TaxTMI 
TaxTMI 
1982 (1) TMI 82
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....of the remuneration stipulated to be paid under the agreements, the producers concerned undertook to give the assessee certain guarantee acceptable to him for the payment of the amounts stipulated on the various dates. To illustrate the nature of the agreement and the remuneration payable thereunder, we shall take up the terms of the agreement with the producer, Sagar Art (International) Films (P.) Ltd. entered into by the assessee. Sagar Art (International) Films (P.) Ltd. engaged the assessee for playing the leading role in a picture entitled "Lulkar". According to the contract of employment, the assessee was entitled in consideration of his services rendered or required to be rendered, as stated in the letter of the producer dated 15-9-1970, the remuneration payable as under: Amount ....
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....p; In the year 1997 66,500 In the year 1998 66,500 In the year 1999 ....
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....bsp; In the year 2004 66,500 In the year 2005 66,500 &nbs....
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.... In the year 2010 66,500 In the year 2011 66,500 &n....
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....rity of the policy. Under the policy, the producer Sagar Art (International) Films (P.) Ltd., is the proposer and the first instalment is due for payment on 1-9-1995 and similar instalments are to be paid as on 1st of September every year for a period of 20 years. 4. The assessee maintains accounts in respect of his professional earnings on cash basis, i.e., under cash system of accounting. In the assessment for the year 1975-76, the WTO, inter alia, included a sum of Rs. 3 lakhs as outstanding remuneration not received by the assessee and another sum of Rs. 28,07,700 as the present value of future annuities secured in respect of the remuneration due to the assessee from various producers secured by way of annuity policies. In the appeal preferred by the assessee, the Commissioner (Appeals) in regard to the inclusion of Rs. 3 lakhs held, that in view of the fact that the financial position of Movie Mughals from whom the amount was due and considered outstanding as a debt, was positively bad, evaluation or this debt is called for. Following similar orders in other cases he directed the WTO to take the valuation of the debt at nil provided the assessee wrote a letter to the producer....
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....ing to the inclusion of the sum of Rs. 3 lakhs as outstanding remuneration. So far as this sum of Rs. 3 lakhs is concerned, the short facts as found in the orders of the departmental authorities pertaining to the same are that the assessee was entitled to receive professional fees in respect of the film "Aan Ban", which was released some time between 1-4-1972 and 31-8-1972, in two forms, namely, Rs. 1,01,001 plus annuity of Rs. 40,000 each for ten years. Before the release of the film the amount of Rs. 1,01,001 was paid and what had not been received by the assessee was the annuity of Rs. 40,000 which was to commence from 1-1-1976. According to the finding of the WTO, the producer Movie Mughals had debited the amount of Rs. 3 lakhs to the cost of the picture and credited to the assessee's account in their accounts for the year ended 31-8-1972 and he had also obtained a deduction of this amount in his income-tax assessment. The amount has also been disclosed by the producer as in outstanding liability in the balance sheets as at 31-8-1972, 31-8-1973 and 31-8-1974. The assessee, however, claimed that as the film was a flop, he had waived his claim to receive the annuity starting from....
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....ay of annuity can be regarded as remuneration for services rendered or the payment arises by virtue of a totally different contract of insurance for securing annuity payments. The stand of the assessee, as contended by the counsels on behalf of the assessee as well as the interveners, is that the payments under the policies continue to bear the character of remuneration for services rendered due from the producers and the mode or method adopted by the producers for securing the payments to the assessee of the amounts guaranteed by them by securing annuity policies does not alter its character as remuneration for services rendered. The revenue's stand on the other hand is that once the producer took out the policies in favour of the assessee and the insurance company undertook to pay the assessee the amounts of instalments as stipulated, the producer's obligation in respect of the remuneration to the assessee was fully discharged and the payments due from the insurance corporation to the assessee no longer bore the character of outstanding remuneration. 11. The assessee's next alternative submission is that since the annuity is not commutable under the conditions of the policy take....
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....nder the cash system which came up for consideration in the other Special Bench case would equally govern the question of inclusion of any amount in respect of the annuities. The arguments advanced by him in the other Special Bench case were adopted by him in respect of the inclusion. Shri V.H. Patil, counsel for another intervener, also highlighted the point that the remuneration agreed to be paid by the producer was itself to be paid in instalments as stipulated in the contract and they do not become due until and before the due dates and on the respective due dates, instead of the employer directly paying the amounts, he secured payment thereof through the annuity policies which, was, therefore, only another method or mode of payment not affecting the character or nature of payment which continued to be outstanding professional remuneration of the assessee. It was further urged that if it is held that the contract of employment was replaced by the annuity policy then the ratio of the decision in Yuvraj Amrinder Singh's case granting exemption under section 5(1)(vi) would apply. Lastly, it was the assessee's contention also that in the event any inclusion is called for in respect....
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.... of section 7(2)(a) being special provisions applicable to assets of business where accounts regularly maintained, there is no scope for inclusion of any asset relating to such business not required to be disclosed in the balance sheet under the system of accounts followed by resort to section 7(1). Following that order we must hold in this case also that the outstanding remuneration of the assessee is not liable to inclusion in the net wealth. We shall presently examine the nature of the payments by way of annual instalments from the annuity policies referred to earlier, by which the producer secured payment of the remuneration agreed to by him on the basis of the controversy raised by the parties, but suffice it to say at this juncture that if they bore or continue to bear the character of remuneration outstanding from the producer, then on the ratio of the earlier Special Bench order, no amount can be included in the computation of the assessee's net wealth as forming part of his assets. 14. With regard to the controversy as to whether the annual instalments due and payable to the assessee under the policies continue to bear the character of remuneration or they bear a differen....
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.... from the producer. In making the payment to the assessee under the annuity, the LIC is merely discharging the liabilities and obligations of the producer under the contract between the assessee and the producer and nothing else. We are, therefore, satisfied that there is no merit in the department's contention that merely because the producer has adopted or framed a scheme or device for discharging his obligation of paying the remuneration to the assessee as stipulated in the terms of the agreement, the payments made to the assessee in pursuance of the scheme or plan adopted by him undergo any change from being remuneration for services rendered. 15. It is also necessary at this stage to refer to the letter of the CBDT by way of Instruction No. 1319 dated 26-2-1980. We may as well reproduce an extract of this letter : "The Board have been considering for some time past the question whether a film artiste, who adopts cash system of accounting for his professional income and who gets remuneration from a film producer in the form of annuity, should be taxed on the entire amount paid by the producer for purchasing the annuity policy in the year of purchase or on the annuity instalme....
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....re, therefore, clearly of the view that the instruction further strengthens our conclusion that the annual payments received by the artistes from the insurance company is nothing but remuneration for services rendered. It, therefore, follows that no part of the various amounts payable to the assessee in the different years under the policies having not even become due for payment, not to speak of their having been received, there can be no inclusion of any sum in respect of the same, particularly when the assessee is maintaining accounts under the cash system and in which there is no scope for including it as asset in the balance sheet as being outstanding remuneration which has not been received. 16. The above finding renders unnecessary consideration and decision of the alternative contentions of the assessee, but to completely dispose of the appeal on all the aspects, as the matter is not likely to rest at this stage, we proceed to deal with those contentions and decide the question accordingly. 17. One alternative submission of the assessee was that even assuming that the payments due under the policy are by way of annuity not bearing the character of remuneration, then no am....