These are cross-appeals, one by assessee and other by department directed against order of Commissioner (Appeals) and relates to assessment year 1982-83. As points involved in these two appeals are common, appeals are disposed of by this common order. 2. In assessee's appeal first two grounds have not been pressed and they are, therefore, rejected. 3. Ground No. 3 and its various parts relate to issue which is also covered by ground in departmental appeal. assessee is private limited company which derives income from exploitation and distribution rights acquired in certain films. assessee-company was also partner in firm named VIP films of Bombay. assessee had purchased distribution rights of t h e Hindi feature film 'Kranti' for Delhi and Uttar Pradesh Circuit for consideration Rs. 90,01,000. film had been produced by firm VIP films of Bombay and they had gifted distribution rights in Delhi and UP to charitable trust known as 'Satbaba Smirin Dass Charitable Trust'. It was from this trust that assessee had purchased distribution rights on perpetual basis. right, title, and interest in distribution, exhibition and exploitation of film had been gifted through deed dated 2-10-1978. assessee-company purchased rights on 20-9-1980 from trust. film was released in Delhi and UP Circuit sometime in February 1981 for commercial exhibition. 4. assessee had claimed total consideration of Rs. 90,01,000 as deduction under rule 9B of Income-tax Rules, 1962 ('the Rules'). assessing officer was, however, of view that rule 9B was not applicable to present case as assessee had not acquired right under agreement with film producer. In present case film was acquired from trust and not from producer, who had gifted right to charitable trust. assessing officer was of view that consideration was not reasonable and for this purpose he looked into shareholdings of various shareholders and found that shareholders belonged to Goswami family where father, M.K. Goswami, his son Shri H.L. Goswami, wife Smt. K.K. Goswami and daughter-in-law Smt. Shashi Goswami as well as minor grandsons were shareholders. He pointed out that Smt. Shashi Goswami was having 29.17 per cent of shares in company and, therefore, she had substantial interest in company. other shareholders were also closely related to her. He was of view that as Smt. Shashi Goswami was having share of more than 20 per cent, she would be having substantial interest and provisions of section 40A(2) of Income-tax Act, 1961 ('the Act') would be applicable. In this connection, he referred to provisions of section 40A(2)(b)(iv) and (v). He pointed out that trust from which distribution rights had been purchased was having trustees who were same persons as shareholders or are closely related to them. In this connection, he also found that distribution rights for Bombay territory had been sold for Rs. 42,75,000 and considering that payment of Rs. 90,01,000 for rights in Delhi and UP Circuit appeared to be very high. He also found that firm VIP films had shown total cost of production of film at Rs. 2,89,29,993. He was of view that considering this also consideration for distribution rights was very excessive. IAC, who made assessment, pointed out that by paying this excessive consideration to closely-connected trust income of company was being reduced and even income of firm where assessee-company was partner was being reduced as distribution rights had been gifted. It was also pointed out by him that assessee being partner in producer film would have more conveniently acquired film from producers and it was not necessary to receive it through trust. assessing officer further pointed out that actual amount paid to trust in year was Rs. 20,01,000 and balance was to be paid only later on. He also observed that address of trust and assessee-company was same and what had been purchased was bare distribution rights excluding cost of prints and trailers of film which had been separately purchased for Rs. 17,26,400. This had been separately claimed by assessee. Pointing out to close relationship between producer firm, donee trust and assessee-company, assessing officer held that provisions of section 40A(2) was clearly attracted. 5. It had been pointed out before IAC that distribution rights had been purchased not from trustees but from trust itself and such purchase was not under minimum guarantee basis but on perpetual basis. It was also pointed out that realisation from film during short period after its release in this year was Rs. 98,92,614 and amount realised up to assessment year 1985-86 was Rs. 1,24,50,566. On basis of these materials it was submitted that consideration paid was not excessive at all. 6. assessing officer pointed out to vast powers given to trustees under trust deed and trust was also created by members of t h e family. After referring to certain case laws it was pointed out that substance of transaction should be looked into by assessing officer. From this he inferred that payment claimed was excessive and could not be allowed in view of provisions of section 40A(2). 7. IAC then proceeded to decide market value of distribution rights on date when it was acquired. rights had been gifted to trust on 2-10-1978 and same was purchased by assessee on 20-9-1980, almost after two years of acquisition of those rights by trust. film 'Kranti' received certificate from Central Board of Film Censors on 28-1-1981, and thus it was immediately available after purchase of distribution rights by assessee. It was pointed out before assessing officer that at time of sale of rights very favourable market had been created for film as result of advertisements and writing in film journals. In view of this and overall realisation in first four years IAC accepted plea of assessee that cost could not be determined at same figure as was paid for Bombay area at Rs. 42,72,000. He took note of fact that sale in case of assessee was on perpetual basis. He also noted fact that after period of 11 years film loses its value for further exploitation. Considering all these facts, assessing officer determined reasonable price of distribution rights at Rs. 50 lakhs as against Rs. 90,01,000 claimed by assessee in accordance with agreement with trust on this basis excess claim of Rs. 40,01,000 was disallowed by IAC. 8. When matter came before Commissioner (Appeals), it was submitted that assessing officer had confused position of trustees in their capacity as trustees of trust and individuals owning shares of company in their personal capacity. It was pointed out that they were no shareholders in their capacity as trustees and they were not beneficiaries of trust. It was also contended that trustees could not be considered as members of AOP within meaning of section 40A(2) and trustees were not interested in assessee-company in their capacity as trustees. 9. It was pointed out that whereas sale of distribution rights on minimum guarantee basis for Bombay region was 1978 when film was still under production. agreement for purchase by assessee-company was only in 1980 when film was ready and it had even been passed by film censors within period of four months and film had been released. It was, therefore, pointed out that by that time market rate of distribution rights had gone up considerably. It was further argued that cost of production of film was no index of price of distribution rights. It was also pointed out that film was bound to be more popular in UP and Delhi where films having Manoj Kumar as hero was bound to attract more crowd considering earlier history of his films. It was further contended that observations of assessing officer regarding trust and powers of trustees were irrelevant and when gift had been made to trust trust did not proceed to exploit film but sold rights for consideration. It was further pointed out that assessee-company could acquire distribution rights of film for UP and Delhi Circuit only from trust as by that time that right had already been gifted to trust. It was further pointed out that assessee-company did not show any favour to trust when he paid to trust amount which was slightly less than what was agreed upon in this year. But amount was paid later on. Regarding sale of mere distribution rights without sale of prints and trailers, it was contended that trust could transfer only what it possessed and normally separate consideration is paid for these items even in case of normal distribution rights agreement. It was further contended that assessing officer had wrongly gone into question of genuineness of trust which had been recognised as charitable trust by department. Referring to case laws relied on by assessing authorities, it was pointed out that what was dispute in this case was quantum, consideration which was to be held to be reasonable for distribution rights and genuineness of anything was not in dispute. 10. Before Commissioner (Appeals) it was also contended that 10. Before Commissioner (Appeals) it was also contended that provisions of section 40A(2) were not applicable at all. It was pointed out that provisions should be construed strictly and benefit should be given to assessee and provisions were not attracted in this case as payment had been made to trust and not to any individual. It was further contended that value of distribution rights had wrongly been fixed at Rs. 50 lakhs as several other factors were not taken into consideration by assessing officer. Those factors related to nature of sale for Bombay area as compared to nature of present sale. difference between two territories question of difference in periods resulting in consideration of interest which would be substantial to consideration paid was stated to be reasonable. It was also pointed out that in case trust had exploited distribution rights itself it could have realised sum of Rs. 1,25,00,000 instead of merely Rs. 90 lakhs for which rights were sold. It was further contended that reasonableness should be considered from point of business. 11. Commissioner (Appeals) held that provisions of section 40A(2) were not applicable in terms. He was, however, of view that amount of Rs. 90,01,000 was also not sacrosanct. According to him, this figure had no basis. According to Commissioner (Appeals), collections made later could not be basis for fixing consideration at such high figure. Keeping in view fact that directors and shareholders of company and trustees of trust were identical and closely related sum of money fixed as purchase price was held to be excessive. It was further observed that Bombay firm having gifted distribution rights to trust, assessee- company was trying to make gift by making payment which was much higher than normal commercial value of distribution rights. At same time Commissioner (Appeals) held that Rs. 50 lakhs could not be considered as reasonable value of distribution rights. Having regard to various factors including popularity of film in Delhi and UP region rise in market conditions in period of two years and other factors available on record, market value of this right was taken by him at Rs. 70,01,000 and in this manner he reduced addition made by IAC by Rs. 20,01,000. 12. Whereas department has filed appeal against reduction l l o w e d to assessee, assessee-company has challenged maintenance of any addition on this account. 13. departmental representative has submitted before us that IAC has brought out very clearly closeness between producers to trust and assessee-company. He pointed out that trust had been used for reducing incidence of tax on Bombay firm as well as assessee- company. He contended that assessee-company itself was partner in Bombay firm and partners in firm and shareholders of company belonged to same family. It was further contended that there was no basis for increasing value of Rs. 70 lakhs as IAC had determined reasonable value at Rs. 50 lakhs after giving necessary weightage to special circumstances which differentiated this agreement with agreement relating to Bombay region. departmental representative further challenged finding of Commissioner (Appeals) that provisions of section 40A(2) were not applicable. It was, therefore, submitted that order of Commissioner (Appeals) should be set aside and order of IAC should be restored. 14. learned counsel for assessee, on other hand, submitted that these submissions were two-fold. Firstly, it was submitted that provisions of section 40A(2) were not applicable at all to facts of present case and secondly finding that purchase price paid for distribution rights was excessive was not correct. It was pointed out that there was no justification for comparing this agreement with agreement for Bombay region which had been finalised two years prior to present agreement. It was contended that when agreement was signed for Bombay region, making of film had just started and it was not actually known as to when it would be ready for release. popularity of movie was also very uncertain at that time. On other hand, when present agreement was entered into for purchase of rights for UP and Delhi, film was almost ready and due to popularity and publicity in film publications very favourable atmosphere had been created to ensure box office possibilities of film. It was also contended that whereas distribution rights for Bombay region was on minimum guarantee basis. agreement under consideration was for perpetual outright purchase. It was also submitted by learned counsel for assessee that purchase. It was also submitted by learned counsel for assessee that from experience it was known that by such films with film star Manoj Kumar as main actor, market in UP and Delhi was very favourable. earlier films of this actor had done very well in this region as compared to Bombay region. It was also pointed out that difference of almost two years between two agreements made very substantial difference not only from angle of interest which would accrue on payments which had already been made by Bombay distributor in 1978-79 but also from other fact that investment will start after few years of payment. 15. learned counsel for assessee criticised order of Commissioner (Appeals) in disallowing part of consideration after holding provisions of section 40A(2) were not applicable in terms. He asked how any part of payment could be disallowed. He submitted that payment itself was not doubted and in such circumstances ad hoc disallowance was wholly unjustified. For this reliance was placed on decision in case of Godavari Sugar Mills Ltd. v. CIT [1985] 155 ITR 306 (Bom.), where it was held that ITO cannot disallow expenditure which has been in fact incurred by assessee for purposes of business upon ground that such expenditure is excessive or unreasonable. It was further held that for such disallowance it was necessary to show that transaction in question is sham one or not bona fide transaction. In that case entire amount paid for purchase of sugarcane was held to be allowable as it had not been shown that transaction of sale was non-bona fide or that price was different from that shown in books. 16. learned counsel for assessee then submitted that provisions of section 40A(2) were special provisions and unless it clearly applied to case before us no disallowance could be made under that provision. He pointed out that section 40A(2) provides for disallowance of any payment if ITO is of opinion that expenditure was excessive or unreasonable having regard to fair market value of goods for which payment is made or legitimate needs of business or profession of assessee. payments which are covered by section 40A(2)(b) applies to persons given in clause (b). In case of company such person has to be director of company or relative of such director. He specifically drew our attention to sub-clauses (iv) and (v) of section 40A(2)(b) which are as under: " (2)(b) persons referred to in clause (a) are following, namely:-- (i) where assessee is individual any relative of assessee; (ii) where assessee is company, any director of company, firm, association of persons or partner of firm, or member Hindu undivided family of association or family, or any relative of such director, partner or member; (iii) ** ** ** (iv) company, firm, association of persons or Hindu undivided family having substantial interest in business or profession of assessee or any director, partner or member of such company, firm, association or family, or any relative of such director, partner or member; (v) company, firm, association of persons or Hindu undivided family of which director, partner or member, as case may be, has substantial interest in business or profession of assessee; or any director, partner or member of such company, firm, association or family or any relative of such director, partner or member; " It was submitted that assessee-company has not made this payment to any director of company or to relative of such director but to trust. He further submitted that trust is managed by trustees but it cannot be considered to be AOP having trustees as its members. He contended that trustees do not join for purpose of earning income. For this he relied on ratio of decision of Supreme Court in case of CIT v. Indira Balkrishna [1960] 39 ITR 546. learned counsel further relied on decision of Bombay High Court in case of CIT v. Y.S. Desale [1982] 137 ITR 117. In this case their Lordships have observed that for purpose of becoming AOP, some persons must join in common action for producing income. In present case trustees had not joined hands with each other but had been appointed by settlers. Trustees are individuals and trust itself is also individual. In view of this, it was contended that IAC was wrong in individual. In view of this, it was contended that IAC was wrong in considering trust to be AOP and trustees to its members. In view of this, it was contended that above sub-clauses would not be applicable. It was also submitted that trustees or some of trustees or one of trustees may have substantial interest in company in their individual capacity but it was not enough. Unless it was shown that trustees were having substantial interest in business of company in their capacity as trustees, above provisions could not be applied. It was pointed out that trust as such does not own shares of company though some trustees do own such shares. learned counsel argued that unless case of assessee was clearly brought under provisions of section 40A(2) it was not open to department to apply above provisions for purpose of disallowing any part of purchase consideration. learned counsel submitted that confusion has arisen as result of not distinguishing between individuals and their capacity as trustees. 17. On merits of case learned counsel submitted that consideration was not at all excessive. basis for holding that consideration was excessive was agreement for Bombay area entered two years prior to release of film and that could not be reasonable basis for comparison. Apart from time factor, other important factor is risk factor which has not been taken into consideration by IAC or even by Commissioner (Appeals). He pointed out that in making of film there are various uncertain factors and, therefore, where person is purchasing right of film, which was still in initial stages of making and it may take long period for film to be made, consideration is bound to be lower. It may be that film is not made within short period or may not be made at all. There can be difficulties regarding various actors, actresses and other important persons involved in making of film. As against that when film is ready and is in position to be released consideration for sale has to be much higher. other factor about area in question for particular type of film has not been properly evaluated. He contended that if this area had been sold in 1978 consideration could have been much less as money would have become payable as early as 1978-79 whereas in this case payment had to be made for period of several months after actual release of film. 18. Referring to objections of IAC about trust, learned counsel submitted that objections were misconceived and trust is accepted as charitable trust by department. trust itself has not carried on any business and when donation was made to it, it has sold it at appropriate time making substantial amount which would be available to trust for fulfilling its objects. He contended that if factors of minimum guarantee agreement as compared to perpetual lease purchase, factor of period of two years and factor of area, namely, Bombay as compared to UP and Delhi was taken into consideration, bridge of difference can be filled up. He also contended that nobody can calculate several years prior to release of film accurately various factors and, therefore, small difference in consideration could not result in invoking provisions of section 40A(2). In this connection, he pointed out that collections made by assessee-company within few months of release of film would show that payment of consideration was not excessive. In period of six months realisation was about Rs. 98 lakhs. This amount could leave to assessee margin and loss which is shown by assessee is due to allowance of whole consideration in year of agreement itself. Our attention was drawn to observations of Hon'ble Gujarat High Court in case of Mehta Parikh & Co. Ltd. v. CIT [1980] 124 ITR 448. That was case where question considered was provisions of section 40(c) of Act. Their Lordships observed: " ....However, it must be borne in mind that whole approach of revenue authorities should be from point of view of commercial exigencies and commercial concerns who are incurring this expenditure and not hypertechnical or technical point of view... " 19. We have carefully considered rival arguments with reference to facts of present case. questions which arise for our consideration are whether provisions of section 40A(2) are applicable to purchase consideration paid by assessee-company to trust and also whether fair market value of distribution rights for UP and Delhi area was excessive or unreasonable having regard to legitimate needs of business or benefit derived by assessee from such expenditure. As already stated benefit derived by assessee from such expenditure. As already stated assessee is private limited company. It is also not in dispute that shares of this company are held by members of one family. assessee-company is partner in firm which has produced film. It is also not in dispute that charitable trust was created by some of those persons who were having interest in assessee-company and its business. Some of those persons were also made trustees. For example, Smt. Krishna Kumari Goswami was one of settlers and also trustee and she in her individual capacity was substantial shareholder in assessee-company. gift deed gifting distribution rights on behalf of VIP films in favour of charitable trust was also executed by Smt. Shashi Goswami. Thus, independent of provisions of section 40A(2) it can be seen that firm which produced film, trust to which distribution rights were gifted, and limited company which has purchased distribution rights are all manned by members of same family and it can very well be stated that transactions between them could have consideration other than business partly or wholly. While we make these observations, we find that provisions of section 40A(2) are specific and they can be applied only if requirements given there are satisfied. Now, generally in law transactions with relatives or sister concerns cannot be discarded or disregarded unless it could be shown that transaction was sham or value shown for goods or services was not value really paid or transaction which was not bona fide one. In such matters onus is on department. provisions of section 40A(2) have been introduced to stop excessive payments where parties concerned are related to each other in manner laid down in that section. Where assessee is company, which is case before us, payment in question should either be to director of company or to person having substantial interest in company or any person of which director, partner, or member has substantial interest in company or any relative of any such director or person. payment in present case has been made to trust and we have no material on basis of which it could even be argued that trust was not genuine one. We find that department has recognised it as charitable trust having certain objects of public utility. case of trust could be brought under provisions of section 40A(2) only if we can hold that trust was AOP and/or trustees are members of such association. It is not possible to accept plea of assessing officer that trust is AOP where trustees have combined to carry on any activity of profit. trustees cannot be considered as members of that association though they are in way administrators of trust in representative capacity. When once genuine and valid trust is created, trustees have independent status as trustees and it cannot be confused with their individual capacity or individual transaction. It is true that in present case some of trustees have shares in assessee-company in their individual capacity and those shares are more than 20 per cent which would make them having substantial interest in company. However, where we are considering question of trustees it has to be trustees in their capacity as trustees and not in their separate individual capacity. assessing officer has given example of Smt. Goswami who was trustee and director of assessee-company and was substantial shareholder. If payment is made to Smt. Shashi Goswami, payment would certainly be hit by provisions of section 40A(2). However, in present case, payment is being made to trustees which is represented among other by Smt. Goswami. This, in our opinion, could not bring transaction under section 40A(2). It may lead to lot of confusions if representative capacity of person is ignored and confused with individual capacity of that person. Thus, as far as language of provisions of section 40A(2) are concerned, it does not appear to be applicable to transactions in question. There is no justification for ignoring position of trust which is peculiar one under law. As payment is admittedly made to trust, we cannot hold that it is being made to any trustee in his individual capacity as trustees are obliged to utilise income and corpus of trust or objects of trust. argument regarding trustee being member of AOP is also not appropriate as trustees cannot be considered as AOP within meaning of that term as interpreted under Act. We have already referred to decision of Supreme Court in case of Indira Balkrishna. We cannot also ignore provisions of Indian Trust Act, 1882, and duties and capacities of trustees. We are, therefore, in argument with Commissioner (Appeals) that though parties who are concerned with transaction, are very close to each other, provisions of section 40A(2) in terms is not applicable. 20. second question which arises is whether without applying provisions of section 40A(2) any payment can be held to be excessive or unreasonable and disallowed. We have already indicated above, decisions of Courts where it had been clearly laid down that any such disallowance can be made if there is material on record to show that transaction is sham and not bona fide or it is established that consideration which has been paid is partly or wholly for consideration other than business. For establishing such situation onus will be entirely on revenue. On basis of records, we have to give finding whether any such inference can be drawn. As already stated above, all parties are very close to each other and it may also be accepted that they were in position to influence decision of other parties and if there is any material to show that highly excessive payment had been made, which could not be justified from commercial angle and consideration is due to some other reasons, disallowance can be made in exceptional case. As already observed by Gujarat High Court, approach of revenue authorities in these matters should be from point of view of commercial concerns and not hypertechnical or technical point of view. We, therefore, proceed to consider basic question whether consideration paid by assessee for distribution rights was excessive and unreasonable having regard to various circumstances which prevailed in this case. payment which has been made by assessee-company has to be scrutinised f r o m business needs of assessee-company and what it would be required to pay in circumstances which were available. 21. As already stated above, IAC has proceeded to make agreement for Bombay region as basis for comparing reasonableness of present transaction. It has already been pointed out that agreement for Bombay area was entered into about two years earlier when film was still in earlier stages of production. Considering uncertainties of film line and various other factors, consideration which is attracted at such early date is bound to be lower than consideration which is contracted immediately before pending release of film when it is known that film was likely to be hit in region for which purchase was being made. payments which were made under Bombay contract was to be substantially paid in year 1978-79 though film was released only in 1981. For this period money was already paid and consideration of interest has also to be kept in view. It may also be seen that agreement in Bombay was on minimum guarantee basis. As against this payments which were being made under present agreement were made in 1980-81 and most of payments have come after release of film and money earned could itself be diverted towards payment. All these are very important business considerations and in such situation higher payment is always demanded. There is also material on record to show that films in which Manoj Kumar is leading actor have been very successful in Delhi and UP Circuit and his earlier films had grossed up much more in this region than in Bombay region. There has been no effort on part of assessing officer to take all these factors into consideration and he has merely fixed consideration at Rs. 50 lakhs. expectation about potential of film was very much correct as receipts which were earned in Delhi and UP area were enough to cover cost of purchase within period of six months. It cannot also be forgotton that after purchase of film for distribution in these years assessee-company could exploit it in any manner it liked including its release on TV Circuit and production for purpose of video shows. If all these considerations are kept in view, it cannot be said that consideration put in agreement was excessive and was fixed with some other consideration in view. learned Commissioner (Appeals) has discarded evaluation made by IAC and preceded to fix his own value of distribution rights on ground that amount fixed in agreement was not sacrosanct. In our opinion, apart from close connections and close relations, there should have been some specific material to indicate gross excessiveness of consideration to hold that consideration given in agreement could be discarded. 22. In present case, we are not concerned with case where transaction is held to be sham or bogus. Here again, we are not concerned with case where payment is shown to be for other considerations. suggestion of department that by taking excessive payment assessee-company was trying to donate amount to trust and at same time getting full deduction in its assessment, is merely expression of suspicion for which there is no factual basis. It is already pointed out before Commissioner (Appeals) that under minimum guarantee agreement further payment would have flowed to assessee on actual release of film. This together with interest which would also calculate to about Rs. 15 lakhs and other considerations justify price of distribution right. There is not much in argument of IAC that separate payments were made for trailers and prints as similar payments were made for distribution in Bombay as well. They have also noted that overall receipts from this film could also justify consideration paid and yet issue margin to assessee. In these matters, we cannot calculate market value to nearest rupee and one has to take broad view of matter and only if consideration is found to be substantially excessive, one can proceed to find out motives. We are of view that fair market value of distribution rights had rightly been fixed in agreement and there was no material to hold it to be excessive or unreasonable having regard to business needs of assessee. We, therefore, held that Commissioner (Appeals) was not justified in disallowing Rs. 20 lakhs as part of price of distribution rights. We accept assessee's ground and dismiss departmental appeal on this issue. 23. There is one more ground in assessee's appeal and that relates to claim of assessee for being treated as industrial company. In earlier years assessee-company was engaged in production of films. In this year there was no such production. However, assessee claims that company received income from production of films in earlier years and according to assessee, income of company from production was more than other incomes of company. We find that this issue has not been considered and facts have not been ascertained. Commissioner (Appeals) has rejected assessee's claim merely on ground that there was no production in this year. Full facts have not been brought on record to show that component of incomes and major activities in this year so that question could be decided. We are, therefore, of view that this issue should be set aside to Commissioner (Appeals), who should rehear matter after ascertaining full facts about nature of income and its various sources. matter should be decided in accordance with law. ground regarding interest under section 215 of Act is stated to be purely consequential and, therefore, no specific directions are necessary. departmental appeal is dismissed. 24. In result, appeal of assessee is allowed in part. *** VISHAL INTERNATIONAL PRODUCTIONS (P) LTD. v. INSPECTING ASSISTANT COMMISSIONER