DCIT, Circle-13(1), Hyderabad V. Sri V. Ramakrishna, Hyderabad

ITA 2099/HYD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91752 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 01-07-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VASUNDHARA SINHA
• Assessee Lawyers: S RAMA RAO
• Keywords: Depreciation; Assessment record; Revenue expenditure
• Section: 27

Judgement Text

ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 1 OF 14 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER & SMT.ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NOS. 2099/HYD/2011 & 113/HYD/2013 (ASSESSMENT YEARS: 2008-09 AND 2009-10 ) D Y. COMMISSIONER OF INCOME TAX, CIRCLE 13(1) HYDERABAD VS. SHRI V.RAMA KRISHNA HYDERABAD PAN: ABVPV 3801 E (APPELLANT) (RESPONDENT) FOR REVENUE : SMT. VASUNDHARA SINHA, DR FOR ASSESSEE : SHRI S. RAMA RAO DATE OF HEARING : 1.7.2015 D ATE OF PRONOUNCEMENT : 3 .7.2015 O R D E R PER SMT. ASHA VIJAYARAGHAVAN, J.M. THESE ARE THE APPEALS PREFERRED BY THE REVENUE AGA INST THE ORDER OF THE CIT (A)-II HYDERABAD, DATED 13.10.2011 RELATING TO A.YS 2008-09 AND 1010-11 RESPECTIVELY. 2. BRIEFLY STATED, THE ASSESSEE IS A TRADER IN FILM S AND FILM RIGHTS. DURING ASSESSMENT PROCEEDINGS AO OBSERVED F ROM THE 3CD REPORT SUBMITTED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME THAT THE ASSESSEE HAS DEDUCTED TAX AT SOURCE TO THE EXTENT OF RS.66,66,595 U/S 194J WHILE MAKING PAYMEN T OF RS.6,48,85,347, BUT NOT PAID THE TAX DEDUCTED TO TH E GOVT. ACCOUNT. BY APPLYING THE PROVISIONS OF SECTION 40( A)(IA), THE AO HAS DISALLOWED AN AMOUNT OF RS.6,48,85,347/-. WHILE MAKING THE DISALLOWANCE, THE AO HAS OBSERVED THAT THE ASSE SSEE PAID ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 2 OF 14 ROYALTY FOR FILM RIGHTS TO THE PRODUCERS AND COLLEC TED ROYALTY ON TRANSFER OF RIGHTS TO VARIOUS TV CHANNELS. THE PERS ONS WHO HAVE RECEIVED THE RIGHTS FROM THE ASSESSEE HAVE PAID THE AMOUNTS AFTER DEDUCTING THE TAX AT SOURCE U/S.194J OF THE I T ACT. 3. THE AO HAS ALSO DISALLOWED RS.10,78,32,153/- U/ S. 40(A)(IA) FOR NON DEDUCTION OF TAX AT SOURCE ON THE GROUND THAT THE PAYMENTS MADE WERE IN THE NATURE OF ROYALTY. TH E AO HAS STATED IT IS SEEN FROM THE P&L ACCOUNT ASSESSEE HAS PURCHA SED FILM RIGHTS TO THE EXTENT OF RS.17,27,17,500/-. AS PER THE AGREEMENTS FURNISHED BY THE ASSESSEE, ASSESSEE HAS ENTERED INTO AGREEMENT WITH THE SELLERS AS A ASSIGNEE PURCHASED RIGHTS OF THE FILMS TO BE TELECASTED FROM THE ASSIGNORS (PRODUCER S). AS THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE AS PER THE PROVISIONS OF SEC.194J (PAYMENT FOR ROYALTY) R. W .S. 9 OF IT ACT (EXPLANATION SEC.9). ASSESSEE WAS ASKED WHY THE EXPENDITURE OF RS.10,78,32,153/- (TOTAL PURCHASES OF RS.17,27,17,5 00 - RS.6,48,85,347, TDS DEDUCTED AND NOT PAID) SHOULD N OT BE DISALLOWED U/S.40(A)(IA). VIDE HIS EXPLANATION LETT ER DATED 02.12.2010 HAS EXPLAINED THE TDS PROVISIONS U/S.194 J IS NOT APPLICABLE IN HIS CASE. 4. NOTE GIVEN BY THE ASSESSEE ON DEDUCTION OF TAX A T SOURCE U/S 194J IS REPRODUCED BELOW: THE ASSESSEE IS DEALING IN TRADING OF FILM RIGHTS. HE ACQUIRES AND SELLS SATELLITE, DVD, CABLE, VIDEO, NEGATIVE*, TELEVISION RIGHTS FROM PRODUCERS AND OTH ER RIGHT HOLDERS AND SELLS THEM TO TV CHANNELS AND OTH ERS FOR CONSIDERATION. FOR HIM THE ACTIVITY IS BUSINESS ONLY. ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 3 OF 14 FROM THE AY 2007-2008 SECTION 194 ] WAS AMENDED AND ROYALTY WAS ALSO INCLUDED UNDER PROFESSIONAL PAYMENTS AND THE ASSESSEE'S BUSINESS IS BROUGHT INT O THE. PURVIEW OF SECTION 194] UNDER ROYALTY. ROYALTY SHALL MEAN A SUM OF MONEY PAID TO THE RIGHT HOLDER FOR THE PERMITTED USE OF SUCH RIGHTS, (I.E, FOR SHORT PERIOD OR FOR SUCH PART OF THE RIGHTS ONLY). AS PER COPYRIGHT ACT OF 1957, THE PRODUCER IS THE O WNER OF ANY CINEMATOGRAPHY FILM WHICH IS THE PROPERTY CREATED BY HIM, WHICH IS TERMED AS NEGATIVE RIGHTS AS PER TRADE. THE PRODUCER HAS THE ABSOLUTE RIGHT TO EXPLOIT THE SAID FILM THROUGH VARIOUS MODES AND MEA NS, BOTH THEATRICALLY AND NON-THEATRICALLY. IN SUCH CAS E, HE GETS ROYALTY PAID FOR EXPLOITATION OF EVERY INDIVID UAL RIGHT. WHEREAS IN CASE OF SALE OF NEGATIVE RIGHTS, HE IS SELLING HIS ENTIRE PROPERTY CREATED BY HIM IN' FORM OF A CINEMATOGRAPHY FILM. HENCE THIS IS DEEMED TO BE A S ALE INSTEAD OF ROYALTIES (ROYALTIES ARE PAID ONLY FOR PERMITTED USAGE OF SINGLE OR MULTIPLE RIGHTS, TEMPO RARILY OR FOR SPECIFIED PERIODS ONLY). THE TERM SOUND RECORDING IS ALSO DEFINED IN THE COPYRIGHT ACT, 1957 TO MEAN RECORDING OF SOUND FROM WHICH SOUNDS CAN BE PRODUCED. THUS ANY MUSIC TRACKS OF THE FILMS WHICH ARE RECORDED AND IN RESPECT OF W HICH THE VIDEO RIGHTS ARE ASSIGNED WOULD BE SOUND RECORDINGS AND COPYRIGHT WOULD SUBSIST IN SUCH SOUN D RECORDINGS. PER SECTION 26 AND 27 OF THE COPYRIGHTS ACT, 1957 T HE COPYRIGHT IN: A. CINEMATOGRAPH FILMS SUBSIST UNTIL 60 YEARS FROM THE BEGINNING OF THE CALENDAR YEAR NEXT FOLLOWING THE Y EAR IN WHICH THE FILM IS PUBLISHED AND B. SOUND RECORDINGS SUBSIST UNTIL 60 YEARS FROM THE BEGINNING OF THE CALENDAR YEAR NEXT FOLLOWING THE Y EAR IN WHICH THE SOUND RECORDING IS PUBLISHED. ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 4 OF 14 THUS WHERE THE COPY RIGHT IN THE CINEMATOGRAPH FILM IS ASSIGNED FOR PERIODS LONGER THAN 60 YEARS IT WOULD BE REGARDED AS PERMANENT TRANSFER AND THE INTENTION IS TRANSFER OF THE RIGHTS TO USE THE FILM RATHER THAN PROVIDING SERVICE. IN THE CASE OF TRANSFER OF COPYR IGHT IN CINEMATOGRAPH FILM FOR A PERIOD OF LESS THAN 60 YEA RS FROM THE BEGINNING OF THE CALENDAR YEAR NEXT TO THE YEAR IN WHICH THE SOUND RECORDING/CINEMATOGRAPH IS PUBLISHED, THE TRANSFER IS TEMPORARY IN NATURE AND SUCH RIGHTS WOULD AGAIN VESTS WITH THE ORIGINAL OWNER AF TER THE EXPIRY OF THE ASSIGNED PERIOD. IT IS NOT A TRAN SFER IN THE RIGHT TO USE THE GOODS BUT IS A TEMPORARY TRANS FER OF RIGHTS. BUT WHEN THE TRANSFER IS FOR PERPETUAL PERIOD OR 99 YEARS OR WHEN NEGATIVE RIGHTS ARE TRANSFERRED THEN IT AMOUNTS SALE BUT NOT ROYALTY. HENCE THE ASSESSEE HA S NOT DEDUCTED TAX ON SUCH TRANSACTIONS. FOR THE CERT AIN TRANSACTIONS, THE ASSESSEE HAS DEDUCTED TDS IN TO MAKE SURE THAT THE SELLERS COME UNDER TAX PURVIEW.' 5. THE AO STATED AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE REPLY GIVEN BY THE ASSESSEE AND THE SAME IS REJECTED FOR THE FOLLOWING REASONS. A. IT IS SEEN FROM THE VERY NATURE OF THE BUSINESS ASSESSEE IS IN THE BUSINESS OF TRADING OF RIGHTS OF FILMS. HE HAS PURCHASED ENTIRE OWNERSHIP OF THE FILM WITH EXCLUSIVE WORLD NEGATIVE (PICTURE AND SOUND), RIGHT S INCLUDING THE THEATRICAL, NONTHEATRICAL AND COMMERC IAL RIGHTS OF DISTRIBUTION, EXHIBITION AND EXPLOITATION . HOWEVER, THE SALE IS NOT COMPLETE BECAUSE EXPLOITAT ION OF THEORETICAL RIGHTS ARE STILL WITH THE ASSIGNOR F OR A PERIOD OF FIVE YEARS. HENCE, IT CANNOT BE TREATED A S ABSOLUTE SALE. AS THE ASSESSEE BUYING THE RIGHTS FO R A LIMITED PERIOD, IT IS NOTHING BUT PAYING ROYALTY TO THE RIGHT HOLDER. IN THIS CONTEXT EVEN THE AGREEMENT DT . 0910-2007 BETWEEN ASSIGNORS AND ASSIGNEES I.E. THE ASSESSEE IN RESPECT OF THE FILM JOHN APPARAO 40 PLU S ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 5 OF 14 NEEDS A LITTLE ANALYSIS. ON PAGE-2 PARA -1 STARTS A S UNDER: '1) THE ASSIGNORS HEREBY TRANSFERS BY WAY SALE THE ENTIRE OWNERSHIP OF THE FILM MENTIONED IN THE SCHEDULE TO THIS AGREEMENT ALONG WITH THEIR EXCLUSI VE WORLD NEGATIVE (PICTURE & SOUND) RIGHTS INCLUDING T HE THEATRICAL, NON-THEATRICAL AND COMMERCIAL RIGHTS OF DISTRIBUTION, EXHIBITION & EXPLOITATION BY 35MM(35M M RIGHTS ARE WITHHELD BY THE ASSIGNORS FOR THE FIRST 5 (FIVE) YEARS FROM THE FIRST RELEASE OF THE FILM IN THEATRES) ' A CLOSE LOOK OF THE ABOVE NARRATION SHOWS THAT THE SUBSTANCE OF THE TRANSACTION IS IN THE NATURE OF RO YALTY BUT NOT A SALE BECAUSE ACQUIRING ENTIRE OWNERSHIP B UT LIMITING THE SAME LATER ON BY GIVING RIGHTS FOR FIV E YEARS FROM THE FIRST RELEASE OF THE FILM ARE TOTALLY CONTRADICTORY TO EACH OTHER. HENCE, IT IS NOT AN AB SOLUTE SALE BUT FOR THE PAYMENT OF ROYALTY. THEREFORE, I H OLD THAT THE PAYMENT MADE BY THE ASSESSEE IS NOTHING BU T ROYALTY WHICH IS SUBJECT TO TDS UJS.194H AND THE SA ME IS ADDED BACK U/S.40A(IA). B. JUST BECAUSE GIVING A DIFFERENT NAME TO THE TRANSACTION DOES NOT AMOUNTS TO DIFFERENT TRANSACTI ON. AS PER THE AGREEMENT, IT IS VERY CLEAR THAT PAYMENT S HAS BEEN MADE FOR EXPLOITATION OF RIGHTS WITH A PER IOD SPECIFIC WHICH IS NOTHING BUT PAYMENT OF ROYALTY. C. IT IS ALSO FURTHER SEEN THAT THE SAME RIGHTS HAS BEEN GIVEN TO VARIOUS TELEVISION CHANNELS AND THE BUYERS HAS DEDUCTED TDS ON THE PAYMENTS MADE TO THE ASSESSEE. HENCE, IT IS THE COMMON PRACTICE FOLLOWED IN THIS T RADE 2. HENCE ASSESSEE HAS TO DEDUCT TDS ON ALL THE PAYMENTS MADE OR CREDITED OF RS. 17,27,17,500/-. HOWEVER, ASSESSEE-HAS DEDUCTED TDS ON AMOUNT OF PAYMENT OF RS. 6,48,85,345/- BUT NOT PAID TO THE GOVERNMENT ACCOUNT. THIS AMOUNT HAS BEEN SEPARATELY ADDED IN PARA NO. 4. NOW, THE REST OF THE AMOUNT OF RS. 10,78,32,153/ADDED U/SAO(A)(IA) FOR NOT DEDUCTING T AX ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 6 OF 14 AT SOURCE AS THE PAYMENTS MADE ARE IN THE NATURE OF ROYALTY . 6. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A). THE CIT (A) HELD THAT THE AGREEMENT DEED BETWEEN THE AS SESSEE AND THE PRODUCER OF THE FILM 'JOHN APPARAO 40 PLUS' WHI CH WAS REFERRED TO BY THE AO HAS ALSO BEEN CAREFULLY PERUS ED BY HIM. THE CIT (A) STATED THAT AS PER THE AGREEMENT IT WAS AGREED TO TRANSFER BY WAY OF SALE THE ENTIRE OWNERSHIP OF THE FILM ALONG WITH THEIR EXCLUSIVE WORLD NEGATIVE (PICTURE & SOUND) RI GHTS INCLUDING THE THEORETICAL AND NON-THEORETICAL AND COMMERCIAL RIGHTS OF DISTRIBUTION, EXHIBITION AND EXPLOITATION BY 35 MM( 35MM RIGHTS ARE WITHHELD BY THE ASSIGNORS FOR THE FIRST FIVE YE ARS FROM THE FIRST RELEASE OF THE FILM IN THEATRES AND IT WAS ALSO MEN TIONED THAT THE ASSIGNORS (THE PRODUCER) TRANSFERS TO THE ASSIGNEES (THE APPELLANT) THE SOLE AND EXCLUSIVE OWNERSHIP RIGHTS OVER THE SA ID FILM FOR THE ENTIRE WORLD ON PERPETUAL AND PERMANENT BASIS FOR A CONSIDERATION OF RS.80,00,000. THE CIT (A) OBSERVED THAT THE ASSIGNEES (THE APPELLANT) PERMITTED TO CENSOR THE F ILM WITH THE SAME TITLE OR ANYTHING ELSE AS PER THEIR DESIRE FOR WHICH THE ASSIGNORS HAVE NO OBJECTION AND IT WAS ALSO AGREED THAT THE ASSIGNORS WILL NOT HAVE A SINGLE RIGHT LEFT WITH TH EM EXCEPT DUBBING RIGHTS AND RE-MAKING RIGHTS FOR TAMIL, MALA YALAM & HINDI LANGUAGES AND EXCEPT 35MM THEORETICAL EXPLOIT ATION FOR THE FIRST FIVE YEARS FROM THE FIRST RELEASE OF THE FILM IN THEATRES AS THE ABSOLUTE OWNERSHIP OVER THE NEGATIVES (PICTURE & SO UND) HAVE BEEN SOLD AND TRANSFERRED TO THE ASSIGNEES UNDER TH IS AGREEMENT. 7. THE CIT (A) NOTED THAT THE AGREEMENT ALSO SPEAK S OF IRREVOCABLE RIGHTS GIVEN TO THE ASSIGNEES WITH RESP ECT TO VARIOUS ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 7 OF 14 RIGHTS INCLUDING THE SOLE AND EXCLUSIVE RIGHTS TO C OLLECT THE ROYALTIES AND REVENUES FROM PERFORMING RIGHTS SOCIE TIES, MECHANICAL COPY RIGHT PROTECTION SOCIETY, PHONOGRAP HIC PERFORMANCE LTD. THE AUDIO MUSIC COMPANIES AND ALSO SOLE AND EXCLUSIVE RIGHTS TO PERFORM THE MUSICAL RIGHTS COR- TA.NED IN THE FILM IN PUBLIC INCLUDING PERFORMANCE BY SOUND, BROA DCASTING, TELEVISION, CABLE TV, SATELLITE TV, PAID TV, DTH ON PERPETUAL AND PERMANENT BASIS. IN EFFECT AS PER CLAUSE 21, THE AG REEMENT IS IRREVOCABLE AND THE ASSIGNEES FOR ALL PURPOSES SHAL L BE THE ABSOLUTE OWNER OF THE SAID FILM ON PERPETUAL AND PE RMANENT BASIS FROM THE DATE OF SIGNING OF THIS AGREEMENT. T HE CIT (A) OPINED THAT ALL THIS POINTS TO ABSOLUTE TRANSFER OF ALL RIGHTS IN THE FILM EXCLUDING THE 35MM THEATRICAL EXPLOITATION FOR THE FIRST 5 YEARS FROM THE DATE OF RELEASE OF THE FILM, EXCEPT THIS ONE RIGHT, THAT TOO, FOR A LIMITED PERIOD AFTER THE EXPIRY OF WHICH THIS RIGHT ALSO GETS TRANSFERRED AUTOMATICALLY IN FAVOUR OF TH E ASSESSEE WITHOUT ANY FURTHER LEGAL FORMALITY. THEREFORE THE CIT (A) HELD THAT CONTENTION OF THE ASSESSEE THAT THE TRANSACTIO NS WITH THE PRODUCERS AMOUNTED TO SALE HAS SOME MERIT. 8. THE CIT (A) NOTICED FROM THE ASSESSMENT ORDER TH AT THE AO HAS ON ONE HAND STATED THAT THE ASSESSEE HAS PURCHA SED FILM RIGHTS TO THE EXTENT OF RS.17,27,17,500 AND ON THE OTHER HAND APPLIED THE PROVISIONS OF SECTION 194J R.W.S.9. THE CIT (A) FURTHER NOTED THAT THE AO ALSO OBSERVED THAT THE SUBSTANCE OF THE TRANSACTION IS IN THE NATURE OF ROYALTY BUT NOT A S ALE BECAUSE ACQUIRING THE ENTIRE OWNERSHIP BUT LIMITING THE SAM E LATER ON GIVING RIGHTS FOR FIVE YEARS FROM THE FIRST RELEASE OF THE FILM WERE TOTALLY CONTRADICTORY TO EACH OTHER. THEREFORE HE H ELD THAT IT WAS ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 8 OF 14 NOT AN ABSOLUTE SALE AND THEREFORE THE PAYMENTS WER E TOWARDS ROYALTY. THE CIT (A) POINTED OUT THAT THIS ARGUMENT OF THE AO DOES NOT HAVE MERIT BECAUSE AS POINTED OUT BY THE A SSESSEE THE WORLD NEGATIVE RIGHT WHICH WAS SOLD WAS NOT AN INDI VISIBLE COMMODITY OR GOODS THIS COMPRISES OF INNUMERABLE DI STINCT, IDENTIFIABLE AND VALUABLE RIGHTS AS MENTIONED IN TH E AGREEMENT WHICH CAN BE EXPLOITED SEPARATELY AND WITHHOLDING O F ONE SUCH RIGHT FOR USE FOR A TERM OF FIVE YEARS (THEORETICAL RIGHT IN RESPECT OF 35MM FILM) WITH THE CONSENT OF BOTH THE PARTIES DOE S NOT AFFECT THE CHARACTER OF SALE OF OTHER RIGHTS. THE CIT (A) OBSERVED THAT EVEN THE LIMITING THE OWNERSHIP IN RESPECT OF FIRST FIVE YEARS OF THEORETICAL EXHIBITION OF THE FILM TO THE PRODUCER ALSO DOES NOT RESTRICT THE RIGHT OF THE ASSESSEE PERPETUALLY AND BY THE END OF FIVE YEARS FROM THE DATE OF FIRST RELEASE THAT PART ICULAR RIGHT ALSO VESTS WITH THE ASSESSEE WITHOUT ANY FURTHER AGREEME NT OR DEED TO THAT EFFECT AND THIS DOES NOT MEAN THAT THE OTHER R IGHTS WERE NOT TRANSFERRED ABSOLUTELY. THE CIT (A) STATED THAT THI S SHOWS THAT THE ASSESSEE HAS RECEIVED THE ABSOLUTE OWNERSHIP OF THE RIGHTS OVER THE FILM EXCLUDING ONE RIGHT FOR A LIMITED PER IOD AND UPON THE EXPIRY OF THE LIMITED PERIOD THAT RIGHT ALSO VE STS WITH THE APPELLANT WITHOUT ANY FURTHER ACT BY THE PARTIES CO NCERNED. 9. THE CIT (A) POINTED OUT THAT THE CONTENTION OF THE AO THAT THE BUYERS FOR TELEVISION RIGHTS HAVE DEDUCTED TDS U/S.194J ON THE PAYMENTS MADE TO THE ASSESSEE (PARA 6.C OF ASSE SSMENT ORDER) WILL NOT SUPPORT THE STAND TAKEN BY HIM BECA USE AS PER THE AGREEMENTS THE PERPETUAL AND PERMANENT RIGHTS I N THE NEGATIVES HAVE BEEN ASSIGNED TO THE APPELLANT BY TH E PRODUCERS WITH A RIGHT TO COLLECT ROYALTY FOR FURTHER TRANSFE R OF RIGHTS TO ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 9 OF 14 EXHIBIT/TELECAST THE FILMS. IF THE APPELLANT DIDN'T HAVE THE RIGHT OF OWNERSHIP OVER THE FILM HE WOULD NOT BE PAID ROYALT Y, RATHER THE PRODUCER WOULD BE PAID ROYALTY. 10. THE CIT (A) NOTED THAT THE ASSESSEE HAS ALSO FI LED CONFIRMATION LETTERS FROM VARIOUS PRODUCERS FROM WH OM HE PURCHASED THE WORLD NEGATIVE RIGHTS, WHO HAVE CONFI RMED THAT THE SALE OF THE WORLD NEGATIVE RIGHTS OF VARIOUS FE ATURES FILMS TO THE ASSESSEE HAS BEEN ACCOUNTED FOR IN THEIR BOOKS' AS CONSIDERATION FOR SALE. 11. THE CIT (A) CONCLUDED AS FOLLOWS: A PERUSAL OF THE ASSESSMENT RECORDS, SHOW THAT THE HAS SHOWN RS.16,81,95,000/- AS SALES AND RS.4,30,06,000/- TOWARDS CLOSING STOCK AND RS.17 ,27,17,500/- AS PURCHASES WHICH CLEARLY INDICATE TH E INTENTION OF THE ASSESSEE AS TO THE TREATMENT OF TH E TRANSACTION AS PURCHASE AND SALE OF FILMS. IT IS AL SO NOTICED THAT THE RIGHTS OVER VARIOUS PICTURES HAVE BEEN SHOWN IN THE STOCK STATEMENTS REFLECTING PURCHASES & SALES THERE FROM. THE FILM 'JOHN APPARAO 40 PLUS' W HICH WAS REFERRED TO BY THE AO IN THE ASSESSMENT ORDER I S ALSO SHOWN AS STOCK PURCHASES AT RS.80 LAKHS & SALE AT RS. 88 LAKHS AND PROFIT OF RS. 8 LAKHS. ALL THESE L EADS TO THE CONCLUSION THAT THE ASSESSEE HAS TRADED IN THE FILM RIGHTS ON OUTRIGHT PURCHASE AND SALE BASIS. EVEN FOR ARGUMENT'S SAKE IF IT IS NOT CONSIDERATION FOR SALE IT IS STILL A DISTRIBUTION RIGHT WHICH IS ALSO EXCLUDED FROM THE AMBIT OF ROYALTY AS PER D. (V) TO EXPL 2 T O SECTION 9 (L)(VI) OF THE IT ACT. IN VIEW OF THE DISCUSSION ABOVE, THE TRANSACTION ON ACCOUNT OF THE AGREEMENT BETWEEN THE PRODUCERS AND THE APPELLANT APPEARS TO BE THE SALE OF WORLD NEGATIVE RIGHTS ON PERPETUAL AND PERMANENT BA SIS AND THE PROVISIONS OF SEC. 194J ARE NOT APPLICABLE AND THERE IS NO LIABILITY TO DEDUCT TAX AT SOURCE THERE FORE THE ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 10 OF 14 DISALLOWANCE MADE BY THE AO U/S. 40(A)(IA) IS UNWARRANTED AND IS THEREFORE ORDERED TO BE DELETED . 12. AGGRIEVED, DEPARTMENT IS IN APPEAL BEFORE US A ND HAS RAISED THE FOLLOWING GROUNDS: 1. THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ORDE R OF THE ASSESSING OFFICER ON THE DISALLOWANCE MADE U/S 40(A)(IA) TREATING THE PAYMENT FOR PURCHASES AS ROY ALTY. 2. THE CIT(A) ERRED IN TREATING THE TRANSACTION WIT H REGARD TO SATELLITE RIGHTS AS OUTRIGHT SALE/PURCHAS E IGNORING THE FACT THAT THERE ARE NO RIGHTS PASSED O N FOR THE FIRST FIVE YEARS. 3. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT( A) OUGHT TO HAVE TREATED THE PAYMENT MADE FOR EXPLOITA TION OF SATELLITE RIGHTS BY THE ASSESSEE AS ACQUISITION OF INTANGIBLE ASSET AND ALLOWED DEPRECIATION @ 25% RAT HER THAN ALLOWING THE ENTIRE PAYMENT AS REVENUE EXPENDITURE. 13. WE FIND THAT SIMILAR IDENTICAL ISSUE HAS BEEN C ONSIDERED BY THE HYDERABAD BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. AISHWARYA ARTS CREATIONS (P) LTD (53 TAXMANN.COM 22 1) DATED 10.12.2014 WHEREIN IT HAS BEEN HELD AS FOLLOWS: SECTION 194J 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). [PARA 8] AS CAN BE SEEN FROM THE PROVISION EXTRACTED HEREINABOVE, ROYALTY AS PER CLAUSE (VI) WOULD TAKE WITHIN ITS AMBIT RENDERING OF ANY SERVICES IN ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 11 OF 14 CONNECTION WITH THE ACTIVITIES REFERRED IN SUB CLAUSES (I) TO (V). IT IS FURTHER EVIDENT FROM THE AFORESAID PROVISION THAT PAYMENTS MADE BY ASSESSEE CAN ONLY BE CLASSIFIED WITHIN CLAUSES (V) OF THE EXPLANATION 2 TO SECTION 9(1). ON CAREFU L READING OF THE SAID CLAUSE (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 PAID FOR SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS. ON A PERUSAL OF ASSIGNMENT AGREEMENT BETWEEN ASSESSEE AND PRODUCERS OF FILM, 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 TREATED AS CONSIDERATION PAID TOWARDS ROYALTY. IN THAT VIEW OF THE MATTER, THE PAYMENTS ARE OUTSIDE THE PURVIEW OF SECTION 194J. HENCE, ASSESSEE CANNOT BE FASTENED WITH LIABILITY UNDER SECTION 201 (1) AND 201 (I A) FOR HAVING DEFAULTED IN DEDUCTING TAX AT SOURCE IN TERMS OF SECTION 194J. [PARA 9). 14. WE ALSO FIND THAT THE MADRAS HIGH COURT IN THE CASE OF SP ALAGUVEL VS. DCIT DATED 21.07.2014 (52 TAXMANN.COM 231 (MADRAS) SUPPORTS THE VIEW TAKEN BY THE HYDERABAD B ENCH WHEREIN IT HAS BEEN HELD AS FOLLOWS: ON EARLIER OCCASION, THE DIVISION BENCH OF THE HIG H COURT IN MRS. K. BHAGYALAKSHMI V. DY. CIT (2014) 22 1 TAXMAN 225 (2013) 40 TAXMANN.COM 350 HAS ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 12 OF 14 CONSIDERED ELABORATELY THE PERPETUAL TRANSFER OF RI GHTS FOR A PERIOD OF 99 YEARS IN TERMS OF SECTION 26 OF COPYRIGHT ACT AND ALSO THE DEFINITION UNDER CLAUSE (5) TO EXPLANATION 2 OF SECTION 9(1)(VI) IN RELATION TO ROYALTY AND HAD COME TO CONCLUSION THAT TRANSFER IN FAVOUR OF ASSESSEE IS A SALE AND, THEREFORE, EXCLUDED FROM DEFINITION OF ROYALTY UNDER SECTION 9(1)( VI). EXPL ANATION 2. [PARA 17]. THEREFORE, THE TRIBUNAL ERRED IN CONC LUDING THAT PAYMENT MADE BY THE ASSESSEE WAS ROYALTY AND NOT SALE. [PARA 17). 15. SINCE THE FACTS IN THE PRESENT CASE ARE SIMILAR , FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE HYDERABAD T RIBUNAL AND THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN TH E CASE OF MRS. K. BHAGYALAKSHMI V. DY. CIT (2014) 221 TAXMAN 225 (2013) 40 TAXMANN.COM 350, WE ARE OF THE OPINION TH AT THE TRANSACTIONS ON ACCOUNT OF THE AGREEMENT BETWEEN TH E PRODUCERS AND THE ASSESSEE APPEARS TO BE THE SALE OF WORLD NE GATIVE RIGHTS ON PERPETUAL AND PERMANENT BASIS AND THE PROVISIONS OF SECTION 194J ARE NOT APPLICABLE AND THERE IS NO LIABILITY T O DEDUCT TAX AT SOURCE. THE DISALLOWANCE MADE BY THE AO U/S 40(A)(I A) IS TO BE DELETED AND THE GROUND NOS. 1 AND 2 RAISED BY THE R EVENUE ARE DISMISSED. 16. THE ALTERNATIVE GROUND RASIED BY THE REVENUE IN GROUND NO.3 BECOMES INFRUCTUOUS AS WE HAVE DISMISSED GROUN D NOS. 1 & 2 OF THE REVENUE. 17. IN THE RESULT, APPEAL IN ITA NO. 2099/HYD/2011 IS DISMISSED. ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 13 OF 14 ITA NO.113/HYD/2013 A.Y 2010-11. 18. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWIN G GROUNDS: (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S.40(A)(IA) TREATING THE PAYMENT FOR PURCHAS E OF SATELLITE RIGHTS AS ROYALTY. (II) WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS A ND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED BY NOT TREATING THE PAYMENT MADE FOR EXPLOITATION OF SATELLITE RIGHTS BY THE ASSESSEE AS ACQUISITION OF INTANGIBLE ASSET ELIGIBLE FOR DEPRECIATION @ 25% RATHER THAN ALLOWING THE ENTIRE PAYMENT AS REVENUE EXPENDITURE. (III) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D IN LAW THE CIT(A) ERRED IN HOLDING THAT THE DISALLOWANCE U/S.40(A)(IA) IS NOT APPLICABLE TO THE AMOUNTS PAID BEFORE 31 ST MARCH OF THE PREVIOUS YEAR. 19. WITH REGARD TO GROUND NO.1, WE HAVE ALREADY DEC IDED THE SAME IN ITA NO.2099/HYD/2011 FOR A.Y 2008-09 AND TH E SAME SHALL HOLD GOOD FOR THIS A.Y ALSO. 20. SINCE WE HAVE ALREADY DECIDED GROUND NO.1 AND D ISMISSED THE REVENUES GROUND, GROUND NOS. 2 & 3 BECOME INFRU CTUOUS. ITA NOS.2099 OF 2011 AND 113 OF 2013 V RAMA KRISHNA HYDERABAD PAGE 14 OF 14 21. IN THE RESULT, APPEAL IN ITA NO.113/HYD/2013 IS DISMISSED. 22. TO SUM UP, BOTH THE APPEALS RAISED BY THE REVEN UE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD JULY, 2015. S D/ - S D/ - (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED 3 RD JULY, 2015. VNODAN/SPS COPY TO: 1. DY. COMMISSIONER OF INCOME TAX, CIRCLE 13(1) HYDERA BAD 2. SRI V. RAMAKRISHNA, PROP. M/S. S.S.COMMUNICATIONS, PLOT NO.8-2-469/D1, ROAD NO.5 BANJARA HILLS, HYDERABAD 3. CIT(A) - II HYDERABAD 4. CIT I HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE BY ORDER