1982 (5) TMI 67 - AT - Income Tax

Tribunal allows appeal on post-retirement remuneration inclusion in film cost

The Tribunal held that the appeal was maintainable under Section 246 even though no objections were filed to the draft assessment order under Section ... Appellate Assistant Commissioner, Appealable Orders, Payment Not Deductible, Salary Paid To Partners Issues Involved1. Maintainability of the appeal under Section 246 when no objections were filed to the draft assessment order under Section 144B.2. Legitimacy and reasonableness of the remuneration paid to a retired partner for services rendered post-retirement.3. Applicability of Section 40(b) regarding remuneration paid to a partner.4. Inclusion of remuneration in the cost of the film for amortization purposes.Issue-wise Detailed Analysis1. Maintainability of the Appeal under Section 246The core issue was whether an assessee who fails to object to an addition or disallowance made in a draft order under Section 144B loses the right to appeal under Section 246. The Tribunal held that the right of appeal is a statutory right and cannot be taken away unless by express provisions or necessary implication. The Tribunal emphasized that 'By merely not filing objections to the draft assessment order, it cannot be said that the assessee is deemed to have accepted the assessment.' The Tribunal clarified that Section 144B is procedural and does not curtail the right of appeal. Therefore, the appeal before the Commissioner (Appeals) was maintainable.2. Legitimacy and Reasonableness of the Remuneration Paid to a Retired PartnerThe Tribunal examined whether the remuneration of Rs. 10 lakhs paid to a retired partner for services rendered post-retirement was genuine and reasonable. The Tribunal noted that the cost of the film 'Sholey' amounted to over Rs. 3 crores and faced significant issues with the Censor Board, requiring reshooting and modifications. The Tribunal found that the remuneration was justified given the invaluable services rendered by the retired partner in salvaging the film. The Tribunal stated, 'The payment of Rs. 10 lakhs to Shri Ramesh Sippy in the context of the evidence and the background as also the surrounding circumstances cannot be said to be unreasonable.'3. Applicability of Section 40(b)The Tribunal considered whether Section 40(b) applied to the remuneration paid to the retired partner. The Tribunal concluded that since the remuneration was for services rendered after retirement, Section 40(b) was not applicable. The Tribunal clarified, 'Once it is held that the remuneration paid to Shri Ramesh Sippy was for his services rendered after his retirement and not as a partner, the provisions of section 40(b) can have no application at all.'4. Inclusion of Remuneration in the Cost of the Film for Amortization PurposesThe Tribunal addressed whether the liability of Rs. 10 lakhs payable to the retired partner could be treated as part of the cost of the film for amortization purposes. The Tribunal emphasized that the assessee followed a mercantile system of accounting and that the cost of the film included various expenses, including the remuneration for services rendered. The Tribunal stated, 'There cannot be any doubt that the liability for the services rendered by Shri Ramesh Sippy in the facts and circumstances of this case is includible in the cost of the film.'ConclusionThe Tribunal upheld the order of the Commissioner (Appeals) and dismissed the revenue's appeal. The Tribunal concluded that the appeal was maintainable, the remuneration paid was legitimate and reasonable, Section 40(b) was not applicable, and the remuneration was correctly included in the cost of the film for amortization purposes.