Satyanarayana Rao, J.
1. The two questions that were referred to us by the Income-tax Appellate Tribunal under Section 66(1) of the Indian income tax Act are as follows:
'1. Whether, on the facts and in the circumstances of the case, the film hire derived by the assessee under agreements which provided for fixed hire charges in respect of exhibition of films in Indian States is not exempt from Excess Profits Tax as profits accruing or arising in the Indian States within the meaning of the third proviso to Section 5 of the Excess Profits Tax Act.
'2. Whether, on the facts and in the circumstances of the case, the films hire derived by the assessee under agreements which provided for hire at a percentage of the collections in respect of the exhibition of films in Indian. States is not exempt from Excess Profits Tax, as profit accruing or arising in the Indian States within the meaning of the third proviso to Section 5 of the Excess Profits Tax Act.'
2. The assessee is a public limited company whose registered office is at Salem and is incorporated in British India. It carried on the business of producing and distributing aims. The films are distributed to exhibitors within, and also without, British India under two classes of contracts, specimen copies of which are annexed to the case stated by the Appellate Tribunal as A and B. The films are given on hire for exhibition either for a fixed sum agreed to be paid by the exhibitor, or for a percentage of the collections made by the-exhibitor at the time of the exhibition of the picture. The assessee claimed that under the third proviso to Section 5 of the Excess Profits Tax Act, the income he received by exhibiting films in the Indian States under both the types of contracts was exempt from liability to pay excess profits tax. This, contention was upheld by the Tribunal, differing from the Appellate Assistant Commissioner. Hence this reference. The crucial question that falls to be determined is whether the whole of the profits accrued, or arose, in an Indian State or not.
3. It is obvious, as found by the Appellate Tribunal, that in respect of contracts entered into on percentage basis the share of the profits due to the assessee was not payable until the picture was exhibited and collections were made in the presence of a representative of the assessee. The percentage was then paid to the representative of the assessee at the place where the picture was exhibited, i.e., in the native state. So far as the lump sum contracts are concerned, it is also found that the assessee did not part with the picture until the amount was paid to him at the time of the delivery of the picture in the native State, either by sending the railway receipt by V.P.P. or by tendering the film directly to the exhibitor, or perhaps even by sending the railway receipt to a bank for collection. Whichever method was adopted by the assessee, it leaves no room for doubt that until the picture was delivered to the exhibitor, the exhibitor did not pay a single pie to the assessee. On these facts it was contended strenuously on behalf of the department by Mr. Rama Rao Sahib,, the learned counsel for the Income-tax Commissioner, that, as the contracts which are the source of the profit were entered into In British India, it must be held that in respect of both the types of contracts, the profits accrued in British India and not in a native State. Having regard to the-terms of the contracts and the findings of the Appellate Tribunal, it is difficult, If not impossible, to accept this contention. Under the contract, the assessee gets practically nothing except an obligation on the part of the exhibitor to receive the film when tendered to him and to exhibit it subject to the conditions of the contract. Money does not become payable and the assessee had no right to demand any payment before the film was actually delivered to the exhibitor, in these circumstances nothing accrues to the assessee until the film was put in the possession of the exhibitor with a view to exploit the same, and that was done wholly in a native State. It therefore follows that in respect of both the types of contracts the profits of the business accrued wholly in a native State, and they are therefore exempt under the third proviso to Section 5 of the Excess Profits Tax Act. It is unnecessary for us to consider whether really the second question was, or was not, pending before the Income-tax Commissioner at the time of the reference, a question which was attempted to be argued by Mr. Rajah Aiyar, the learned counsel for the respondent, as in our view under both the types of contract the profits accrued entirely in a native state.
4. Mr. Kama Rao Sahib then attempted toraise the further question, that in any event theprofits should be apportioned between BritishIndia and the native Suite under the third proviso to Section 5 of the Excess Profits Tax Act. Wesearched in vain to find any trace of this argumentbefore any of the Income-tax authorities who hadto deal with this matter, it is not a question whichhas been referred to us by the Appellate Tribunal,nor did the Income-tax Commissioner ask for areference of this question to this Court. It is further Claimed by the learned counsel for the Income-tax Commissioner that the questions actuallyreferred to us are wide enough to cover the question of apportionment, for it is said that it is opento us to and that not the whole of the profits butonly a part of the profits accrued andarose in a native State. That may beso; but we have to understand the questions referred to us in the light of the statement offacts and the statement of the case which havebeen the basis of the reference to this Court. Aspointed out by this Court in 'Abboy Chetty v .Commissioner of Income-tax, Madras' 1947 2 Mad. L.J.215 the question must arise out of the order ofthe Appellate Tribunal. It can arise out of theorder of the Appellate Tribunal only if the orderof the Appellate Tribunal discloses that the question was raised before it. In the present case aperusal of the order of the Appellate Tribunaldiscloses that the only question that was arguedwas with reference to the place of accrual of theprofits, whether they were wholly in a native stateor they accrued in British India. The question ofapportionment was not raised before the AppellateTribunal, not to speak of the Appellate AssistantCommissioner. In these circumstances it is impossible to hold that it is a question which arisesout of the order of the Appellate Tribunal and which is covered by thequestions that are actually referred tous. It will be wholly inconvenient to allow sucha question to be raised for the first time before uswithout 'an investigation of the facts and alsowithout an apportionment of the profits by the department. In these circumstances we must answerthe questions referred to us by the Tribunal infavour of the assessee and in the affirmative. Asthe commissioner of Income-tax has failed in thisreference, he must pay the costs of the assesseewhich we fix at Rs. 250.