- (1.) In the year 1945 the respondent company (hereinafter called the "assessee") received a payment of a sum of Rs. 26,000 (rupees twenty-six thousand) from Jupiter Pictures Ltd. of Madras (hereinafter referred to as Jupiter Pictures) pursuant to the terms of an agreement between the assessee and Jupiter Pictures dated 31-10-1945. In the course of the proceedings for the assessment of the assessee's income-tax for the year 1946-47 and the excess profits tax for the chargeable accounting period from 1-4-1945 to 31-3-1946, the following question arose:- "Whether on the facts and in the circumstances of the case, the sum of Rs. 26,000 received by the assessee from Jupiter Pictures Ltd., is a revenue receipt assessable under the Indian Income-tax Act The Income-tax Officer took the view that the sum was in the nature of a revenue receipt and was liable to be brought to account for purposes of calculating the tax. The Appellate Assistant Commissioner upheld this decision. On further appeal by the assessee the Income-tax Appellate Tribunal held that the case was governed by the decision of the Judicial Committee in Commissioner of Income-tax v. Shaw Wallace and Co. 1932 PC 138 (AIR V 19) (A) and that the sum received by the assessee was a capital receipt. Accordingly n 26-8-1948 the Tribunal reversed the decision of the Appellate Assistant Commissioner. At the instance of the Commissioner of Income-tax and Excess Profits Tax, Madras the Tribunal under S. 66(1) Income-tax Act, 1922, referred to the High Court of Madras the question of law quoted above. The High Court agreed with the Income-tax Appellate Tribunal and answered the question in the negative. The present appeal is directed against this decision of the High Court.
(2.) The facts are shortly as follows- The assessee is a private limited company. It carried on the business of distribution of films. In some instances the assessee used to produce or purchase films and then distribute the same for exhibition in different cinema halls and in other cases the assessee used to advance monies to producers of films and secure the right of distribution of the films produced with the help of the monies so advanced by the assessee. In the course of such business it advanced monies to Jupiter Pictures for the production of three films and acquired the right of distribution of these three films under three agreements in writing dated 17-9-1941, 16-7-1942 and 10-5-1945.
(3.) The said several agreements were expressed in similar language and contained similar provisions. The assessee bound itself to advance a certain sum in installments specified therein and retain the balance to be utilized for the purpose of press publicity in such way as it thought fit and proper and at its sole discretion. Jupiter Pictures in its turn bound itself to arrange for the delivery to the assessee of twelve copies of the film to be produced after it would be passed by the Board of Censors (clause 1). The territories within which the assessee was to have the right of distribution and exploitation of the film was specified in clause 2 and such right was to ensure for a period of five years from the date of release of the film. The assessee was given the right, at its sole discretion to distribute the films at such rates and on such terms and conditions and in such manner as it might deem fit (clause 2). The amount realized by the distribution of the film was to be utilized by the assessee in the following way: namely, in paying itself its distribution commission and in retaining the available balance until the entire amount of advance would be discharged, (clause 3) and after the entire amount of the advance would be discharged, in paying to Jupiter Pictures the net realizations from the film after deducting its commission (clause 4) In case the full amount of advance could not be recouped from the realizations of the film on or before the expiry of one and half years from the date of the first release of the film Jupiter Pictures would be liable to pay to the assessee whatever balance could remain due with compound interest at twelve percent per annum calculated in the manner mentioned in clause 6. The assessee's commission for distribution and exploitation of the film through its organization was by clause 8, fixed at 15 per cent of the net realizations. In case of sale of district or territorial rights of the film made by consent of both parties the assessee alone would be entitled to put through such sales and receive the proceeds and would be entitled to a commission of ten per cent thereon and to appropriate the balance towards the payment and discharge of the advance made by it (clause 9). The assessee was to submit to Jupiter Pictures a monthly statement of account and show all books of account to Jupiter Pictures (clauses 11 and 12). The assessee was given liberty to appoint sub-agents and sub-distributors at its sole discretion (clause 13). The amount advanced by the assessee was made immediately repayable in the event of the film being banned or not passed by the Board of Censors (clause 14). Clause 15 gave the assessee a charge by way of security on the negative and positive copies of the film for whatever amount might be due to the assessee on account of the advance made and in case the negative and positive copies were in possession of Jupiter Pictures the same were to be held by the latter as trustee of the assessee. The burden of insuring the negative copies of the film was placed on Jupiter Pictures at its own cost (clause 16). Jupiter Pictures agreed to indemnify the assessee against all claims or demands of any nature whatsoever by any person or agency in or upon the film and against all claims of any person or agency on account of any infringement of copyright (clause 17). If Jupiter Pictures failed to deliver the film within the time specified therein, the assessee was given the right, at its option, to complete the picture at its own cost and in such event Jupiter Pictures was to be liable to the assessee for all such expenses with compound interest thereon at 12 per cent. per annum and the assessee would have all the rights of distribution, sale, etc. as aforesaid (clause 19). The last clause provided that on the expiry of the period of 5 years the assessee would return to Jupiter Pictures all copies of the film and balance stock of loan and saleable publicity materials subject to wear and tear.;