1979 (11) TMI 48 - HC - Income Tax

High Court directs ITAT to assess contracts for cinema rights authenticity, highlighting error in evidence evaluation.

The High Court directed the ITAT to determine the genuineness of contracts between the assessee-company and two entities for leasing cinema exhibition ... Reference Issues Involved:1. Whether the contracts between the assessee-company and M/s. Dhartidhan Pvt. Ltd. and M/s. Madan's, Bombay, were real and genuine.2. Whether the finding of the Appellate Tribunal was vitiated due to non-consideration of material evidence and inconsistency with the evidence on record.Issue-wise Detailed Analysis:Issue 1: Whether the contracts between the assessee-company and M/s. Dhartidhan Pvt. Ltd. and M/s. Madan's, Bombay, were real and genuine.The assessee-company, M/s. Golcha Properties (P.) Ltd., entered into contracts with M/s. Dhartidhan Pvt. Ltd. and M/s. Madan's, Bombay, to lease out exhibition rights of two cinema houses. The Income Tax Officer (ITO) held these contracts to be non-genuine, asserting that Dhartidhan and Madans were merely paper contractors and that the cinemas were managed by the assessee itself. The Appellate Assistant Commissioner (AAC) supported this view. However, the Income-tax Appellate Tribunal (ITAT) reversed these findings, concluding that the contracts were genuine and that the income did not flow back to the assessee-company. The Tribunal emphasized that there was no positive evidence to prove that the contracts were benami.The High Court, while considering the revenue's application under Section 256(2) of the I.T. Act, noted that the question of whether the contracts were genuine might initially be a question of fact, but whether there was evidence to prove their genuineness is a question of law. The court observed that the ITO had provided detailed reasons to hold the contracts as non-genuine, including the financial instability of the contractors, lack of security for the distributor's share, and the involvement of the assessee in booking and managing films. The Tribunal's failure to consider these primary facts and its insistence on positive evidence from the department was deemed an error in approach. Consequently, the High Court framed the question of law regarding the genuineness of the contracts and directed the ITAT to state a case on this issue.Issue 2: Whether the finding of the Appellate Tribunal was vitiated due to non-consideration of material evidence and inconsistency with the evidence on record.The revenue argued that the Tribunal's finding was vitiated as it did not consider material evidence on record and based its conclusion on an incorrect burden of proof. The Tribunal was criticized for not addressing the detailed reasons given by the ITO and AAC, which highlighted several circumstances indicating that the contracts were not genuine. These included the financial losses of the contractors, the assessee's involvement in film bookings and advances, and the relationship between the assessee and the contractors.The High Court agreed with the revenue's contention, stating that the Tribunal committed an error of law by ignoring primary facts and requiring positive evidence to prove the case of benamiship. The court emphasized that the department could rely on established facts and circumstances to prove the non-genuineness of the contracts. Therefore, the High Court dismissed the applications regarding the second question but allowed the framing of the first question of law for reference to the ITAT.Conclusion:The High Court directed the ITAT to state a case on the question of whether the contracts between the assessee-company and M/s. Dhartidhan Pvt. Ltd. and M/s. Madan's, Bombay, were real and genuine. The court held that the Tribunal's approach in requiring positive evidence and ignoring primary facts was erroneous, thus warranting a legal examination of the genuineness of the contracts. The applications regarding the second question were dismissed, as it was not raised in the initial application under Section 256(1) of the I.T. Act.