GAYATRI FILMS & MUSIC P.LTD, MUMBAI V. ASST CIT CIR 11(1), MUMBAI

ITA 3493/MUM/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0529 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 19-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARJU GARODIADR
• Section: 143(3)

Judgement Text

3493/M/16(09-10) GAYATRI FILMS 1 INCOME-TAX APPELLATE TRIBUNAL -GBENCH MUMBAI , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./I.T.A./3493/MUM/2016, /ASSESSMENT YEAR: 2009-10 M/S. GAYATRI FILMS & MUSIC PVT.LTD. SAGAR VILLA, ROAD NO.12A, J.V.P.D. SCHEME, VILE PARLE (W) MUMBAI-400 049. PAN:AAACG 8142 J VS. ADDL CIT,CENTRAL CIRCLE -11 (1) 4 TH FLOOR, R.NO.467,AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: MS. ARJU GARODIA-DR ASSESSEE BY: SHRI K. GOPAL / DATE OF HEARING: 23.05.2017 / DATE OF PRONOUNCEMENT: 23.05.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER 29/01/2016 OF THE CIT (A)-4, MUMBAI THE ASSESSEE HAS FILED THE PRESENT APPEAL.DURING THE COURSE OF HEARING BEFORE US, THE AUTHORISED REPRESENTATIVE(AR)DID NOT PRESS FOURTH GROUND OF APPEAL. HENCE, SAME STAN DS DISMISSED AS NOT PRESSED. 2. IT WAS STATED THAT THERE WAS DELAY OF 11 DAYS IN FI LING THE APPEAL BEFORE THE TRIBUNAL. AN AFFIDAVIT IN THAT REGARD HAS BEEN FILED STATING THA T THE PERSON AUTHORISED TO SIGN THE APPEAL MEMO WAS OUT OF STATION ON THE DUE DATE OF FILING T HE APPEAL, THAT THERE WAS NO MALAFIDE INTENTION IN NOT FILING THE APPEAL IN TIME. THE AR REITERATED THE ARGUMENTS THAT ARE PART OF THE AFFIDAVIT AND THE APPLICATION FILED FOR CONDONING T HE DELAY.CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,WE HAVE DECIDED TO ADJUDI CATE THE APPEAL ON MERITS AND CONDONE THE DELAY IN FILING THE APPEAL. 3. EFFECTIVE GROUND OF APPEAL(GOA-2)IS ABOUT ADDITION OF RS.7,26,49,359/-.ASSESSEE- COMPANY,ENGAGED IN THE BUSINESS OF PRODUCTION AND D ISTRIBUTION OF TV SERIALS, FILED ITS RETURN OF INCOME ON 30/09/ 2009,DECLARING TOTAL INCOME OF RS. 1.81 CRORES.INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT.LATER ON THE ASSESS ING OFFICER (AO)ISSUED A NOTICE U/S.148 AND COMPLETED THE ASSESSMENT U/S.143(3) R.WS. 147 O N 27/02/2014,DETERMINING ITS TOTAL INCOME OF RS. 9.13 CRORES BY MAKING ADDITION OF RS. 7.26 CRORES OUT OF AN ACCRUED INCOME AND RS.32.07 LAKHS ON ACCOUNT OF VALUE ADDED TAX(VAT). 3493/M/16(09-10) GAYATRI FILMS 2 4. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA).BEFORE HIM,IT WAS ARGUED THAT ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING,THAT INCOME WAS TO BE DETERMIN ED ONLY ON ACCRUAL BASIS,THAT IT HAD ENTERED INTO AN AGREEMENT WITH MOSER BAER INDIA LTD FOR TELECASTING RE-EDITED TV SERIALS,THAT THE TENURE OF THE SAID AGREEMENT WAS 6 YEARS, THAT DURING THE RELEVANT YEAR IT HAD RECEIVED A SUM OF RS. 1.08 CRORE ONLY OUT OF THE ENTIRE AGREEM ENT VALUE AND HAD OFFERED THE SAME FOR TAX, THAT THE BALANCE AMOUNT HAD BEEN AMORTISED IN NEXT 5 AY.S,THAT THE ADDITION MADE BY THE AO OF RS.7.26 CRORES WAS UNJUSTIFIED AS THE SAME WAS A N ACCRUED INCOME DURING THE YEAR UNDER APPEAL,THAT IN THE CASE OF ONE OF THE ASSESSEE GROU P CONCERNS THE FAA DELETED THE ADDITION MADE ON THE SAME GROUND,THAT THE AO HAD ERRED IN TR EATING THE VAT AS INCOME OF THE ASSESSEE,THAT INCOME RECEIVABLE OUT OF THE AGREEMEN T WITH MOSER BAER INDIA LTD. WAS INCLUSIVE OF 4%VAT. THE FAA,AFTER CONSIDERING THE A VAILABLE MATERIAL, CONFIRMED THE ORDER OF THE AO. 5. BEFORE US, THE AR STATED THAT THE TRIBUNAL HAD DECI DED THE IDENTICAL ISSUE IN CASE OF MOTI SAGAR, A GROUP ENTITY,ON 06/01/2017(ITA/5629/MUM/20 12,AY.2009-10).THE DEPARTMENTAL REPRESENTA -TIVE (DR) STATED THAT MATTER COULD BE D ECIDED ON MERITS. 6. WE FIND THAT IN CASE OF MOTI SAGAR,THE TRIBUNAL HAD DELIBERATED UPON THE SIMILAR ISSUE. WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL AND IT READS AS UNDER: 2. THE EFFECTIVE GROUND OF APPEAL IS ABOUT ADDITION OF RS.41.66 LAKHS.DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE HAD ENTE RED INTO AN AGREEMENT FOR SALE OF A TV SERIAL VIDE AGREEMENT DT.10.4.2008 FOR RS.50.00 LA KHS, THAT THE ASSESSEE HAD OFFERED INCOME OF RS.8.33 LAKHS FOR THE YEAR UNDER CONSIDERATION. THE AO DIRECTED THE ASSESSEE TO RECONCILE THE INCOME AS PER AGREEMENT AND INCOME OFFERED FOR TAX. THE ASSESSEE STATED THAT HE HAD PROPOSED TO OFFER THE INCOME PROPORTIONATELY FROM T HE YEAR UNDER CONSIDERATION TO AY 2014- 15 ( RS.8.33 LAKHS) PER YEAR. 3. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE T HE AO REFERRED TO THE TERMS OF CONTRACT, (CL1.15),(CL.3),(CL.6)AND HELD THAT THERE WAS NOTHI NG IN THE AGREEMENT THAT ALLOWED TERMINA - TION OF THE AGREEMENT BY THE LICENSOR,THAT THE DELI VERABLES AND PERFORMANCE OF OBLIGATIONS UNDER THE AGREEMENT WERE COMPLETED AT THE TIME OF S IGNING THE AGREEMENT, THAT THERE WAS NO DEFERMENT OF CONTRACTUAL OBLIGATION TO ANY FUTURE D ATE ,THAT THE RESCINDING OF THE CONTRACT VESTED ONLY WITH THE LICENSEE AND NOT WITH THE ASSE SSEE,THAT THE AGREEMENT WAS CONCLUSIVELY BINDING ON THE ASSESSEE, THAT THE ENTIRE INCOME, BE ING THE CONTRACT VALUES, HAD FRUCTIFIED ON THE DATE OF SIGNING AND EXECUTION OF AGREEMENT, THA T THERE WAS NO SCOPE OF ANY KIND OF DEFERMENT OF INCOME, THAT THE ENTIRE CONSIDERATION WAS RECEIVED DURING THE YEAR. THEREFORE, HE MADE ADDITION OF RS.41.66 LAKHS (RS.50 LAKHS R S.8.33 LAKHS OFFERED BY THE ASSESSEE FOR THE YEAR UNDER APPEAL). THE AO ALSO PLACED RELIANCE ON AS-9 AND REFERRED TO THE CASE OF UNION LAND & BUILDING SOCIETY (P.) LTD. (83ITR794). 4. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA)BEFORE WHOM HE MADE ELABOR ATE SUBMISSIONS.AFTER CONSIDERING THE ASSESSMENT ORDER AND THE CONTENTIONS OF THE ASSESSE E THE FAA HELD THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH MOSER BAER FOR THE P ERIOD DT. 31.5.09 TO 31.5.14, THAT BEING A LICENSOR HE WAS THE SOLE AND ABSOLUTE OWNER OF THE HOME VIDEO RIGHTS, THAT HE HAD SOLD HIS RIGHTS TO THE LICENSEE, THAT HE HAD RECEIVED RS.50. 00 LAKHS DURING THE YEAR UNDER CONSIDERA - 3493/M/16(09-10) GAYATRI FILMS 3 TION,THAT HE HAD SOLD THE LICENSE AS PER AGREEMENT FOR A PERIOD OF 6 YEARS, THAT HE HAD HANDED OVER DELIVERABLES TO THE BUYER, THAT THE CONSIDERAT ION RECEIVED BY HIM WAS IN LIEU OF TRANSFER OF SALE OF RIGHTS AND GOODS,THAT THE AO WAS RIGHT I N BRINGING TO TAX THE ENTIRE CONSIDERATION RECEIVED DURING THE YEAR UNDER APPEAL TO TAX. FINAL LY, HE UPHELD THE ORDER OF THE AO. 5. DURING THE COURSE OF HEARING BEFORE US, THE AUTHORI SED REPRESENTATIVE (AR) ARGUED THAT THE AO HAD WRONGLY TREATED THE TRANSACTION AS SALE OF GOODS, IT WAS PAYMENT OF ROYALTY TO THE ASSESSEE,THAT HOME VIDEO LICENSING RIGHTS WERE TO C OME BACK TO THE ASSESSEE AFTER A PERIOD OF 6 YEARS ,THAT THE ASSESSEE RECEIVED ROYALTY FOR U SING THE ASSET , ROYALTY WAS INTANGIBLE ASSET. HE REFERRED TO THE CASE OF K.E. GNANAVELRAJA (361I TR446) AND T.N.K. GOVINDRAJULU CHETTY (165 ITR 231).ON A QUERY BY THE BENCH HE STATED THA T THE ASSESSEE HAD OFFERED INCOME OF RS.8.33 LAKHS IN ALL THE SUBSEQUENT YEARS, THAT OR DERS FOR AY.S 2011-12 TO 2013-14 WERE PASSED U/S. 143(3) OF THE ACT, THAT THE AO HAD TAX ED INCOME OF RS.8.33 LAKHS IN ALL THESE YEARS AS WELL AS IN THE YEAR 2010-11,WHEN AN INTIMATION U /S. 143(1) WAS ISSUED, THAT THE AO HAD DOUBLY TAXED THE SAME INCOME.HE REFERRED TO PARA 6- 7 OF THE AGREEMENT AND STATED THAT HOME VIDEO LICENSING AGREEMENT COULD NOT BE CONSTRUED AS AGREEMENT FOR SALE, THAT THE AGREEMENT CLEARLY STIPULATED THE PARTIES AS LICENSOR AND LICE NSEE AND NOT SELLER AND BUYER, THAT HE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND REVEN UE WAS RECOGNISED BASED ON ACCRUAL BASIS.AS PER ACCOUNTING STANDARED-9 INCOME FROM ROY ALTY HAS TO BE RECOGNIZED PROPORTIONATELY OVER A PERIOD OF TIME, THAT THE AGR EEMENT PROVED RECEIPT OF MONEY IN ADVANCE, THAT RECEIPT WOULD NOT CONSTITUTE INCOME, THAT THE TIME OF RECEIPT WOULD NOT ALTER THE CHARACTER OF RECEIPT. DR SUPPORTED THE ORDER OF THE FAA. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH MOSER B AER INDIA LTD., THAT HE RECEIVED RS.50 LAKHS IN PURSUANCE OF THE AGREEMENT, THAT HE DISTRI BUTED THE INCOME OVER A PERIOD OF 6 YEARS, THAT A SUM OF RS.8.33 LAKHS (BEING 1/6 TH ) WAS RECOGNISED AS INCOME FOR THE YEAR UNDER APPE AL, THAT THE BALANCE AMOUNT OF RS.41.66 LAKHS WAS DEFER RED FOR THE REMAINING 5 YEARS AND WAS RECOGNIZED AS LIABILITY IN THE BALANCE SHEET,THAT H E OFFERED INCOME OF RS.8.33 LAKHS IN THE SUBSEQUENT AY.S AND SAME WAS TAXED BY THE AO.S IN T HOSE YEARS. BEFORE PROCEEDING FURTHER WE WOULD LIKE TO REFER TO PARA 6 AND 7 OF THE AGREE MENT AND SAME READ AS UNDER :- 6.2. EFFECT OF EVENT OF DEFAULT. 6.2.1. IN ADDITION TO ANY OTHER RIGHTS AVAILABLE U NDER THIS AGREEMENT OR ANY OTHER LEGAL RECOURSE AVAILABLE TO LICENSEE, ON THE OCCURR ENCE OF AN EVENT OF DEFAULT, LICENSEE SHALL HAVE THE RIGHT TO WITHHOLD THE CONS IDERATION PROPORTIONATE TO THE SAID FILM. 6.2.2 THE LICENSOR FAILS TO CURE THE EVENT OF DEFAU LT WITHIN THE STIPULATED 10(TEN) DAYS, THE LICENSOR MAY OFFER TO REPLACE THE SAID TI TLE WITH ANOTHER CINEMATOGRAPH TITLE OF SAME VALUE ('ALTERNATIVE TITLES'), WHICH L ICENSEE MAY AGREE TO BUT SHALL NOT BE UNDER OBLIGATION TO ACCEPT THE LICENSOR SHAL L PROVIDE SOURCE MATERIAL OF SUCH ALTERNATIVE TILES AGREED BY LICENSEE WITHIN 15 DAYS FROM THE DATE OF SUCH AGREEMENT AND DUE AMENDMENT OF SCHEDULE 1 OF THE PR ESENT AGREEMENT. 6.2.3. IF THE LICENSOR FAILS TO PROVIDE ALTERNATIVE TITLES ACCEPTABLE TO LICENSEE AS SET OUT IN CLAUSE 6.2.2 ABOVE, LICENSEE SHALL AT ITS SO LE DISCRETION RESTRICT THE SCOPE OF THE LICENSE AND REDUCE THE CONSIDERATION PAYABLE IN RESPECT THEREOF IN THE SAME PROPORTION. IF THE CONSIDERATION FOR THE SAID TITLE HAS ALREADY BEEN MADE BY LICENSEE TO THE LICENSOR, THE LICENSOR SHALL REIMBURSE LICEN SEE WITH THE SAME WITHIN 15 DAYS ALONG WITH INTEREST @ 12 % PER ANNUM FROM THE DATE OF PAYMENT OF THE CONSIDERATION TILL THE DATE OF PAYMENT AND/OR REALI ZATION. 6.2.4. NOTWITHSTANDING THE FOREGOING, IN ANY EVENT OF DEFAULT, LICENSEE SHALL HAVE THE RIGHT BUT NOT THE OBLIGATION TO TERMINATE THIS AGREEMENT FORTHWITH AND ON SUCH TERMINATION, THE LICENSOR SHALL BE LIABLE TO REIMBU RSE LICENSEE FOR THE ENTIRE CONSIDERATION AMOUNT PAID BY LICENSEE TO THE LICENS OR WITHIN 15 DAYS ALONG WITH INTEREST @ 12% PER ANNUM FROM THE DATE OF PAYMENT O F THE CONSIDERATION TILL THE DATE OF PAYMENT AND /OR REALIZATION. A PERUSAL OF THE ABOVE CONDITIONS REVEAL THAT THE A GREEMENT COULD BE TERMINATED WITHIN A PERIOD OF 6 YEARS AND AMOUNT HAD TO BE REFUNDED.THE ASSESSEE HAD ALLOWED LICENSEE TO USE 3493/M/16(09-10) GAYATRI FILMS 4 THE RIGHTS AND THEREFORE, THE PAYMENT RECEIVED BY I T HAS TO BE TREATED AS ROYALTY. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING AND IS ENTITLED TO RECOGNISE HIS REVENUE ON ACCRUAL BASIS.THE RIGHTS OF THE TV SERIAL WERE TO C OME BACK TO THE ASSESSEE AFTER A PERIOD OF 6 YEARS.THUS, IT IS NOT A CASE OF SALE. BUT RECEIPT IS DIRECTLY RELATED TO ROYALTY RECEIVED BY THE ASSESSEE FROM THE LICENSEE.AS-9 ALLOWS DEFERMENT OF ROYALTY INCOME. THUS, IN OUR OPINION THE ASSESSEE HAD RIGHTLY OFFERED THE INCOMES IN SIX AY .S PROPORTIONATELY. THEREFORE, REVERSING THE ORDER OF THE FAA AND CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE, WE DECIDE THE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE A SSESSEE . RESPECTFULLY FOLLOWING THE ABOVE ORDER, WE DECIDE F IRST GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE,AS THE FACTS OF BOTH THE CASE ARE IDENTICA L. 6. WITH REGARD TO ADDITION MADE ON ACCOUNT OF VAT,WE W ANT TO MENTION THAT THERE IS NO EVIDENCE TO PROVE THAT SAME WAS NOT PART OF THE PAY MENT RECEIVED FROM MOSER BAYER.THE AMOUNT RECEIVED BY THE ASSESSEE INCLUDED VAT.THEREF ORE,WE HOLD THAT THE ORDER OF THE FAA CANNOT BE ENDORSED.GROUND NO.3 IS DECIDED IN FAVOUR OF THE ASSESSEE. A RESULT,APPEAL FILED BY THE ASSESSEE STANDS PARTLY ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD, MAY, 2017. 23 , 2017 SD/- SD/- ( / RAM LAL NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 23.05 .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 A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.