Indo Overseas Films, CHENNAI V. ITO, CHENNAI

ITA 2404/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7729 (ITAT-CHENNAI)
• Duration Of Justice: 5 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 13-02-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 19-08-2016
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: T BANUSEKAR
• Keywords: Double taxation relief; Non-deduction of tax
• Section: 201(1); 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ' # . $ & ' BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A. NO. 2404/MDS/2016 / ASSESSMENT YEAR : 2008-09 M/S. INDO OVERSEAS FILMS, NO. 50/19, II FLOOR, ABC TRADE CENTRE, DEVI THEATRE COMPLEX, ANNA SALAI, CHENNAI - 600 002. [PAN: AAAFI 8985J] VS. INCOME TAX OFFICER, INTERNATIONAL TAXATION 1(2), CHENNAI - 600 034. ( / APPELLANT) ( / RESPONDENT) ) * / APPELLANT BY : SHRI T. BANUSEKAR, CA -.) * / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT * /DATE OF HEARING : 13.02.2017 * /DATE OF PRONOUNCEMENT : 16.02.2017 /O R D E R PER M. BALAGANESH, ACCOUNTANT MEMBER: THE ASSESSEE IS IN APPEAL IN ITA NO.2404/CHNY/201 6 FOR THE ASSESSMENT YEAR 2008 09 AGAINST ORDER PASSED U/S. 201(1) AND 201(1A) OF THE ACT BY THE LD AO DATED 27.03.2015 FOR NON-DEDUCTION OF TAX AT SOURCE IN RESPECT OF THE PAYMENTS MADE OUTSIDE INDIA. :-2-: I.T.A. NO. 2404/MDS/2016 2. THE ASSESSEE HAD RAISED THE FOLLOWING ADDITIONA L GROUND OF APPEAL :- 'FOR THAT THE ORDER PASSED BY THE ASSESSING OFFICER U/S 201(1) AND U/S 201(1A) IS WITHOUT JURISDICTION AND THAT THE SAME I S LIABLE TO BE QUASHED. ' DURING THE COURSE OF HEARING, THE LD AR STATED THAT HE IS NOT PRESSING THE ADDITIONAL GROUND. ACCORDINGLY, THE ADDITIONAL GRO UND RAISED BY THE ASSESSEE IS DISMISSED AS NOT PRESSED. 3. DURING THE YEAR UNDER APPEAL, THE ASSESSEE MADE PAYMENTS TO VARIOUS PARTIES FOR PURCHASE OF RIGHTS TO EXHIBIT CINEMATOG RAPHIC FILMS IN INDIA, DETAILS OF WHICH ARE AS FOLLOWS: NAME OF THE PARTY / PRODUCER NAME OF THE FILM COST (IN RS) SAHAMONGKOL FILM, BANGKOK, THAILAND BODYGUARD AND C HAI LAI 5,04,037 CINECLICK ASIA (INTERNATIONAL), KOREA D WAR 61,97,1 01 INTERCLICK CO LTD, KOREA THE HOST 16,84,130 FROM A PERUSAL OF THE DEAL MEMOS AND AGREEMENT WITH THE ABOVE REFERRED PARTIES WHICH HAS BEEN REPRODUCED IN THE ORDER PASS ED U/S.201(1) AND 201(1A) OF THE ACT, IT IS CLEAR THAT THE ASSESSEE HAS PURCH ASED RIGHTS TO EXHIBIT THE CINEMATOGRAPHIC FILMS IN VARIOUS MEDIUMS FOR A CERT AIN PERIOD OF TIME. IN THE ORDER U/S.201(1) AND 201(1A) OF THE ACT, THE LD AO OBSERVED THAT THE ASSESSEE HAS ENTERED INTO AGREEMENTS WITH VARIOUS TELEVISION CHANNELS FOR EXHIBITING AND TELECASTING THESE FILMS AND ACCORDINGLY CONCLUDED T HAT PAYMENTS MADE TO THE :-3-: I.T.A. NO. 2404/MDS/2016 ABOVE REFERRED PARTIES CONSTITUTED ROYALTY U/S.9( 1)(VI) AND ALSO AS PER ARTICLE 12 OF THE DTAA WITH THAILAND AND DTAA WITH KOREA. 4. THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CITA WHO UPHELD THE ORDER OF THE LD AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- '1. THE LEARNED ASSESSING OFFICER AND THE LEARNED APPELLATE AUTHORITY ERRED IN HOLDING THAT THE APPELLANT SHOUL D HAVE DEDUCTED TAX AT SOURCE IN RESPECT OF PAYMENTS MADE TO NON-RESIDENT FILM PRODUCERS FOR DISTRIBUTION OF THEIR FILMS IN INDIA. 2. THE LEARNED ASSESSING OFFICER AND THE LEARNED A PPELLATE AUTHORITY ERRED IN HOLDING THAT THE PAYMENTS MADE TO NON-RESI DENT FILM PRODUCERS IS ROYALTY UNDER SECTION 9(1)(VI) OF THE INCOME TAX AC T AND IN FAILING TO NOTE THAT THE SAME IS EXCLUDED IN VIEW OF THE EXCLUSION CLAUSE IN SECTION 9(1)(VI. EXPL. 2. CL (V) OF THE ACT WHICH EXCLUDED CONSIDERA TION FOR SALE, DISTRIBUTION, EXHIBITION OF CINEMATOGRAPHIC FILMS FROM THE PURVIE W OF ROYALTY. 3. THE LEARNED ASSESSING OFFICER AND THE LEARNED A PPELLATE AUTHORITY ERRED IN HOLDING THAT THE PAYMENTS MADE TOWARDS RIG HTS FOR EXHIBITION AND TELECASTING OF CINEMATOGRAPHIC FILMS IN DIFFERENT P LATFORMS LIKE TELEVISION AND SATELLITE BROADCASTING DID NOT CONSTITUTE PAYME NTS FOR SALE, DISTRIBUTION, EXHIBITION OF CINEMATOGRAPHIC FILMS. 4. THE LEARNED ASSESSING OFFICER AND THE LEARNED A PPELLATE AUTHORITY FAILED TO NOTE THAT A CINEMATOGRAPHIC FILMS REMAINS A CINEMATOGRAPHIC FILMS IRRESPECTIVE OF THE MEDIUM OF EXHIBITION LIKE THEATRE, TELEVISION, ETC. AND HENCE CONTINUES TO FALL UNDER THE EXCLUDED CATE GORY IN SECTION 9(1)(VI), EXPL. 2, CL. (V). :-4-: I.T.A. NO. 2404/MDS/2016 5. THE LEARNED ASSESSING OFFICER AND THE LEARNED A PPELLATE AUTHORITY FAILED TO APPLY SECTION 90(2) OF THE ACT, WHICH IS A BENEFICIAL PROVISION TO THE ASSESSEE BY NOT ALLOWING THE EXEMPTION AVAILABL E TO SALE, DISTRIBUTION AND EXHIBITION OF CINEMATOGRAPHIC FILMS UNDER EXCLU SION CLAUSE OF SECTION 9(1)(VI), EXPL. 2, CL. (V) TO THE APPELLANT WHICH O VERRIDES THE PROVISIONS OF THE DTTAS WITH KOREA AND THAILAND WHICH INCLUDED RI GHTS FOR FILMS IN ROYALTY IN VIEW OF SECTION 90(2) 6. ALTERNATIVELY THE ASSESSING OFFICER AFTER HOLDI NG THAT ONLY PART OF THE CONSIDERATION IS TOWARDS TELEVISION AND SATELLI TE BROADCASTING ERRED IN CONCLUDING THAT THE TAX IS TO BE DEDUCTED ON THE EN TIRE PAYMENT AND THE LEARNED APPELLATE AUTHORITY ERRED IN UPHOLDING THE SAME. 7. THE APPELLANT CRAVES THE LEAVE OF YOUR HONOUR T O RAISE SUCH OTHER OR ADDITIONAL GROUNDS OF APPEAL BEFORE OR DURING TH E COURSE OF HEARING.' 5. THE LD AR ARGUED THAT THE PAYMENTS MADE WOULD F ALL WITHIN THE EXCLUSION PROVIDED IN CLAUSE (V) OF THE EXPLANATION 2 TO SECT ION 9(1)(VI) AND HENCE DOES NOT CONSTITUTE ROYALTY. FOR THE SAKE OF CONVENIENCE, THE SAME IS REPRODUCED HEREUNDER :- EXPLANATION 2.FOR THE PURPOSES OF THIS CLAUSE, 'RO YALTY' MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECI PIENT CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS') FOR (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ART ISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONN ECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADI O BROADCASTING, BUT :-5-: I.T.A. NO. 2404/MDS/2016 NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUT ION OR EXHIBITION OF CINEMATOGRAPHIC FILMS . HE SUBMITTED THAT THE CINEMATOGRAPHIC FILM RIGHTS T HAT THE ASSESSEE PURCHASED IS FOR EXHIBITING THEM IN INDIA THROUGH VARIOUS MEDIUM S VIZ., TELEVISION, MALLS HAVING CINEMA HALLS, THEATRES, HOTELS, PAY TV ETC. HE FURTHER SUBMITTED THAT IRRESPECTIVE OF THE MEDIUM THE SAME CONSTITUTES EXH IBITION AND THUS FALLS WITHIN THE EXCLUSION BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS. 6. IN RESPONSE TO THIS, THE LD DR CONTENDED THAT T HE PAYMENTS WERE MADE FOR THE RIGHTS OF CINEMATOGRAPHIC FILMS THAT INCLUDE CI NEMATIC RIGHTS AND OTHER ANCILLARY RIGHTS INCLUDING THEATRICAL AND NON-THEAT RICAL RIGHTS FOR EXHIBITION AND TELECASTING THEM ON DIFFERENT PLATFORMS WHICH INCLU DE TELEVISION TELECASTING AND SATELLITE BROADCASTING. HE FURTHER CONTENDED THAT S INCE THE PAYMENTS WERE MADE TOWARDS RIGHTS FOR BROADCASTING IN RADIO, TELEVISIO N AND SATELLITE BROADCASTS ETC AND THUS THE SAME FALLS UNDER THE AMBIT OF ROYALTY AS PER SECTION 9(1)(VI). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE SHORT ISSUE FOR OUR CON SIDERATION IS WHETHER THE PAYMENTS MADE BY THE ASSESSEE TO THOSE PARTIES CONS TITUTES ROYALTY U/S. 9(1)(VI) OF THE ACT AND WHETHER TAX OUGHT TO HAVE B EEN DEDUCTED AT SOURCE U/S 195 OF THE ACT. THE ASSESSEE HAS MADE PAYMENTS FOR THE COST OF RIGHTS IN THE :-6-: I.T.A. NO. 2404/MDS/2016 CINEMATOGRAPHIC FILMS TO EXHIBIT THEM IN INDIA THRO UGH VARIOUS MEDIUMS. FROM A PERUSAL OF THE DEAL MEMOS AND AGREEMENTS ENTERED WI TH THE PARTIES REPRODUCED IN THE ORDER U/S 201 AND 201(1A) OF THE ACT, IT IS CLEAR THAT THE ASSESSEE IS ONLY A DISTRIBUTOR WHO HAS BEEN GRANTED LICENSED RIGHTS BY THE PARTIES TO EXHIBIT THOSE CINEMATOGRAPHIC FILMS IN INDIA. FROM A PLAIN READIN G OF CLAUSE (V) TO EXPLANATION 2 TO SECTION 9(1)(VI) IT IS CLEAR THAT THERE IS A S PECIFIC EXCLUSION FOR EXHIBITION OF CINEMATOGRAPHIC FILMS FROM THE PURVIEW OF ROYALTY . WHILE IN THE FIRST PART OF THE CLAUSE THERE IS REFERENCE TO FILMS OR VIDEO TAPES F OR USE IN CONNECTION WITH TELEVISION AND VIDEO TAPES FOR USE IN CONNECTION WI TH RADIO BROADCASTING, THERE IS A SPECIFIC MENTION OF CINEMATOGRAPHIC FILMS IN THE LAST PART OF THE CLAUSE THAT EXCLUDES CERTAIN TRANSACTIONS FROM THE PURVIEW OF ROYALTY. THEREFORE IT IS ABUNDANTLY CLEAR THAT THE LAW HAS EXPRESSLY EXCLUDE D CONSIDERATION PAID FOR EXHIBITION OF CINEMATOGRAPHIC FILMS FROM THE AMBIT OF SECTION 9(1)(VI). FURTHER, IRRESPECTIVE OF THE MEDIUM IN WHICH THE CINEMATOGRA PHIC FILMS HAVE BEEN EXHIBITED, THE SAME ONLY CONSTITUTES EXHIBITION OF CINEMATOGRAPHIC FILMS. HENCE, THE CONSIDERATION PAID BY THE ASSESSEE TO THE NON-R ESIDENTS DOES NOT FALL WITHIN THE AMBIT OF ROYALTY U/S. 9(1)(VI) OF THE ACT. W E FIND THAT SECTION 90(2) OF THE INCOME TAX ACT WHICH STATES THAT EITHER THE PROVISI ONS OF THE INCOME TAX ACT OR THE DTAA, WHICHEVER IS MORE BENEFICIAL TO AN ASSESS EE, WOULD BE APPLICABLE TO THE ASSESSEE. FURTHER, CBDT CIRCULAR NO.728 DATED 3 0.10.1995 CLARIFIES THAT TAX SHOULD BE DEDUCTED AT SOURCE AS PER THE PROVISIONS OF THE ACT OR DTAA WHICHEVER IS MORE BENEFICIAL TO THE ASSESSEE. SINCE THE PROV ISIONS OF THE ACT ARE BENEFICIAL TO THE ASSESSEE, THE SAME WOULD APPLY AND CONSEQUEN TLY THE SUMS ARE NOT :-7-: I.T.A. NO. 2404/MDS/2016 CHARGEABLE TO TAX IN INDIA AND DO NOT WARRANT DEDUC TION OF TAX AT SOURCE U/S 195 OF THE ACT. IN THIS REGARD, WE FIND THAT THE HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CEN. (P) LTD VS CIT REPORTED IN (2010) 327 ITR 456 (SC) HAD HELD THAT TDS OBLIGATION WOULD ARISE ON THE ASS ESSEE ONLY WHEN THE SUM IS CHARGEABLE TO TAX IN INDIA U/S 4, 5 & 9 OF THE ACT. 7.1. IN VIEW OF OUR AFORESAID FINDINGS IN THE FACT S AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENT R ELIED UPON HEREINABOVE, WE HOLD THAT THE ASSESSEE IN THE INSTANT CASE CANNOT B E TREATED AS ASSESSEE IN DEFAULT U/S 201(1) OF THE ACT AND CONSEQUENTLY THE INTEREST U/S 201(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 PA RTLY ALLOWED. ORDER PRONOUNCED ON THURSDAY, THE 16TH DAY OF FEBRU ARY, 2017 AT CHENNAI. SD/ - ( ' # . $ ) (DUVVURU RL REDDY) /JUDICIAL MEMBER SD/ - ( ) (M. BALAGANESH) / ACCOUNTANT MEMBER /CHENNAI, 3 /DATED: 16TH FEBRUARY, 2017 JPV * -&45 65 /COPY TO: 1. ) APPELLANT 2. -.) /RESPONDENT 3. 7 ( )/CIT(A) 4. 7 /CIT 5. 5 -&& /DR 6. 9 /GF