TaxTMI 
TaxTMI 
1981 (1) TMI 94
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....provisions in the agreement with regard to the recoupment of a commission to the distribution and the sharing of the over-flow collection. 3. The assessee claimed that on 8th July, 1974 she respect of the rights acquired by the agreement with the producer. By this agreement, which is in writing, the assessee were to be co-owners with S.P.P and her share was 40 per cent. The preamble, after stating S.P.P. were the lawful holders of the distribution rights for Bombay circuit, stated as follows: "And whereas the parties hereto have mutually agreed to join and share the said rights of the said picture for the said territory as acquired under the said agreement dt. 3rd July, 1974 on the terms and conditions herein after a preparing..........." Clause (1) of the agreement stated that the distribution right shall be held among the parties as co-owners with 60 per cent, for S.P.P. and 40 per cent. for the assessee. Clause (2) state that the parties had agreed to contribute the moneys required according to their respective sharing ratio as far as possible. All office expenses and other exploitation expenses shall be borne by S.P.P out of the commission payable. 40 per cent. of the total....
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....release of the picture. It is not possible to believe that the assessee was not insisted upon for payment of her full share, (3) The two cheque payments have been made in March, 1975. By that time it was known that the picture has been a flop (4) The amount of each for Rs. 1,00,000 paid was lying with S.P.P. continuously for a long time unused. This is unbelievable. (5) The sources for the payment of Rs. 100,000 in cash was said to be borrowings from one M/s V.A.P. Corporation Ltd. The entries in the believable. (6) The books of account maintained by S.P.P. nowhere mentions that the assessee had 40 per cent. share (7) S.P.P. itself had not claimed the corresponding loss in its assessment for the asst. yr. 1975-76. 7. None of these reasons found any merit by the Commr. (Appeals). He held that the agreement was genuine. He further considered the question whether this would amount to a joint venture in the nature of a partnership. In which case the assessee would not have the right of adjustment of the share in an unregistered firm. However, he found an old Circular issued by the Central Board of Revenue, as it was then, which allowed the ITO to compute the profit or loss in the han....
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....computing the loss of the firm cash payments ought to be disallowed u/s 40A(3) 9. Shri D.M. Harish for the assessee, on the other hand, pointed out that the ITO had given only two reasons for holding that the agreement was not genuine. It is the IAC who had given other reasons. So it was not a finding of the ITO himself. In respect of the point made out that S.P.P. did not claim the loss, he submitted that the proprietor of S.P.P. was under preventive detention between 1975 to 1977 and, therefore, its returns were filed without a proper scrutiny. Besides, S.P.P. had not claimed any loss at all. If it had claimed a loss of 100 per cent. It could be held against the assessee. 10. We have considered the rival contentions. The first point to be decided is whether the agreement is genuine. We are of the opinion that it is. The reasons given by the IAC to the contrary are not weighty enough. The first reason, viz. the stamp paper having purchased earlier, is of no consequence. It is well known that many Advocates and practitioners have some stock of stamp papers which are used for the purpose of their clients. Here the stamp paper had been purchased only a few days earlier from the d....
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....nting year, the return of S.P.P. could not be filed properly. The same fact that the receipts and the expenses are carried forward to the subsequent year in these circumstances does not throw any doubt on the bona fides of the assessee's case. We are, therefore, satisfied that the agreement is genuine. 13. We have to consider the nature of this agreement viz. whether it is a joint venture in the nature of a partnership or whether it was merely an agreement for financing the venture. We can straight away disregard the third alternative that it was an agreement for finance. We have already extracted the relevant portion of the preamble which stated that the parties had agreed to join and share the distribution rights of the picture. Such a sharing could be only either as co-owners or as partners. 14. We are of the opinion that the agreement is a document of partnership. For one thing the distribution right is one integral right. It has not been further sub-divided area wise. It has to be employed only be these two persons together. The nature of the agreement is such that one on behalf of both has to do the negotiations with the exhibitors and the sub-distributions with the exhib....
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....firm could be apportioned and allowed to be set off in the hands of the individual partners The Commr. (Appeals) has considered this aspect in paragraph 20 of his order. We agree with him that normally the assessment has to be on the unregistered firm and, therefore, the assessee cannot claim any set off of the loos rising to her share as per the provisions of s. 71. But the Commr. (Appeals) has accepted the claim on the understanding that the Circular issued by the Central Board of Revenue, as it then was, would come to the rescue of the assessee. We may reproduce the said Circular below: C. B. R. CIR No. 30 of 1941 C. No. 31(3) I.T./42 dated the 20th day of 1941 Subject: Joint Venture-Assessment of. It has been reported to the Board that the practice is not uniform in the matter of assessments of the profits arising from temporary partnerships of the nature of the Joint ventures. Legally such point ventures, whether they are confined to a particular purpose, are recognised as partners is under the Partnership Act. It is, therefore, open to the ITO to assess the profits either in the hands of the firm as unregistered or of the partners of the firm as unregistered or of partn....
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....analyse the ingredients of the Circular. The Circular accepts that these joint ventures are recognised as partnerships it was, therefore, open under the 1922 Act for an ITO to assess the profits either in the hands of the firm or the partners. So an option of assessing the firm or the partner is a pre-requisite before the Circular could be given effect to. The Circular then goes on to say that assessment of the firm directly might cause hardship in certain cases. That is why the Central Board of Revenue has allowed a direct assessment in respect of such income or loss in the hands of the partners. 20. We agree with Shri Srinivasan that in 1961 Act for the asst. yr. 1975-76 with which we are concerned there is no option to the ITO as it was under the 1922 Act. Even the decisions, which have held that the position remains unchanged in 1961 Act does not apply to the asst. yr. 1971-72 on wards. The Patna High Court decision in CIT vs. Pure Nichitpur Colliery Co. 1975 CTR (Pat) 83 : (1975) 101 ITR 79 (Pat) had clearly made out at page 86 that refer is not available. The Madras High Court decision in 1978 CTR (Mad) 142 : (1978) 112 ITR (Mad) has merely followed the Patna High Court dec....