ACIT 11(1), MUMBAI V. SAGAR ENTERTAINMENT P.LTD, MUMBAI

ITA 1150/MUM/2013

• Counselvise Citation: 115019914 RSA 2013
• Duration Of Justice: 1 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 02-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 08-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEIL PHILIP

Judgement Text

, BZ BZBZ BZ INCOME TAX APPELLATE TRIBUNAL,MUMBAI - E BENCH , ! ' ' ' ' #$ , # ! BEFORE S/SH.JOGINDER SINGH, JUDICIAL MEM BER & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO.1150/MUM/2013, % % % % & & & & / ASSESSMENT YEAR-2009-10 ACIT-11(1), R. NO. 439, AAYAKAR BHAVAN, M.K.MARG, MUMBAI-400020 % VS. M/S SAGAR ENTERTAINMENT PVT. LTD. SAGAR VILLA, ROAD NO.12A, JVPD SCHEME, VILE PARLE(W), MUMBAI-400089 PAN: AAECS6492F ( '( / APPELLANT) ( )*'( / RESPONDENT) ! + , # / REVENUE BY : SHRI NEIL PHILIP % -. % -. % -. % -. , , , , # ## # / ASSESSEE BY :SHRI K.GOPAL & MS. NEHA PARANJP E % % % % + ++ + . / . / . / . / / DATE OF HEARING :02 -02-2015 0& + . / / DATE OF PRONOUNCEMENT :02 -02-2015 % % % % , 1961 + ++ + 254(1) # ## # .. .. .. .. #1 #1 #1 #1 ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, A.M. # ! #$ # % : CHALLENGING THE ORDER DATED 30.11.2012 OF THE CIT(A )-3, MUMBAI, THE ASSESSING OFFICER (AO) HAS RAISED FOLLOWING GROUNDS OF APPEAL: '1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, WHETHER THE LD.CIT(A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.3,65,3 9,957/- ON ACCOUNT OF AGREEMENTS WITH NDTV AND MOSER BARE WHEN THE TERMS AND EXECUTION DA TE OF AGREEMENTS WITH PARTIES CLEARLY SHOW THAT INCOME ACCRUED IN A.Y.2009-10 AS PER THE MERCANTILE SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEE. 2. THE APPELLANT PRAYS THAT THE ORDER OF CIT(APPEAL S) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER RESTORED. 3. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY.' ASSESSEE-COMPANY,PRODUCERS AND EXHIBITORS OF T.V. S ERIALS AND MOVIES,FILED ITS RETURN OF INCOME ON 09.03.2010,DECLARING TOTAL INCOME OF RS.57.41 LA KHS.THE AO COMPLETED THE ASSESSMENT ON 23.12.2011,U/S.143(3)OF THE ACT,DETERMINING THE INC OME OF THE ASSESSEE AT RS. 4.22 CRORES. 2.E FFECTIVE GROUND OF APPEAL IS ABOUT ADDITION OF RS. 3.65 CRORES MADE BY THE AO ON ACCOUNT OF AGREEMENTS ENTERED INTO BY THE ASSESSEE WITH NDTV I MAGINE LIMITED(NDTVIL) AND MOSER BEAR INDIA LTD.(MBIL). DURING THE ASSESSMENT PROCEEDINGS , THE AO FOUND THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT FOR SALE OF VIDEO/DVD/MOVIE RIGHT S WITH NDTV AND MBIL AS UNDER: NAME OF PARTY DATE OF AGREEMENT CONTRACTED AMOUNT (RS.) LICENSE PERIOD AMOUNT OFFERED IN AY 09-10 NDTVIL 25.04.2008 152 LAKHS ONE YEAR FROM DATE OF FIRST TELECAST 55,16,667 MBIL 10.04.2008 104 LAKHS SIX YEAR COMMENCING 13,88,888 2 ITA NO. 1150/M/2013 M/S SAGAR ENTERTAINMENT PVT. LT D. 31.05.08 TILL 30.05.14 MBIL 12.09.2008 194 LAKHS SIX YEAR COMMENCING 01.10.08 TILL 30.09.14 15,54,487 TOTAL 450 LAKHS 80,60,043 THE ASSESSEE CLAIMED THAT CONTRACT AMOUNTS RECEIVED FROM NDTVIL WERE OFFERED FOR TAXATION IN THE AYS 2009-10 TO 2011-12 ACCORDING TO RECEIPTS, T HAT CONTRACT AMOUNT FROM MBIL HAD BEEN SPREAD OVER FROM AY 2009-10 TO 2015-16.THE AO ANALY SED BOTH THE AGREEMENTS AND HELD THAT THE DELIVERABLES AND PERFORMANCE OF OBLIGATION UNDER TH E AGREEMENT AT THE SIGNING OF AGREEMENT HAD TO BE CONSIDERED, THAT THERE WAS NO QUESTION OF DEF ERMENT OF CONTRACTUAL OBLIGATION TO ANY FUTURE DATES,THAT THE RESCINDING OF THE CONTRACT VESTED ON LY WITH THE LICENSEE AND NOT WITH THE ASSESSEE LICENSOR, THAT THE ENTIRE INCOME BEING THE CONTRACT VALUE HAD FRUCTIFIED ON THE DATE OF THE SIGNING AND EXECUTION OF THE AGREEMENT ITSELF, THAT THERE W AS NO SCOPE FOR ANY DEFERMENT OF INCOME FOR ANY REASONING, THAT ENTIRE CONSIDERATION WAS FULLY RECEIVED. FINALLY, HE HELD THAT ON ENTIRE CONTRACT VALUE AGGREGATING TO RS. 450 LAKHS HAD TO BE ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. AS THE ASSESSEE HAD OFFERED FOR TAX AN AMOUNT OF RS. 8 4.60 LAKHS, THEREFORE, THE AO RESTRICTED THE ADDITION TO RS. 3.65 CRORES(4.50 CRORES MINUS 84.60 LAKHS).THE AO REFERRED TO THE ACCOUNTING STANDARD(AS)-9 WHICH DEALT WITH THE REVENUE RECOGNI TION METHOD. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM IT WAS SUBMITTED THAT THE ASSESSEE HAD ENTERED INTO AGREEMENT WITH NDTVIL ON 25.04.2008 FOR TWO YEARS FOR TELECASTING OLD RE-EDITED T.V. SERIALS, THAT AGREEMENT WITH MBIL WAS FOR A PERIOD OF 6 YEARS,THAT THE AGRE EMENT TENURE WAS FOR MORE THAN ONE ACCOUNT - ING YEARS,THAT IT WAS FOLLOWING MERCANTILE SYSTEM O F ACCOUNTING, THAT IN TERMS OF AS-9 INCOME FOR THE AY 2009-10 WAS RS. 84.64 LAKHS,THAT THE BALANCE AMOUNT OF RS. 3.37 CRORES WAS SPREAD OVER TO COMING YEARS,THAT THE ARGUMENT OF THE AO THAT CO NTRACTED AMOUNT RECEIVED ON SIGNING OF AGREEMENT SHOULD BE TAXED IN THE YEAR OF SIGNING TH E AGREEMENT FOR FACTUALLY INCORRECT,THAT THE AMOUNT AS PER THE AGREEMENTS WERE RECEIVED DURING T HE AY.2009-10(2.42 CRORES) AND 2011-12 (32. 44 LAKHS) AND 2012-13(33.28 LAKHS) RESPECTIVEL Y,THAT BALANCE AMOUNT (RS. 1.03 CRORES) WAS NOT RECEIVED TILL THE DATE OF FILING THE APPEAL. IT WAS FURTHER CONTENDED THAT THE METHOD IMPLIED BY THE ASSESSEE HAD BEEN ACCEPTED BY THE DEPARTMENT DU RING THE AY 2004-05 TO 2006-07, THERE WAS NO REASON FOR DISTURBING THE RESULT OF PROFIT.BEFOR E HIM,THE ASSESSEE RELIED UPON THE CASES OF DINESH KUMAR GOEL (331 ITR 19(DEL), K.K.KHULLAR (11 6 ITD 301(DEL), VPN KUMAR KHANNAV (251 ITR 782) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA HELD THAT THE ASSESSEE HAD APPORTIONED THE REVENUE INTO FINAL YEA R ON THE BASIS OF PERIOD OF LICENSES IN CASE OF NDTVIL AND IN THE CASE OF MBIL FOR SIX YEARS, THAT FROM THE LICENSE AGREEMENT ENTERED WITH THE NDTV IT WAS FOUND THAT THE ASSESSEE HAD RECEIVED AN ADVANCE OF RS. 8 LAKHS ON SIGNING OF THE CONTRACT BEING 10% OF TOTAL LICENSE FEES WHICH WAS TO BE ADJUSTED ON PRO-RATA BASIS AGAINST THE LICENSED FILMS. HE REFERRED TO CLAUSE VI) AND VII) OF THE AGREEMENT WITH NDTVIL AND OBSERVED THAT ASSESSEE HAD OFFERED AN AMOUNT RECEIVED IN SUCCEEDI NG YEAR FOR TAXATION AS AND WHEN THE EXPLOITATION OF RIGHTS ON VARIOUS FILMS TO THE ASSE SSEE'S WERE EXPLOITED,THAT THE AGREEMENTS PROVIDED THAT ALL RIGHTS ON TOTAL AND INTEREST IN L ICENSED FILMS WOULD CONTINUE TO VEST WITH THE LICENSOR, THAT THE ASSESSEE HAD BEEN GIVEN LICENSE TO TELECASTING ONLY, THAT IT DID NOT AMOUNT TO SALE OF GOODS AS THE ASSESSEE WAS SOLE OWNER OF THE RIGH TS. THE FAA ALSO ANALYZING THE TERMS OF THE AGREEMENTS ENTERED WITH MBIL AND HELD THAT ASSESSEE HAD NOT TRANSFERRED THE RISK, THAT IT WAS LIABLE TO INDEMNIFY TO MBIL IN ANY EVENT OF ANY ISS UE RAISED AT ANY POINT OF TIME ABOUT THEIR PRODUCT THROUGHOUT THE PERIOD OF THE AGREEMENT, THA T SIGNIFICANT RISK, AS ENVISAGED IN AS-9, WAS 3 ITA NO. 1150/M/2013 M/S SAGAR ENTERTAINMENT PVT. LT D. NOT TRANSFERRED TO MBIL, THAT ROYALTY INCOME ACCRUE D IN TERMS OF THE AGREEMENT FOR DIFFERENT AYS, THAT INCOME ACCRUED FOR AY 2009-10 ONLY WAS TAXABLE IN THE YEAR UNDER APPEAL,THAT THE CONTENTION OF THE AO THAT THE ENTIRE AMOUNT HAD BEEN RECEIVED ON SIGNING OF AGREEMENT WAS FACTUALLY INCORRECT, THAT THE RECEIPT BEING IN NATURE OF ROYA LTY FOR PROVIDING EXPLOITATION OF RIGHTS OF LICENSE WAS TO BE TAXABLE FOR THE PERIOD IN RESPECT OF CONT RACT ENTERED INTO. THE FAA RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT D ELIVERED IN THE CASE OF PRAKASH PICTURE (260 ITR 456) WHEREIN IT WAS HELD THAT THE ASSESSEE HAD ACCEPTED THE RIGHTS OF FILMS FOR THE PERIOD OF 10 YEARS AND THEREFORE, WRITING OFF THE ENTIRE COST IN ONE YEAR WOULD RESULT IN DISTORTION OF PROFIT, THA T THE AO WAS JUSTIFIED IN APPORTIONING THE EXPENSES O VER THE PERIOD OF CONTRACT APPLYING THE SAME ANALOGY, THE APPORTIONMENT BY THE AO WAS CONSIDERED TO BE JUSTIFIED.HE FURTHER REFERRED TO THE DECISIONS OF SAJJANSINGH N. CHOUHAN (38 DTR 155), DEVASING SHAM SINGH (95 ITD 235). FINALLY, HE DIRECTED THE AO TO TAX THE INCOME OF RS . 84.60 LAKHS FOR THE YEAR UNDER CONSIDERATION AS AGAINST RS. 4.50 CRORES.AS A RESULT, ADDITION MA DE BY THE AO OF RS. 3.65 CRORES WAS DELETED. 4. BEFORE US, DEPARTMENTAL REPRESENTATIVE (DR) SUPPORT ED THE ORDER OF THE AO, THE AUTHORISED REPRESENTATIVE (AR) SUPPORTED THE ORDER OF THE FAA AND RELIED UPON THE CASE OF B.R.FILMS (ITA NO. 3632/MUM/2012-AY-2008-09 DATED 14.01.2015. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT THE DISPUTE BETWEEN THE AO AND THE ASSESSEE WAS THAT HOW THE IN COME ARISEN/ACCRUED OUT OF THE AGREEMENTS ENTERED WITH THE TWO ENTITIES SHOULD BE TAXED.THE A O WAS OF THE OPINION THAT THE AMOUNT MENTIONED IN THE AGREEMENT WAS TO BE TAXED FOR THE YEAR UNDER CONSIDERATION, WHEREAS THE ASSESSEE CONTENDED THAT AMOUNTS IN QUESTION WERE TO BE TAXED IN THE YEARS RECEIPTS.WE FIND THAT THE ASSESSEE HAD ENTERED INTO AGREEMENT WITH TWO EN TITLES NAMELYNDTVIL AND MBIL.THE AGREEMENT WITH NDTV WAS FOR TWO YEARS WHEREAS THE A GREEMENT WITH MBIL WAS FOR SIX YEARS, THAT THE ASSESSEE WAS FOLLOWING MERCANTILE METHOD O F ACCOUNTING AND THE FACT IS NOT DISPUTED BY THE AO. IN THESE CIRCUMSTANCES, THE INCOME HAS TO B E ASSESSED ON ACCRUAL BASIS. THE AO REFERRED TO PROVISIONS OF AS-9 AND MADE THE ADDITIONS THAT W ERE DELETED BY THE FAA. WE FURTHER FIND THAT IN THE CASE OF BR FILMS SIMILAR ISSUE HAD ARISEN.IN THAT CASE,THE ASSESSEE HAD GIVEN RIGHTS OF MORE THAN 30 FILMS TO MBIL AND IT WAS HELD THAT THE INCO ME DID NOT ACCRUE IN THE VERY FIRST YEAR OF SIGNING THE AGREEMENT.THE TRIBUNAL DIRECTED THE AO TO DELETE THE ADDITION ON ACCOUNT OF REVENUE RECOGNITION. IN OUR OPINION THE FAA HAD CORRECTLY H ELD THAT INCOME WAS TO BE ASSESSED IN YEAR OF RECEIPTS AND NOT IN THE VERY FIRST YEAR WHEN THE AG REEMENTS WERE SIGNED. IN OUR OPINION THERE IS NO LEGAL INFIRMITY IN THE ORDER PASSED BY THE FAA, THE REFORE, UPHOLDING HIS ORDER, WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT, APPE AL FILED BY THE AO STANDS DISMISSED. 2.3 % -. VF/KDKJH 4 5 + % 6 + . 7 . ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND ,FEBRUARY,2015. #1 + 0& # 8 9% 2 2/ , ,, , 201 5 + = SD/- SD/- ( /JOGINDER SINGH) ( #$ / RAJENDRA) ! / JUDICIAL MEMBER # # # # ! ! ! ! / ACCOUNTANT MEMBER / MUMBAI, 9% /DATE: 02.02.2015 SK #1 #1 #1 #1 + ++ + ).> ).> ).> ).> ?#>&. ?#>&. ?#>&. ?#>&. / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / '( 2. RESPONDENT / )*'( 3. THE CONCERNED CIT(A)/ @ A , 4. THE CONCERNED CIT / @ A 4 ITA NO. 1150/M/2013 M/S SAGAR ENTERTAINMENT PVT. LT D. 5. DR E BENCH, ITAT, MUMBAI / >B ).% BZ BZBZ BZ , . . . 6. GUARD FILE/ 2 * >. ). //TRUE COPY// #1 % / BY ORDER, C / DY./ASST. REGISTRAR , /ITAT, MUMBAI