9911796707
TMI Blog2005 (5) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... m of M/s ABCL issued in 1996 for placing shares thereof at a premium of Rs. 70 per share. (b) the said agreements were genuine and bona fide as found by Hon'ble Tribunal vide its order No. 4453/Mum/2000 for asst. yr. 1996-97 in the case of appellant himself, which is highest fact finding authority under the IT Act, 1961. Further, the agreements cannot be held to be genuine in one context and non-genuine in another. (c) the tripartite agreement between the appellant arid M/s Star India (P) Ltd. (SIPL) and M/s EEL, dt. 12th April, 2001 was entered into by the appellant under the bona fide belief that the programme 'Kaun Banega Crorepati' amounted to a 'feature film' as allowed to be done by him under cl. 1.7 of the agreement dt. 10th Jan., 1995 with M/s ABCL. Further, in January, 1995, no one could have foreseen the income from KBC programme and losses incurred by M/s ABCL in later years. (d) the plea by the appellant before the arbitrator that the entire income from 'KBC belonged to him on the ground that it was a feature film, cannot be held against him as it is but natural for a party to argue one's case forcefully before the arbitrator even when the weakness of the case is kno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to overriding title of M/s ABCL thereon. Further, the amount was directly received on 26th Dec., 2000 by M/s ABCL as per FIRC dt. 13th Feb., 2001 from Hongkong & Shanghai Banking Corporation Ltd. (f) the arbitrator had in fact enforced a 'personal services contract' as if the appellant undertook activities on behalf of M/s ABCL which yielded an amount equal to 70 per cent of sum received from the show 'KBC, as this is not a case of enforcement of contract of personal services but of enforcement of rights to income being legal obligation under agreements dt. 10th Jan., 1995 and 11th Feb., 1995. (g) the amount payable by appellant to M/s ABCL amounted to 'compensation', because this is not a case of breach of an agreement for 'personal service' as mentioned at (f) above. (h) the liability to pay the amount payable by appellant to M/s ABCL arose on the date of award, i.e., on 19th June, 2002 (asst. yr. 2003-04) and thus was not allowable in the assessment year under appeal, as the liability was only quantified by award dt. 19th June, 2002 and was already present in the assessment year under appeal by virtue of agreements dt. 10th Jan., 1995 and 11th Feb., 1995. and (i) firstly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant craves leave to add, alter, amend or modify any or all of the above grounds of appeal on or before the date of hearing." 3. During the asst. yr. 2001-02, the assessee hosted for the first time a television programme show for M/s Star Television India (P) Ltd. (in short SIPL) by the name of Kaun Banega Crorepati (in short KBC). The assessee filed his return of income on 31st Oct., 2001 declaring total income of Rs. 4,61,97,840. The assessee thereafter filed revised return of income on 31st Oct., 2002 declaring total income of Rs. 6,08,88,217. The assessee filed re-revised return of income on 31st March, 2003 declaring total income of Rs. 3,23,52,630. In response to queries by the concerned AO, the assessee filed various details such as copy of tripartite agreement with Entertainment Ltd. (EEL) and M/s SIPL, copy of the accounts of various parties, modalities involved in arbitration proceedings, cashflow statement and copies of agreement with various parties in support of the professional receipts. The AO observed that in the returns filed by the assessee, the figures of not only the expenses but also receipts varied. In his return of income, the assessee has shown receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pectively, were held as revenue receipts by the AO vide his orders dt. 31st March, 1999. The findings in both these cases were confirmed by CIT(A). In further appeal, the Tribunal in a combined order dt. 5th Nov., 2002 in these cases held the same as capital receipts not liable to tax and the Department is in appeal before the Hon'ble High Court of Bombay. 3.3 The AO, however observed that M/s ABCL is a sick industrial company so declared by the Board for Industrial and Financial Reconstruction (BIFR) vide its order dt. 9th July, 1999, in case No. 60/99 had brought forward losses of Rs. 81.88 crores as on 1st April, 2000 under the IT Act. 3.4 The agreement with SIPL and EEL with regard to KBC was effective from 1st April, 2000 and the assessee was to receive a total amount of Rs. 112.22 crores as per cl. 8.1 of the same. 3.5 Schedule of payments received by assessee as per the said agreement is as under: (Rs.) ------------------------------------------ Advance already paid by EEL and received by AB Corpn. Ltd. 23,00,00,000 12th April, 2001 21,42,00,000 1st Oct., 2001 10,40,00,000 1st Jan., 2002 19,10,00,000 1st April, 2002 19,10,00,000 1st Oct., 2002 19,20,00,000 -- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitrator. The relevant portion of letter is reproduced as under: "A dispute has arisen between us-(1) AB Corpn. Ltd. and (2) Amitabh Bachchan. In which of an income ostensibly/or to be earned by Amitabh Bachchan as to whether the said income belongs to him or to AB Corpn. Ltd. We had entered into an agreement on 10th Jan., 1995 for a period of ten years and there is no dispute between us that we are governed by the terms and conditions of the said agreement. Clause 20 of the agreement provides that in case of dispute, the dispute shall be referred to arbitrator's in Mumbai. We are glad to say that both of us (the parties) have decided to approach you to be our sole arbitrator for the purpose. Accordingly, we request you to kindly take up this arbitration and pass your final award as early as possible." 3.10 Justice T.D. Sugla (Retd.) vide his letter dt. 19th March, 2000 fixed the hearing for arbitration on 15th April, 2000 at 12.30 p.m. On the said date of hearing, minutes were recorded which were placed on record. Shri I.C. Jain, C.A. attended for assessee, and Shri Rajesh Yadav, chartered accountant for ABCL. 3.11 ABCL vide letter dt. 30th April, 2002 put forward its case bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ody will subscribe to our companies. Moreover, the shareholders cannot be kept in the dark and made to suffer." 3.12 Assessee vide his letter dt. 8th May, 2002 presented his case before the arbitrator, relevant portion of which is reproduced as under: "One will appreciate that the above mentioned rights acquired by AB Corpn. Ltd. would/will generate substantial income if all the above rights are exploited, however they remain unexploited. The above submission made is evident from the fact that though I, on several occasions intimated AB Corpn. to exploit my service in terms of cl. 2.1.2 of the above referred agreement, no feedback till date has been received from AB Corpn. in this regard. I had to render services to earn my living, accordingly signed an agreement with Star India Ltd. in personal capacity, as Star India Ltd. was not ready to enter into an agreement with AB Corpn. Ltd. Furthermore, I understand that AB Corpn. Ltd. is vehemently contending that the role of an anchor is not covered under the frame of a feature film. In my submission AB Corpn. Ltd.'s view is misplaced. You will kindly appreciate that, when the agreement was entered into on 10th Jan., 1995, inter alia, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the income of the claimant company." 3.14 Assessee was asked by the AO to show cause as to why based on assessee's tripartite agreement EEL and M/s SIPL, the arbitration award, assessee's agreement with ABCL, copies of FIRC and TDS certificates, it should not be inferred that the whole transaction involving transfer of receipt on account of KBC show from assessee to ABCL, be not regarded as 'make believe' arrangement and treated as assessee's income as already claimed before the arbitrator and taxed in his hands accordingly. Assessee vide letter dt. 25th March, 2004 replied to the issue of receipts from KBC being transferred to ABCL and the text of his reply is as under: "(i) The agreement entered into was by and between E-Entertainment Ltd., Star India Ltd. and Mr. Amitabh Bachchan. (ii) Vide agreement dt. 10th Jan., 1995 and supplemented thereafter by agreement dt. 11th Feb., 1995 entered into by and between AB Corpn. Ltd. (formerly known as Amitabh Bachchan Corporation Ltd.) and Mr. Amitabh Bachchan, it was intimated to Mr. Amitabh Bachchan that in consonance with the terms of the said agreement the amount should be handed over to AB Corpn. Ltd. Moreover his reference was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 : (1971) 82 ITR 540 (SC); (iii) Workmen, Associated Rubber Industry Ltd. vs. Associated Rubber Industry Ltd. (1985) 48 CTR (SC) 355 : (1986) 157 ITR 77 (SC); (iv) CIT vs. Sri Meenakshi Mills Ltd. (1967) 63 ITR 609 (SC); and (v) Juggilal Kamlapat vs. CIT (1969) 73 ITR 702 (SC). In this backdrop, the assessee's agreement with M/s ABCL was subjected to close scrutiny. He observed as under: "(a) The agreement dt. 10th Jan., 1995 is signed only by assessee and not by any person on behalf of ABCL. Similarly, the supplementary agreement is neither signed by the representative of ABCL nor by witness. According to AO, the fact remains that agreements were signed only by the assessee and therefore, these are unilateral and self serving documents in nature and represent the assessee's assertion and intention of entering into agreement with ABCL which was eventually not signed. Thus, the agreement is not a valid legal document. (b) The agreement in substance provides, room to artist to act in feature films produced by others. The agreement further provides that artist would act in feature films to be produced by M/s ABCL for that he is to be paid Rs. 3 crores per film per year and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isputes or differences arising between them or in relation to construction, meaning and operation or effect of the contract of breach thereof s. 34 of the Arbitration Act prohibits action contemplated in cl. 11 of the agreement. From the above, it would be clear that M/s ABCL may not have any effective legal remedy in case of any breach by the artist but to subject itself to arbitration. At this juncture, one cannot ignore the influence of the artist on the functioning of M/s ABCL as he is chairman-cum-managing director of the said company." 3.17 In the light of the above discussions, the following inferences were drawn: "(a) The agreements suffer from ambiguities, the patent one being the recourses open to the company in case of any breach by the artist as explained above. The patent ambiguity is non-disclosure of basis on which payment of Rs. 15 crores is made and the basis on which modifications were made in supplementary agreement. Another facet of latent ambiguity is the non-disclosure of nature of performance, whether present, past or future which have been assigned. (b) The contention that the agreement is in nature of a restrictive covenant is not borne out of the terms, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harmless in respect of payment of any taxes and other withholdings in respect of payments received under this agreement in this regard and in respect of the services provided. 3.19 According to the AO, from the above two clauses, it is observed that the assessee had consciously entered into tripartite agreement with SIPL and EEL and was sure of his obligations/commitments towards M/s ABCL. He gave undertaking to SIPL and EEL in no uncertain terms that he was the sole absolute, unencumbered legal and beneficial owner of all rights granted to EEL and the production house in respect of the services to be rendered under the said agreement. In fact, he was sure that the agreement with M/s ABCL was a make-believe arrangement and not meant to be acted upon. It did not have enough force to prevent the assessee from pursuing his own professional career, because it was never intended to be a restrictive covenant in reality. It had a limited purpose. It was a device to avoid the tax and from a practical standpoint, as far as the assessee's professional freedom was concerned, it imposed restrictions only in letter and not in spirit. The fact that the assessee could sign the said tripartite ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sole arbitrator to decide the dispute. The letter dt. 29th May, 2002 given by both the parties was not filed before the arbitrator. The arbitrator, without assigning any reason, held that 30 per cent proceeds from KBC will go to the assessee and 70 per cent will go to M/s ABCL. What is the basis of 30:70 division, is not known. Neither parties appear to have argued before the arbitrator as to be reasonable share of income to which they were entitled. At least no such minutes or correspondence was produced. (vi) The assessee deliberately agreed for 30 : 70 ratio. Taking into account the brought forward losses of M/s ABCL of Rs. 81.88 crores, the amount of Rs. 78.554 crores (as per 30:70 division) gets set off against brought forward losses and does not bring in any tax liability. Any variation in this ratio would have either not fully appropriated the benefit or brought forward losses or resulted into higher tax liability in the hands of the company or the assessee or both taken together. Thus, the arrangement agreed to by the assessee in this alleged arbitration proceedings is a brilliant example of how transactions could be devised with the sole intent of escaping the incidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s: (i) Provat Kumar Mitter vs. CIT (1961) 41 ITR 624 (SC) (ii) Motilal Chhadami Lal Jain vs. CIT (1991) 94 CTR (SC) 195 : (1991) 190 ITR 1 (SC). Applying the principles of the above cases to the facts of the assessee's case, the AO observed that: (i) the source of income was the assessee's tripartite agreement with SIPL and EEL; (ii) M/s ABCL had no locus standi vis-a-vis SIPL and EEL. In fact, the assessee has mentioned before the arbitrator that SIPL had refused to enter into any agreement with M/s ABCL whatsoever. (iii) TDS certificates issued by EEL in the name of the assessee, the credit of which was taken by him in the return of income, clearly show that income accrued and arose to the assessee. (iv) M/s ABCL had no charge on the source of income, that is on EEL. It was in no position to recover the money from EEL. In the light of these, the AO observed that the payment made to M/s ABCL by the assessee was nothing but a gratuitous payment. It was in the nature of application of income and not diversion of income by an overriding title. This, according to him is further substantiated by the assessee's own stand before the arbitrator. 3.25 The AO finally concluded that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) The KBC programme in which the assessee had acted as a host was a programme conceived, prepared and broadcast in India. There was no performance outside India. (iii) Sec. 80RR is not allowable in the cases of persons anchoring or hosting a TV programme as held by the Mumbai Bench of the Tribunal in the Harsha Bhogle vs. AO. On these determinations, the assessee was aggrieved and was before the CIT(A). 4. During the course of appellate proceedings, it was submitted by the assessee that: (i) The statement in para 12.1 of the assessment order that the agreements were signed only by the assessee is incorrect, as the agreements were approved at the board meeting of the company held on 2nd Jan., 1995 and common seal of the company was affixed on the said agreement. The agreement with M/s ABCL was genuine, legally binding and was entered into at the time when it was improbable to visualize any programme of the type of KBC and its unparalleled success. The assessee entered into agreement with EEL for the show "KBC" under genuine and bona fide belief that it amounted to a feature film as at that particular point of time such shows were not a vogue in 1995, when agreements were enter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent to negate the learned AO's allegation regarding international tax avoidance in this case. (iv) The agreement allowed the artist to follow the profession within the time of about 240 days not in conflict with the interest of M/s ABCL. Had it not been allowed, the artist would not have survived with the average income of Rs. 1.5 crores per year (Rs. 15 crores divided by 10 years = Rs. 1.5 crores every year), in the absence of any production activity by M/s ABCL. The assessee as a reputed and renowned actor had assured the shareholders and he could not backout of the assurance given in information memorandum of M/s ABCL while placing shares of M/s ABCL, enabling it to fetch a premium of Rs. 70 per share, as he would have been liable to prosecution, on the ground of giving false promises to lure the investors. No person will give his personal income to company of which he is not a majority shareholder and in full control of the company. But for his commitment to the company he would not have agreed to share with the company. He (AO) would wrongly presume M/s ABCL to be the ownership company of the assessee and has proceeded to frame his order on these premises. The purchase by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal in its order for the asst. yr. 1996-97 and by virtue of an arbitration award under the Arbitration and Conciliation Act, 1996, and (c) M/s ABCL has no locus standi or charge vis-a-vis SIPL and EEL. It was a gratuitous payment, was erroneous and the income shown in the second revised return should be accepted. As indicated earlier, a copy of the submission of the assessee was given to the AO who had submitted his reports and the copies of the reports of the AO were given to the assessee and in response certain further submissions have been made. On the basis of these reports and further submissions, certain issues have emerged for consideration as given below: "Against the issue raised by the assessee that the agreements were approved by the board meeting of the company held on 2nd Jan., 1995, it was stated by the AO that the assessee is the heart and soul of the said M/s ABCL and he along with his family members controls the business of M/s ABCL. In that event, the ultimate approval from the end of the company in its board meeting is of little consequence considering the decision makers and signatories involved. The assessee's voice is what matters and without him th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on presented by the assessee. The Department is in the appeal in Mumbai High Court against the same. The said decision of the Tribunal referred to earlier was passed in different context. In the said case the agreement was being examined vis-a-vis the assessee's claim on a particular receipt of Rs. 15 crores received by him from M/s ABCL as to whether the said receipt was a capital receipt or not? The said decision referred to earlier was relevant to the factual position as it existed at the relevant time. It has been further elaborated by the AO that in the intervening period certain new facts had come to the knowledge of the Department relating to the way the agreement has been put into operation and the same may need reappraisal of conclusion drawn by the Hon'ble Tribunal referred to earlier. In such an eventuality, the assessee's argument that Tribunal has held agreement to be valid would not have any consequences in the present proceeding and the same would not have binding effect on the present proceeding. The present case is to be decided in overall prospective of implication of the new facts. In fact, order of the Hon'ble Tribunal referred to by the assessee decided the iss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.4 It had been contended during the appellate proceeding that the arbitration award involving dispute between the assessee and ABCL having been accepted by both the parties should have binding effect on IT Department, while deciding apportionment of proceeds in the respective hands for tax purposes, unless it is held- (a) the same has not taken into consideration the respective claims of the parties properly before arriving at a logically consistent conclusion, and (b) on overall analysis the arbitration award and the whole process looks unreal and sham. 4.5 In this connection, the AO had argued that the whole sequence of events which includes filing of successive of revised returns showing in later return 30 per cent of the receipt/income from KBC show which was legitimately due to him 100 per cent for services rendered for KBC show against legally valid agreement entered into by him in his individual capacity, and diverting balance 70 per cent to the hands of M/s ABCL for set off against large dose of carry forward loss available points to unmistakable conclusion that the same was not just and fair and clearly an afterthought designed to reduce ultimate incidence of tax on in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ABCL was not aware of the assessee's activities, how a claim can be made that he was not available because of his involvement in KBC? (d) Programme like KBC ought to have taken up for ABCL by the assessee. The arbitrator has indirectly agreed with this claim. But if that be the case, there is no reason why the entire amount earned by the assessee should not have been handed over to ABCL, not 70 per cent of it. (e) The assessee as the main promoter of ABCL had given assurance to the potential shareholders that he would bring a host of entertainment related activity under the umbrella of the company. ABCL also invoked the plea of the promissory estoppel before the arbitrator. The arbitrator has been persuaded by this argument of ABCL. He has opined that in view of the assurance given to the prospective shareholders, the income from KBC programme rightfully belongs to ABCL. 4.8 Regarding the defence raised by the assessee before the arbitrator in respect of the claim of ABCL, the relevant, portion of the order of the CIT(A) is reproduced as under: (i) ABCL could have earned a lot of money of exploiting him or his goodwill or talent. But despite his requests to ABCL, these were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period and post-production periods." 4.11 From the above engagement schedule it shows that there would be some definite programme drawn up by ABCL containing date, time and location for the performance of the assessee. The contract defines guaranteed period as under: '"Guaranteed period' means the period of 120 working days exclusive of bank and public holidays in any given calendar year during which the artist shall be available for engagements." 4.12 The contract requires that the assessee should be available for engagement during the period of 120 working days. But these 120 working days should be scheduled by ABCL. Which 120 days ABCL would engage, the assessee has given a guarantee that he would be available. It does not prevent him to engage his own activity if (on) some days there is no pre-planned programme by ABCL. 120 days refers to the maximum period for which ABCL could engage the assessee. Beyond this he was free to engage in his own activity. 4.13 The relevant clauses, that is, para 1.7 and para 6.3 of the order of the learned CIT(A) is extracted below: "1.7. It is expressly understood that nothing contained in the agreement shall restrict the right of the artis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of cl. 1.7, the assessee was practically to work full time for ABCL is not borne out from the fact on record as the above discussion would show. When the maximum commitment of the assessee is only for 120 days in a year, one wonders how it could be concluded that the assessee was to work full time for ABCL. The assessee could undertake any assignment outside the committed 120 days. This is what the arbitrator is describing as activities for personal purposes. 4.15 The CIT(A) explained the terms of agreement and the rights and liabilities of the appellant to point out that he did not put up an adequate defence. Clearly, he was trying to ride two horses at the same time. The arbitrator has correctly pointed that the appellant was the brain, heart and soul of ABCL. In this situation, it is inconceivable that there was a genuine dispute between the assessee and ABCL. According to CIT(A), it is corroborated by the fact that the assessee tamely surrendered his interest in favour of ABCL. CIT(A) has observed that income was diverted to ABCL to get set off against brought forward losses. Accordingly, AO had every justification to conclude that the whole arrangement was a make be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respects answers to the description of a res judicata is nonetheless so because it was made in pursuance of the consent and agreement of the parties. Accordingly, judgments, orders, and awards by consent have always been held no less efficacious as estoppels than other judgments, orders, or decisions, though doubts have been occasionally expressed whether, strictly, the foundation of the estoppel in such cases is not representation by conduct, rather than res judicata. From the above mentioned judicial pronouncements, it is clear that principle of res judicata is not applicable in case of decree passed by the Court under the compromise between the parties. However, such decree is binding on the parties on the basis of principle of estoppel.' In any case, the award is binding only on the parties before the arbitrator and not on any party who was not party to the proceeding. In Municipal Council vs. Mani Raj (2001) 4 SCC 173. the Supreme Court held that the award of an arbitrator is not binding on a party not in the proceeding before the arbitrator, even if he is In possession of the property in dispute between the parties to the arbitration proceeding. The Court observed: 'We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me did not want to have anything to do with ABCL, there is no question of any income accruing or arising to ABCL from out of the money received under the contract with Star India and E. Entertainment. Therefore, the AO was right in taking the entire amount of Rs. 23 crores as income of the assessee during the year. The payment of 70 per cent of the amount cannot be treated as an expenditure laid out for earning the income. Therefore, it is not an allowable expenditure. It is a matter of record that it has been concluded that there was a breach of agreement by the assessee. The only recourse for breach of agreement is to award compensation. In fact it has been concluded further that out of what the assessee received, 70 per cent belongs to ABCL. In fact things have been assumed to be in existence which was never so. Effort has been made to make out a case that the only implication of the award is that the assessee did undertake activities on behalf of ABCL which generated income to the extent of 70 per cent of the receipts from Star India and E. Entertainment. In fact the way the things have been put across by the assessee, it seems that a case has been made out that the arbitrator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er a contract of personal service, and so offend s. 21(b). 12. It was said that this might make the award erroneous but that was not enough; before it could be set aside, it had further to be shown that the error appeared on the face of the award. The learned counsel contended that no error appeared on the face of the award as the reasoning for the decision was not stated in it. It was said that this was laid down in the well-known case of Champsey Bhara & Co. vs. Jivraj Balloo Spinning & Weaving Co. Ltd (1923) LR 50 IA 324. We were referred to the observations occurring in the judgment at p. 331 to the following effect: 'An error in law on the face of the award means, in Their Lordship's view, that you can find in the award or a document actually incorporated thereto, as for instance a note appended by the arbitrator stating the reasons for his judgment, some legal proposition which is the basis of the award and which you can then say is erroneous.' 13. We are unable to agree the Judicial Committee laid down the proposition that the learned counsel for the appellant ascribes to them. When they referred to the reasons for the judgment, they were contemplating a case where the ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount received by the appellant) to ABCL as income. It is a settled law that if there is any breach of an agreement for personal service, the arbitrator can only award an amount as compensation for breach of contract. Therefore, the amount payable by the assessee to ABCL can only be treated as a payment of compensation. So it would not be correct and proper to interpret the arbitration award the way the assessee has tried to interpret as above which has to be a reasonable, harmonious and legal interpretation. It would be worthwhile to analyze the consequences if the 70 per cent amount is treated as compensation for breach of contract. During the previous year relevant to asst. yr. 2001-02, no amount was payable by the assessee to ABCL by way of compensation. The compensation was awarded much later. The liability of the assessee to ABCL in terms of the award did not come into existence during the year under review. The compensation does not become due until it is awarded by the arbitrator. In CIT vs. Highway Construction Co. (P) Ltd. (1997) 138 CTR (Gau) 43 : (1997) 223 ITR 32 (Gau), the High Court held that the compensation awarded by the arbitrator to the assesses accrued only on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from "KBC" programme and losses incurred by M/s ABCL in later years. The authorities below have not appreciated the plea by assessee before the arbitrator that the entire income from "KBC" belonged to him on the ground that it was a feature film cannot be held against him as it is but natural for a party to argue one's case forcefully before the arbitrator even when the weakness of the case is known to it. 5.2 Revenue authorities did not appreciate that the dispute whether it amounted to "feature film" on his own account or an "engagement" resulting in income to M/s ABCL arose between the assessee and other directors of M/s ABCL, resulting in arbitration award dt. 19th June, 2002 by Justice T.D. Sugla (Retd). Revenue authorities did not appreciate that the award dt. 19th June, 2002, awarded 30 per cent of income from "KBC" to the assessee and 70 per cent thereof to M/s ABCL on the grounds cited therein and it was not a design to distribute income to avoid incidence of tax as can be seen from the fact of the case. When family shareholding of the assessee (35 per cent) and his entitlement to 4 per cent of profits of M/s ABCL is considered, the assessee's share in receipts from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.3 The CIT(A) erred in holding that the amount payable by assessee to M/s ABCL amounted to "compensation", because this is not a case of breach of an agreement for "personal service" as mentioned above. CIT(A) further erred in holding that liability to pay the amount payable by assessee to M/s ABCL arose on the date of award, i.e., on 19th June, 2002 (asst. yr. 2003-04) and thus, was not allowable in the assessment year under appeal, as the liability was only quantified by award dt. 19th June, 2002 and was already present in the assessment year under appeal by virtue of agreements dt. 10th Jan., 1995 and 11th Feb., 1995. In fact and circumstances, CIT(A) erred in not considering the submissions made before him in connection with the agreements dt. 10th Jan., 1995 and 11th Feb., 1995 and other facts. Therefore, the assessment order is based on false premises which ought to have been demolished. It was also submitted that the authorities below have wrongly concluded that there is tax planning by assessee to evade tax because there was no stretch of imagination by which it could be exhibited in asst. yr. 1995 that the losses suffered by ABCL could be set off by the income of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations between advances, deposit on land, money, securities and properties, to order that any company, corporate film person or association whether management or otherwise or other security. Thus, the learned Departmental Representative drew our attention to the fact that there is no mention of film making in said memorandum. Our attention was also drawn to p. 78 wherein at 16 'F', there is a mention that above cls. 60A to 60F were added to personnel resolution passed at extraordinary meeting held on 25th Feb., 2005 and the order of company logo dt. 30th Aug., 1996. In this regard, learned Departmental Representative drew our attention to p. 83. The contention of Departmental Representative was that how ABCL entered into film producers prior to the resolution to this effect. Thus, vide agreement dt. 10th Jan., 1995 and 10th Feb., 1995 prior to amendment in the memorandum to this effect as discussed above. In this regard, the learned Departmental Representative drew our attention to the provisions of s. 17 of Companies Act which deals about the change of objects and approval thereof. 6. We have considered the rival submission and have carefully gone through the discussions in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the course of hearing called for the original agreements and the assessee's counsel produced both the agreements. On perusal of the said agreements it was found that there is a seal of ABCL and the signature of the director of ABCL is also there on the last page of the agreements. The same was shown by the Bench to the learned Departmental Representative in the open Court. Subsequently, in order to verify whether the seal of ABCL and the signature of its director is visible in the agreements, the photostat copy of the same were taken. Ultimately it was found from the photostat done at the instance of the Bench that neither the signature on behalf of ABCL or its seal is legible in the photostat copies. On this, the learned Departmental Representative was fair enough not to proceed further on this issue. Therefore, on this count, we are unable to accept the stand of the Department that the so called agreements have rendered themselves invalid for want of any signature in this regard. The original bore the signature and seal of ABCL, therefore, the legal implication as to the genuineness of the documents is established in favour of the assessee. 7. Now the other contention of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial beating much before the receipts or even the conceptualization of the programme. We do not think that these agreements were only make-believe transactions arranged just to defeat the taxing provisions. So the attempt to lift the corporate veil by the AO, in our view, is not fair and reasonable especially viewed from the fact that the Department accepted the genuineness when it came to the question of taxability of the receipt of 18 crores to the assessee and his wife under the same agreements. The assessee, as the agreements of 1995 clearly show, has sold himself to ABCL and he is bound to account for all the professional receipts from the engagements unless they fall under the exemption cl. 1.7 of the agreement which only allowed a limited freedom to the assessee to act in a feature film produced by others provided it is not on same concept for which ABCL has obtained prior commitment of the assessee for its own production and also the assessee would accord highest priority to complete the feature films produced by ABCL as contemplated in cl. 2.1.1 of the agreement. In fact, before the arbitration proceedings the assessee relied upon cl. 1.7 and ABCL relied upon cl. 6.3 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee from the KBC programme accrues to him and the remaining 70 per cent should be handed over to the claimant company viz., ABCL. We are-aware that the Department is not a party to the arbitration proceedings and, therefore, cannot be legally said to be bound upon it. But the Revenue, as correctly argued by the learned counsel for the, assessee, cannot ignore the legal implications of transactions and the disputes that were there between the parties in making the assessment. The Revenue cannot assess more than the real income in respect of the transactions entered into by the parties. The relevant clauses of the agreement which have a bearing upon the issue, although extensively discussed by the two Revenue authorities, are again extracted below for making this a self-contained. "Clause 1.7 It is expressly understood that nothing contained in the agreement shall restrict the right of the artist to pursue his professional career as an actor, whether in a principal role or otherwise, in feature films that the artist may in his personal capacity sign up or enter into a contract, to act in feature film, with any third party/person having no interest whatsoever in the corporation or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to the Revenue authorities, the rigours of this clause are diluted by cl. 6 of the said agreement, which provides for equitable relief. Accordingly, M/s ABCL was entitled to seek injunctive and other equitable relief to prevent or curtail actual or threatened breach by the artist of the provisions of agreement. Since parties to agreements were having option to refer the matter for arbitration as per provisions of Arbitration Act, 1940, we find nothing wrong if one of the two available options was availed by the party to resolve their dispute. The suit for injunction under the relevant provisions of Specific Relief Act along with application for ex pane ad interim injunction under O. 39, rr. 1 and 2 r/w s. 151 takes considerably long time for reacting finally. The resolution of dispute under Arbitration Act is fast. Apart from this, the Court proceedings are not only time consuming but costly as well in comparison to arbitration proceedings. Under these circumstances, we do not find anything wrong if the matter be considered to be resolved under the provisions of Arbitration Act, 1940, as provided under cl. 20 of the agreement. The dispute to the arbitrary was referred under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "KBC" programme and losses incurred by M/s ABCL in later years. Under these circumstances, the agreement in question cannot be said a make belief arrangement. The plea by the assessee before the arbitrator that the entire income from "KBC" belonged to him on the ground that it was a "feature film" should not be held against him, as it is but natural for a party to argue one's case forcefully before the arbitrator even when the weakness of the case is known to it. The said plea should not be allowed to come in his way, while the matter has been duly referred to the arbitrator when dispute arose between the parties. The said dispute has been resolved by the arbitration award dt. 19th June, 2002 by Justice T.D. Sugla (Retd.). Thus, the dispute was validly referred to the arbitrator at the strength of cl. 20 of the said agreement and dispute was speedily and validly resolved under the relevant provisions of Arbitration Act. 7.2 During the course of hearing an enquiry was made why SIPL did not enter into an agreement with ABCL, with whom the assessee's persona vested. It was submitted that SIPL was not agreeable to enter into the contract with ABCL may be for the reasons best known to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce before its accrual in the hands of the assessee. In the light of these discussions the main issue is decided in favour of the assessee and it must be understood that the principles laid down in all the case laws specifically dealt with by the AO and the CIT(A) and also canvassed by both the parties before us should be taken to have been considered while coming to this decision although not specifically referred to herein. 7.4 We may now deal with the decision in the case of L. Hans Raj Gupta & Anr. vs. CIT (1969) 73 ITR 765 (Del), relied upon. The Hon'ble High Court, after considering the decision of the Hon'ble Supreme Court in CIT vs. Sitaldas Tirathdas (1961) 41 ITR 367 (SC), held the report as under: "The principles deducible from the above decisions are that if a person has assigned his source of income in such a manner that it ceases to be his, he cannot be taxed on that income but if, on the other hand, he merely applies the income in such a manner that it passes through him and goes over to another person he may be taxable on the income notwithstanding the legal obligation to apply it for the transferee ...... But if there is an overriding title created to divert the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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