M/s Gemini Film Circuit, Hyderabad V. Dy.CIT, Circle-13(1), Hyderabad

ITA 315/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74694 (ITAT-HYDERABAD)
• Duration Of Justice: 11 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 13-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D SUDHAKAR RAO
• Assessee Lawyers: ANIL NAIR
• Keywords: Bonafide belief; Revenue expenditure
• Section: 40A(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 315/HYD/2013 ASSESSMENT YEAR: 2008-09 M/S GEMINI FILM CIRCUIT, HYDERABAD. PAN AAFFG 4152N VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 13(1), HYDERABAD. APPELLANT RESPONDENT ASSESSEE BY: SRI ANIL NAIR REVENUE BY: SRI D. SUDHAKAR RAO DATE OF HEARING: 22/01/2014 DATE OF PRONOUNCEMENT: 07/03/2014 O R D E R PER CHANDRA POOJARI, AM: THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED A GAINST THE ORDER OF THE CIT(A)-II, HYDERABAD DATED 30/01/2013 FOR THE ASSESSMENT YEAR 2008-09 WHEREIN THE ASSESSEE HAS RA ISED THE FOLLOWING SUBSTANTIAL GROUNDS: 1 )THE CIT(A) ERRED IN OVERRULING THE CONTENTION OF T HE APPELLANT THAT THE COST OF REMAKE RIGHTS WRITTEN OFF WAS REQU IRED TO BE ALLOWED AS A DEDUCTION AS PER THE PROVISION LAID DO WN IN RULE 9A OF THE INCOME TAX RULES WHICH IS NOT COVERED UND ER THE PROVISIONS OF SECTION 40(A)(IA) OF THE IT ACT, 1961 . THE APPELLANT FURTHER SUBMITS THAT THE DISALLOWANCE UNDER SECTION 40(A) ARE LIMITED TO EXPENDITURE COVERED BY SECTION 30 TO 38 IN VIEW OF THE NON OBSTANTE CLAUSE WITH WHICH SECTION 40(A) STARTS NOTWITHSTANDING ANYTHING TO THE CONTR ARY IN SECTION 30 TO 38. THE APPELLANT RELIES ON THE DECISION OF THE HON. TR IBUNAL IN THE CASE OF TEJA CONSTRUCTIONS VS. ACIT [2010] 129 TTJ 57 (HYD)(UO). 2 ITA NO. 315/H/2013 M/S GEMINI FILM CIRCUIT 2) THE CIT(A) ERRED IN CONCLUDING THAT THE AGREEMEN T TO TRANSFER THE REMAKE RIGHTS WERE HANDED OVER TO MANORAMA FILM S ONLY ON 16 TH SEPTEMBER 2006, A DATE AFTER THE AMENDMENT TO THE PROVISIONS OF SECTION 194J AND SECTION 40(A)(IA) OF THE IT ACT. 3) THE CIT(A) ERRED IN CONFIRMING THE ADDITION BY T HE ASSESSING OFFICER ON THE BASIC PRESUMPTION THAT THE PAYMENT T OWARDS REMAKE RIGHTS WAS ROYALTY WHICH WAS LIABLE FOR DE DUCTION OF TAX U/S 194J OF THE IT ACT. THE ADDITION WAS MADE WITHOUT APPRECIATING THE PROV ISIONS LAID DOWN IN THE INDIAN COPYRIGHT ACT WITH RESPECT TO CINEMATOGRAPHIC FILMS. 4) THE APPELLANT FURTHER SUBMITS THAT THERE IS YET ANOTHER REASON AS TO WHY SECTION 40(A)(IA) CAN HAVE NO APPLICATION . THE APPELLANT SUBMITS THAT THE LIABILITY FOR TAX DE DUCTION ABATES ONCE PAYEE HAS ACCOUNTED FOR RECEIPT AND PAID TAX W HERE IT IS PAYABLE, AS DECIDED IN HINDUSTAN COCA COLA BEVERAGE PVT. LTD., VS. CIT [2007]293 ITR 226 (SC). 5) THE APPELLANT SUBMITS THAT WHAT IS CONTRIBUTED A S SHARE CAPITAL IS NOT TRANSFER EXCEPT FOR COMPUTATION OF C APITAL GAINS U/S 45(3), SO THAT IT IS NOT PAYMENT, SO AS TO BE C OVERED BY TDS PROVISIONS AND THE FACT THAT IS SHOWN AS AN ITEM OF INVESTMENT, THAT IS A CREDIT FOR GOODS AND NOT HIRE CHARGES OR ROYALTY. 6) THE APPELLANT FURTHER SUBMITS THAT THE ORDER OF THE CIT(A) DISMISSING THE CLAIM OF THE APPELLANT IS BASED ON I NCORRECT APPRECIATION OF PROVISIONS OF LAW AND FACTS AND THE REFORE NEEDS TO BE SET ASIDE AND CLAIM OF THE APPELLANT ALLOWED. 2. THE ASSESSEE ALSO FILED THE FOLLOWING ADDITIONAL GROUNDS OF APPEAL: THE ONLY ISSUE UNDER CONTENTION IS DISALLOWANCE U/S 40(A)(IA) OF THE IT ACT, 1961 TOWARDS NON DEDUCTION OF TAX UN DER 194J ON REVENUE EXPENDITURE CLAIM OF RS. 15.46 CRORES BY TH E ASSESSEE. IN THIS CONNECTION, AS ALREADY ESTABLISHED, THE ACQ UISITION OF THE SAID PICTURE RIGHT, VALUED AT RS. 15.46 CRORES HAPP ENED IN THE PRECEDING PREVIOUS YEAR AND NOT IN THE PREVIOUS YEA R RELATING TO AY 2008-09. AS SUCH THE DISALLOWANCE, IF AT ALL WAR RANTED, SHOULD ONLY BE IN AY 2007-08 AND NOT IN AY 2008-09. QUITE OBVIOUSLY THERE IS NO AMOUNT PAYABLE AS AT THE YEAR END I.E., 31.03.2008. 3 ITA NO. 315/H/2013 M/S GEMINI FILM CIRCUIT UNDER SAID CIRCUMSTANCES, AS PER THE SPECIAL BENCH DECISION IN MERLYN SHIPPING & TRANSPORTS 16 ITR (TRIB) 1 (VIZAG ) AND APPROVED BY THE ALLAHABAD HIGH COURT IN VECTOR SHIP PING SERVICES, DISALLOWANCE U/S 40(A)(IA) CAN APPLY ONLY TO AMOUNTS PAYABLE/OUTSTANDING AS AT THE YEAR END. HOWEVER CALCUTTA HIGH COURT IN CRESCENT EXPORT SYND ICATES AND GUJARAT HIGH COURT IN SIKIANDARKHAN TUNVAR HAVE TAKEN A CONTRARY VIEW, THAT AMOUNTS PAID ARE ALSO COVERED U/S 40(A)(IA). THE RULE OF JUDICIAL PRECEDENTS DEMANDS THAT THE VI EW FAVOURABLE TO THE ASSESSEE MUST BE ADOPTED AS HELD BY SUPREME COURT IN CIT VS. VEGETABLE PRODUCTS LTD., 8 8 ITR 192. THE BENEFIT OF DOUBT SHOULD INVARIABLY GO TO THE TA XPAYER: PRADIP J MEHTA, 300 ITR 231 (SC). 3. AFTER HEARING THE PARTIES AND FOLLOWING THE RATI O LAID DOWN BY THE HONBLE SUPREME COURT IN CASE OF NTPC LTD., 229 IT R 383(SC), WE ADMIT THE AFORESAID ADDITIONAL GROUNDS FOR ADJUDICA TION. 4. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER WHILE FRAMING THE ASSESSMENT OBSERVED THAT THE CLAIM OF T HE ASSESSEE AT RS. 15,47,88,000/- WRITTEN OFF TOWARDS REMAKE RIGHT S OF LAGE RAHO MUNNA BHAI IN THE COMPUTATION OF INCOME AS FOLLOWS : PROFITS AND GAINS FROM BUSINESS OR PROFESSION NET PROFIT BEFORE TAX AS PER PROFIT & LOSS ACCOUNT 243,849 ADD: DISALLOWANCES AND ITEMS CONSIDERED SEPARATELY - U/S 40(A)(IA) - U/S 40A(3) - DONATIONS - FRINGE BENEFIT TAX - PRIOR YEARS EXPENSES - COST OF REMAKE RIGHTS (LAGE RAHO MUNNABHAI) LESS: ALLOWANCES REMAKE RIGHTS WRITTEN OFF (LAGE RAHO MUNNABHAI) 4,529,209 625,356 505,000 10,845 477,868 124,688,000 154,688,000 TAXABLE INCOME (23,607,873) PARTICULARS OF TAX TAX ON ABOVE PREPAID TAXES TAX DEDUCTED AT SOURCE NIL 1,065,020 INCOME TAX REFUEL DUE 1,065,020 CARRY FORWARD LOSS 4 ITA NO. 315/H/2013 M/S GEMINI FILM CIRCUIT AY 2007-08 AY 2008-09 1,631,733 23,607,873 4.1 THE AMOUNT CLAIMED BY THE ASSESSEE COMPANY IS N OT ALLOWED BY THE AO AS THERE IS NO DEDUCTION OF TDS U/S 194J OF THE IT ACT AND, THEREFORE, BY INVOKING THE PROVISIONS OF SECTION 40 (A)(IA) OF THE ACT, THE ASSESSING OFFICER DISALLOWED THE SAID CLAIM. ON APPEAL, THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICE R. 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 6. BEFORE US THE LEARNED AR OF THE ASSESSEE SUBMITT ED THAT THE SAID PICTURE RIGHT VALUED AT RS. 15.46 CRORE HAPPEN ED IN THE PRECEDING PREVIOUS YEAR AND NOT IN THE PREVIOUS YEAR RELATING TO AY 2008-09. HE SUBMITTED THAT AS PER SECTION 194J OF THE IT ACT, T AX IS TO BE DEDUCTED AT SOURCE AT A TIME OF PAYMENT OR AT THE TIME OF CR EDIT OF THE SAID AMOUNT PAYABLE IN THE BOOKS OF THE ASSESSEE. IT WAS POINTED OUT THAT AS AFFIRMED BY THE REVENUE AUTHORITIES, THE DATE OF CREDIT OF THE SAID AMOUNT IN THE BOOKS OF THE ASSESSEE TO THE ACCOUNT OF THE PARTNER GEMINI INDUSTRIES & IMAGING LTD., IS ON 1 ST APRIL, 2006 AND, THEREFORE, THE LIABILITY TO DEDUCT TAX AT SOURCE, IF AT ALL, I S ON 1 ST APRIL, 2006 AND THE LAW AS APPLICABLE AS ON THAT DATE ONLY WOULD HA VE RELEVANCE. FOR THIS PROPOSITION, HE RELIED ON THE DECISION OF THE ITAT, BANGALORE IN THE CASE HIFI NETWORKS PVT. LTD., IN ITA NOS. 1627/ BANG/2012, A COPY OF WHICH IS PLACED ON RECORD. REFERRING TO THE JUD GMENT OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF RAJASTH AN TAX CONSULTANT ASSOCIATION AND OTHERS VS. CBDT & OTHERS , 229 ITR 667, SUBMITTED THAT SPECIFIC PROVISIONS OF THE SECTION C AN BE APPLICABLE ONLY FROM THE DATE OF ENACTMENT AND THAT THE SAME W OULD APPLY ONLY PROSPECTIVELY. 6.1 REFERRING TO THE FINDING OF THE CIT(A) THAT THE PAYMENT DATES OF ACTUAL PAYMENT MADE BY MANORAMA FILMS TO VINOD CHOP RA FILMS PVT. 5 ITA NO. 315/H/2013 M/S GEMINI FILM CIRCUIT LTD IS AFTER THE DATE OF ENACTMENT OF SECTION, THE AR SUBMITTED AS FOLLOWS: A. THAT THE DATE OF PAYMENT FOR THE RIGHTS IS IRREL EVANT B. THE DATE OF PAYMENT OR CREDIT WHICHEVER IS EARLI ER IS WHAT IS RELEVANT FOR PURPOSES OF TAX DEDUCTION AT SOURCE. C. THE PAYMENT IS, IN ANY CASE, BETWEEN TO THIRD PA RTIES WHO ARE NOT INVOLVED IN THIS TRANSACTION. D. THE CIT(A) HAS NOT BROUGHT ANY EVIDENCE ON RECOR D TO SHOW THAT THE TRANSFER OF RIGHTS HAS NOT IN FACT HAPPENE D ON 1 ST APRIL, 2006, AS EVIDENCED BY THE BOOKS AND RECORDS PRODUCE D BY THE ASSESSEE. E. THE FINDINGS AND CONCLUSIONS OF THE CIT(A) ARE N OT SUPPORTED BY THE ASSESSING OFFICER. 6.2 RELYING ON THE JUDGMENT OF THE HONBLE BOMBAY H IGH COURT IN THE CASE OF CIT VS. KOTAK SECURITIES LTD., 348 ITR 333, THE AR SUBMITTED THAT THE COURT HAS GRANTED RELIEF TO THE ASSESSEE ON THE BASIS OF THE FINDING THAT THE ASSESSEE WAS NOT LIAB LE TO DEDUCT TAX AT SOURCE UNTIL THE YEAR IMMEDIATELY BEFORE THE AMENDM ENT TO THE ACT AND WHERE THE ASSESSEE HAS NOT DEDUCTED TAX AT SOUR CE ON A BONAFIDE BELIEF THAT THERE IS NO NEED TO DEDUCT TAX, THERE C AN BE NO DISALLOWANCE U/S 40(A)(IA) OF THE ACT. . HE SUBMITT ED THAT THE SAID DECISION WAS FOLLOWED BY THE ITAT, HYDERABAD IN ACI T VS. KARVY COMPUTERSHARE PVT. LTD., 23 ITR (TRIB) 599, AND THE ITAT, MUMBAI BENCH IN ITA NO. 2361 AND 2524/MUM/2011 IN ACIT VS. DICGC LTD., AND IN ITA NO. 480/MUM/2011 IN DCIT VS. JAMNADAS KH USALDAS & CO. 7. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT THE EXPENDITURE CANNOT BE ALLOWED ON 2 COUNTS, VIZ., I) THERE IS NO INCURRING OF EXPENDITURE IN THE YEAR UNDER CONSIDER ATION IN TERMS OF RULE 9A AND II) EVEN IF IT IS PRESUMED THAT THERE I S INCURRING OF EXPENDITURE, IT SHOULD BE LIABLE FOR DEDUCTION OF T DS BY VIRTUE OF SECTION 40(A)(IA) R.W.S.194J DEDUCTION CANNOT BE AL LOWED. 6 ITA NO. 315/H/2013 M/S GEMINI FILM CIRCUIT 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES, PERUSED THE RECORD AND HAVE GONE THROUGH THE ORDERS OF THE AUTH ORITIES BELOW AS WELL AS THE DECISIONS CITED. IN THE PRESENT CASE, O RIGINALLY THE EXPENDITURE INCURRED BY MANORAMA FILMS TOWARDS PURC HASE OF TELUGU PICTURE REMAKE RIGHTS OF THE HINDI FILM LAGE RAHO MUNNABHAI, WHICH WAS PAID TO M/S VINOD CHOPRA FILMS PVT. LTD. AND TH E DETAILS OF WHICH ARE AS FOLLOWS: DATE CHQ/DD NO. BANK/BRANCH AMOUNT 16/09/2006 260237 ANDHRA BANK, T. NAGAR, CHENNAI 3,00,00,000 17/10/2006 397127 KOTAK MAHINDRA BANK LTD., CHENNAI 11,25,00,000 18/10/2006 443369 KOTAK MAHINDRA BANK LTD., CHENNAI 75,00,000 31/03/2007 KOTAK MAHINDRA BANK LTD., CHENNAI 46,88,000 TOTAL 15,46,88,000 8.1 THEREAFTER, M/S GEMINI INDUSTRIES & IMAGING LTD ., WAS A PARTNER IN THE PARTNERSHIP FIRM MANORAMA FILMS, THE RIGHTS RELATING TO LAGE RAHO MUNNABHAI WERE ACQUIRED BY MANORAMA FILMS AND THE SAME WAS WITHDRAWN BY DEBITING THE CAPITAL ACCOUNT OF TH E PARTNER GEMINI INDUSTRIES & IMAGING LTD., FROM 01/04/2006. THE RIG HTS SO WITHDRAWN WERE CONTRIBUTED BY GEMINI INDUSTRIES & IMAGING LTD . TO THE CREDIT OF CAPITAL ACCOUNT WITH GEMINI FILM CIRCUIT ON THE SAM E DAY. 8.2 ACCORDING TO THE LEARNED AR, THE MANORAMA FILMS HAS ENTERED INTO TALKS WITH M/S VINOD CHOPRA FILMS PVT. LTD. WH ICH HAS BEEN DOCUMENTED LATER VIDE LETTER DATED 24/04/2006 WHICH FURTHER REQUIRED TO BE FORMALIZED INTO AN AGREEMENT ON A LATER DATE, THE MANORAMA FILMS PAID THE PURCHASE CONSIDERATION TO M/S VINOD CHOPRA FILMS PVT. LTD. VIDE CHEQUES/DDS DATED 16/09/2006, 17/10/2006, 18/10/2006 AND 31/03/2007, WHICH SHOWS THAT THE PURCHASE OF THE RE MAKING RIGHTS WERE AFTER 24/04/2006 WHICH IS SUPPORTED BY THE PAY MENT SCHEDULE WHICH STARTED FROM 16/09/2006 ON WARDS I.E. AFTER T HE AMENDMENT WHICH IS EFFECTIVE FROM 13/07/2007. HE THEREFORE CO NTENDED THAT ON 01/04/2006 NEITHER MANORAMA FILMS NOR GEMINI INDUST RIES AND 7 ITA NO. 315/H/2013 M/S GEMINI FILM CIRCUIT IMAGING PVT., LTD. HAD OWNERSHIP RIGHTS OVER REMAK ING OF THE FILM AND WHEN THERE IS NO OWNERSHIP THERE IS NO QUESTION OF BRINGING IT AS ITS CAPITAL CONTRIBUTION INTO THE PARTNERSHIP DEED DATE D 01/04/2006, AND HENCE, THE AMOUNT IN QUESTION WAS CAPITAL CONTRIBUT ION, THEREFORE, NO TDS PROVISIONS ARE APPLICABLE. 8.3 ACCORDING TO THE REVENUE THERE IS A TRANSFER OF REMAKING RIGHTS FROM MANORAMA FILMS TO THE ASSESSEE FIRM AND WHEN T HERE IS A TRANSFER THERE IS LIABILITY TO DEDUCT TAX AT SOURCE . THE RIGHTS WERE PURCHASED EITHER FROM M/S MANORAMA FILMS OR M/S GEM INI INDUSTRIES & IMAGING LTD., THE PAYMENT WAS MADE IN THE FORM OF CREDIT TO PARTNERS CAPITAL ACCOUNT AND WHILE MAKING THE ENTR Y I.E. CREDITING THE ACCOUNT OF M/S GEMINI INDUSTRIES & IMAGING LTD., TD S IS REQUIRED TO BE MADE AS PER THE PROVISIONS OF SECTION 194J OF TH E ACT. SINCE THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE U/S 194J, T HE EXPENDITURE DISALLOWED U/S 40(A)(IA) OF THE ACT. 8.4 IN THIS CASE, THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 40(A)(IA) AS EXPENDITURE IS OTHERWISE ALLOW ABLE AS DEDUCTION WHILE COMPUTING THE INCOME OF THE ASSESSEE. IN OUR OPINION, FIRST OF ALL, THE ISSUE HAS TO BE DECIDED WHETHER THE EXPEND ITURE LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR PURPOSE OF BUSIN ESS SO AS TO ALLOW THE EXPENDITURE AS A DEDUCTION. IN OUR OPINION, THE ASSESSING OFFICER DID NOT CARRY OUT DETAILED ENQUIRY REGARDING ALLOWA BILITY OF EXPENDITURE BEFORE INVOKING PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. THEREFORE, WE REMIT THE ISSUE TO THE FILE OF THE ASSESSING OFF ICER FOR DE-NOVO ASSESSMENT TO DECIDE THE SAME IN ACCORDANCE WITH LA W. AS WE HAVE REMITTED THE ISSUE BACK TO THE FILE OF THE ASSESSIN G OFFICER, WE REFRAIN FROM ADJUDICATING OTHER GROUNDS RAISED BY THE ASSES SEE AT THIS STAGE. 8.5 IN VIEW OF THE ABOVE FINDINGS, THE GROUNDS RAIS ED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 8 ITA NO. 315/H/2013 M/S GEMINI FILM CIRCUIT 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 07/03/2014. SD/- (ASHA VIJAYARAGHAVAN) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED 07/03/2014. KV COPY FORWARDED TO: 1. M/S GEMINI FILM CIRCUIT, C-19, ROAD NO. 9, FILM NAGAR, JUBILEE HILLS, HYDERABAD 500 096. 2. DCIT, CIRCLE 13(1), HYDERABAD 3. CIT(A)-II, HYDERABAD 4. CIT-I, HYDERABAD. 5. THE DR, ITAT, HYDERABAD