Decided on October 27,1994



R.V. Easwar, Judicial Member - (1.) THESE two appeals filed by the assessee relate to the assessment years 1985-86 and 1986-87 and they are directed against the common order dated 26-3-1991 passed by the D.C. (Appeals).
(2.) The assessee is an individual. The accounting years relevant to the assessment years under appeal ended on 31-3-1985 and 31-3-1986 respectively. The assessee carries on the business of film distribution under the name and style of M/s. Amar Jyoti Pictures. On 4th August, 1984 the assessee entered into an agreement with M/s. Guru Dutt Film Pvt. Ltd. Under the aforesaid agreement the assessee was appointed distributors of film 'Bindiya Chamkegi'. There are various conditions relating to the appointment of the assessee as distributors, but they are not very relevant for the purpose of the present appeal. Since the distributorship agreement entailed a large financial out-lay, the assessee entered into two agreements, one dated 23-8-1984 with M/s. Usha Movies and the other dated 24-8-1984 with M/s. Amar Jyoti Industrial Promotion Ltd. From the preamble of these two agreements it appears that the assessee, in order to distribute, exhibit and exploit the picture 'Bindiya Chamkegi' approached the other two parties for financial assistance against the payment liable to be made by the assessee to M/s. Guru Dutt Films towards royalty. Among other terms and conditions it was stipulated that out of the profits or losses arising out of the distribution of the picture the assessee would part with 50% in favour of Usha Movies and 25% in favour of Amar Jyoti Industrial Promotion Ltd. In clause 11 of these two agreements it was stipulated that the agreement shall be purely a joint venture agreement between the parties and shall not in any manner be construed as giving rise to a partnership. The other clauses of the agreements will be dealt with at the proper place. In the statements accompanying the return of income for the assessment year 1985-86 the assessee furnished details of the picture which was released on 7-9-1984. After taking into account the amounts paid as royalty and after adding the expenses in respect of the prints and the publicity and advertisement expenses the total expenditure came to Rs. 9,30,614. Against this the realisation of Rs. 3,83,943 was set off and the loss from the joint venture was arrived at Rs. 5,46,671. 50% of the loss was allocated to M/s. Usha Movies and 25% of the loss was allocated to Amar Jyoti Industrial Promotion Ltd. in terms of the agreements entered into with them. Deducting these losses the balance of loss suffered by the assessee was arrived at Rs. 1,36,667. This loss was claimed by the assessee in the Profit & Loss Account.
(3.) WHILE completing the assessment for the assessment year 1985-86 under Section 143(3) read with Section 251 on 31-3-1989 the Income-tax Officer started the computation of the business income from the net loss declared by the assessee in the Profit & Loss Account. From this he reduced a sum of Rs. 30,000 as estimated disallowance of the expenses in respect of the cost of prints, publicity and advertisement. After certain other minor disallowances the business loss was determined at Rs. 68,103 and after setting off the income of Rs. 2,418 under the head 'Other sources', the business loss to be carried forward to the subsequent years was arrived at Rs. 65,690.;

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