LAKSHMI NARAYANA FILMS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) .

(2.) AT the instance of the assessee, the Tribunal, Madras Bench has referred the following question of law for the asst. yr. 1975-76 under s. 256(1) of the IT Act, (hereinafter referred to as 'the Act') for the opinion of this Court,"Whether on the facts and in the circumstances of the case income of Rs. 1, 05, 000 accrued to the assessee under the agreement, dt. 25th May, 1974 and 27th August, 1974, during the previous year ended 31st March, 1975 ?" The assessee is a firm which had leased out the dubbing rights of its picture "Sri Rama, Anjeneyayudham" for Tamil and Malayalam to M/s. Jay Films and Cine Link Service by agreements, dt. 25th May, 1974, and 27th August, 1974, for consideration of Rs. 60, 000 and Rs. 45, 000 respectively. The assessee did not disclose any income arising from the abovesaid agreements for the asst. yr. 1975-76, relevant to the previous year ending with 31st March, 1975.

(3.) THE contract is concluded as soon as the promises are exchanged. In mercantile contracts this is by the most common variety. In other words, a contract becomes binding on the exchange of valid promises, on being the consideration for the other. It is clear, therefore, that there is nothing to prevent one of the parties from carrying out his promise at once, i.e., performing his part of the contract whereas the other party who provides the consideration for the act of or detriment to the first may not carry out his part of the bargain simultaneously with the first party." If the principles laid down in the case cited above are taken into consideration in the light of the facts discussed above, so far as the dubbing rights of the abovesaid picture in " Malayalam, it is quite clear that the offer and acceptance of the contract was completed between the assessee and M/s. Jay Films even on 27th August, 1974, and the consideration except to an extent of Rs. 5, 000 alone, had been passed on or before the date of agreement and the balance consideration of Rs. 5, 000 was retained for payment at the time of the delivery of the print by the assessee to M/s. Jay Films. In view of the above facts, the assessee sought to have brought the royalty of Rs. 45, 000 accrued under the agreement, dt. 27th August, 1974, in the return for the asst. yr. 1975-76 as rightly held by the TribunalA perusal of the agreement, dt. 27th August, 1974, would disclose that the dubbing rights of the abovesaid picture in Tamil was agreed to be leased out for the royalty of Rs. 60, 000 and also agreed to receive the abovesaid sum of Rs. 60, 000 in the following manner : A sum of Rs. 10, 000 was received by the assessee even on 21st August, 1974. A sum of Rs. 35, 000 was agreed to be received on or before 31st March, 1977, or the date of delivery of Tamil prints for releasing in Tamil Nadu, whichever is earlier. A sum of Rs. 15, 000 was agreed to be received on or before releasing of the Tamil dubbing version in Ceylon and other overseas territories or on or before 31st March, 1978, whichever is earlier. A perusal of the abovesaid agreement would disclose that there was an offer and acceptance between M/s Cine Link Service and the assessee on 27th August, 1974, for a royalty of Rs. 60, 000 to release the dubbing rights of the abovesaid film in Tamil, but the payment of Rs. 50, 000 was postponed to later dates as mentioned above. Even though an advance of Rs. 10, 000 was received on 21st June, 1974, the payment of consideration for leasing out the dubbing rights mentioned above was postponed to subsequent years. .