PREMA FINANCE CORPORATION v. INCOME TAX OFFICER
[Citation -1984-LL-0514-1]

Citation 1984-LL-0514-1
Appellant Name PREMA FINANCE CORPORATION
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 14/05/1984
Assessment Year 1979-80
Judgment View Judgment
Keyword Tags computation of income • film distributor • fresh assessment • feature film
Bot Summary: On 5th Oct., 1978, the assessee entered into an agreement with Premalaya by which it acquired the territorial lease rights in a film called 'Andhamaina Anubhavam' for the States of Andhra Pradesh, Orissa and parts of Karnataka for 99 years from the date of the censor of the said picture. The CIT on perusing this assessment order has, after hearing the assessee, reviewed the proceedings and directed the ITO to make a fresh assessment after scrutinising the agreements. The assessee has appealed against this conclusion of the CIT. Before we consider the merits of the appeal, we should record the fact that it is not the case of the Revenue that the assessment was made in haste or without proper enquiry by the ITO as it is admitted that the agreements in question were before the ITO and were considered by him before making the assessment. The order under s. 263 has been made only because the CIT disagreed with the ITO with regard to the acceptance of the claim that these agreements did not give rise to income within the previous year ended 31st March, 1979. The contention of the assessee on the merits was that the agreements stipulated for the transfer of the property only after the censorship of the picture and no income could accrue within the previous year ended 31st March, 1979. A perusal of the agreement clearly supports the contention of the assessee. In the circumstances, these agreements were only executory agreements relating to an asset which was not in existence on the date of the agreement and which was expected to come into existence only in future.


This appeal is directed against order made under s. 263 of IT Act, 1961 ('the Act'). assessee is registered firm. On 5th Oct., 1978, assessee entered into agreement with Premalaya by which it acquired territorial lease rights in film called 'Andhamaina Anubhavam' for States of Andhra Pradesh, Orissa and parts of Karnataka for 99 years from date of censor of said picture. consideration was Rs. 6,60,000 of which Rs. 25,000 was to be paid on date of agreement and balance in instalments of Rs. 35,000 on 31st October, Rs. 2 lakhs on 20th November and Rs. 4 lakhs within fifteen days after date of censor of film. On 7th Oct., 1978, assessee in turn sold rights in film to Prema Trust for sum of Rs. 8,65,000. This amount was payable in instalments of Rs. 10,000 on date of agreement, Rs. 50,000 on 31st Oct., 1978 and Rs. 2 lakhs on 25th Nov., 1978 and Rs. 6,05,000 within fifteen days of censor of film. accounts of assessee also showed that assessee was only passing on amount received from Prema Trust to Premalaya. censorship certificate was given only on 6th April, 1979 and film was released on 14th April, 1979. Therefore, according to assessee, income from this transaction accrued only in previous year ended 31st March, 1980 and no income accrued in previous year ended 31st March, 1979. Therefore, for asst. yr. 1979-80 corresponding to previous year ended 31st March, 1979, assessee filed return showing income to be nil. This was accepted by ITO by assessment order dt. 20th Oct., 1981. CIT on perusing this assessment order has, after hearing assessee, reviewed proceedings and directed ITO to make fresh assessment after scrutinising agreements. He was of view that assessment was prejudicial to Revenue, inasmuch as Prema Trust itself had sold rights again to outsider for Rs. 9,50,000 on 25th Oct., 1978 and that indicated that assessee had transferred rights within previous y e r ended 31st March, 1979 and income accrued in that year. assessee has appealed against this conclusion of CIT. Before we consider merits of appeal, we should record fact that it is not case of Revenue that assessment was made in haste or without proper enquiry by ITO as it is admitted that agreements in question were before ITO and were considered by him before making assessment. Therefore, order under s. 263 has been made only because CIT disagreed with ITO with regard to acceptance of claim that these agreements did not give rise to income within previous year ended 31st March, 1979. CIT, however, without giving categorical decision on this point, restored matter to ITO which itself shows that order is vitiated by lack of clear finding that assessment was erroneous in law. Be that as it may, we think it proper to go into merits of question whether income could be said to have accrued in previous year ended 31st March, 1979 to decide whether assessment order was erroneous and thereby conferred jurisdiction to ITO to revise that assessment. contention of assessee on merits was that agreements stipulated for transfer of property only after censorship of picture and, hence, no income could accrue within previous year ended 31st March, 1979. On other hand, contention of Revenue was that agreements themselves having been executed within previous year ended 31st March, 1979 and amounts also having been required to be paid and taken together with fact that there have been subsequent transactions transferring same rights, it should be inferred that income had accrued in previous year ended 31st March, 1979. On consideration of rival submissions, we are of opinion that assessee is entitled to succeed. perusal of agreement clearly supports contention of assessee. agreement dt. 7th Oct., 1978 states that assessee granted to lessee, lease rights to distribute, exhibit and exploit film for period of 99 years from date of censor of said picture. This itself shows that agreement could take effect only from date of censor of picture. May be, some amount was payable in advance. But, until censorship of picture, asset, which was subject-matter of transfer itself, did not come into existence. In circumstances, these agreements were only executory agreements relating to asset which was not in existence on date of agreement and which was expected to come into existence only in future. It is settled law that though such agreements are not void, they are in future. It is settled law that though such agreements are not void, they are effective only from date when asset itself comes into existence and not before. If that asset does not come into existence, agreement will be ineffective and become voidable. Hence, it is not possible for any income to accrue from such agreement until asset, which is subject-matter of transaction itself, comes into existence. This position has been recognised by Revenue itself since under r. 9A of IT Rules, 1962 ('the Rules') relating to computation of income from feature films, in sub-r. (10), it is stated that for purpose of that rule, rights of exhibition of feature film shall be deemed to have been sold only on date when positive print of film was delivered to film distributor, which is possible only when film is certified for release by Board of Film Censors. In present case, film was certified for release only on 6th April, 1979 and it was released on 14th April, 1979. Hence, income from these transactions accrued only in previous year ended 31st March, 1980 and such income could not be assessed in assessment year relevant to previous year ended 31st March, 1979. assessment made by ITO was, therefore, correct in law and was not required to be disturbed by CIT. We must, accordingly, cancel his order made under s. 263. appeal is allowed. *** PREMA FINANCE CORPORATION v. INCOME TAX OFFICER
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