GEM ENTERTAINMENT KFT,HUNGARY V. ACIT, INT. TAXN.-CIRCLE-2(2), CHENNAI

ITTPA 2/CHNY/2024

AI Insights

The case involves GEM Entertainment KFT, a foreign company and tax resident of Hungary, which appealed against the final assessment order passed by the Assessing Officer under sections 147 and 144C(13) of the Income-tax Act, 1961. The assessment was reopened based on information that an Indian company had remitted a significant amount to the assessee for the purchase of films, which was considered royalty under the India-Hungary DTAA and the Income-tax Act. The Dispute Resolution Panel upheld this view, leading to the current appeal. The main contention was whether the income received from the distribution of cinematographic films should be classified as royalty, which is taxable, or if it falls under an excluded category that is not taxable as royalty.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 707165 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax (Transfer Pricing) Appeal
• Pronouncement Date: 08-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2018-2019
• Appeal Filed On: 30-01-2024
• Other Referred Cases: SPE India films Holdings LLC, Yashovardhan Tyagi
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A. SASIKUMAR
• Assessee Lawyers: RAJESH SANGHVI
• Keywords: Set aside; Capital Gains; Double taxation relief
• Section: 143(3)

Judgement Text

"आयकर अपीलीय अिधकरण, ’डी’ \u0010ा यपीठ, चे\u0015ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘D’ BENCH: CHENNAI \u0018ी यस यस िव\u001bने रिव, \u0010ा ियक सद एवं \u0018ी जगदीश, लेखा सद क े सम' BEFORE SHRI SS VISWANETHRA RAVI, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER आयकर अपील सं./IT(TP)A No.02/Chny/2024 िनधा 9रण वष9 /Assessment Year: 2018-19 GEM ENTERTAINMENT KFT, 1082, Budapest, 22-24, 2nd Floor, Barros Street, Budapest, Hungary, Pin Code – 999999. State Outside India [PAN: AABCF 5994Q] Vs. The Asst. Commissioner of Income Tax, International Taxation Circle-2(2), Chennai. (अपीलाथ\u0007/Appellant) (\b यथ\u0007/Respondent) अपीला थH की ओर से/ Appellant by : Shri Rajesh Sanghvi, Advocate JKथH की ओर से /Respondent by : Shri A. Sasikumar, CIT सुनवा ई की ता रीख/Date of Hearing : 15.04.2025 घोषणा की ता रीख /Date of Pronouncement : 08.07.2025 आदेश / O R D E R PER JAGADISH, A.M : Aforesaid appeal filed by the assessee for Assessment Year (AY) 2018-19 arises out of final assessment order dated 30.10.2014 passed by Assessing Officer (A.O) u/s.147 r.w.s 144C(13) of the Income-tax Act, 1961 (hereinafter “the Act”) pursuant to the directions of Ld. Dispute Resolution Panel-2, Bengaluru u/s. 143(3) r.w.s 147 r.w.s 144C(1) of the Act dated 07.12.2023. IT(TP)A No.02/Chny/2024 GEM Entertainment KFT :- 2 -: 2. The assessee is a foreign company being a tax resident of Hungary and in the business of production / distribution of cinematography rights for films, video, audio etc. The A.O has reopened the assessment on the basis of information that an Indian company M/s. Viswas Films P. Ltd. has remitted Rs. 66,61,000/- to the assessee towards purchase of films, but has not deducted tax on the payment, which is Royalty as per DTAA and as per Income-tax Act. During the assessment proceedings, the A.O found that the assessee has received remittances of Rs. 8,21,71,715/- from the following companies which is Royalty in nature: 3. The A.O after examining these receipts, Section 9 of Income-tax Act, Article 12 of the India-Hungary DTAA and the agreement with the company remitting the amount has held that above amount is in the nature of royalty and proposed to be added in the total income. The assessee filed objection before DRP and the Ld. DRP after examining the distribution and license agreement has held that assessee- S.No Name of Indian Entity TAN Amount 1 M/s. Viswass Films (P) Ltd. CHEV06339E Rs. 92,41,400/- 2 Avinaash Ranchor Jumani MUMA35884C Rs. 1,49,70,172/- 3 PVR Pictures Ltd. DELP07397F Rs. 5,41,33,124/- 4 VR Films & Studios Ltd. MUMV15594F Rs. 38,27,71,715/- Total Remittance received for the FY 2017-18 Rs. 8,21,71,715/- IT(TP)A No.02/Chny/2024 GEM Entertainment KFT :- 3 -: company, as per the agreement, has given theatrical as well as non theatrical rights (like TV, Home Video, Pay TV, Internet TV rights etc.) to the Indian entities for television broadcast, therefore, as per the Explanation 2 to Section 9(1)(v) of the Act, such rights are squarely covered under the Royalty. The Ld. DRP accordingly rejected the objection and issued direction to the A.O to pass the order u/s. 144C(5) of the Act. Accordingly, the A.O passed the assessment order making addition of Rs. 8,21,71,715/- as Royalty. 4. The Ld. Authorized Representative (A.R) of the assessee has submitted that Explanation to Section 9(1)(vi) for A.Y 2018-19 prior to the amendment in 2020 clearly stipulated that for the purpose of this clause, Royalty means consideration (including any lump sums consideration, but excluding any consideration which would be the income of the recipient chargeable under the head “capital gains”) for the transfer of all or any rights (including the granting of a license) 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. The Ld. AR therefore, argued that the IT(TP)A No.02/Chny/2024 GEM Entertainment KFT :- 4 -: remittance of Rs. 8.2 Crores, was consideration for the sale, distribution and exhibition of cinematographic films in India, which was specifically excluded from definition of royalty and therefore cannot be taxed as royalty. The Ld. AR has argued that the Hon’ble DRP failed to observe that irrespective of whether cinematographic films were exhibited in theatres or on TV etc, the entire film distribution income earned by the assessee was termed to be royalty, ignoring the exclusion clause of Explanation-2(v) of Section 9(1)(vi) of the Act. The Ld. DRP has ignored the case laws in the case of SPE India films Holdings LLC dated 03.06.2019 (ITAT-Mumbai) and in the case of Yashovardhan Tyagi dated 23.06.2021 (ITAT-Delhi). The Ld. AR without prejudice has stated that in all distribution agreements the ratio of allocation of license fee to the assessee as theatrical and non theatrical was mentioned, therefore the license fee for theatrical cannot be taxed as royalty. The Ld. AR has also argued that as per CBDT Circular No.728 dated 30.10.1995, the tax should be deducted at source as per the provisions of the Act or DTAA whichever is more beneficial to the assessee and in the present case, the Income tax Act is more beneficial and therefore, the same should be applicable. IT(TP)A No.02/Chny/2024 GEM Entertainment KFT :- 5 -: 5. The Ld. Departmental Representative (DR), On the other hand, has relied on the order of A.O/Ld. DRP and submitted that only cinematographic rights has been excluded from the definition of Royalty, but the assessee has also distributed the internet right non theatrical rights like TV, home video, Pay TV, internet TV rights, therefore, same clearly falls under the royalty. 6. We have heard the rival submissions, and perused the materials available on record. The A.O has assessed the remittance of Rs.8,21,71,715/- from various Indian entities for the distribution right/copy right acquired by way of purchase of films as royalty. The assessee, through the distribution/license agreements has brought out that the remittance is for theatrical as well as non theatrical rights and as per the Explanation 2 to Section 9(1)(vi) of the Act consideration for sale, distribution or exhibition for cinematographic films are to be excluded from the definition of Royalty. The assessee has submitted that the license agreements clearly bifurcates the consideration between theatrical and non-theatrical rights. However, the A.O has taxed the entire license fee as Royalty, without undertaking a proper bifurcation of income attributable to theatrical and non-theatrical rights. In light of the above, and in the interest of justice, we are of the IT(TP)A No.02/Chny/2024 GEM Entertainment KFT :- 6 -: considered view that the matter requires a fresh examination. The A.O is, accordingly, directed to segregate the receipts into theatrical and non-theatrical components based on the terms of the agreements, and tax only the portion attributable to non-theatrical rights as Royalty, after due verification. The A.O shall also consider the applicability of DTAA and the beneficial provisions thereof, along with the relevant case laws and CBDT circulars, before re-determining the taxability. Accordingly, we set aside the assessment order and restore the matter to the file of the A.O for denovo adjudication, in accordance with law and after giving due opportunity to the assessee to substantiate its claims. 7. In the result, the appeal filed by the assessee is allowed for statistical purposes only. Order pronounced on 08th day of July, 2025 at Chennai. Sd/- Sd/- (यस यस िव\u001bने रिव) (SS Viswanethra Ravi) \u0001याियक \u0001याियक \u0001याियक \u0001याियक सद\bय सद\bय सद\bय सद\bय / Judicial Member (जगदीश) (Jagadish) लेखा लेखा लेखा लेखा सद\u0011य सद\u0011य सद\u0011य सद\u0011य /Accountant Member चे\u0013नई/Chennai, \u0016दनांक/Dated: 08th July, 2025. EDN/- IT(TP)A No.02/Chny/2024 GEM Entertainment KFT :- 7 -: आदेश क\u0019 \bितिल प अ े षत/Copy to: 1. अपीलाथ\u0007/Appellant 2. \b थ\u0007/Respondent 3. आयकर आयु\u000f/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय \bितिनिध/DR 5. गाड\u0018 फाईल/GF "