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High Court Of Calcutta
SABYASACHI MUKHERJI, SUDHINDRA MOHAN GUHA
COMMISSIONER OF INCOME-TAX - Appellant
Versus
DE LUXE FILM DISTRIBUTORS LTD. - Respondent
Income-Taxreference 51 Of 1970
Decided On : 02/22/1978
INCOME TAX - Assessment year 1960-61 - Payment of Rs. 20,101 to settle disputes and acquire sole ownership of film - Whether revenue expenditure or capital expenditure - Held, revenue expenditure.
Fact of the Case:
The assessee, a film production and distribution company, entered into an agreement with Amar Das Mallick to produce and distribute the film 'Sagar Sangame'. Disputes arose between them, leading to arbitration and a settlement agreement. The assessee paid Rs. 20,101 to Mallick to give up his claims as producer and transfer sole ownership of the film to the assessee.
Finding of the Court:
The Tribunal held that the payment of Rs. 20,101 was revenue expenditure, enabling the assessee to net all receipts of profits except those payable to Debaki Kumar Bose.
Issues: Whether the payment of Rs. 20,101 to settle disputes and acquire sole ownership of the film was revenue expenditure or capital expenditure.
Ratio Decidendi: The court held that the payment was revenue expenditure, as it was made to clear the title in the carrying on of the business, which was clouded by litigation and counter-claims. The expenditure was not for acquiring a capital asset or perfecting the title, but for business expediency to settle the matter and make the business productive of profit.
Final Decision: The court answered the question referred to it in the affirmative, holding that the payment of Rs. 20,101 was properly allowed by the Appellate Tribunal as a revenue deduction.
( 1 ) WE are concerned in this reference with the assessment for the assessment year 1960-61. The relevant previous year ended on 30th September, 1959. The assessee is a company. The assessee carries on business of production and distribution of cinematograph films. During the year, the assessee produced and released for exhibition a film called "sagar Sangame". In respect of this film, the assessee had entered into an agreement with one Amar Das Mallick, a film producer, on 20th June, 1957. Under the agreement the assessee was to finance the production and to be the distributor of the film. The assessee had to finance a sum not exceeding Rs. 1,12,500 including Rs. 10,000 for acquiring the story rights, Rs. 25,000 for the director, Debaki Kumar Bose, and Rs. 5,000 to the music director, Sri Rai Chand Boral. The film was to be completed in six months and the assessee was to be the absolute owner thereof. The film was produced. It secured the President's award. The assessee had financed the production. Disputes arose between the said Amar Das Mallick and the assessee as to who was the producer of the film. The matter was referred to the arbitration of the Bengal Motion Pictures Association. By an award dated 18th April, 1959, the arbitrator decided that Sri Amar Das Mallick and the assessee were the joint producers of the said film. There were certain other disputes between the parties, viz. , the assessee and the said Sri Amar Das Mallick, regarding the agreement dated 20th June, 1957. Those disputes were settled by the terms of a settlement dated 22nd April, 1959. This settlement was filed in this court in Matter No. 35 of 1959. Under the settlement the assessee had to pay Rs. 20,101 to Sri Amar Das Mallick so as to enable him to give up all his claims as producer of the film "sagar Sangame" including his 40% share of profits and other benefits reserved to him by the agreement dated 20th June, 1957. Another document dated 17th May, 1,960, was executed between the said Sri Amar Das Mallick and the assessee under which it was declared that the assessee would be the sole producer and the owner of the film and would be entitled to the President's award and medals declared by the Government of India. The document is called a "release" and recites the payment of Rs. 20,101 as the consideration thereof. Clauses 1 and 2 of the said document were as follows : "1. In consideration of a sum of Rs. 20,101 to be paid by Messrs. De Luxe Film Distributors Ltd. to Sri Amar Das Mallick, the said Sri Amar Das Mallick gives up all his claims as producer of the film 'sagar Sangame' including 40% shares of profits and all other benefits reserved to him by the agreement dated the 20th June, 1957, and/or under the award of the Bengal Motion Pictures Association dated the 19th of April, 1969.
( 2 ) IT is declared that M/s. De Luxe Film Distributors Ltd. alone are the sole producers and owners of the said film and are entitled to the President's award and the medals declared by the Government of India in respect of the film "sagar Sangame" and the said Messrs. De Luxe Film Distributors Ltd. or their authorised representatives shall receive the cash award of Rs. 20,000 as also the medals that may be awarded by the Ministry of Information and Broadcasting, Government of India, New Delhi, in respect of the said film. The said Sri Amar Das Mallick will have no interest in the said film or any claim with regard thereto. " This sum of Rs. 20,101 was claimed as forming part of the cost of the picture, "sagar Sangame", so as to be considered in giving amortisation allowance. The Income-tax Officer disallowed the claim on the ground that this payment was made to secure the right of absolute ownership of the film and to remove a contestant in the field in order to have unrestricted enjoyment of the ownership of the film. According to the Income-tax Officer, although it was a capital payment, it had nothing to do with the cost of produc
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