JAYANTHI FILMS P LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following question has been referred to us by the Tribunal under Section 256(1) of the Income-tax Act, 1961 :

(2.) THE assessee is a private limited company engaged in the financing of film production and in film distribution. Under an agreement dated 7th May, 1959, the assessee advanced a sum of Rs. 1,00,000 to one film producer, K. Munirathnam, hereinafter called "the producer", carrying on business of film production under the name and style of "Sivakami Pictures". In consideration of this financial assistance, it was provided in the agreement that the assessee was to be paid interest at 12 per cent. and a share of six annas in the rupee from the net profits realised by exploitation of the picture to be produced. Another agreement came to be executed on the 6th July, 1960, between the assessee and the producer whereunder the assessee was to advance further sums and in consideration of the assessee rendering further financial assistance the producer had agreed to increase the profit share payable to the assessee from 6 annas to 8 annas in the rupee. Under the above two agreements the assesses had advanced monies to the producer from time to time aim the aggregate amount so advanced as on 9th October, 1961, came to Rs. 5,07,611.99.

(3.) THE question referred to us involves mainly the interpretation of the three agreements whose terms have been set out in brief earlier. THE amount of Rs. 1,00,000 has been remitted by the assessee under the third agreement in consideration of the assessee getting the lease rights in the four pictures to be produced by the producer at certain stated intervals, in the districts of Trichy and Tanjore including Karaikal. Though the assessee stated that the financial position of the producer was such that he was obliged to request the assessee for a remission of Rs. 1,00,000 from and out of the total sum of Rs. 5,07,611.99 due to him as on the date of the agreement, there is no material on record to show that the producer was not in fact a man of means. THE agreement in fact sets out the mode of repayment of the balance of Rs. 4,07,611.99 and that shows that the producer was a man of means. In this case the assessee has not given the so-called remission of Rs. 1,00,000 without consideration on the basis of the financial condition of the producer. THE third agreement in more than one place says that the remission was in consideration of the producer agreeing to produce four films and giving the assessee the lease rights in those pictures for the districts of Trichy and Tanjore including Karaikal in addition to the original right given to the assessee for the lease of the picture called "Kumara Raja" which was then under production. We are not inclined to agree with the contention of the learned counsel for the assessee that the lease rights provided for under the agreement as consideration for the remission should not be taken into account in considering the question whether the sum of Rs. 1,00,000 is a bad debt or a trade loss and that such lease rights are merely rights in future which cannot be valued during the relevant assessment year. Whether the lease rights were of any value during the assessment year or not is not a relevant matter for considering the question at issue. THE question is whether the sum of Rs. 1,00,000 was given up by the assessee as a bad debt or whether it has become a trade loss. Under the terms of the agreement the assessee gave up his right to collect the sum of Rs. 1,00,000 from the producer on consideration of getting certain, lease lights in relation to certain pictures to be produced by the producer. We are not here to see whether the arrangement entered into by the assessee is really beneficial or not. What is material is that the giving up of the sum of Rs. 1,00,000 was in consideration of the assessee acquiring certain new rights.