ITO, CHENNAI V. Indo Overseas Films, CHENNAI

ITA 1422/CHNY/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6009 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 02-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: T BANUSEKARC A
• Keywords: Double taxation relief; Non-deduction of tax
• Section: 201(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI ... , , # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A. NOS. 1422 & 1423/MDS/2017 / ASSESSMENT YEARS : 2012-13 & 2013-14 INCOME TAX OFFICER, INTERNATIONAL TAXATION 1(2), CHENNAI 600 034. VS. M/S. INDO OVERSEAS FILMS, NO. 50/19, II FLOOR, ABC TRADE CENTRE, DEVI THEATRE COMPLEX, ANNA SALAI, CHENNAI - 600 002. [PAN: AAAFI 8985J] ( / APPELLANT) ( / RESPONDENT) % & / APPELLANT BY : SHRI. N. MADHAVAN, JCIT )*% & / RESPONDENT BY : SHRI. T. BANUSEKAR, CA & /DATE OF HEARING : 17.08.2017 & /DATE OF PRONOUNCEMENT : 09.10.2017 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE REVENUE FILED THESE APPEALS AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-16, CHENNAI IN ITA NO. 96 & 97/CIT(A)-16/2012-13 DATED 31.03.2017 FOR ASSESSMENT YEARS 2012-13 & 201 3-14, RESPECTIVELY AGAINST THE ORDERS PASSED U/S. 201(1)/201(1)(1A) VS . ITO INTERNATIONAL :-2-: ITA NOS. 1422&1423/MDS/2017 TAXATION-1(2), CHENNAI FOR NON-DEDUCTION OF TAX AT SOURCE IN RESPECT OF THE PAYMENTS MADE OUTSIDE INDIA. 2. THE ASSESSEE MADE PAYMENTS TO VARIOUS PARTIES FO R PURCHASE OF RIGHT TO EXHIBIT CINEMATOGRAPHIC FILMS IN INDIA. T HE DETAILS OF WHICH ARE AS UNDER: FOR ASSESSMENT YEAR 2012-13 SL.NO NAME OF THE FOREIGN PRODUCER NAME OF THE FILM COST (IN RS.) 1 ICON INFACT (FAR EAST) PTE SINGAPORE 1911 68,07,741 2 COPENHAGEN BOMBAY PRODUCTIONS, DENMARK THE GREAT BEAR 4,40,970 3 ICON INFACT (FAR EAST) PTE SINGAPORE BORN TO FIGHT 26,92,413 4 GOLDEN NETWORK ASIA LIMITED, HONGKONG SING TO THE DAWN 4,40,970 5 CMG CINEMA MANAGEMENT GROUP, USA LITTLEST ANGELS 3,11,069 FOR ASSESSMENT YEAR 2013-14 SL.NO NAME OF THE FOREIGN PRODUCER NAME OF THE FILM COST (IN RS.) 1 ICON INFACT (FAR EAST) PTE SINGAPORE CHINA STRIKE FORCE 7,82,945 2 JACKIE AND JJ INTERNATIONAL LTD., HONGKONG CHINESE ZODIAC 1,70,72,010 3 ICON INFACT (FAR EAST) PTE SINGAPORE HIGH KICKERS 32,76,130 4 ICON INFACT (FAR EAST) PTE SINGAPORE ISLAND OF FIRE 27,26,820 5 STAR BRIGHT COMMUNICATION LTD., HONGKONG KING OF STREET 22,96,324 6 MEGAVISION PROJECT DIST. HONGKONG NAKED SOLDIER 25,16,187 3. FROM A PERUSAL OF THE DEAL MEMOS AND AGREEMENT W ITH THE ABOVE REFERRED PARTIES WHICH HAS BEEN REPRODUCED IN THE R ESPECTIVE ORDERS PASSED :-3-: ITA NOS. 1422&1423/MDS/2017 U/S.201(1) AND 201(1A) OF THE ACT, IT IS CLEAR THAT THE ASSESSEE HAS PURCHASED RIGHTS TO EXHIBIT THE CINEMATOGRAPHIC FILMS IN VARI OUS MEDIUMS FOR A CERTAIN PERIOD OF TIME. IN THE ORDERS U/S.201(1) AND 201(1A ), THE AO OBSERVED THAT THE ASSESSEE HAS ENTERED INTO AGREEMENTS WITH VARIO US TELEVISION CHANNELS FOR EXHIBITING AND TELECASTING THESE FILMS AND ACCORDIN GLY CONCLUDED THAT PAYMENTS MADE TO THE ABOVE REFERRED PARTIES CONSTIT UTED ROYALTY U/S.9(1)(VI) AND ALSO AS PER ARTICLE 12, 13 & 12 OF THE DTAA BETWEEN INDIA & SINGAPORE, INDIA & DENMARK AND INDIA & USA, RESPECT IVELY, AND THERE IS NO DTAA BETWEEN INDIA & HONGKONG FOR THE ASSESSMENT YE AR 2012-13 AND BETWEEN INDIA & SINGAPORE AND INDIA & HONGKONG FOR THE ASSESSMENT YEAR 2013-14 4. THE ASSESSEE PREFERRED APPEALS BEFORE THE CIT(A) WHO ALLOWED THE APPEALS. AGGRIEVED, THE REVENUE IS IN APPEAL BEFOR E US ON THE FOLLOWING COMMON GROUNDS: 2. THE CIT(A) OUGHT TO HAVE CONSIDERED THE PAYMEN TS MADE BY THE ASSESSEE TO NON-RESIDENTS FOR OBTAINING DISTRIBUTIO N RIGHTS AS ROYALTY AS PER SECTION 9(1)(VI) OF THE ACT. 2. THE LD CIT(A) ERRED IN NOT CONSIDERING THE EXCLU SIONARY CLAUSE PROVIDED IN CLAUSE (V) OF THE EXPLANATION 2 TO SECTION 9(1)( VI) WHICH IS PROVIDED ONLY FOR 'EXHIBITION OF CINEMATOGRAPHIC FILMS'. 3. THE LD. CIT(A) FAILED TO CONSIDER THAT THE PAYME NTS MADE BY THE ASSESSEE WERE TOWARDS RIGHTS OBTAINED FOR BROADCAST ING/TELECASTING THE FILMS IN RADIO/TELEVISION AND OTHER MEDIUM AND DO NOT COM E UNDER THE PURVIEW OF THE EXCLUSIONARY CLAUSE. :-4-: ITA NOS. 1422&1423/MDS/2017 4. THE CIT(A) ERRED IN NOT CONSIDERING THAT AS PER ARTICLE 12 AND 13 OF DTAA WITH THAILAND AND CHINA, THE TERM 'ROYALTY' INCLUDE CINEMATOGRAPHIC FILMS, PHONOGRAPHIC RECORDS AND FILMS OR TAPES FOR RADIO O R TELEVISION BROADCASTING. 5. WE HEARD THE RIVAL SUBMISSIONS AND FIND THAT THI S ISSUE HAS BEEN SETTLED BY THIS TRIBUNAL IN THE ASSESSEES CASE IN ASSESSME NT YEAR 2008-09. RELYING ON THAT ORDER AND THE RATIO OF THE SUPREME COURT, T HE CIT(A) HAS ALLOWED THE APPEAL. THE RELEVANT PORTION OF THE ORDER OF THE C IT(A) IS EXTRACTED AS UNDER: THE APPELLANTS ABOVE WRITTEN SUBMISSION HAVE BEE N CAREFULLY CONSIDERED. IN THE ASSESSEE'S OWN CASE FOR AY 2008 -09 ON THE SIMILAR FACTS, THE HON'BLE ITAT HAS HELD AS UNDER ON THE SIMILAR F ACTS AND THE RELEVANT PORTION OF THE FINDING IS CAPTIONED AS UNDER: 6. IN RESPONSE TO THIS, ID OR CONTENDED THAT THE PAYMENTS WERE MADE FOR THE RIGHTS OF CINEMATOGRAPHI C FILMS THAT INCLUDE CINEMATIC RIGHTS AND OTHER ANCILLARY RIGHTS INCLUDING THEATRICAL AND THEATRICAL RIGHTS FOR EXHIBITION AND TELECASTING THEM ON DIFFERENT PLATFORMS WHICH INCLUDE TELEVISION TEL ECASTING AND SATELLITE BROADCASTING. HE FURTHER CONTENDED THAT S INCE THE PAYMENTS WERE MADE TOWARDS RIGHTS FOR BROADCASTING IN RADIO, TELEVISION AND SATELLITE BROADCASTS ETC AND THUS TH E SAME FALLS UNDER THE AMBIT OF' ROYALTY' AS PER SECTION 9(1)(VI ). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE SHORT ISSUE FOR OUR CONSIDERATION IS WHETHER THE PAYMENTS MADE BY T HE ASSESSEE TO THOSE PARTIES CONSTITUTES 'ROYALTY' U/S . 9(1} (VI) OF THE ACT AND WHETHER TAX OUGHT TO HAVE BEEN DEDUCTED AT SOURCE 195 OF THE ACT. THE ASSESSEE HAS MADE PAYMENTS FOR THE COST OF RIGHTS IN THE CINEMATOGRAPHIC FILMS TO EXHIBIT THEM IN INDIA THROUGH VARIOUS MEDIUMS. FROM A PERUSAL OF THE DEAL MEMOS :-5-: ITA NOS. 1422&1423/MDS/2017 AND AGREEMENTS ENTERED WITH THE PARTIES REPRODUCED IN THE ORDER U/S. 201 AND 201(1A) OF THE ACT, IT IS CLEAR THAT T HE ASSESSEE IS ONLY A DISTRIBUTOR WHO HAS BEEN GRATED LICENSED RIG HTS BY THE PARTIES TO EXHIBIT THOSE CINEMATOGRAPHIC FILMS IN I NDIA. FROM A PLAIN READING OF CLAUSE (V) TO EXPLANATION 2 TO SEC TION 9(10 (VI) IT IS CLEAR THAT THERE IS A SPECIFIC EXCLUSION FOR EXH IBITION OF CINEMATOGRAPHIC FILMS FROM THE PURVIEW OF CINEMATOG RAPHIC 'ROYALTY' WHILE IN THE FIRST PART OF THE CLAUSE THE RE IS REFERENCE TO FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TEL EVISION AND VIDEO TAPES FOR USE IN CONNECTION WITH RADIO BROADC ASTING, THERE IS A SPECIFIC MENTION OF CINEMATOGRAPHIC FILMS IN T HE LAST PART OF THE CLAUSE THAT EXCLUDES CERTAIN TRANSACTION FORM T HE PURVIEW OF 'ROYALTY'. THEREFORE IT IS ABUNDANTLY CLEAR THAT TH E LAW HAS EXPRESSLY EXCLUDED CONSIDERATION PAID FOR EXHIBITIO N OF CINEMATOGRAPHIC FILMS FORM THE AMBIT OF SECTION 9(1 )(VI).FURTHER IRRESPECTIVE OF THE MEDIUM IN WHICH THE CINEMATOGRA PHIC FILMS AVE BEEN EXHIBITED, THE SAME ONLY CONSTITUTES' EXHI BITION OF CINEMATOGRAPHIC FILMS'. HENCE, THE CONSIDERATION PA ID BY THE ASSESSEE TO THE NON-RESIDENTS DOES NOT FALL WITHIN THE AMBIT OF ROYALTY' U/S. 9(1)(VI) OF THE ACT. WE FIND THAT SE CTION 90(2) OF THE INCOME TAX ACT WHICH STATES THAT EITHER THE PRO VISIONS OF THE INCOME TAX ACT OR THE DTAA, WHICHEVER IS MORE BENEF ICIAL TO AN ASSESSEE, WOULD BE APPLICABLE TO THE ASSESSEE. FURT HER, CBDT CIRCULAR NO. 728 DATED 30.10.1995 CLARIFIES THAT TA X SHOULD BE DEDUCTED AT SOURCE AS PER THE PROVISIONS OF THE ACT OR DTAA WHICHEVER IS MORE BENEFICIAL TO THE ASSESSEE. SINCE THE PROVISIONS OF THE ACT ARE BENEFICIAL TO THE ASSESSE E, THE SAME WOULD APPLY AND CONSEQUENTLY THE SUMS ARE NOT CHARG EABLE TO TAX IN INDIA AND DO NOT WARRANT DEDUCTION OF TAX AT SOURCE U/S. 195 OF THE ACT. IN THIS REGARD, WE FIND THAT THE HO N'BLE SUPREME COURT IN THE CASE GE INDIA TECHNOLOGY CEN. (P) LTD VS CIT REPORTED IN (2010) 327 ITR 456 (SC) HAD HELD THAT T DS :-6-: ITA NOS. 1422&1423/MDS/2017 OBLIGATION WOULD ARISE ON THE ASSESSEE ONLY WHEN TH E SUM IS CHARGEABLE TO TAX IN INDIA U/S. 4,5, & 9 OF THE ACT . 7.1 VIEW OF THE OUR AFORESAID FINDINGS IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWIN G THE JUDICIAL PRECEDENT RELIED UPON HEREINABOVE, WE HOLD THAT THE ASSESSEE IN THE INSTANT CASE CANNOT BE TREATED AS ASSESSEE IN D EFAULT U/S. 20191) OF THE ACT CONSEQUENTLY THE INTEREST U/S. 20 1(1A) OF THE ACT COULD NOT BE LEVIED ON THE ASSESSEE. ACCORDINGL Y, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED' ACCORDINGLY, SIMILAR BEING THE FACTS OF THIS CASE, AND RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTIONAL ITAT IN THE ASSESSEE 'S OWN CASE INDO OVERSEAS FILMS VS. ITO, FOR AY 2008-09 ITA NO.2404/MDS/2016, (SUPRA), HELD THAT DISTRIBUTION/ EXHIBITION RIGHTS OF CINEMATOGRAPHIC FILMS FALLS WITHIN THE EXCLUSION CLAUSE (V) OF EXPLANATION 2 TO SECTION 9. THEREFORE, THE PAYMENT TO THE FOREIGN PARTIES FOR DISTRIBUTION/EXHIBITION RIGHTS OF CINEMATOGRAPHIC FILMS DOES NOT FALL WITHIN THE AMBIT OF ROYALTY U/S 9(1)(VI) OF THE ACT. MOREOVER, THE HORI'BLE ITAT HAS HELD THAT THE PROVI SION BENEFICIAL TO THE ASSESSEE HAS TO BE APPLIED IN THE JUDGEMENT GIVEN S UPRA. THEREFORE, RESPECTFULLY FOLLOWING THE SAME AND ALSO RELYING ON THE HON'BLE SUPREME COURT DECISION IN THE CASE OF GE INDIA TECHNOLOGY C EN, (P) LTD VS CIT REPORTED IN (2010) 327 ITR 456 (SC), WHEREIN HON'BL E COURT HAD HELD THAT TDS OBLIGATION WOULD ARISE ON THE ASSESSEE ONLY WHE N THE SUM IS CHARGEABLE TO TAX IN INDIA U/S. 4, 5 & 9 OF THE ACT . IN VIEW OF OUR AFORESAID FINDINGS IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY RELYING ON THE JUDICIAL PRECEDENT RELIED UPON HEREINABOVE A ND RESPECTFULLY FOLLOWING THE JURISDICTIONAL ITAT CHENNAI, C BENCH, DECISION IN THE ASSESSEE'S OWN CASE FOR AY 2008-09, ITA NO.2404/MDS/2016 I HOLD TH AT THE ASSESSEE IN THE INSTANT CASE CANNOT BE TREATED AS ASSESSEE IN DEFAU LT U/S 201(1) OF THE ACT AND CONSEQUENTLY THE TAX AND INTEREST U/S. 201(1A) OF THE ACT COULD NOT BE LEVIED ON THE ASSESSEE. THE AO IS ACCORDINGLY DIREC TED TO DELETE THE LEVY OF :-7-: ITA NOS. 1422&1423/MDS/2017 TAX AND INTEREST U/S. 201(1) R.W.S.201(1A) OF THE A CT. ACCORDINGLY THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 6. SINCE, THERE IS NO CHANGE IN THE FACTS AND THE C IT(A) HAS FOLLOWED THIS TRIBUNAL DECISION, THE ORDERS OF THE CIT(A) DOES NO T REQUIRE ANY INTERFERENCE. THE REVENUES GROUNDS ARE DISMISSED FOR BOTH THE AS SESSMENT YEARS. 7. IN THE RESULT, REVENUES APPEALS IN ITA NO. 1422 & 1423/MDS/2017 ARE DISMISSED. ORDER PRONOUNCED ON MONDAY, THE 09 TH DAY OF OCTOBER, 2017 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) ! ' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER /CHENNAI, 0 /DATED: 09 TH OCTOBER, 2017 JPV & )12 32 /COPY TO: 1. %/ APPELLANT 2. )*% /RESPONDENT 3. 4 ( )/CIT(A) 4. 4 /CIT 5. 2 ) /DR 6. 7 /GF