Bollywood & Kollywood Superstars' Tryst with Income-tax - Part 2

October 07,2015
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P.V. Srinivasan (Corporate Advisor)

Following the judgment of the Madras High Court rendered in the case of M.S. Subbulakshmi vs. CIT [TS-1-HC-1955(MAD)], a judgment concerning film distribution business arrived. In the said business the whole stock-in-trade would consist of such assets being incorporeal rights. The case came up for adjudication before the Supreme Court in CIT vs. The South India Pictures Ltd.: 1956 AIR 492/[TS-5-SC-1956], wherein the assessee, a private limited company, carried on the business of distribution of films.  In some instances the assessee used to produce or purchase films and then distribute the same for exhibition in different cinema halls and in other cases the assessee used to advance monies to producers of films and secure the right of distribution of the films produced with 56264900_thumbnail_-_copythe help of the monies so advanced by the assessee.  In the course of such business it advanced monies to Jupiter Pictures for the production of three films and acquired the right of distribution of these three films under three agreements in writing in September 1941, July 1942 and May 1945. The said agreements expressed in similar language contained similar terms.  During the accounting year ending 31.03.1946 and in the previous years, the assessee had exploited its rights of distribution of the three pictures. On 31.10.1945, the assessee and Jupiter Pictures entered into an agreement cancelling the three agreements relating to the distribution rights in respect of the three films and in consideration of such cancellation the assessee was paid Rs.26,000/- in all by Jupiter Pictures during the accounting period as compensation.  The question for determination was whether on the facts and in the circumstances of the case, the sum of Rs.26,000/-, received by the assessee from the Jupiter Pictures was a revenue receipt assessable under the Indian Income Tax Act.

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