payable by the producers to the artists under clause 7/8 of the said letter of Engagement becomes due and payable and if the producers pay the said amount or instalment to the artists on due data then and in such event the guarantors shall pay or refund to the producers out of the said deposit of Rs. 95,000 (Rupees Ninety-five thousand only) an amount equal to 10 per cent of such deposit together With interest on such amount representing 10 per cent as aforesaid, at the rate of 2 per cent annum." The total payment supposed to be made by the producers to the assessee is R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tist. He entered into agreement with certain producers for rendering professional services. Under the agreement the assessee was to get in each case annuity of sum specified in the agreement spread over a number of years. Our of the four such agreements, it was noticed that the provision for payment of annuity under the agreement with Vijay Suresh Combine, Madras, was secured through a policy with the LIC, but in regard to other three agreements, the payment of annuities by the producers were guaranteed by a company, Balaji Film Finance Distribution Co. (P.) Ltd. In the case of Megha Movies, Bombay, the producer agreed to pay the assessee for his services in the film 'Kinara' an annuity of Rs. 16,000 for 10 years and paid Rs. 95,000 to Balaji Film Finance Distribution Co. (P.) Ltd. as a deposit in consideration of the said company standing as guarantors for due performance by the producer of the obligation of paying the annuity to the assessee. Similarly, the producer A. R. Production, Bombay, agreed to pay annuity of Rs. 32,000 for 15 years in respect of services of the assessee in the film 'Karmayogi' and paid to Balaji Film Finance Distribution Co. (P.) Ltd., a sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dicial Member the Commissioner (Appeals) was not justified in deleting the addition made by the IAC as unaccounted income of the assessee for the assessment year under consideration. The learned Senior Vice President found that the issues that arose for consideration are : 1. whether there is anything irregular in the payments made by the producers on deferred annuity basis; 2. whether the payments made to Balaji Film Finance Distribution Co. (P.) Ltd. can be regarded as payment to the assessee; and 3. whether the Balaji Film Finance Distribution Co. (P.) Ltd. are benami of the assessee. He held that it is open to the producer to make the payment in cash or at stipulated period including a future date and the payment can be in one lump sum or in instalments. He also held that there is no evidence to support any finding that Balaji Film Finance Distribution Co. (P.) Ltd. was a benamidar of the assessee so that the payments made to that company can be regarded as payment made to the assessee himself. On the other hand, the learned Judicial Member held that the mere formality of entering into agreement will not decide the issue and that one has to find out the ultimate i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices rendered by the assessee was payment made up of initial payment of Rs. 25,000 during the production of the picture and annual payment of Rs. 16,000 each in the years 1984 to 1993 aggregating only to Rs. 1,85,000. It is further pointed out that under this agreement the amounts stipulated to be paid shall accrue or become due to the assessee only on the due dates in the years specified and the time for the payment for each instalment shall be the essence of the contract. It is further undertaken by the producer in this appointment letter that as and by way of the security for the due payment of the remuneration stipulated they undertook to provide or procure guarantee of nationalised bank, recognised insurance company or any other institutions or limited company acceptable to the assessee in such form as he may require. It is further stipulated that under the said guarantee the assessee shall have right to receive the amount on due dates and guarantee should be irrevocable. It is submitted that this is a normal and genuine contract and the stipulation for annual payments is necessitated by the fact that the film artist's active life is limited and there should be a provision f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e commercial agreement and there is nothing to show that it was a device. He then pointed out that even assuming that the payment made by the producers by way of deposit to Balaji Film Finance Distribution Co. (P.) Ltd. must be regarded as payment made to the assessee on the ground that the company is a benami, the amount that could be so included in the year in only Rs. 75,000 out of Rs. 4,93,000 and in any case, therefore, the amount of addition even if it is to be sustained cannot exceed Rs. 75,000. It is pointed out that the assessee's system of accounting is case and, therefore, unless the assessee received the amount, no addition can be made. 10. The learned counsel for the assessee also submitted that Balaji Film Finance Distribution Co. (P.) Ltd. could not be regarded as benami of the assessee only because one of its directors and shareholders is the brother-in-law of the assessee. It is pointed out that the said director Shri Romesh G. Sippy is a man with his own resources and business activities. In this connection, he drew our attention to the details of concerns and immovable properties in which Shri Romesh G. Sippy has interest or investments set out on page 93 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annuity basis; (ii) whether the payments made to Balaji Film Finance Distribution Co. (P.) Ltd., can be regarded as payments to the assessee; and (iii) whether Balaji Film Finance Distribution Co. (P.) Ltd. are the benamidars of the assessee. It is entirely a matter left to the parties to decide how one of them will remunerate the other for the latter's service to be rendered to the former and certainly the parties are entitled to enter into an agreement mutually beneficial to them. The claim on behalf of the assessee that in order to ensure a steady and continued income over a period of his life, as an active life of an artist is limited, cannot be brushed aside as unreasonable or as an excuse because there is considerable truth in it. If, therefore, an artist agrees to take remuneration for his services by way of annuities becoming due on the stipulated dates or years, there is nothing wrong or suspicious in such an agreement. The agreement also works out to the advantage of the producer, for, he has not to part with immediately the entire remuneration agreed for the services rendered by the artist. The agreement in the present case is perfectly legitimate one and there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The assessing officer has gone by surmises and suspicions without any concrete material brought on record. Much store has been set by the Supreme Court decision in McDowell Co. Ltd.'s case. I do not see how the observations in McDowell Co. Ltd.' case can be called in aid to support the claim of the department. The principle concerning tax avoidance, as I understand from the decision of McDowell Co. Ltd.' case and the decisions referred to therein is that a person cannot be allowed to avoid legitimate levy of tax which is due by merely adopting a device to conceal the true character of transaction and the substance of the matter. But it does not mean that a person cannot arrange to have a regular income from year to year instead of windfall in one or two years. It is not doubt true that if the entire remuneration had been paid to the assessee and it is accepted by him in the year in which services are rendered, higher rate of tax will be levied on such larger amount of income with the consequent increase in tax liability and if by some means or method he avoids such tax although in enjoyment of the entire income, then undoubtedly the principle of McDowell Co. Ltd.'s case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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