1. This is a reference under s. 256(1) of the Income-tax Act, 1961. The assessed-company, All India Film Distributors Private Ltd., derives income from the distribution of films. On March 29, 1954, the assessed entered into an agreement with M/s. V.P. Productions (hereinafter referred to as 'the producers'). Under the agreement the assessed agreed to advance to the producers a sum of Rs. 1,00,001 for the production of a picture to be known as 'Baghi Sipahi'. The amount was to be advanced in monthly Installments spread over between April, 1954, to October, 1954. The expectation of the parties was that the producers would be in a position to deliver the prints of the picture and the publicity material on or before October 15, 1954. In consideration of the advances thus made by the assessed, the producers agreed to give to the assessed the rights of exploitation, distribution and exhibition of the picture in what may be briefly described as the northern circuit. After the picture was released, the assessed was to be entitled to a commission of 20% of the collections. The balance of 80% was to belong to the producers but the assessed would be entitled to recoup there from the advances ofRs. 1,00,001 made by it. The assessed was also entitled to interest on the amounts advanced.
2. The picture was not complete as per original schedule. The producers needed more money to complete the picture. On June 27, 1956, after the assessed had advanced a sum of Rs. 80,000 out of the amount of Rs. 1,00,001 previously agreed upon (leaving only a balance of Rs. 20,000 which was payable against the delivery of the prints), the producers requested the assessed to advance a further sum of Rs. 40,000 and to recoup it in the same way as the original advance ofRs. 1,00,001. This amount of Rs. 40,000 was also advanced by the assessed as agreed upon.
3. The final phase of the transaction between the parties took place on June 3, 1956. In a letter addressed by the producers to the assessed on this date, the producers pleaded that they were in need of a further sum ofRs. 1,10,000 for completing the picture. They, however, stated that as against this amount, the assessed could recover certain amounts which were due to the producers from certain other distributors and also against the such ofRs. 20,000 which was due to them from the assessed against the delivery of prints. Thus, the assessed was requested to pay to the producers a sum of Rs. 27,390 as additional advance. In this letter, the producers wrote :
'After recovering the sum ofRs. 82,610 (Rupees eighty-two thousand six hundred and ten only) there will remain an outstanding ofRs. 27,390 (Rupees twenty-seven thousand three hundred and ninety only) in our account, besides the interest, for the financial help rendered by you in consideration thereof, we hereby irrevocably undertake to sell to you permanently on outright basis, the distribution, exhibition and exploitation rights of the aforesaid picture for the territory of Delhi & U.P. for a total sum ofRs. 1,73,000 (Rupees one lakh and seventy-three thousand only) including the payment of Rs. 1,40,000 (Rupees one lakh and forty thousand only) (Rupees one lakh twenty thousand only already received and Rs. 20,000 payable by you against the delivery of the prints). We irrevocably authorise you not to submit any business statement in respect of this picture and also to retain the entire collections with you. It is also understood that the entire release publicity expenses shall be exclusively borne by you and no credit for the same whatsoever shall be allowed by us from out of the sale price fixed herebefore. The papers concerning the sale of the picture will be completed by us after the completion of the picture and before the release of the picture. It being, however, clearly understood that you will, for all intentions and purposes, be enjoying all benefits as you would enjoy being the absolute owner of the aforesaid picture for the territory of Delhi & U.P.'
4. It is necessary to extract one more letter addressed by the producers to the assessed on June 30, 1958. They wrote :
'With reference to our agency agreement with you for the distribution, exploitation and exhibition of the above picture for the territory of Delhi - U.P. Circuit, it has now been mutually agreed that the said picture be and is hereby sold to you on outright basis for the territory of Delhi and U.P. Circuit permanently within the amounts of advance received by us to date.
In view of this, you need not submit any statement of account or further business statements in respect of the above picture for the territory of Delhi and U.P.
It is further agreed that you will be entitled to all the benefits granted to you in the aforesaid agency agreement in respect of the said picture permanently.'
5. The picture was completed and was released on March 7, 1958. It was exhibited in the northern circuit for the period of about four months from March 7, 1958, to June 30, 1958. During the period the collections made by the assessed from the picture amounted to Rs. 79,681.
6. We are concerned in this reference with the assessment of the assessed for the assessment year 1959-60 for which the accounting year ended on June 30, 1958. Though the assessed had received collections from the picture amounting to Rs. 79,681, it did not take into account this collection while filing its return for the purposes of its assessment. The original assessment was also completed without including any income from this picture. However, subsequently, the assessment was reopened under s. 147(a) of the I.T. Act, 1961. The ITO completed the reassessment by including therein the collections of Rs. 79,681 referred to above. Deducting there from an amount of Rs. 35,800 towards amortisation of the picture, the ITO brought to charge a sum of Rs. 43,881 in respect of this picture.
7. However, on appeal, the AAC cancelled the reassessment. In the view of the AAC, the picture had been sold to the assessed only on June 30, 1958. This being so he was of the opinion that the assessed was not entitled to the collections from the picture before that date.
8. The Department preferred an appeal to the Income-tax Appellate Tribunal. The Tribunal, after considering the terms of the contract between the parties, came to the conclusion that the sale of the picture in favor of the assessed had become complete even before June 3, 1958. Referring to the provisions of s. 23(1) of the Sale of Goods Act, the Tribunal pointed out that, in the instant case, under the agreement dated June 3, 1956, it had been agreed between the parties that the property in the picture should pass to the assessed immediately after the completion of the picture and even before its release. At any rate, thereforee, the property in the picture passed to the assessed on March 7, 1958, the date on which the prints of the picture were delivered to the assessed and the picture itself was released. The Tribunal, thereforee, restored the assessment made by the ITO and, hence, this reference at the instance of the assessed.
9. The question which has been referred to us has been framed in the following terms :
'Whether, on the facts and in the circumstances of the case, sale of picture 'Baghi Sipahi' for the purposes of its amortisation was to be taken as from March 7, 1958, or June 30, 1958 ?'
10. As pointed out by Shri P. N. Monga, counsel for the assessed, the question does not correctly bring out the controversy between the parties. The reference to amortisation in the question appears to be irrelevant. The controversy between the parties was 'whether the assessed became the owner of the picture only on June 30, 1958, or even earlier and whether, on the facts and the circumstances of the case, the sum of Rs. 43,881 was assessable in its hands'. We reframe the question in the above terms.
11. We have heard Shri P. N. Monga, counsel for the assessed, at some length, but we are of opinion that the view taken by the Tribunal should be upheld. Shri Monga relied very strongly on the terms of the letter dated June 3, 1956. He pointed out that by that letter the producers only agreed to sell the picture to the assessed after it was complete. It was only a contract for sale and the title to the film did not pass to the assessed on June 3, 1956. We think that this contention of Shri Monga is correct. We do not understand the Tribunal also as holding that the property in the picture passed to the assessed on June 3, 1956. Under the terms of this letter, the producers only agreed to sell the picture to the assessed for a total sum of Rs. 1,73,000 received or receivable by them from the assessed. As on that date, the assessed advanced a sum of Rs. 1,20,000 to the producers. The assessed had still to advance Rs. 90,000 and a further sum of Rs. 20,000 against delivery of the prints. Thus, if all the terms of the agreement were fulfillled, the assessed would have advanced to the producers a sum of Rs. 1,67,390. There was also some amount of interest to be taken into account. That is why the consideration for the sale of the picture was fixed at a lump sum of Rs. 1,73,000. But though the property in the goods did not pass on that date, the assessed subsequently complied with the terms of the agreement. Advances were made as contemplated; the picture was completed; it was also delivered to the assessed and actually exhibited from March 7, 1958. In our, openion, thereforee, the sale of the picture became complete, at the latest by March 7, 1958, in terms of the letter dated June 3, 1956. The language of the letter also leaves no doubt about this and makes it clear that the assessed could enjoy all the benefits of the picture as if it was the owner thereof. There is, thereforee, no error in the conclusion of the Tribunal that the assessed became the owner of the picture by March 7, 1958, at the latest.
12. Shri P. N. Monga contended that since the letter dated June 3, 1956, contemplated regular sale documents being executed by the producers in due course, the sale cannot be held to be complete till those documents were executed and, according to him, the sale document is the letter dated June 30, 1958. We are unable to agree. The property in question was an item of movable property and when the terms of the agreement of sale were implemented, the transaction of sale became complete. There is nothing contrary to this in the agreement between the parties. The letter of June 3, 1956, makes it clear that the parties intended the property in the film to pass as soon as the picture was completed and it was delivered for release. The letter of June 3, 1956, no doubt states that the producers will complete the sale papers after the completion of the picture and before its release, but we do not think that it was the intention of the parties to postpone the passing of property in the film until this was done. The assessed would have been the owner of the film in question even if no documents had at all been executed by the producers subsequently. The parties clearly intended that property should passed to the assessed before the picture was released and that the assessed should not be accountable to the producers in respect of the collections there from. In these circumstances, the mere fact that the letter dated June 30, 1958, was also written by the producers confirming the sale cannot be taken to mean that the sale took place only on June 30, 1958.
13. An attempt was made by Shri Monga to suggest that the terms on which the sale was completed on June 3, 1958, were different from those envisaged on June 3, 1956. According to learned counsel, the sale was completed for a consideration of only a sum of Rs. 1,00,000 as against the sale consideration of Rs. 1,73,000 agreed upon in June, 1956. He says that the film had proved a failure and, thereforee, the producers were ultimately willing to sell the picture for a smaller sum than had been agreed upon originally. In this connection, learned counsel invited our attention to an order of the AAC for the assessment year 1960-61 and also to a statement of account of the producers in the books of the assessed. In our opinion, this is a totally new case attempted to be put up by the counsel. We do not find in the printed papers before us any suggestion or contention that on June 30, 1958, a totally new contract had been entered into between the parties. The only controversy between the parties before the AAC as well as the Tribunal was as to whether the sale was completed on June 3, 1956, or whether the sale became final on June 30, 1958, and there was no whisper that the terms of the agreement dated June 3, 1956, were not or whisper that the terms of the agreement dated June 3, 1956, were not or could not be implemented and so a totally new agreement was arrived at in June, 1958.
14. We may also point out that actually the above question may not be material to decide the issue in this case. Even, according to the assessed, it became the owner of the film on June 30, 1958. The letter of June 30, 1958, makes it clear that the parties agreed that the assessed was to retain the benefits under the agency agreement, and was not accountable to the producers in respect of the collections there from. thereforee, the sum of Rs. 79,681 clearly constituted the income of the assessed from the film which was assessable for the assessment year ending on September 5, 1960.
15. For the above reasons, we answer the question, which we have reframed earlier, by saying that the Tribunal was right in holding that the assessed was rightly assessed in respect of the sum of Rs. 43,881 for the assessment year in question. Under the circumstances, there will be no order as to costs.