ACIT 16(1), MUMBAI V. GAYATRI FILMS & MUSIC P.LTD, MUMBAI

ITA 1881/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0091 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 08-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 31-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DHARAM VEER SINGHDR
• Section: 145

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , , , , , ,, , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND SAKTIJIT DEY,JUDICIAL MEMBER / ITA NO./1881/MUM/2015: /ASSESSMENT YEAR:2010-11 ACIT-16(1) ROOM NO.439, AAYAKAR BHAVAN M.K. MARG, MUMBAI-400 020. VS. M/S. GAYATRI FILMS & MUSIC PVT. LTD. SAGAR VILLA ROAD NO.12-A JVPD SCHEME, MUMBAI-400 049. PAN:AAACG 8142 J ( /APPELLANT ) ( / RESPONDENT) REV ENUE BY: SHRI DHARAM VEER SINGH-DR ASS ESSEE BY: SHRI K. GOPAL & MS. NEHA PARANJPE (AR) / DATE OF HEARING: 08/06/2017 / DATE OF PRONOUNCEMENT: 21/06/2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA A.M. - CHALLENGING THE ORDER DATED 12/01/2015 OF THE CIT ( A)-4, MUMBAI, THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL. ASSESSEE-COMPANY , ENGAGED IN TV SERIAL AND FILM PRODUCTION, MARKETING OF TV SERIALS, FILMS AND ENTE RTAINMENT SOFTWARE, FILED ITS RETURN OF INCOME ON 10/10/ 2010,DECLARING TOTAL INCOME OF RS. 2.26 CRORE. THE AO COMPLETED THE ASSESSMENT, ON 08/02/ 2013,U/S.143 (3) OF THE ACT, DETERMINING ITS INCOME AT RS. 2.67 CRORE. 2. EFFECTIVE GROUND OF APPEAL IS ABOUT DELETING THE AD DITION OF RS.35.51LAKHS ON ACCOUNT OF AGREEMENT WITH MAHUAA MEDIA PRIVATE LTD. (MMPL) AND SHRI ADHIKARI BROTHERS MEDIA PRIVATE LTD.(SABMPL). DURING THE ASSESSMENT PROCEED INGS, THE AO OBSERVED THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH MMPL TO DELIVER RIGHTS OF 169 EPISODES OF RAMAYAN FOR A CONSIDERATION OF RS. 22,000/- PER EPI SODE, THAT THE AGREEMENT WAS VALID FOR A PERIOD OF 4 YEARS, THAT DURING THE YEAR UNDER CONSI DERATION IT DELIVERED ONLY 163 EPISODES, THAT IT SHOULD HAVE OFFERED THE ENTIRE INCOME DURING THE YEAR UNDER CONSIDERATION, THAT THE ASSESSEE HAD OFFERED INCOME OF RS. 6.71 LAKHS ONLY FOR THE Y EAR UNDER CONSIDERATION OUT OF THE TAXABLE INCOME OF RS. 35.86 LAKHS. HE ADDED RS. 29.14 LAKHS TO THE INCOME OF THE ASSESSEE. WITH REGARD TO AGREEMENT ENTERED INTO WITH SABMPL, THE A O OBSERVED THAT AS PER THE AGREEMENT ASSESSEE WAS TO DELIVER RIGHTS OF 119 EPISODE OF RA MAYAN IN MARATHI FOR A CONSIDERATION OF RS. 17,500/- PER EPISODE, THAT THE AGREEMENT WAS VA LID FOR A PERIOD OF ONE YEAR STARTING FROM 20/07/2009, THAT IT HAD DELIVERED ALL THE EPISODES DURING THE YEAR UNDER CONSIDERATION, THAT IT 1881/M/15/GAYATRI(10-11) 2 HAD OFFERED RS. 14.45 LAKHS ONLY FOR THE YEAR UNDER CONSIDERATION OUT OF RS. 20.82 LAKHS DUE TO IT. HE MADE AN ADDITION OF RS. 6.36 LAKHS TO THE INCOME OF THE ASSESSEE. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS ARGUED T HAT IN THE CASE OF THE ASSESSEE IN THE EARLIER YEARS THE ASSESSEE HAD GIVEN US SIMILAR TRE ATMENT FOR IDENTICAL ACCRUAL OF INCOME, THAT THE AO HAD ACCEPTED THE TREATMENT OF ACCRUAL OF INC OME FOR THE AY.S 2006-07 AND 2007-08 WHILE PASSING THE ORDERS U/S.143 (3) OF THE ACT, TH AT IN THE CASE OF ONE OF THE SISTER CONCERNS NAMELY SAGAR ENTERTAINMENT PRIVATE LTD.THE AO HAD A CCEPTED THE CLAIM OF THE ASSESSEE ABOUT ACCRUAL OF INCOME IN ACCORDANCE WITH THE CONTRACT S IGNED BY IT WITH OTHERS, THAT THE FAA HAD DELETED THE ADDITION MADE BY THE AO IN CASE OF SAGA R ENTERTAINMENT PRIVATE LIMITED FOR THE AY. 2009-10, THAT IT WAS FOLLOWING MERCANTILE SYSTE M OF ACCOUNTING/ACCRUAL SYSTEM OF ACCOUNTING IN TERMS OF SECTION 145 OF THE ACT, THAT IT FOLLOWED ACCOUNTING STANDARD 9 PUBLISHED BY THE ICAI FOR RECOGNISING ITS REVENUE/I NCOME, THAT AS PER ACCOUNTING STANDARD 9 INCOME/EXPENSES WERE RECOGNIZED ON THE BASIS OF ITS ACCRUAL IRRESPECTIVE OF THE RECEIPTS LESS PAYMENT. THE ASSESSEE RELIED UPON CERTAIN CASE LAWS .AFTER CONSIDERING THE AVAILABLE MATERIAL, THE FAA HELD THAT THE AO HAD BEEN ACCEPTING ASSESSE ES CLAIM OF SIMILAR TREATMENT OF RECOGNITION OF REVENUE IN THE PAST, THAT WHILE COMP LETING THE SCRUTINY ASSESSMENT ORDERS FOR THE EARLIER YEARS HE HAD NOT OBJECTED TO THE METHOD ADOPTED BY THE ASSESSEE, THAT IN THE CASE OF ONE OF THE SISTER CONCERNS OF THE ASSESSEE THE FAA HAD ACCEPTED THE CLAIM MADE BY THE ASSESSEE AND HAD APPROVED THE SYSTEM FOLLOWED BY IT BY THE ACCOUNTING STANDARD 9. FINALLY, HE ALLOWED THE APPEAL FILED BY THE ASSESSEE. 4. BEFORE US, THE DEPARTMENTAL REPRESENTATIVE (DR) SUP PORTED THE ORDER OF THE AO AND THE AUTHORISED REPRESENTATIVE (AR) RELIED UPON THE ORDE R OF THE FAA.HE REFERRED TO THE CASE OF SAGAR ENTERTAINMENT PRIVATE LIMITED DELIVERED BY TH E TRIBUNAL IN HIS SUPPORT AND STATED THAT IDENTICAL ISSUE WAS DECIDED IN FAVOUR OF THE ASSESS EE BY THE ITAT. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD ENTERED INTO 2 DIFFERENT CONTRACTS WIT H MMPL(10/07/2009) AND SABMPL (12/ 06/ 2009)FOR A CONSIDERATION OF RS. 35.86 LAKHS AND RS. 20.82 LAKHS RESPECTIVELY FOR THE PURPOSE OF TELECAST OF OLD AND RE-EDITED SALES, THE SE CONTRACTS WERE FOR MORE THAN ONE PREVIOUS YEARS, THAT IT OFFERED INCOME AND DEDUCTED TAX PROP ORTIONATE TO THE TIME OF THESE 2 CONTRACTS, THAT PROPORTIONATE INCOME OUT OF THE 2 CONTRACTS RE LATABLE TO AY.IN CONSIDERATION WAS OFFERED AT RS. 21.17 LAKHS (RS. 6.71 LAKHS PLUS RS. 14.45 L AKHS-OUT OF AGGREGATE CONTRACT VALUE OF RS. 1881/M/15/GAYATRI(10-11) 3 56.68 LAKHS) FOR THE CONTRACTS IN QUESTION, THAT TH E ASSESSEE IS FOLLOWING ACCOUNTING STANDARD- 9,THAT TWO AGREEMENTS WERE ENTERED INTO FOR TERMS O F MORE THAN ONE PREVIOUS YEAR, THAT REVENUE FOR THE YEAR UNDER CONSIDERATION ACCRUED TO THE ASSESSEE IN ACCORDANCE WITH THE TERMS OF AGREEMENT WAS RECOGNISED PROPORTIONATELY, THAT I T DID NOT RECEIVE THE ENTIRE CONSIDERATION FOR THE YEAR UNDER APPEAL, THAT THE AO TAXED THE EN TIRE CONTRACT VALUE AND MADE AN ADDITION OF RS. 35.51 LAKHS TO THE TOTAL INCOME OF THE ASSESSEE .WE FIND THAT IN CASE OF SAGAR ENTERTAINMENT PRIVATE LIMITED (ITA/ 1150/MUM/2013-A Y.2009-10, DATED 02/02/2015) THE TRIBUNAL HAS DEALT THE SIMILAR ISSUE AND HAD DISMIS SED THE APPEAL FILED BY THE AO.WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE SAID ORDER AND IT READS AS UNDER: 2. EFFECTIVE 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 IMAGINE LIMITED(NDTVIL) AND MOSER BEAR INDIA LTD.(MBIL). DURING THE ASSESSM ENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT FOR SALE OF VIDEO/DVD/MOVIE RIGHTS 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 31.05.08 TILL 30.05.14 13,88,888 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 , THAT CONTRACT AMOUNT FROM MBIL HAD BEEN SPREAD OVER FROM AY 2009-10 TO 2015-16.THE AO ANALYSED BOTH THE AGREEMENTS AND HELD THAT THE DELIVERABLES AND PERFORMANCE OF OBLIG ATION UNDER THE AGREEMENT AT THE SIGNING OF AGREEMENT HAD TO BE CONSIDERED, THAT THERE WAS N O QUESTION OF DEFERMENT OF CONTRACTUAL OBLIGATION TO ANY FUTURE DATES,THAT THE RESCINDING OF THE CONTRACT VESTED ONLY 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 WAS 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. 84.60 LAKHS, THEREFORE, THE AO RESTRICTED TH E ADDITION TO RS. 3.65 CRORES(4.50 CRORES MINUS 84.60 LAKHS).THE AO REFERRED TO THE ACCOUNTIN G STANDARD(AS)-9 WHICH DEALT WITH THE REVENUE RECOGNITION 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 SUBMITTE D THAT THE ASSESSEE HAD ENTERED INTO AGREEMENT WITH NDTVIL ON 25.04.2008 FOR TWO YEARS F OR TELECASTING OLD RE-EDITED T.V. SERIALS, THAT AGREEMENT WITH MBIL WAS FOR A PERIOD OF 6 YEARS,THAT THE AGREEMENT TENURE WAS FOR MORE THAN ONE ACCOUNT -ING YEARS,THAT IT WAS FO LLOWING MERCANTILE SYSTEM OF 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 1881/M/15/GAYATRI(10-11) 4 CONTRACTED AMOUNT RECEIVED ON SIGNING OF AGREEMENT SHOULD BE TAXED IN THE YEAR OF SIGNING THE AGREEMENT FOR FACTUALLY INCORRECT,THAT THE AMOU NT AS PER THE AGREEMENTS WERE RECEIVED DURING THE AY.2009-10(2.42 CRORES) AND 2011-12 (32. 44 LAKHS) AND 2012-13(33.28 LAKHS) RESPECTIVELY,THAT BALANCE AMOUNT (RS. 1.03 CRORES) WAS NOT RECEIVED TILL THE DATE OF FILING THE APPEAL. IT WAS FURTHER CONTENDED THAT THE METHOD IM PLIED BY THE ASSESSEE HAD BEEN ACCEPTED BY THE DEPARTMENT DURING THE AY 2004-05 TO 2006-07, THERE WAS NO REASON FOR DISTURBING THE RESULT OF PROFIT.BEFORE HIM,THE ASSESSEE RELIED UPO N THE CASES OF DINESH KUMAR GOEL (331 ITR 19(DEL), K.K.KHULLAR (116 ITD 301(DEL), VPN KUMAR K HANNAV (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 YEAR ON THE BASIS OF PERIOD OF LICENSES IN CASE OF NDTVIL AND IN THE CASE OF MBIL FOR SIX YEAR S, THAT FROM THE LICENSE AGREEMENT ENTERED WITH THE NDTV IT WAS FOUND THAT THE ASSESSE E HAD RECEIVED AN ADVANCE OF RS. 8 LAKHS ON SIGNING OF THE CONTRACT BEING 10% OF TOTAL LICEN SE 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 AM OUNT RECEIVED IN SUCCEEDING YEAR FOR TAXATION AS AND WHEN THE EXPLOITATION OF RIGHTS ON VARIOUS FILMS TO THE ASSESSEE'S WERE EXPLOITED,THAT THE AGREEMENTS PROVIDED THAT ALL RIG HTS ON TOTAL AND INTEREST IN LICENSED 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 RIGHTS. THE FAA ALSO ANALYZING THE TERMS OF THE AGR EEMENTS 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 ISSUE RAISED AT ANY POINT OF TIME ABOUT THEIR P RODUCT THROUGHOUT THE PERIOD OF THE AGREEMENT, THAT SIGNIFICANT RISK, AS ENVISAGED IN A S-9, WAS NOT TRANSFERRED TO MBIL, THAT ROYALTY INCOME ACCRUED IN TERMS OF THE AGREEMENT FO R DIFFERENT AYS, THAT INCOME ACCRUED FOR AY 2009-10 ONLY WAS TAXABLE IN THE YEAR UNDER APPEA L,THAT THE CONTENTION OF THE AO THAT THE ENTIRE AMOUNT HAD BEEN RECEIVED ON SIGNING OF AGREE MENT WAS FACTUALLY INCORRECT, THAT THE RECEIPT BEING IN NATURE OF ROYALTY FOR PROVIDING EX PLOITATION OF RIGHTS OF LICENSE WAS TO BE TAXABLE FOR THE PERIOD IN RESPECT OF CONTRACT ENTER ED INTO. THE FAA RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT DELIVERED 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, THAT THE AO WAS JUSTIFIED IN APPORTIONING THE EXPEN SES OVER THE PERIOD OF CONTRACT APPLYING THE SAME ANALOGY, THE APPORTIONMENT BY THE AO WAS C ONSIDERED TO BE JUSTIFIED.HE FURTHER REFERRED TO THE DECISIONS OF SAJJANSINGH N. CHOUHA N (38 DTR 155), DEVASING SHAM SINGH (95 ITD 235). FINALLY, HE DIRECTED THE AO TO TAX TH E INCOME OF RS. 84.60 LAKHS FOR THE YEAR UNDER CONSIDERATION AS AGAINST RS. 4.50 CRORES.AS A RESULT, ADDITION MADE 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 HO W THE INCOME ARISEN/ACCRUED OUT OF THE AGREEMENTS ENTERED WITH THE TWO ENTITIES SHOULD BE TAXED.THE AO WAS OF THE OPINION THAT THE AMOUNT MENTIONED IN THE AGREEMENT WAS TO BE TAXED F OR THE YEAR UNDER CONSIDERATION, WHEREAS THE ASSESSEE CONTENDED THAT AMOUNTS IN QUES TION WERE TO BE TAXED IN THE YEARS RECEIPTS.WE FIND THAT THE ASSESSEE HAD ENTERED INTO AGREEMENT WITH TWO ENTITLES NAMELYNDTVIL AND MBIL.THE AGREEMENT WITH NDTV WAS F OR TWO YEARS WHEREAS THE AGREEMENT WITH MBIL WAS FOR SIX YEARS, THAT THE ASS ESSEE WAS FOLLOWING MERCANTILE METHOD OF ACCOUNTING AND THE FACT IS NOT DISPUTED BY THE AO. IN THESE CIRCUMSTANCES, THE INCOME HAS TO BE ASSESSED ON ACCRUAL BASIS. THE AO REFERRED TO PR OVISIONS OF AS-9 AND MADE THE ADDITIONS THAT WERE 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 O F MORE THAN 30 FILMS TO MBIL AND IT WAS HELD THAT THE INCOME DID NOT ACCRUE IN THE VERY FIR ST 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 HELD THAT INCOME WAS TO BE ASSESSED IN YEAR OF RECEIPTS AND NOT 1881/M/15/GAYATRI(10-11) 5 IN THE VERY FIRST YEAR WHEN THE AGREEMENTS WERE SIG NED. IN OUR OPINION THERE IS NO LEGAL INFIRMITY IN THE ORDER PASSED BY THE FAA, THEREFORE , UPHOLDING HIS ORDER, WE DECIDE THE EFFECTIVE GROUND OF APPEAL AGAINST THE AO. WE FIND THAT FACTS OF BOTH THE CASES ARE SIMILAR, S O, RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE TRIBUNAL,WE DECIDE THE EFFECTIVE GROUND OF A PPEAL AGAINST THE AO. AS A RESULT, APPEAL FILED BY THE AO STANDS DISMISSE D. !' # $%& '()*+ . ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST JUNE, 2017. 21 , 2017 SD/- SD/- ( / SAKTIJIT DEY ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 21.06.2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR G BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.