Suhas Chandra Sen, J. - (1.) The Tribunal has referred the following question of law to this court for its opinion under Section 256(1) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, and on a proper interpretation of the agreement dated December 25, 1965, the Tribunal was correct in holding that the entire amount of Rs. 2,25,000 and not merely the sum of Rs. 18,265 actually incurred by the assessee towards expenditure on account of publicity during the previous year relevant to the assessment year 1968-69, constituted an allowable deduction in making the assessment for the said year ?"
(2.) The case relates to the assessment year 1968-69 for which the relevant previous year ended on June 30, 1967. The dispute is with regard to computation of profit from the film "Phool aur Patthar".
(3.) The assessee is a distributor of films. It entered into an agreement with M/s. Ralhan Productions for distribution of the film "Phool aur Patthar" in what is known in the cinema circle as the Bengal Circuit for a period of ten years. The agreement was entered into on December 25, 1965, and the terms and conditions were, inter alia : "2. In consideration of the appointment of the distributors for the aforesaid picture 'Phool aur Patthar' for the contracted territory, the distributors hereby agree to pay to the producers a sum of Rs. 5,50,000 (Rupees five lakhs and fifty thousand only) as and by way of minimum guarantee for the said territory in the following manner : JUDGEMENT_511_ITR165_1987Html1.htm against delivery of 16 (sixteen) brand new censored positive prints of 35 mm in colour of the said picture. It is further mutually agreed that the producers shall bear the full excise levy on all the 16 quota prints. 5,50,000 3. The distributors will accept the delivery of 16 positive censored brand new prints against payment as aforesaid within a month of notice from the producers to the distributors. The producers agree to deliver to the distributors the positive prints duly censored not later than June 30, 1966, or within 60 days of censor, whichever is earlier. 4. In case the producers fail to complete and get the picture censored before June 30, 1966, then the producers agree to show to the distributors the picture so far completed and after viewing the same, if satisfied, the distributors will grant two months' maximum extension, i.e., till August 31, 1966. Thereafter, the distributors will have the option whether to take the said picture or not. The above extension will be granted only in case the distributors are satisfied after viewing the said picture that the picture has been delayed for reasons beyond the control of the producers. In case the distributors decide to leave the picture, the producers will refund forthwith all the moneys paid by the distributors to the producers plus all the publicity expenses incurred by the distributors. The producers undertake not to release the picture directly or indirectly in the contracted territory unless the full amount due to the distributors is paid. 5. The producers sanction a sum of Rs. 2,25,000 (Rupees two lakhs and twenty-five thousand) only towards pre-release, release and post-release publicity and theatre decoration for the said picture in the contracted territory. The distributors shall not be required to submit detailed account of the expenses incurred for the publicity. The distributors will, however, submit a statement of publicity expenses in course of time which will be final and binding on the producers. 6. That in consideration of the distributors paying the sum of Rs. 5,50,000 to the producers and further spending Rs. 2,25,000 for publicity for the said picture in the said territory and further exploiting the said picture in the circuit, the producers have agreed to allow the distributors commission of lump sum amount of Rs. 3,20,000 (Rupees three lakhs and twenty thousand) only. It is specifically made clear that this commission shall only become payable to the distributors after recoupment of the M.G. amount plus Rs. 2,25,000 and the distributors shall not be entitled to adjust the commission allowed to them under this clause. 7. That it is hereby agreed by the producers and distributors that the proceeds of the said picture in the contracted territory shall be reimbursed as under after recouping the M. G. amount of Rs. 5,50,000 and the publicity amount of Rs. 2,25,000. (a) Towards the recoupment of Rs. 3,20,000 being the fixed commission payable by the producers to the distributors on the minimum guarantee amount and the pre-release, release and post-release publicity. (b) Towards the recoupment of the cost of extra prints out of gross realisation of the said picture to the extent that the distributors shall not charge commission on such recoupment. (c) Towards recoupment of extra publicity expenses if allowed in writing by the producers out of the gross realisation of the said picture to the extent that the distributors will not charge commission on such recoupment. (d) After recoupment of the amounts mentioned in Sub-clauses (a), (b) and (c), further realisation of the said picture will be utilised by the distributors in the following manner : i.e., 50% (fifty per cent.) of such realisations will be retained by the distributors by way of commission and the balance 50% (fifty per cent.) shall be paid to the producers as their share in the realisations of the said picture. The amounts of such share shall be in trust with the distributors for payment to the producers on or before 20th of the following month. 8. The producers shall deliver to the distributors one month before the delivery of the prints, the following publicity materials of the said picture free of cost : 5,000 posters of multi-colour in 20 x 30 and 30 x 40 sizes 2,000 booklets 32 coloured photosets each consisting of 20 photos 16 sets of showcards each consisting of 6 showcards 16 sets of enlargements each consisting of 6 enlargements 80 blocks 300 loose stills (300) 48 slides 16 paper censor certificates and trailers, if prepared to be given at cost price...... 25. That the distributors shall make the payments to the producers regularly on the due dates as mentioned in Clause No. 2 hereinabove by cash or bank drafts on any Bombay bank. 26. The cost and credits of the picture shall remain the same as mentioned above and in case of any change in the name of the producers and in case of any change in the artistes as mentioned above, the distributors shall have the option of cancelling the contract and the producers agree to repay all the amounts received by them from the distributors forthwith in case the distributors exercise the option of cancellation. The distributors shall make the producers bound for all the moneys advanced by the distributors on account of the said picture, and all the terms and conditions of this agreement to be observed by the producers. 27. The distributors shall enter into separate booking contracts for the said picture with the exhibitors and copies thereof will immediately be sent to the producers. It is agreed that the distributors shall not give the picture on "A" grade stations on fixed hire without the written consent of the producers. 28. That the distributors shall submit to the producers a monthly business statement along with the copies of hire bills, contracts and collection reports with the monthly accounts of the publicity charges as of the previous months on or before the 20th of every month. The distributors shall also remit to the producers their share of income mentioned above along with the business statements.";