M/s.Pyramid Films International7 v. The Deputy Commissioner of Income TaxCity Circle-VI (Inv), Chennai

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED:09.10.2006CORAMTHE HON'BLE MR.JUSTICE R.BALASUBRAMANIAN&THE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJATAX CASE (APPEAL) NO.211 OF 2003M/s.Pyramid Films International7, West Road, West CIT NagarChennai - 600 035..Appellant Vs.The Deputy Commissioner of Income TaxCity Circle-VI (Inv), Chennai ..RespondentPrayer: Appeal against the order of the Income Tax AppellateTribunal, "B" Bench dated 24.10.2002 in I.T.A.No.291/2002. for the assessment year 1996-97 against the order of the Commissioner of Income Tax (Appeals) VI dated 31.1.2002 and made in ITANo.342/2001-02/VI against the order of the Deputy Commissioner of Income Tax City Circle V (Inv.II) II Floor, Kannammai BuildingNo.611, Anna Salai, Chennai- 600 006 dated 24.4.2001 and made inPAN/GIR NO.2304-P.For Appellant : Mr.V.Ramachandran, SC for Mrs. Anitha SumanthFor Respondent : Mrs. Pushya Sitaraman Sr.Standing Counsel for IT JUDGMENT(Judgment of the court was delivered byP.P.S.Janarthana Raja, J.)This appeal, filed under section 260A of the Income Tax Act, is by the assessee. On 01.12.2003, this court admitted the appeal and formulated the following substantial questions of law: "

Whether on the facts and circumstances of the case, the Income Tax Appellate Tribunal is right inholding that Rs.1.25 crores has accrued to the appellant during the relevant assessment year? https://hcservices.ecourts.gov.in/hcservices/

Whether on the facts and circumstances of the case, the Tribunal was correct in law in confirming the addition of Rs.1.25 crores despite the fact that the appellant having received only Rs.95 lakhs towards the contract price?"2. The facts leading to the above questions of law are asunder: The assessee is a partnership firm and it is engaged inproduction of feature films. The relevant assessment year is1996-1997. The assessee filed its return on 25.10.2000 admitting aloss of Rs.27,37,593/-. During the assessment year, the assesseehad produced and released a film called "Love Birds". The assesseeentered into an agreement for the dubbing rights of the said picture in Hindi language on 02.02.1995. The agreed consideration was a consolidated royalty of Rs.75 lakhs. The payment schedule agreed upon was: Rs.10 lakhs - on signing of the agreement; Rs.20 lakhs - on 05.04.1995;Rs.10 lakhs - on 15.06.1995;Rs.5 lakhs - on 15.07.1995 and Rs.30 lakhs - on or before 90 days from the date of Tamil release or the date of Hindi release, whichever is less. Later on, the assessee entered into a letter of agreement dated01.12.1995 and the consideration was revised upwards toRs.1,25,00,000/-. The letter of arrangement also specified the revised mode of payment as follows: Rs.45 lakhs - already paidRs.25 lakhs - on or before the delivery of the Audio datRs.25 lakhs - on Tamil film releaseRs.30 lakhs - as per the original agreement.

The Assessing Officer had added the entire amount ofRs.1.25 crores as income for the assessment year 1996-1997.Aggrieved by that order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) and the Commissioner of IncomeTax (Appeals), dismissed the appeal and confirmed the order of the Assessing Officer. Aggrieved, the assessee filed an appeal before the Income Tax Appellate Tribunal (hereinafter referred to as the"Tribunal), which confirmed the order of the lower authorities and dismissed the assessee's appeal.

Mr.V.Ramachandran, learned Senior Counsel appearing for theassessee submitted that as per the agreement dated 02.02.1995, the payment schedule was fixed by the parties and the final payment was due on or after 90 days from the date of release of the Tamil film or on the day of Hindi or any other language release, whichever is earlier. According to the learned counsel, the Tamil version of https://hcservices.ecourts.gov.in/hcservices/ the film was released on 10.01.1996 and hence the final settlement has to be made only on or before 10.04.1996, which is beyond the previous year and hence it is assessable for the subsequent assessment year. It is further submitted that Rs.30,00,000/- was also offered for assessment, for the subsequent assessment year. It was pointed out by the learned counsel that even though the wording in the schedule of payment states "on or before 90 days from the date of Tamil release or on the day of Hindi or any other languages release, whichever is earlier", it should be actually read as "on or after 90 days from the date of Tamil release or on the day of Hindi or any other languages release, whichever is earlier", in the context of the agreement and circumstances of the case and also the intention of both the parties. Moreover, even though the original agreement was executed for a total consideration of Rs.75 lakhs, the parties have agreed to increase the amount to Rs.1.25 crores by a subsequent agreement dated01.12.1995. However, the payment schedule has been maintained asper the original agreement. Further it is submitted by the learned senior counsel that, whatever amount received before the release of the Tamil version of the film, has to be treated as advance and hence, no income accrued to the assessee during the relevant assessment year under consideration. He further submitted that the right to receive money would depend upon the performance of an obligation as per the agreement and hence, the royalty or any other sum received as advance has not accrued to the assessee as income during the relevant period. Hence, the additions made by the Assessing Officer is illegal and without any basis.

Learned Senior Standing Counsel appearing for the Revenuesubmitted that admittedly, the film certification for the Tamilversion was issued on 10.01.1996 and the film was released on the same day. Therefore, as per the agreement, the final payment has to be made on the date of release of the film i.e., on 10.01.1996or before 90 days. In other words, the payment has to be made on10.01.1996 or 90 days before 10.01.1996. Since the Tamil version of the film was released on 10.01.1996, the assessee has a right to receive the balance consideration as per the agreement. Hence, the mere non-payment or non-receipt of money within the financial year cannot be a ground to delete the abovesaid amount from the total income of the assessee. Learned counsel for the Revenue further submitted that, as per the agreement, the assessee had performed his part of the obligation and hence the income had accrued at the hands of the assessee. It is further submitted that the assesseeis following mercantile system of accounting and hence, irrespective of the actual receipt of money, the same has to be included in his total income and also relied on the judgment reported in 285 ITR 501 in the case of P.L.Ganapathi Rao and Another Vs. Commissioner of Income-tax. https://hcservices.ecourts.gov.in/hcservices/

Heard the counsel and perused the materials available on record very carefully. Admittedly, the assessee had entered into an agreement on 02.02.1995 with M/s.Shradha Entertainers PrivateLtd. The learned Senior Counsel appearing for the assessee fairly stated that the amount of Rs.95 lakhs is alone assessable for the relevant assessment year. Hence the dispute in the present case is now only for the assessment of the balance amount of Rs.30 lakhs. It was stated that the said balance amount of Rs.30 lakhs has not even been received by the assessee, till now. Further the due date for receiving the same falls outside the accounting year. As per the said agreement, the final settlement of Rs.30 lakhs was to bemade on or after 90 days from the date of Tamil release or the date of Hindi release, whichever is earlier. The relevant clause in the agreement dated 02.02.1995 reads as follows: "NOW THIS AGREEMENT WITNESSETH AS FOLLOWS:(i) The second part shall pay to the first part for the purpose of remaking/dubbing the said picture in Hindi and all other North Indian languages includingBengali for a sum of Rs.75,00,000/- (Rupees Seventy FiveLakhs Only) in the following manner:1.

It is seen from the facts that before the due date theassessee has no right to claim from the other party. If the other party refuses to pay before the due date, the assessee cannot enforce the same. The due date is very relevant which gives right to the assessee to receive the amount.

Taking into consideration all the facts, we are of the view that only Rs.95 lakhs alone is assessable for the assessment year 1996-97 and hence the Tribunal is right in taxing the same during the relevant assessment year. In respect of the balance amount of Rs.30 lakhs, it is not taxable during the assessment yearas it accrues only for the subsequent assessment year and also itis seen from the records that the said amount of Rs.30 lakhs was not at all received till now. Under these circumstances, we are of the view that only Rs.95 lakhs alone has been accrued to theassessee during the accounting year and hence the same is taxable for the assessment year 1996-97 and to that extent the order of the Tribunal is confirmed. With regard to the balance Rs.30 lakhs, itis not taxable for the assessment year 1996-97 and to that extent the order of the Tribunal is set aside. https://hcservices.ecourts.gov.in/hcservices/

With the above observation, we answer the question partly in favour of the assessee and partly in favour of the Revenue. Thetax case is disposed of accordingly. No costs. Sd/-Asst. Registrar./true copy/Sub Asst. Registrar. Vsl/kmTo1.The Deputy Commissioner of Income Tax, City Circle-V (Inv), Chennai 2. The Commissioner of Income Tax (Appeals), VI Chennai 3. The Assistant Registrar, Income Tax Appellate Tribunal, III Floor, Rajaji Bhavan, Besant Nagar, Chennai.1 cc to M/s. Anitha Sumanth, Advocate, Sr. 47279T.C. (A) No.211 of 2003 KM (CO)kk 2/11