Income Tax Appellate Tribunal - Hyderabad
Aishwarya Art Creatins Private ... vs Department Of Income Tax on 10 June, 2015
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES "B", HYDERABAD
BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER
AND
Smt. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER
ITA No. A.Y. Appellant Respondent
1813/Hyd/2014 2008-09 Income Tax Officer M/s. Aishwarya Art
1814/Hyd/2014 2009-10 (TDS), Creations Pvt. Ltd.,
TDS Ward-1(1), Hyderabad
Hyderabad. [PAN: HYDA08691E]
565/Hyd/2014 2009-10 M/s. Aishwarya Art Income Tax Officer,
Creations Pvt. Ltd., Ward-14(1),
Hyderabad Hyderabad
[PAN: HYDA08691E]
For Revenue : Shri Rajat Mitra, DR
For Assessee : Shri Chaitanya Kumar, AR
Date of Hearing : 16-04-2015
Date of Pronouncement : 10-06-2015
ORDER
PER B. RAMAKOTAIAH, A.M. :
In the aforesaid appeals, assessee and Department are in appeal. Assessee is aggrieved on the decision of the Commissioner of Income Tax (Appeals)-II, Hyderabad dated 30-01-2013, wherein Ld.CIT(A) deferred from the predecessor and upheld the amounts paid by assessee for acquiring satellite rights of films as in the nature of 'royalty' as defined u/s. 9(1) Explanation (2) of the Income Tax Act [Act], thereby requiring deduction of tax at source in terms with Section 194J. The other two appeals are by Revenue cancelling the penalty u/s. 271C by the CIT(A).
I.T.A. Nos. 565 /Hyd/14
:- 2 -: 1813 & 1814/Hyd/14
Aishwarya Art Creations P. Ltd.,
2. Briefly stated facts are, assessee is a company involved in the business of broadcasting and telecasting. Assessee was doing the business of selling the satellite rights for telecast mainly with Sun Network and as per the information filed by the Gemini TV of Sun Network, assessee made a turnover of Rs.30.07 Crores during the FY.2008-09. Since the purchase consideration paid corresponding to the turnover made with Gemini TV was not available, Assessing Officer (AO) estimated the purchase consideration by applying GP rate of 11.5 declared by MD of the company in his individual status. This worked out to Rs.26.61 Crores and AO considered this amount as 'royalty' towards purchase of satellite rights paid to various purchasers/satellite right holders and since no TDS we made from the said payments, treated assessee as assessee in default as per the provisions of Section 194J of the Act and levied tax and interest u/s. 201(1) & 201(1A). Ld.CIT(A) in the order examined the issue and deferred from the predecessor and directed the AO to adopt the amount at Rs. 27,88,48,662/- and thereafter, compute the tax and interest accordingly.
3. Assessee is aggrieved. It was fairly admitted that this issue was covered in favour of assessee by the orders of ITAT in ITA No. 516/Hyd/2012 dt. 10-12-2014, wherein the ITAT analysed the issue and upheld the order of CIT(A) given in that year. The order of ITAT is as under:
"8. Before taking a decision on the issue, let us examine the relevant facts of the case. As can be seen, from the assessment order, though AO has not given absolutely any reason why, he considers that provisions of section 194J of the Act is attracted to the payments made by assessee to the producers towards assignment of satellite rights, but, from the tenor of the order passed by AO, it can be inferred that, according to AO, the payments by assessee are in the nature of royalty, accordingly, section 194J of the Act is applicable requiring assessee to deduct I.T.A. Nos. 565 /Hyd/14 :- 3 -: 1813 & 1814/Hyd/14 Aishwarya Art Creations P. Ltd., tax at source on such payment of royalty. In this context, it will be appropriate to look into the relevant statutory provisions. Section 194J of the Act, enjoins upon any person not being an individual or a hindu undivided family to deduct tax at source on certain payments, one of them being royalty, to a resident. Clause (ba) of Explanation to section 194J(1) defines royalty, by referring to the meaning given in clause (vi) of Explanation 2 to section 9(1). For ready reference, Explanation 2 of section 9(1) is extracted hereunder:
"Explanation 2.--For the purposes of this clause, "royalty"
means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for--
(i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ;
(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ;
(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ;
[(iva) the use or right to use any industrial, commercial or scientific equipment10a but not including the amounts referred to in section 44BB;]
(v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or
(vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to [(iv), (iva) and] (v).
9. As can be seen from the provision extracted hereinabove, royalty as per clause (vi) would take within its ambit rendering of any services in connection with the activities referred in sub-clause (i) to
(v). It is further evident from the aforesaid provision that payments made by assessee can only be classified within clause (v) of the Explanation 2 to section 9(1). On careful reading of the said clause I.T.A. Nos. 565 /Hyd/14 :- 4 -: 1813 & 1814/Hyd/14 Aishwarya Art Creations P. Ltd.,
(v), it becomes clear that though consideration paid towards transfer of all or any rights in respect of copy right, literal, artistic or technical work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but, it specifically excludes consideration received for sale, distribution or exhibition of cinematographic films. On a perusal of assignment agreement between assessee and producers of film, a sample copy of which is placed at page 3 of paper book, it becomes clear that right over the films have been assigned in favour of assessee perpetually for a period of 99 years without any restriction of geographical area. It is further evident that the assignee has assigned all the rights without retaining any right, for a consideration. That being the case, the payment made by assessee to the producers for acquiring satellite rights is towards outright sale, distribution or exhibition of cinematographic films, which are specifically excluded under clause (v) of Explanation 2 from being is treated as consideration paid towards royalty. In that view of the matter, the payments are outside the purview of section 194J of the Act. Hence, assessee cannot be fastened with liability u/s 201(1) and 201(1A) for having defaulted in deducting tax at source in terms of section 194J.
10. It will be worth mentioning here that the Hon'ble Madras High Court in judgment dated 03/12/2013 in case of K.Bhagyalakshmi Vs. DCIT in Tax Case (Appeal) No. 748 of 2013 while considering identical nature of payment made towards acquisition of satellite rights for perpetual period of 99 years, held that such payments being towards sale, distribution or exhibition of cinematographic films would fall outside the scope of royalty as defined under Explanation 2 of section 9(1). The observations made by Hon'ble Madras High Court, is as under:
"16. In the preceding paragraphs, we have made an elaborate reference to the nature of transaction entered into by the assessee with the third parties. The sample transfer deed, clearly states that the transfer in favour of the assessee is for a perpetual period of 99 years. The party, who executed the agreement in favour of the assessee was desirous of disposing World Negative Rights, Satellite Television Rights and all other rights pertaining to the picture and the assessee enjoys the exclusive status, as the World Negative rights including theatrical rights owner. The assessee was also entitled to assign the said rights, which was transferred in their favour. Further the agreement was irrevocable and shall remain in force for a period of 99 I.T.A. Nos. 565 /Hyd/14 :- 5 -: 1813 & 1814/Hyd/14 Aishwarya Art Creations P. Ltd., years. In such a factual situation the nature of transaction, being a perpetual transfer for a period of 99 years, would undoubtedly fall within the scope of sale.
17. We have seen the various conditions contained in the sample transfer deed and there is a transfer of copy right in favour of the assessee. Though the agreement speaks of perpetual transfer for a period of 99 years, in terms of Section 26 of the Copy Right Act, 1957, in the case of cinematographic film, copy right shall subsist until 60 years from the beginning of the calendar year next following the year in which the film is published. Therefore, the agreement in the case on hand, is beyond the period of 60 years, for which the copy right would be valid, the document could only be treated as one of sale.
18. As far as the decision of the Co-ordinate Bench in the case of Balaji Communications (cited supra), the rights which was the subject matter of the said decision were only for a period of 20 to 25 years and not of permanent nature. Therefore, the said decision is clearly distinguishable on facts and cannot be applied to the assessee's case.
19. In the light of the above discussion, we have no hesitation to hold that the findings of the First Appellate Authority was perfectly justified in holding that the transfer in favour of the assessee as sale and therefore, excluded from the definition of "Royalty" as defined under clause (v) to Explanation (2) of Section 9(1) of the Act."
11. The ratio laid down by the Hon'ble Madras High Court as aforesaid also clearly applies to the facts of the case of assessee. In the aforesaid view of the matter, we have no hesitation in holding that the payments made by assessee not being in the nature of royalty, the provisions of section 194J will not apply. Consequentially, order passed u/s 201(1) and 201(1A) will have no legs to stand. Accordingly, we uphold the order of ld. CIT(A) and dismiss ground raised by revenue.
4. Respectfully following the same, since the issue is already decided in favour of assessee, we set aside the order of CIT(A) and uphold assessee's contentions. In the result, appeal of the assessee is allowed.
I.T.A. Nos. 565 /Hyd/14
:- 6 -: 1813 & 1814/Hyd/14
Aishwarya Art Creations P. Ltd.,
5. Other two appeals are consequential appeals in the sense that AO levied penalty u/s. 271C for not deducting tax. Ld.CIT(A) following the decision of CIT(A) in AY.2008-09 held that the transaction is primarily is in the nature of purchase and sale of telecast rights and therefore not liable to TDS under 194J, therefore penalty levied u/s. 271C cannot be sustained. Revenue is aggrieved. Since in both the AYs of 2008-09 and 2009-10, the ITAT upheld that the purchase and sale of telecast rights does not involve any payment of royalty u/s. 194J orders of CIT(A) is to be upheld. In fact Revenue has come in appeal only to protect the interest, as further appeals were preferred on the order of the CIT(A) at that point of time. There is no merit in Revenue's grounds, accordingly both the appeals are dismissed.
6. In the result, assessee's appeal in ITA No. 565/Hyd/2014 is allowed and Revenue's appeals in ITA No.1813/Hyd/2014 & 1814/Hyd/2014 are dismissed.
Order pronounced in the open Court on 10th June, 2015 Sd/- Sd/-
(ASHA VIJAYARAGHAVAN) (B. RAMAKOTAIAH)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated 10th June, 2015
TNMM
I.T.A. Nos. 565 /Hyd/14
:- 7 -: 1813 & 1814/Hyd/14
Aishwarya Art Creations P. Ltd.,
Copy to :
1. M/s. Aishwarya Art Creations Pvt. Ltd., Plot No. 14, 2nd Floor, Phase-I, Kamalapuri Colony, Srinagar Colony, Hyderabad. C/o. S. Krishna Kumar & Co., Chartered Accountants, 3-6-66/a, Basheerbagh, Hyderabad.
2. Income Tax Officer, Ward-14(1), Hyderabad.
3. Income Tax Officer (TDS), TDS Ward-1(1), I.T. Towers, 4th Floor, 'B' Block, Hyderabad.
4. CIT(Appeals)-II, Hyderabad.
5. CIT(TDS), Hyderabad.
6. D.R. ITAT, Hyderabad.
7. Guard file.