Rajagopala Ayyangar, J.- This is a reference under section 66(1) of the Income-tax Act, the question referred to our decision being

“whether the sum of Rs.28,779 representing remuneration for services rendered is a revenue receipt.”

The assessee T.Sadasivam is an individual who has succeeded to the business of Chandra Prabha Cinetone but the entire proceedings have gone on on the footing that it was the tax liability of the Chandra Prabha Cinetone that was being adjudica- ted and in consequence when any reference is made to the assessee, it is the Chandra Prabha Cinetone that is intended. Sri T.Sadasivam and his wife Srimathi M.S. Subbulakshmi were partners of a firm called Chandra Prabha Cinetone. The firm was started in or about 1939 for the production of a Tamil picture called “Sakunthala”. After the production had gone on for a while and the partners had spent nearly half a lakh of rupees, they found that they could not find the entire finance necessary for completing the picture. Accordingly they entered into an agreement on 21st July, 1939, with another firm called Messrs.Rayal Talkie Distributors, Mathurai. The terms of this agreement were reduced to writing and this agreement had been appended as annexure A to the statement of the case by the Appellate Tribunal. This agreement is recited to have been made between Chandra Prabha Cinetone by their partners Mr.T.Sadasivam and Srimathi M.S.Subbulakshmi both residing at Madras hereinafter called the party of the first part and Messrs.. Rayal Talkie Distributors hereinafter called the party of the second part. The material terms of this agreement run thus:

“Clause 2: The picture shall be treated as the joint production of both the parties for all purposes. Both the parties shall have equal rights and powers of supervision and management in the matter of the production of the picture.

Clause 3: The cast of the picture shall be selected by the parties of both parts and shall include Srimathi M.S.Subbulakshmi as Sakunthala and Serukulathur Sama as Kanvar. Srimathi M.S. Subbulakshmi hereby agrees to act in the said picture to the best of her ability and complete the same.

Clause 5: The party of the second part shall provide finance to the extent of Rs.60,000 for the production of the said picture.

Clause 6: Whatever amount the party of the first part might have already spent or might spend in future towards the production of the said picture, it is hereby definitely understood and agreed between the parties that the total cost of the production is to be treated as the sum of Rs.1,00,000 (Rupees one lakh only) for the purpose of the adjustment mentioned in paragraph 11 infra.” The agreement then proceeds to deal with the commission to which the party of the second part would be entitled and then clause 11 provides:

“So soon as the entire amount due to the party of the second part is repaid, the party of the second part shall thereafter pay the party of the first part the net amount after deducting the commission mentioned in clauses 8 and 13 herein, in repayment of the amount advanced by the party of the first part for the production of the said picture and which amount is hereby fixed by mutual agreement as the difference between the actual advance of the party of the second part and the sum of Rs.1,00,000 (rupees one lakh only) mutually fixed as the total cost of the production of the said picture.

Clause 12: Out of the net collections over and above the sum of Rs.1,00,000 (rupees one lakh, only) mentioned in paragraph 11 supra and after deducting the commissions due to the party of the second part mentioned in paragraphs 8 and 13 and the expenses in connection with the replacement of the films mentioned in paragraph 15 infra (fifty per cent.) shall be given to the party of the first part towards the remuneration for the services rendered by them in the production of the picture and the party of the second part shall have the balance.”

A kind of pre-emption was provided between the two

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