9911796707
TMI Blog1982 (1) TMI 82X X X X Extracts X X X X X X X X Extracts X X X X ..... ipulated to be paid under the agreements, the producers concerned undertook to give the assessee certain guarantee acceptable to him for the payment of the amounts stipulated on the various dates. To illustrate the nature of the agreement and the remuneration payable thereunder, we shall take up the terms of the agreement with the producer, Sagar Art (International) Films (P.) Ltd. entered into by the assessee. Sagar Art (International) Films (P.) Ltd. engaged the assessee for playing the leading role in a picture entitled "Lulkar". According to the contract of employment, the assessee was entitled in consideration of his services rendered or required to be rendered, as stated in the letter of the producer dated 15-9-1970, the remuneration payable as under: Amount When payable Rs. 25,000 On signing of the letter of arrangement 66,500 In the year 1995 66,500 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount shall be the essence of the arrangement and as a security to him for the due payment of the remuneration as above by the producer, the producer undertook to give him such guarantee either through any Scheduled Bank, recognised Insurance or other Government agencies acceptable to the assessee. 3. In pursuance of the above arrangement, the producer took out annuity policies from the Life Insurance Corporation of India (LIC) to secure payment to the assessee in the stipulated years of the amounts agreed, as stated above. Under the terms of the policy, it was declared and agreed that the policy cannot be surrendered nor can the annuity payable thereunder be computed for a lump sum and no loan also will be granted on security of the policy. Under the policy, the producer Sagar Art (International) Films (P.) Ltd., is the proposer and the first instalment is due for payment on 1-9-1995 and similar instalments are to be paid as on 1st of September every year for a period of 20 years. 4. The assessee maintains accounts in respect of his professional earnings on cash basis, i.e., under cash system of accounting. In the assessment for the year 1975-76, the WTO, inter alia, included a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nition for the years up to 1974-75 but not for subsequent years, as there was an amendment to this definition effective from the assessment year 1975-76 with the result that so far as the assessment year 1975-76 is concerned his finding that the present value of the annuity policies requires to be included stands. 6. The assessee being aggrieved by the order of the Commissioner (Appeals) is in further appeal before us both with regard to his finding of the inclusion of Rs. 3 lakhs and with regard to the inclusion of the present value of future annuities. 7. Before dealing with the main ground common in the appeals of the assessee and the interveners in regard to annuity, we may dispose of the objection of the assessee relating to the inclusion of the sum of Rs. 3 lakhs as outstanding remuneration. So far as this sum of Rs. 3 lakhs is concerned, the short facts as found in the orders of the departmental authorities pertaining to the same are that the assessee was entitled to receive professional fees in respect of the film "Aan Ban", which was released some time between 1-4-1972 and 31-8-1972, in two forms, namely, Rs. 1,01,001 plus annuity of Rs. 40,000 each for ten years. Befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound that if the payments contemplated by the policies can be regarded as remuneration for services rendered, then our decision in regard to inclusion of outstanding remuneration will clearly govern the question and since according to our decision in the Special Bench order mentioned above, outstanding remuneration in the case of a professional assessee maintaining accounts regularly under the cash system cannot be included in the computation of net wealth, it follows that no inclusion is possible in respect of the payments under the annuity policies. The controversy between the assessee and the revenue, which requires consideration and decision in this appeal is, however, as to whether the payments secured under the policies by way of annuity can be regarded as remuneration for services rendered or the payment arises by virtue of a totally different contract of insurance for securing annuity payments. The stand of the assessee, as contended by the counsels on behalf of the assessee as well as the interveners, is that the payments under the policies continue to bear the character of remuneration for services rendered due from the producers and the mode or method adopted by the prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. A separate treatment contemplated in respect of an annuity can apply only to a case where a right is secured by an assessee for payment of annuity or annual instalments by payment of a lump sum amount into an asset, which is not the case here. In this connection, a reference is made to the instructions by way of a letter dated 26-2-1980, addressed by the CBDT as Instruction No. 1319 to all the Commissioners, a copy of which has been made available in the paper books filed on behalf of one of the interveners, Mrs. Mala Sinha, as supporting the assessee's contention. It was, therefore, submitted by him that whatever decision would apply to the question of outstanding remuneration in the case of professionals maintaining accounts under the cash system which came up for consideration in the other Special Bench case would equally govern the question of inclusion of any amount in respect of the annuities. The arguments advanced by him in the other Special Bench case were adopted by him in respect of the inclusion. Shri V.H. Patil, counsel for another intervener, also highlighted the point that the remuneration agreed to be paid by the producer was itself to be paid in instalments as s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asset is omitted in the balance sheet whether it is required to be included by the WTO in the computation of net wealth by way of adjustments contemplated under rule 2C of the Wealth-tax Rules and whether even otherwise it is an asset required to be included as an asset under section 7(1) of the Act and our finding is in favour of the contentions of the assessee. In that order, after examining the cash system of accounting in some detail, we have held that the outstanding of a professional cannot constitute an asset to be included in the balance sheet maintained under the cash system of accounting and consequently the WTO cannot include it by way of adjustment contemplated under section 7(2)(a). We have also held that the provisions of section 7(2)(a) being special provisions applicable to assets of business where accounts regularly maintained, there is no scope for inclusion of any asset relating to such business not required to be disclosed in the balance sheet under the system of accounts followed by resort to section 7(1). Following that order we must hold in this case also that the outstanding remuneration of the assessee is not liable to inclusion in the net wealth. We shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s if the assessee has received something in cash or in kind by accepting the annuities. What has happened is that the said obligation of the producers have been taken over by the LIC, and what will be paid ultimately by the LIC will continue to be nothing but the outstanding remuneration agreed to be paid by the producers according to the terms of the agreement. In other words, the change has only been that there is an assurance of the security for the discharging of the obligations of the producers in a way acceptable to the assessee. Nonetheless, the character of the payments which is by way of remuneration to the assessee for services rendered does not get altered or changed merely because the person making the payment is different from the producer. In making the payment to the assessee under the annuity, the LIC is merely discharging the liabilities and obligations of the producer under the contract between the assessee and the producer and nothing else. We are, therefore, satisfied that there is no merit in the department's contention that merely because the producer has adopted or framed a scheme or device for discharging his obligation of paying the remuneration to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 2 above." It is common ground that in the present case the conditions mentioned in clauses (i) to (vi) are present and the assessments to income-tax are made in accordance with the instructions contained in this letter. The department, thus, accepted the position that one of the methods of payment of remuneration to film artistes by the producers is through annuity of stipulated amounts for a certain number of years and in cases where the artistes are maintaining their accounts on cash system, what is required to be included in their income is only the amount of annuity instalments as is paid in a year. The implication apparently is that the artistes have no right to receive the balance of the amounts until the due dates of the payment. We are, therefore, clearly of the view that the instruction further strengthens our conclusion that the annual payments received by the artistes from the insurance company is nothing but remuneration for services rendered. It, therefore, follows that no part of the various amounts payable to the assessee in the different years under the policies having not even become due for payment, not to speak of their having been received, there can be no i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum that bears to the value of the right or interest of the assessee in the policy the same proportion as the number of years during which the premium or other payment under the policy is payable bears to ten. In the present case it appears, the payment to secure the annuity was made by way of a single premium in one year and consequently all that can be excluded by virtue of this clause is only one-tenth of the value of right or interest of the assessee in the policy. 18. However, our finding in the alternative contentions of the assessee does not impinge on the relief granted on the basis of our decision on the main dispute of appeal. We must also hold in regard to yet another claim of the assessee that if any sum is required to be included in respect of the payments due under the policy then the value thereof should be reduced, that there is no merit in the assessee's claim for considering any inherent income-tax liability attached to it, for the identical reasons on which we have rejected a similar contention in the other Special Bench case in the case of N.M. Shah, but as no proper valuation of right of interest, apart from this question, appears to have been considered at t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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