TaxTMI 
TaxTMI 
2005 (5) TMI 250
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.... for placing shares thereof at a premium of Rs. 70 per share. (b) the said agreements were genuine and bona fide as found by Hon'ble Tribunal vide its order No. 4453/Mum/2000 for asst. yr. 1996-97 in the case of appellant himself, which is highest fact finding authority under the IT Act, 1961. Further, the agreements cannot be held to be genuine in one context and non-genuine in another. (c) the tripartite agreement between the appellant arid M/s Star India (P) Ltd. (SIPL) and M/s EEL, dt. 12th April, 2001 was entered into by the appellant under the bona fide belief that the programme 'Kaun Banega Crorepati' amounted to a 'feature film' as allowed to be done by him under cl. 1.7 of the agreement dt. 10th Jan., 1995 with M/s ABCL. Further, in January, 1995, no one could have foreseen the income from KBC programme and losses incurred by M/s ABCL in later years. (d) the plea by the appellant before the arbitrator that the entire income from 'KBC belonged to him on the ground that it was a feature film, cannot be held against him as it is but natural for a party to argue one's case forcefully before the arbitrator even when the weakness of the case is known to it. (e) the dispute w....
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....s ABCL thereon. Further, the amount was directly received on 26th Dec., 2000 by M/s ABCL as per FIRC dt. 13th Feb., 2001 from Hongkong & Shanghai Banking Corporation Ltd. (f) the arbitrator had in fact enforced a 'personal services contract' as if the appellant undertook activities on behalf of M/s ABCL which yielded an amount equal to 70 per cent of sum received from the show 'KBC, as this is not a case of enforcement of contract of personal services but of enforcement of rights to income being legal obligation under agreements dt. 10th Jan., 1995 and 11th Feb., 1995. (g) the amount payable by appellant to M/s ABCL amounted to 'compensation', because this is not a case of breach of an agreement for 'personal service' as mentioned at (f) above. (h) the liability to pay the amount payable by appellant to M/s ABCL arose on the date of award, i.e., on 19th June, 2002 (asst. yr. 2003-04) and thus was not allowable in the assessment year under appeal, as the liability was only quantified by award dt. 19th June, 2002 and was already present in the assessment year under appeal by virtue of agreements dt. 10th Jan., 1995 and 11th Feb., 1995. and (i) firstly the KBC income was offered b....
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...., alter, amend or modify any or all of the above grounds of appeal on or before the date of hearing." 3. During the asst. yr. 2001-02, the assessee hosted for the first time a television programme show for M/s Star Television India (P) Ltd. (in short SIPL) by the name of Kaun Banega Crorepati (in short KBC). The assessee filed his return of income on 31st Oct., 2001 declaring total income of Rs. 4,61,97,840. The assessee thereafter filed revised return of income on 31st Oct., 2002 declaring total income of Rs. 6,08,88,217. The assessee filed re-revised return of income on 31st March, 2003 declaring total income of Rs. 3,23,52,630. In response to queries by the concerned AO, the assessee filed various details such as copy of tripartite agreement with Entertainment Ltd. (EEL) and M/s SIPL, copy of the accounts of various parties, modalities involved in arbitration proceedings, cashflow statement and copies of agreement with various parties in support of the professional receipts. The AO observed that in the returns filed by the assessee, the figures of not only the expenses but also receipts varied. In his return of income, the assessee has shown receipt of Rs. 23 crores from M/s EE....
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....nue receipts by the AO vide his orders dt. 31st March, 1999. The findings in both these cases were confirmed by CIT(A). In further appeal, the Tribunal in a combined order dt. 5th Nov., 2002 in these cases held the same as capital receipts not liable to tax and the Department is in appeal before the Hon'ble High Court of Bombay. 3.3 The AO, however observed that M/s ABCL is a sick industrial company so declared by the Board for Industrial and Financial Reconstruction (BIFR) vide its order dt. 9th July, 1999, in case No. 60/99 had brought forward losses of Rs. 81.88 crores as on 1st April, 2000 under the IT Act. 3.4 The agreement with SIPL and EEL with regard to KBC was effective from 1st April, 2000 and the assessee was to receive a total amount of Rs. 112.22 crores as per cl. 8.1 of the same. 3.5 Schedule of payments received by assessee as per the said agreement is as under: (Rs.) ------------------------------------------ Advance already paid by EEL and received by AB Corpn. Ltd. ....
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....u in 'your letter', I would like to state that my counsel has advised me that as per the agreement dt. 10th Jan., 1995 and the supplement agreement dt. 11th Feb., 1995, I am at liberty to render professional service for 120 days. Furthermore, just for the sake of Rs. 15 crores, my freedom to render professional services as an artist, as an anchor, in television or in any other capacity cannot be questioned and this has been amply clarified in the agreement. You must appreciate the futility of my working hard around the clock, if I support my family by generating income separately." 3.9 In a joint letter dt. 18th March, 2002 sent by assessee and ABCL, the assessee approached Justice T.D. Sugla (Retd.) requiring him to act as sole arbitrator. The relevant portion of letter is reproduced as under: "A dispute has arisen between us-(1) AB Corpn. Ltd. and (2) Amitabh Bachchan. In which of an income ostensibly/or to be earned by Amitabh Bachchan as to whether the said income belongs to him or to AB Corpn. Ltd. We had entered into an agreement on 10th Jan., 1995 for a period of ten years and there is no dispute between us that we are governed by the terms and conditions of the said agree....
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....s he had handed over the income to the company with grace and without any objections or reservations about the same. Since Mr. Amitabh Bachchan agreed to handover the entire income from the KBC programme to AB Corpn. Ltd. Last year, we see no change in the circumstances, which might alter the character of the income. In light of the above, Mr. Amitabh Bachchan is requested to handover the entire income from KBC programme during the period from 1st Oct., 2000 to 30th Sept., 2001 to AB Corpn. Ltd. and in future also it shall be Mr. Amitabh Bachchan's personal responsibility to handover the entire income to AB Corpn. Ltd. This being a fundamental issue and essence of agreement, it should be followed religiously, otherwise in future nobody will subscribe to our companies. Moreover, the shareholders cannot be kept in the dark and made to suffer." 3.12 Assessee vide his letter dt. 8th May, 2002 presented his case before the arbitrator, relevant portion of which is reproduced as under: "One will appreciate that the above mentioned rights acquired by AB Corpn. Ltd. would/will generate substantial income if all the above rights are exploited, however they remain unexploited. The above sub....
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.... KBC programme were partly held as belonging to him and the remaining part as that of the claimant company. After deliberations, both parties, it may be stated, have given their consent in writing on the 29th May, 2002 and left it to me to decide what percentage of the receipts ought to be treated as income of the respondent and what percentage that of the claimant company. Taking into account the lump sum remuneration of Rs. 15 crores paid at the time of the execution of the agreement plus further remuneration as provided in cls. 4.1 and 4.2 of the agreement I consider it fair, equitable and just that 30 per cent of the receipts by the respondent from KBC programme be treated as his income and the remaining 70 per cent be treated as the income of the claimant company." 3.14 Assessee was asked by the AO to show cause as to why based on assessee's tripartite agreement EEL and M/s SIPL, the arbitration award, assessee's agreement with ABCL, copies of FIRC and TDS certificates, it should not be inferred that the whole transaction involving transfer of receipt on account of KBC show from assessee to ABCL, be not regarded as 'make believe' arrangement and treated as assessee's income a....
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....f M/s ABCL aggregating to Rs. 81.88 crores. 70 per cent of 112.22 crores was to the extent of 78.55 crores which would get set off against the brought forward losses of nearly the same amount. 3.16 The AO taking support from the principle laid down by the apex Court in the following cases attempted to lift the corporate veil and examine the nature of the transaction, since according to him the series of arrangements were used for tax evasion or to circumvent tax obligation and according to him the Revenue authorities have power to reject such a transaction for the purpose of taxing statutes: (i) Union of India vs. Gosalia Shipping (P) Ltd. 1978 CTR (SC) 76 : (1978) 113 ITR 307 (SC); (ii) CIT vs. Durga Prasad More 1973 CTR (SC) 500 : (1971) 82 ITR 540 (SC); (iii) Workmen, Associated Rubber Industry Ltd. vs. Associated Rubber Industry Ltd. (1985) 48 CTR (SC) 355 : (1986) 157 ITR 77 (SC); (iv) CIT vs. Sri Meenakshi Mills Ltd. (1967) 63 ITR 609 (SC); and (v) Juggilal Kamlapat vs. CIT (1969) 73 ITR 702 (SC). In this backdrop, the assessee's agreement with M/s ABCL was subjected to close scrutiny. He observed as under: "(a) The agreement dt. 10th Jan., 1995 is signed only by asse....
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....or as per cl. 20 of said agreement. (f) Clause (vi)-The indemnity cl. 6.12 stipulates that artist agrees and shall keep fully indemnified at all times M/s ABCL from and against all actions, proceedings, claims, etc. and damages arising directly or indirectly as a result of any breach or non-performance by the artist of any of his undertakings, warrants or obligations. However, the rigorous of this clause are diluted appreciably by cl. 11 providing for equitable relief to prevent or curtail actual or threatened breach by the artist of the provisions of the agreement. At the same time, cl. 20 makes it obligatory on the parties involved to refer themselves to arbitration in accordance with the Arbitration Act, 1940 in respect of all disputes or differences arising between them or in relation to construction, meaning and operation or effect of the contract of breach thereof s. 34 of the Arbitration Act prohibits action contemplated in cl. 11 of the agreement. From the above, it would be clear that M/s ABCL may not have any effective legal remedy in case of any breach by the artist but to subject itself to arbitration. At this juncture, one cannot ignore the influence of the artist on ....
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.... is free to enter into this agreement and that he is the sole absolute, unencumbered legal and beneficial owner of all rights granted to EEL and the production house in respect of the services to be rendered under this agreement, and that the artist is not under any disability, restriction or prohibition, legal or otherwise, which might prevent him form performing or observing any of the obligations provided in this agreement. (ii) Clause 6.2 of the agreement stipulates that the artist will discharge all taxes or other withholding obligations required under any national, State, local laws, regulation or orders now or at any later time in force. The artist will indemnify and hold EEL and the production house, jointly and severally, harmless in respect of payment of any taxes and other withholdings in respect of payments received under this agreement in this regard and in respect of the services provided. 3.19 According to the AO, from the above two clauses, it is observed that the assessee had consciously entered into tripartite agreement with SIPL and EEL and was sure of his obligations/commitments towards M/s ABCL. He gave undertaking to SIPL and EEL in no uncertain terms that h....
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....his wife control majority shares of M/s ABCL. The assessee is the heart and soul of the said company. He has a preponderant, if not the whole, voice in the creation, running and management of the company, and he has been working in the capacity of the chairman-cum-managing director. Therefore, to say that at the time of signing of tripartite agreement, M/s ABCL was not aware, is a far-fetched and highly improbable proposition. (iv) The assessee had contended vehemently before the arbitrator that the total receipts from KBC were actually his income, that the amount transferred to M/s ABCL was on its request, that it was a mistake and that the said amount should be refunded to him. (v) Both the parties allegedly left the matter to the sole arbitrator to decide the dispute. The letter dt. 29th May, 2002 given by both the parties was not filed before the arbitrator. The arbitrator, without assigning any reason, held that 30 per cent proceeds from KBC will go to the assessee and 70 per cent will go to M/s ABCL. What is the basis of 30:70 division, is not known. Neither parties appear to have argued before the arbitrator as to be reasonable share of income to which they were entitled. ....
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....f transaction is genuine and even if it is actually acted upon, if the transaction is entered into with the intention of tax avoidance, then the transaction would constitute a colourable device." Where the assessee enters into a series of transactions with the intended object of tax avoidance and the transactions are not really meant to be acted upon, it would be open to the taxing authorities to go behind the transaction and bring the real income to tax. 3.24 Regarding diversion or application of income, the AO observed that the issue whether transfer of KBC income to M/s ABCL was a case of diversion of income by overriding title or of application of income, needs to be examined in the light of the following judicial pronouncements: (i) Provat Kumar Mitter vs. CIT (1961) 41 ITR 624 (SC) (ii) Motilal Chhadami Lal Jain vs. CIT (1991) 94 CTR (SC) 195 : (1991) 190 ITR 1 (SC). Applying the principles of the above cases to the facts of the assessee's case, the AO observed that: (i) the source of income was the assessee's tripartite agreement with SIPL and EEL; (ii) M/s ABCL had no locus standi vis-a-vis SIPL and EEL. In fact, the assessee has mentioned before the arbitrator that SI....
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....e assessee to M/s ABCL was gratuitous in nature and cannot be regarded as diversion of income by overriding title. It is a case of application of income since the income accrued and arose in the hands of the assessee. The AO brought to tax the whole receipts from KBC programme in the hands of the assessee as an individual. 3.26 Another issue which came up for consideration before the AO was the assessee's claim for deduction under s. 80RR. According to the assessee, his participation in KBC programme entitles him for deduction at 60 per cent under the provisions of s. 80RR of the Act. The AO rejected such claim on the following grounds: (1) He has not furnished the required certificate in Form No. 10H for entertaining the claim. (ii) The KBC programme in which the assessee had acted as a host was a programme conceived, prepared and broadcast in India. There was no performance outside India. (iii) Sec. 80RR is not allowable in the cases of persons anchoring or hosting a TV programme as held by the Mumbai Bench of the Tribunal in the Harsha Bhogle vs. AO. On these determinations, the assessee was aggrieved and was before the CIT(A). 4. During the course of appellate proceedings,....
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....(iii) The assessee was bound to work for M/s ABCL for 120 days in a year and excluding Saturdays, Sundays and other holidays/leave period, the assessee could do professional work for others only for about 74 days in a year, which comes to about 38 per cent of the total working days. It seems that the arbitrator has considered the said position while passing award. Further, the AO has failed to appreciate that no tax would be payable in the case of M/s ABCL for the year, if entire income from EEL is assessed in its hands because of its set off against brought forward losses. However, vide this arbitration award 30 per cent of such income is assessed in the hands of the assessee, on which he has to pay tax. This fact itself is sufficient to negate the learned AO's allegation regarding international tax avoidance in this case. (iv) The agreement allowed the artist to follow the profession within the time of about 240 days not in conflict with the interest of M/s ABCL. Had it not been allowed, the artist would not have survived with the average income of Rs. 1.5 crores per year (Rs. 15 crores divided by 10 years = Rs. 1.5 crores every year), in the absence of any production activity b....
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....d Conciliation Act, 1996, the award of an arbitrator is final and effect thereof is same as that of an order of a competent Court to decide civil disputes and it amounts to diversion of 70 per cent income by overriding title. It is thus not a case of application of income but of diversion of income by overriding title. On the basis of above propositions/arguments, the assessee submitted that the findings of the AO summarized in para 16 of the assessment order that- (a) the source of income is tripartite agreement and the income accrued/arose to the assessee; (b) it was applied to discharge an obligation but not diverted at source by virtue of and in pursuance of assessee's agreements with M/s ABCL which have been found genuine by the Tribunal in its order for the asst. yr. 1996-97 and by virtue of an arbitration award under the Arbitration and Conciliation Act, 1996, and (c) M/s ABCL has no locus standi or charge vis-a-vis SIPL and EEL. It was a gratuitous payment, was erroneous and the income shown in the second revised return should be accepted. As indicated earlier, a copy of the submission of the assessee was given to the AO who had submitted his reports and the copies of th....
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....ther side the assessee increased its stake and consequently controlling rights in M/s ABCL. in other words, it meant that the assessee being the whole and sole of M/s ABCL has benefited M/s ABCL by allowing it to use the fund at the same time had benefited himself by increasing its controlling rights. It meant that in the whole process, the assessee was the gainer. The payment being intrinsic and most important part of the said agreement of January/February, 1995 was aimed at serving the cause of the assessee alone. The AO was of the view that the agreement in January/February, 1995 has been held to be valid by the Hon'ble Tribunal in their order in the case of the assessee for the asst. yr. 1996-97 based on incorrect factual position presented by the assessee. The Department is in the appeal in Mumbai High Court against the same. The said decision of the Tribunal referred to earlier was passed in different context. In the said case the agreement was being examined vis-a-vis the assessee's claim on a particular receipt of Rs. 15 crores received by him from M/s ABCL as to whether the said receipt was a capital receipt or not? The said decision referred to earlier was relevant to the....
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....ses of agreement into operation and the way the arbitration proceedings have proceeded resulting in a not too transparent arbitration award unequivocally points to a singular design on the part of the assessee to distribute the income which actually, legitimately belonged to him in different hands in this case of M/s ABCL with a motive to reduce ultimate tax' liability on the said amount. The whole sequence of event culminating in the arbitration award has been essentially structured to fit into the whole game plan of the assessee. 4.3 The AO has submitted that during the previous year relating to the asst. yr 2001-02, the income of Rs. 23 crores had already accrued to the assessee when the arbitration award was not in existence. 4.4 It had been contended during the appellate proceeding that the arbitration award involving dispute between the assessee and ABCL having been accepted by both the parties should have binding effect on IT Department, while deciding apportionment of proceeds in the respective hands for tax purposes, unless it is held- (a) the same has not taken into consideration the respective claims of the parties properly before arriving at a logically consistent co....
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....nected with entertainment world would be unaware of assessee's involvement in KBC programme. (b) ABCL was of the opinion that acting as an anchor in KBC by the assessee did not amount to acting in feature film. The arbitrator has also- commented that assessee's role in KBC falls in the field of other audio visual work and distinct from acting in feature films. (c) As the assessee was busy round the clock with KBC programme, he was not available for discussion with the directors of ABCL for the development of programme and generation of (income for) the company. The arbitrator has not commented on this claim of ABCL. It is observed that this claim of ABCL goes counter to the earlier claim that ABCL was not aware of KBC programme. If ABCL was not aware of the assessee's activities, how a claim can be made that he was not available because of his involvement in KBC? (d) Programme like KBC ought to have taken up for ABCL by the assessee. The arbitrator has indirectly agreed with this claim. But if that be the case, there is no reason why the entire amount earned by the assessee should not have been handed over to ABCL, not 70 per cent of it. (e) The assessee as the main promoter of....
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....t the assessee had agreed and given to ABCL the right to use the assessee and his name in relation to 'engagement' as defined in the contract. "Engagement" had been defined in the contract dt. 10th Jan., 1995 as under: "(i) an actor/performer anchor in cinematograph films, feature films, television films and other audio-visual works howsoever described. (ii) a singer or voice recording .......... (xviii) .........." 4.10 Regarding engagement schedule, it has been defined in the contract as under: '"Engagement schedule' means a schedule during which the artist will fulfil his obligations under these presents, which schedule shall contain dates, time and locations for publicity and includes the recording, shooting, pre-production period and post-production periods." 4.11 From the above engagement schedule it shows that there would be some definite programme drawn up by ABCL containing date, time and location for the performance of the assessee. The contract defines guaranteed period as under: '"Guaranteed period' means the period of 120 working days exclusive of bank and public holidays in any given calendar year during which the artist shall be available for engagements." 4.....
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....uing to the artist by virtue of cl. 1.7. Clause 1.7 allows the assessee to pursue professional career as an actor in his professional capacity. That means the definition of "engagement" requires the assessee to do any of those cl. 1.7 enumerated activities during the "engagement schedule". Therefore, cl. 6.3 is being interpreted by reading the clauses in the contract harmoniously. If so done, that would mean that the assessee was free to do anything outside the 120 days' mandatory commitment period in a year. This clause has not been analyzed adequately and sweeping conclusions have been arrived at that the assessee had agreed to engage himself for ABCL and limit his activities for 'personal purposes'. The interpretation to say that in terms of cl. 1.7, the assessee was practically to work full time for ABCL is not borne out from the fact on record as the above discussion would show. When the maximum commitment of the assessee is only for 120 days in a year, one wonders how it could be concluded that the assessee was to work full time for ABCL. The assessee could undertake any assignment outside the committed 120 days. This is what the arbitrator is describing as activities for per....
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....duct and such estoppel must be specifically pleaded. In Sailendra Narayan Bhanja Deo vs. State of Orissa AIR 1956 SC 346, five-Judges Bench of Supreme Court held that a judgment by consent is effective as estoppels between the parties as a judgment whereby the Court exercises its mind on a contested case. In Byram Pestonji Gariwala vs. Union of India 1992 (1) SCC 31 the Court held that a judgment by consent is intended to stop litigation between the parties just as much as a judgment resulting from a decision of the Court at the end of a long drawn out fight. A compromise decree creates an estoppel by judgment and quotes the following paragraph from the Spencer-Bower and Tamer in res judicata: 'Any judgment or order which in other respects answers to the description of a res judicata is nonetheless so because it was made in pursuance of the consent and agreement of the parties. Accordingly, judgments, orders, and awards by consent have always been held no less efficacious as estoppels than other judgments, orders, or decisions, though doubts have been occasionally expressed whether, strictly, the foundation of the estoppel in such cases is not representation by conduct, rather tha....
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....nder the banner of ABCL. An income which has been received for work done under a contract cannot be treated as something different from it. When ABCL has never entered into a contract with Star India and E. Entertainment, there is no question of any income accruing or arising to ABCL. There is only one income which has accrued to the assessee from one activity which was anchoring of the KBC programme. So there cannot be more than one person; to whom the income would accrue. The contract clearly states that the remuneration is payable to the assessee in his individual capacity. The arbitrator has also noted that Star India and E. Entertainment were not willing to enter into an arrangement under ABCL banner. When the payer of the income did not want to have anything to do with ABCL, there is no question of any income accruing or arising to ABCL from out of the money received under the contract with Star India and E. Entertainment. Therefore, the AO was right in taking the entire amount of Rs. 23 crores as income of the assessee during the year. The payment of 70 per cent of the amount cannot be treated as an expenditure laid out for earning the income. Therefore, it is not an allowab....
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.... in the section makes it so clear that further elaboration of the point is not required. It seem to us that the present award does purport to enforce a contract of personal service When it states that the dismissal of the appellant 'has no effect on his status', arid 'He still continues to be a professor of the university.' When a decree is passed according to the award, which if the award is unexceptionable, has to be done under s. 17 of the Arbitration Act after it has been filed in Court, that decree will direct that the award be carried out and hence direct that the appellant be treated as still in the service of the respondent. It would then enforce a contract of personal service, for the appellant claimed to be a professor under a contract of personal service, and so offend s. 21(b). 12. It was said that this might make the award erroneous but that was not enough; before it could be set aside, it had further to be shown that the error appeared on the face of the award. The learned counsel contended that no error appeared on the face of the award as the reasoning for the decision was not stated in it. It was said that this was laid down in the well-known case of Champsey Bhar....
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.... about the offending portion of the award being a mere surplus-age affords no assistance to the appellant for it was not said on his behalf that the offending portion was severable from the rest of the award and should be struck out a mere surplus-age. It, therefore, has to remain as a part of the award and so long as it does not, it would disclose an error on the face of the award and make it liable to be set aside as a whole.' On the basis of the above rulings, I would hold that it would not be correct to interpret, as has been interpreted by the assessee that the arbitrator had in fact enforced a kind of contract as if the assessee undertook activities on behalf of ABCL and such activities yielded an amount (70 per cent of the amount received by the appellant) to ABCL as income. It is a settled law that if there is any breach of an agreement for personal service, the arbitrator can only award an amount as compensation for breach of contract. Therefore, the amount payable by the assessee to ABCL can only be treated as a payment of compensation. So it would not be correct and proper to interpret the arbitration award the way the assessee has tried to interpret as above which has ....
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....eements were genuine and bona fide as found by Tribunal vide its order No. 4453/Mum/2000 for asst. yr. 1996-97 in the case of assessee itself which is the highest fact finding authority under the IT Act. Further, the agreements cannot be held to be genuine in one context and non-genuine in another. 5.1 Authorities below have not appreciated the tripartite agreement between the assessee and M/s Star India (P) Ltd. (SIPL) and M/s EEL, dt. 12th April, 2001 was entered into by the assessee under the bona fide belief that the programme "Kaun Banega Crorepati" amounted to a "feature film" as allowed to be done by him under cl. 1.7 of the agreement dt. 10th Jan., 1995 with M/s ABCL. Further, in January, 1995, no one could have foreseen income from "KBC" programme and losses incurred by M/s ABCL in later years. The authorities below have not appreciated the plea by assessee before the arbitrator that the entire income from "KBC" belonged to him on the ground that it was a feature film cannot be held against him as it is but natural for a party to argue one's case forcefully before the arbitrator even when the weakness of the case is known to it. 5.2 Revenue authorities did not appreciate....
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.... with the assessee without any relevance to the source from which the income was earned by the assessee and amounted to overriding title of M/s ABCL thereon. Further, the amount was directly received on 26th Dec, 2000 by M/s ABCL as per FIRC dt. 13th Feb., 2001 from Hongkong & Shanghai Banking Corporation Ltd. CIT(A) erred in holding that the arbitrator had in fact enforced a "personal services contract" as if the assessee undertook activities on behalf of M/s ABCL which yielded an amount equal to 70 per cent of sum received from the show "KBC", as this is not a case of enforcement of contract of personal services but of enforcement of rights to income being legal obligation under agreements, dt. 10th Jan., 1995 and 11th Feb., 1995. 5.3 The CIT(A) erred in holding that the amount payable by assessee to M/s ABCL amounted to "compensation", because this is not a case of breach of an agreement for "personal service" as mentioned above. CIT(A) further erred in holding that liability to pay the amount payable by assessee to M/s ABCL arose on the date of award, i.e., on 19th June, 2002 (asst. yr. 2003-04) and thus, was not allowable in the assessment year under appeal, as the liability ....
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....ble to produce the letter dt. 16th March, 2002 in spite of their best efforts. Apart from this, Departmental Representative for respondent wanted to know whether is there any resolution passed by the company to refer the matter to the arbitration and also to the fact that any other option/alternative for recovery of the amount was considered by assessee and if yes, what was the sum? Apart from this at p. 68 wherein fresh certificate of incorporation consequent to change of name is placed on record, wherein Sopan Releasing Co. (P) Ltd., has been changed to Amitabh Bachchan Corporation (P) Ltd. Our attention was drawn to p. 70 of the paper book wherein the main object of the company has been said to be protection of industrial co-operations between advances, deposit on land, money, securities and properties, to order that any company, corporate film person or association whether management or otherwise or other security. Thus, the learned Departmental Representative drew our attention to the fact that there is no mention of film making in said memorandum. Our attention was also drawn to p. 78 wherein at 16 'F', there is a mention that above cls. 60A to 60F were added to personnel res....
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....nce made on 9th July, 1990. On these facts there are no serious disputes. 6.2 The main ground which lead the AO to doubt the agreement entered into by the assessee with ABCL was that it was not signed by any person on behalf of ABCL, nor it bore the common seal of the company. Similarly the supplementary agreement is not signed either by the representative of ABCL or by any witness. According to the Revenue authorities, the agreement was signed by the assessee and is simply a unilateral and self serving document in nature and it only represents the assessee's assertion and intention entering into an agreement with ABCL, which was not signed by ABCL. According to the Department the whole agreement is an invalid document. The Bench, during the course of hearing called for the original agreements and the assessee's counsel produced both the agreements. On perusal of the said agreements it was found that there is a seal of ABCL and the signature of the director of ABCL is also there on the last page of the agreements. The same was shown by the Bench to the learned Departmental Representative in the open Court. Subsequently, in order to verify whether the seal of ABCL and the signature....
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....504/Mum/2000 and CO No. 111/Mum/2001. The Revenue's miscellaneous application arising out of that order has already been rejected by the Tribunal and the matter is now reported to be before the Hon'ble Bombay High Court. It is humanly impossible to envisage and expect that an agreement made in 1995 is part of a design or device to save tax in the year 2001-02 and also to further imagine that ABCL will suffer loss in 1995-96 till 2000-01. Nobody imagined that KBC programme will be such a success in reviving the artist, who was totally and financially sunk before this programme along with his group company ABCL. The losses were not suffered in 2001-02 when the income was released but they were suffered in 1996 and ABCL had a worst financial beating much before the receipts or even the conceptualization of the programme. We do not think that these agreements were only make-believe transactions arranged just to defeat the taxing provisions. So the attempt to lift the corporate veil by the AO, in our view, is not fair and reasonable especially viewed from the fact that the Department accepted the genuineness when it came to the question of taxability of the receipt of 18 crores to the a....
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....d have landed the assessee to account for 100 per cent of the receipt from KBC programme in favour of ABCL as a part of its claim over the assessee's obligation to account for the same. It is these disputes which have been ultimately referred to arbitration proceedings. We do not accept the theory that as canvassed by the learned Departmental, Representative, the entire reference is not at all a reference to the arbitrator but only a medium or an arrangement made in the direction to achieve a tax evasion. The sole arbitrator Justice T.D. Sugla has examined the issue in the light of the rival claims and the agreements entered into by the parties and has considered it fair, equitable and just that 30 per cent of the receipt by the assessee from the KBC programme accrues to him and the remaining 70 per cent should be handed over to the claimant company viz., ABCL. We are-aware that the Department is not a party to the arbitration proceedings and, therefore, cannot be legally said to be bound upon it. But the Revenue, as correctly argued by the learned counsel for the, assessee, cannot ignore the legal implications of transactions and the disputes that were there between the parties in....
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....diction." It has been done in this case. So the agreement cannot be said to be self-serving and it does not represent a make belief arrangement. 7.1 Now we would like to discuss the facts leading to the reference to the arbitrator, the powers of the arbitrator and the ground for setting aside the award in the following manner so as to understand the implication of arbitration proceedings over the disputed issue. The indemnity cl. 6.12 which stipulates that artist agrees and shall keep fully indemnified at all times M/s ABCL from against all actions, proceedings, claims, etc. and damages arising directly or indirectly as a result of any breach or non-performance by the artist of any of his undertakings, warrants or obligations. According to the Revenue authorities, the rigours of this clause are diluted by cl. 6 of the said agreement, which provides for equitable relief. Accordingly, M/s ABCL was entitled to seek injunctive and other equitable relief to prevent or curtail actual or threatened breach by the artist of the provisions of agreement. Since parties to agreements were having option to refer the matter for arbitration as per provisions of Arbitration Act, 1940, we find noth....
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....pire has misconducted himself the proceedings; (b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have became invalid under s. 35; (c) that an award has been improperly procured or is otherwise invalid. The award can be set aside under the provisions of s. 30 of the Arbitration Act. The tripartite agreement between the assessee and SIPL and M/s EEL, dt. 12th April, 2001 was entered into by the assessee under the bona fide belief that the programme "Kaun Banega Crorepati" amounted to a "feature film" as allowed to be done by him under cl. 1.7 of the agreement dt. 10th Jan., 1995 with M/s ABCL. In January, 1995, no one could have foreseen income from "KBC" programme and losses incurred by M/s ABCL in later years. Under these circumstances, the agreement in question cannot be said a make belief arrangement. The plea by the assessee before the arbitrator that the entire income from "KBC" belonged to him on the ground that it was a "feature film" should not be held against him, as it is but natural for a party to argue one's case forcefully before the arbitrator even when the weakness of the case is kn....
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....ispute arising out of this agreement cannot be held to be non-genuine and, therefore, was correctly a subject-matter of reference under the relevant provisions of the Arbitration Act as well as under the subsisting agreement between the parties. The sole arbitrator has settled the dispute to the satisfaction of both the parties and the award has also been accepted by both the parties leaving no scope for us to hold that such proceedings or the award itself was non-genuine. Therefore, in our view the only conclusion that can be reached in the facts and circumstances of the case is that to the extent there is an outgoing from out of Rs. 23 crores as a result of the arbitration award, the same is the result of diversion of income at source before its accrual in the hands of the assessee. In the light of these discussions the main issue is decided in favour of the assessee and it must be understood that the principles laid down in all the case laws specifically dealt with by the AO and the CIT(A) and also canvassed by both the parties before us should be taken to have been considered while coming to this decision although not specifically referred to herein. 7.4 We may now deal with t....