ITO, ward-2(1) (1), Ahmedabad V. M/s. Eylex Films Pvt. Ltd., Ranchi

ITA 388/AHD/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2395 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 16-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: LALIT P JAIN
• Assessee Lawyers: S N SOPARKAR
• Keywords: Deemed to accrue or arise in india; TDS
• Section: 6; 143(3); 40(a)(ia); 194C; 201(1)

Judgement Text

, C IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE JUSTICE SHRI P. P. BHATT, PRESIDENT & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NOS. 1808/AHD/2017 & 388/AHD/2018 ( ASSESSMENT YEARS : 2014-15 & 2013-14) INCOME TAX OFFICER WARD-2(1)(1), ABAD 1 ST FLOOR, NAVJIVAN TRUST BUILDING, AHMEDABAD 380014 / VS. M/S. EYLEX FILMS PVT. LTD. 3 RD FLOOR, CHAITANYA, KUNJLAL STREET, GANDHI CHOWK, UPPER BAZAR, RANCHI - 834001 & M/S. EYLEX FILMS PVT. LTD. R.R.S. & ASSOCIATES, 211, KAMAL COMPLEX, NR. STADIUM CIRCLE, OPP. STATE BANK OF INDIA, C.G.ROAD, AHMEDABAD - 380009 ./ ./ PAN/GIR NO. : AACCE2522N ( APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI LALIT P. JAIN, SR.D.R. / RESPONDENT BY : SHRI S. N. SOPARKAR & SHRI BANDISH SOPARKAR, A.RS. DATE OF HEARING 07/03/2019 !'# / DATE OF PRONOUNCEMENT 12/03/2019 / O R D E R ITA NOS. 1808/AHD/17 & 388/AHD/18 [ITO VS. M/S. EYLEX FILMS P. LTD.] A.YS. 2014-15 & 2013-14 - 2 - PER PRADIP KUMAR KEDIA - AM: THE CAPTIONED APPEALS HAVE BEEN FILED AT THE INSTAN CE OF THE REVENUE AGAINST THE RESPECTIVE ORDERS OF THE COMMIS SIONER OF INCOME TAX (APPEALS)-2, AHMEDABAD (CIT(A) IN SHORT), DAT ED 04.05.2017 & 02.11.2017 ARISING IN THE RESPECTIVE ASSESSMENT ORD ERS DATED 13.12.2016 & 22.03.2016 PASSED BY THE ASSESSING OFF ICER (AO) UNDER S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) CON CERNING AYS 2014- 2015 & 2013-14. 2. AS CLAIMED ON BEHALF OF THE REVENUE, THE FACTS A RE SIMILAR AND COMMON ISSUES ARE INVOLVED IN BOTH ASSESSMENT YEARS AND THEREFORE BOTH THE APPEALS WERE HEARD TOGETHER AND DISPOSED O F BY COMMON ORDER. 3. THE CONTROVERSY INVOLVED IN BOTH THE ASSESSMENT YEARS IS IDENTICAL AND BASED ON SIMILAR FACTS. ACCORDINGLY, BOTH THE APPEALS HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. 4. WE SHALL TAKE NOTE OF FACTS AND ISSUE INVOLVED I N ITA NO. 1808/AHD/2017 CONCERNING AY 2014-15 FOR ADJUDICATIO N PURPOSES FOR THE SAKE OF CONVENIENCE. ITA NO. 1808/AHD/2017 - AY 2014-15 5. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA D AS UNDER: 1. THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWANCE OF RS.4,76,26,714/- U/S. 40(A)(IA) OF THE IT ACT ON ACCOUNT OF NON DEDUCTION OF TDS. 6. WHEN THE MATTER WAS CALLED FOR HEARING, THE L EARNED DR FOR THE REVENUE RELIED UPON THE OBSERVATIONS MADE BY THE AO AND CONTENDED ITA NOS. 1808/AHD/17 & 388/AHD/18 [ITO VS. M/S. EYLEX FILMS P. LTD.] A.YS. 2014-15 & 2013-14 - 3 - THAT THE PAYMENTS MADE BY THE ASSESSEE TO THE DISTR IBUTORS ARE IN THE NATURE OF ROYALTY. THE ASSESSEE HAVING FAILED TO D EDUCT TAX AT SOURCE UNDER S.194J OF THE ACT, THE AO HAS RIGHTLY DISALLO WED THE EXPENSES OF RS.4,76,27,714/- BY INVOKING SECTION 40(A)(IA) OF T HE ACT. 7. THE LEARNED AR FOR THE ASSESSEE, ON THE OTHER H AND, BROADLY REITERATED THE FACTS PLACED BEFORE THE CIT(A) AND R ELIED UPON THE DECISION DRAWN BY THE CIT(A). THE LEARNED AR FOR T HE ASSESSEE IN FURTHERANCE REFERRED TO THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF MRS. K. BHAGYALAXMI VS. DCIT [ 2013] 40 TAXMANN.COM 350 (MAD.) AND DECISION OF THE CO-ORDIN ATE BENCH REFERRED IN THE CASE OF INDO-OVERSEAS FILM VS. ITO (2017) 81 TAXMANN.COM 378 (CHENNAI) FOR THE PROPOSITION THAT REVENUE SHARING EXPENSES PAID TO THE DISTRIBUTOR OF THE CINEMATOGRA PHIC FILM OUT OF REVENUE EARNED FROM EXHIBITION OF FILM IS OUT OF TH E AMBIT OF SECTION 194J OF THE ACT WHICH IN TURN REFERS TO EXPLANATION 2 TO CLAUSE (VI) OF SUBSECTION (1) OF SECTION 9 FOR THE PURPOSES OF ASC ERTAINING THE MEANING OF EXPRESSION ROYALTY. THE LEARNED AR RE FERRED TO THE AFORESAID EXPLANATION TO SECTION 9 AND SUBMITTED TH AT THE AFORESAID EXPLANATION CLEARLY EXCLUDES THE CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILM FROM THE SWEEP OF DEFINITION OF ROYALTY. IT WAS THUS SUBMITTED THAT REVENUE SHARING EXPENSES INCURRED BY THE ASSESSEE WITH THE DISTRIBU TORS OF THE FILM DOES NOT PARTAKE THE CHARACTER OF ROYALTY FOR THE P URPOSES OF SECTION 194J OF THE ACT IN VIEW OF THE EXPRESS STATUTORY EX CLUSION. THE LEARNED AR ASSERTED THAT THE CIT(A) HAS CORRECTLY A PPRECIATED THE FACTS IN PROPER PERSPECTIVE AND RIGHTLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN VIEW OF THE JUDICIAL DECISIONS AS W ELL AS THE EXPRESS AND UNAMBIGUOUS LANGUAGE OF SECTION 194J R.W.S. 9(1 ) OF THE ACT. THE LEARNED AR ACCORDINGLY SUBMITTED THAT NO INTERFEREN CE WITH THE ORDER OF THE CIT(A) IS PLAUSIBLE. ITA NOS. 1808/AHD/17 & 388/AHD/18 [ITO VS. M/S. EYLEX FILMS P. LTD.] A.YS. 2014-15 & 2013-14 - 4 - 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE SHORT CONTROVERSY AS TO WHETHER PAYMENTS MADE BY THE ASSE SSEE TO THE DISTRIBUTORS OF THE FILMS CONSTITUTES FEE FOR PROFE SSIONAL OR TECHNICAL SERVICES WITHIN THE AMBIT OF SECTION 194J OF THE AC T. SECTION 194J OF THE ACT INTER ALIA INCLUDES ROYALTY FOR THE PURPOSES OF DEDUCTION OF TAX AT SOURCE. IT IS THE CASE OF THE ASSESSEE THAT THE REVENUE SHARING EXPENSES INCURRED BY THE ASSESSEE IN THE NATURE OF ROYALTY IS NOT COVERED WITHIN THE SWEEP OF SECTION 194J OF THE ACT IN VIEW OF THE SPECIFIC EXCLUSION PROVIDED FOR CONSIDERATION FOR T HE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILM. THUS, THE P AYMENT IN RESPECT OF EXHIBITION FILMS IS SPECIFICALLY EXCLUDED UNDER S.194J OF THE ACT. IT IS THUS THE CASE OF THE ASSESSEE THAT PROVISIONS OF SECTION 40(A)(IA) OF THE ACT DOES NOT GET TRIGGERED IN THE ABSENCE OF AN Y OBLIGATION TO DEDUCT TDS UNDER S.194J OF THE ACT. ON FACTS A REF ERENCE WAS MADE TO SAMPLE INVOICES RAISED BY THE DISTRIBUTORS, NAMELY, ROSE VALLEY FILMS PVT. LTD. AND UTV SOFTWARE COMMUNICATION LTD. TO DE MONSTRATE THE SHARING OF THE REVENUE BETWEEN THE ASSESSEE AND DIS TRIBUTORS OUT OF GROSS REVENUE COLLECTED FROM EXHIBITION OF THE FILM . 8.1 WE HAVE PERUSED THE ORDER OF THE CIT(A) TAKING NOTE OF THE RELEVANT FACTS AND APPLICABLE LAW IN GREAT LENGTH W HILE CONCLUDING THE ISSUE. IT WILL BE APT TO REPRODUCE THE RELEVANT OP ERATIVE PARA OF THE ORDER OF THE CIT(A) IN THIS REGARD: 3.3 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, ASSESSMENT ORDER AND SUBMISSION OF THE APPELLANT. THE AO HAS MADE THE DISALLOWANCE OF RS.4,76,27,714/- TOWARDS THE PAYMEN T MADE BY THE APPELLANT FOR PURCHASE OF THE FILMS FROM THE DISTRI BUTORS INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT STATING THAT THE APPELLANT HAS NOT MADE THE TDS ON THE AFORESAID PAYMENTS AND HENC E IT HAS VIOLATED THE PROVISIONS OF SECTION 194J OF THE ACT. THE AO O BSERVED THAT THE AFORESAID PAYMENTS WERE IN THE NATURE OF ROYALTY FO R ACQUIRING RIGHTS IN THE INTELLECTUAL PROPERTY OF THE PRODUCE THROUGH TH E DISTRIBUTORS. 3.4. ON THE OTHER SIDE, THE APPELLANT HAS SUBMITTED THAT IT WAS MAINLY THE EXHIBITOR OF THE FILMS BY PROCURING FROM THE DI STRIBUTORS. FURTHER IT HAS ALSO DERIVED THE MONTHLY FIXED CHARGES INCOME F OR FACILITATING SMALL ITA NOS. 1808/AHD/17 & 388/AHD/18 [ITO VS. M/S. EYLEX FILMS P. LTD.] A.YS. 2014-15 & 2013-14 - 5 - CINEMA HALLS TO PROCURE CINEMATOGRAPHIC FILM UNDER THE BANNER OF APPELLANT FROM THE PRINCIPAL, DISTRIBUTORS. IN THIS REGARD THE FILM IS SUPPLIED DIRECTLY.BY THE PRINCIPAL DISTRIBUTOR TO S UCH SMALL CINEMA HOUSES, BUT IT HAS ALSO ACTED AS DISTRIBUTOR AS WEL L SUB-DISTRIBUTOR OF MOVIES. THUS FOR THE BUSINESS PURPOSE, IT HAS MADE THE PAYMENT FOR FILM DISTRIBUTION SHARE EXPENSES PAID TO DISTRIBUTORS FO R PURCHASE OF CINEMATOGRAPHIC FILMS TO EXHIBIT IN THE CINEMA HOUS ES. THE NATURE OF INCOME DERIVED BY THE APPELLANT WAS FROM BOX OFFICE COLLECTION NET OF ENTERTAINMENT TAX AND THESE REVENUES ARE SHARED WIT H THE FILM DISTRIBUTORS FROM WHOM THE FILM IS PROCURED FOR EXH IBITIONS. THE SHARING OF REVENUE PROCEEDS WITH BOTH THE PARTIES I S BASED ON THE INDEPENDENT TERMS NEGOTIATED WITH THE EXHIBITORS AS PER THE CONTRACT AND THE FILM DISTRIBUTORS ON A FILM WISE AND WEEK W ISE BASIS. THIS CONTRACT VARIES FROM FILM TO FILM AND GENERALLY FAR A FIXED PERIOD OF ONE WEEK OR TWO WEEK AND THE SAME IS ALSO DEPENDENT ON TYPE OF CINEMAS, THE GEOGRAPHICAL TERRITORY, THE CENTRE AND THE OTHE R FACTOR INCLUDING PRE RELEASE FILM RATING ETC. THE MOVIE IS DOWNLOADE D THROUGH V-SAT AND SCREENED THROUGH COMPUTERIZED SYSTEM AS NEW TECHNOL OGY HAS COME IN PLACE REMOVING THE OLD ANLOG SYSTEM. IT HAS ALSO BE EN SUBMITTED THAT THE PROVISIONS OF CHAPTER-XVIIB ARE NOT ATTRACTED F OR SHARING OF THE REVENUE PROCEEDS WITH THE DISTRIBUTORS OUT OF THE B OX OFFICE COLLECTIONS. EVEN THE PROVISIONS OF SECTION 194C IS ALSO NOT APP LICABLE IN VIEW OF THE JUDGMENT OF HON'BLE MUMBAI HIGH COURT IN THE CA SE OF M/S.SHRINGAR CINEMAS PVT. LTD. AND OTHERS. EVEN THE PROVISIONS OF SECTION 1941 ARE ALSO NOT APPLICABLE IN VIEW OF THE CIRCULAR NO,736 DTD. 13.2.1996 WHICH HAS BEEN REPRODUCED BY THE APP ELLANT IN ITS WRITTEN SUBMISSION REPRODUCED ABOVE. 3.5. NOW WITH REGARD TO THE PROVISIONS OF SECTION 1 94J OF THE ACT, FHE ROYALTY IS DEFINED U/S.9 OF THE ACT AND AS PER THE SAID SECTION THE CONSIDERATION FOR SALE /DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS HAS BEEN EXCLUDED FROM THE DEFINITION OF ROYA LTY. THIS HAS BEEN SPECIFICALLY MENTIONED IN SUB-CLAUSE [VJ OF SECTION 9 OF I.T. ACT. FROM THE ABOVE DEFINITION THE PAYMENT MADE BY THE APPELL ANT CANNOT BE INCLUDED UNDER THE DEFINITION OF ROYALTY U/S.9 OF T HE ACT AND THEREFORE THE PROVISIONS OF SECTION 194J ARE NOT APPLICABLE. THE APPELLANT HAS ALSO SUBMITTED THAT THE TDS SURVEY IN THE YEAR 2013 HAS ALSO TOKEN PLACE AT HIS PREMISES AND NO SUCH DEFAULTS FOR THES E TYPE OF PAYMENTS HAVE BEEN OBSERVED BY THE TDS SURVEY PARTY AND THEY WERE SATISFIED WITH THE EXPLANATIONS GIVEN BY THE APPELLANT. 3.6. HAVING CONSIDERED THE FACTS AND SUBMISSIONS, I T HAS BEEN NOTICED THAT MAINLY THE APPELLANT HAS THE BUSINESS OF EXHIB ITION OF CINEMATOGRAPHIC FILMS BY PROCURING THE SAME FROM TH E DISTRIBUTOR. IN CONSIDERATION OF SUCH PROCUREMENTS, THE APPELLANT H AS DIFFERENT MODULES FOR PAYMENTS TOWARDS REVENUE SHARING SUCH A S LUMPSUM PAYMENT, WEEKLY BASIS PAYMENTS, PERCENTAGE IN BOX O FFICE COLLECTIONS ETC. ALL THESE PAYMENTS ARE NOTHING BUT THE PROCURE MENT CHARGES MEANING THEREBY PURCHASES OF THE RIGHTS OF EXHIBITI ON FOR O CERTAIN PERIOD AS PER THE TERMS AND CONDITIONS OF THE CONTR ACT. THUS, THE SAME HAS BEEN DEBITED IN THE BOOKS OF ACCOUNT UNDER THE HEAD OF FILM DISTRIBUTION SHARE EXPENSES IN THE PROFIT AND LOSS ACCOUNT. IT HAS ALSO BEEN NOTICED THAT THE AO HAS ALLEGED OF INVOKING TH E PROVISIONS OF ITA NOS. 1808/AHD/17 & 388/AHD/18 [ITO VS. M/S. EYLEX FILMS P. LTD.] A.YS. 2014-15 & 2013-14 - 6 - SECTION 194J OF THE ACT WHICH ARE IN RESPECT OF PRO FESSIONAL SERVICES, TECHNICAL SERVICES, ROYALLY ETC. IT HAS BEEN NOTICE D THAT THESE PAYMENTS HAVE BEEN MADE BY THE APPELLANT TO THE DISTRIBUTORS AND THE SAME HAVE BEEN EXCLUDED FROM THE DEFINITION OF ROYALTY PROVID ED U/S,9(1)[V) OF LT. ACT. 3.7. FOR READY REFERENCE THE SAID PROVISION IS REPRODUCED AS UNDER:- '9(1)(V) (1) THE FOLLOWING INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENSE) IN RESPECT OF ANY COPYRIGHT, LITERARY AR TISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONN ECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDER ATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMAT OGRAPHIC FILMS.' 3.8. SIMILARLY, THE PROVISIONS OF SECTION 9(1)(VII) EXPLANAITON-2 ARE ALSO NOT APPLICABLE FOR THE REASON THAT THESE PROCU REMENT CHARGES CANNOT BE SAID TO BE FOR RENDERING OF ANY MANAGERIA L, TECHNICAL OR CONSULTANCY SERVICES. THUS THE PAYMENTS DOES NOT FA LL NEITHER AS ROYALTY U/S.9(1)(V) NOR U/S.9(1 )(VII) OF I.T. ACT AS A FEE FOR TECHNICAL SERVICES. 3.9. IT HAS ALSO BEEN NOTICED THAT THE HON'BLE 1TAT, AHMEDABAD IN THE CASE OF SUNSET DRIVE-IN CINEMA (P) LTD. VS. ITO [5 SOT 64] HAS HELD THAT NO TDS IS REQUIRED TO BE DEDUCTED FOR THE PAYMENT OF FILM DISTRIBUTION SHARE. THE RELEVANT EXTRACT OF THE DEC ISION IS REPRODUCED HEREUNDER:- '6. FROM THE ABOVE, IT IS CLEAR THAT SECTION 194C WOUL D BE APPLICABLE IF ANY PERSON IS MAKING PAYMENT OF ANY S UM TO ANY RESIDENT FOR CARRYING OUT ANY WORK. IN THE CASE UND ER CONSIDERATION BEFORE US THE ASSESSEE IS EXHIBITING THE FILMS IN THE CINEMA OWNED BY IT. THE RECEIPT FROM THE EXHIBITION OF FILMS IS SHARED BETWEEN THE ASSESSEE AND THE DISTRIBUTOR ON THE TERMS AGREED BETWEEN THEM. THEREFORE, THE QUESTION IS WHE THER THE AMOUNT COLLECTED BY THE ASSESSEE ON EXHIBITION OF F ILMS AND PART OF WHICH IS SHARED WITH THE DISTRIBUTOR, IS COVERED WITHIN THE AMBIT OF DEFINITION OF 'CONTRACT FOR CARRYING OUT A NY WORK'. IN OUR OPINION, THERE IS NO WORK CARRIED OUT BY THE DI STRIBUTOR. THE DISTRIBUTOR IS GETTING HIS SHARE BECAUSE HE HAS ACQ UIRED RIGHTS OF THE DISTRIBUTION OF THE FILMS IN PARTICULAR AREA. N O WORK IS CARRIED OUT BY THE DISTRIBUTOR FOR WHICH THE PAYMEN T IS MADE. MOREOVER, EXPLANATION (III) TO SECTION 194C DEFINES THE WORD 'WORK'. IN SUCH DEFINITION OF 'WORK' ALSO THE EXHIB ITION OF FILMS DOES NOT FALL. IT WAS VEHEMENTLY CONTENDED BY THE L EARNED DR THAT THE ABOVE DEFINITION OF 'WORK' IS ONLY INCLUSI VE DEFINITION AND THEREFORE, EVEN IF THE DISTRIBUTION OF FILM IS NOT MENTIONED IN THE DEFINITION, THE SAME BE COVERED BY THE DEFINITI ON. WE ARE UNABLE TO AGREE WITH THIS CONTENTION OF THE LEARNED DR BECAUSE ITA NOS. 1808/AHD/17 & 388/AHD/18 [ITO VS. M/S. EYLEX FILMS P. LTD.] A.YS. 2014-15 & 2013-14 - 7 - THE LEGISLATURE HAS INCLUDED THE WORD 'BROADCASTING ' AND 'TELECASTING' AND PRODUCTION OF PROGRAMMES. IF THE LEGISLATURE WANTED TO INCLUDE THE DISTRIBUTION OF FILM THEY COU LD HAVE INCLUDED THE SAME ALONG WITH BROADCASTING AND TELEC ASTING. WE FIND THAT SIMILAR VIEW IS TOKEN BY THE SMC BENCH OF ITAT IN THE CASE OF ESSEM ENTERTAINMENT (PJ LTD. (SUPRA) AND AL SO BY THE ITAT, AHMEDABAD BENCH 'C' IN THE CASE OF CITY GOLD ENTERTAINMENT (P.) LTD. [SUPRA) WHEREIN IT IS HELD AS UNDER: '8. WE HAVE CONSIDERED THE SUBMISSIONS OF LD. DR IN THE LIGHT OF MATERIAL AVAILABLE ON RECORD. THERE IS NO MATERIAL ON RECORD TO RAISE ANY DOUBT ABOUT THE FACTS MENTIONED IN THE OR DER OF THE CIT(A). THEREFORE, WE PROCEED ON THE BASIS THAT THE FINDINGS OF THE LEARNED CIT[A) ON FACTS ARE UNDISPUTED. MAIN BA SIS FOR THE ASSESSING OFFICER FOR HOLDING THAT THE ASSESSEE WAS LIABLE TO DEDUCT AT SOURCE UNDER SECTION 194C OF THE ACT IS T HE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ACC LTD. ( SUPRA) AND ALSO CIRCULAR NO. 681 OF CBDT. WE FOUND THAT THE HO N'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ALL GUJARA T FEDERATION OF TAX CONSULTANTS V. CBDT [SUPRA ) HAS CONSIDERED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF ACC LTD . ( SUPRA) AS WELL AS CIRCULAR NO. 681. AFTER CONSIDERING THE DEC ISION OF THE HON'BLE SUPREME COURT THEIR LORDSHIPS HAVE QUASHED THE CIRCULAR NO. 681 ISSUED BY THE CBDT. THEREFORE, THE ASSESSING OFFICER WAS WRONG IN TAKING COGNIZANCE OF CIRCULAR WHICH WAS PURPORTED TO BE GIVEN BY THE CBDT IN ACCORDANCE WIT H THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF AA C LTD. THE RATIO OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ALL GUJARAT FEDERATION OF TAX CONSULTAN TS V. CBDT (SUPRA) IS THAT THE INTENDMENT FOR PROFESSIONAL SER VICES 'OR SERVICE SIMPLICITOR WHICH DO NOT INVOLVE CONTRACT F OR CARRYING OUT ANY WORK ITSELF OR A CONTRACT FOR A LABOUR FOR CARR YING OUT SUCH SERVICES ARE NOT WITHIN THE PURVIEW OF SECTION 194C OF THE ACT AS IT EXISTED AT THE RELEVANT TIME. AS MENTIONED EARLI ER, THE ACTIVITY CARRIED ON BY THE ASSESSEE IS EXHIBITION OF FILM IN ITS THEATRE WHICH HAS BEEN SUPPLIED BY THE DISTRIBUTOR. THE SAI D ACTIVITY CANNOT FALL WITHIN THE CATEGORY OF 'WORK' WITHIN TH E AMBIT OF SECTION 194C, AS PER THE DECISION OF JURISDICTION HIGH COURT IN THE CASE OF ALL GUJARAT FEDERATION OF TAX CONSULTAN TS V. CBDT (SUPRA). NOW THE QUESTION WILL REMAIN THAT WHETHER SUCH ACTIVITY FALLS UNDER THE EXPLANATION III TO SECTION 194C. TH E EXPLANATION 111 READS AS UNDER: 'EXPLANATION III. FOR THE PURPOSES OF THIS SECTION , THE EXPRESSION 'WORK' SHALL ALSO INCLUDE (A )ADVERTISING; (B)BROADCASTING AND TELECASTING INCLUDING PRODUCTIO N OF PROGRAMMES FOR SUCH BROADCASTING OR TELECASTING; (C)CARRIAGE OF GOODS AND PASSENGERS BY ANY MODE OF TRANSPORT OTHER THAN BY RAILWAYS; (D)CATERING.' ITA NOS. 1808/AHD/17 & 388/AHD/18 [ITO VS. M/S. EYLEX FILMS P. LTD.] A.YS. 2014-15 & 2013-14 - 8 - 9. THE ABOVEMENTIONED EXPLANATION HAS BEEN INSERTED BY THE FINANCE ACT, 1994 W.E.F 1-7-1995. THE EXHIBITION OF FILM IN THEATRE IS NOT AN ACTIVITY EXPRESSLY COVERED BY THE EXPLANATION 111. ANYTHING WHICH IS NOT EXPRESSLY COVERED UNDER THE CATEGORY OF WORK CANNOT BE REGARDED AS 'WORK' BY EXTENDED ME ANING OF WORK AS DESCRIBED IN SECTION 194C OF THE ACT. THE F OLLOWING OBSERVATION OF THE HON'BLE GUJARAT HIGH COURT FROM THE DECISION IN THE CASE OF ALL GUJARAT FEDERATION OF TAX CONSUL TANTS V. CBDT (SUPRA) (PAGE NOS. 292-293) SUPPORT THIS VIEW. 'IN OUR CONCLUSION, WE ARE FURTHER STRENGTHENED BY THE FACT THAT THE LEGISLATURE INTENDED TO MAKE A SEPARATE PROVISI ON FOR BRINGING THE SERVICE CONTRACT AND PROFESSIONAL SERV ICE WITHIN THE PURVIEW OF THE PROVISION RELATING TO TAX DEDUCTION AT SOURCE, BY THE FINANCE BILL, 1987 WHICH HAS BEEN QUOTED ABOVE. ONCE AGAIN THE FINANCE BILL, 1995, A SIMILAR INSERTION HAS BEE N PROPOSED. HAD THE SERVICE RENDERED BY THE PROFESSIONALS LIKE, ADVOCATES, CHARTERED ACCOUNTANTS, ENGINEERS, PHYSICIANS, ARCHI TECTS ETC. ALREADY BEEN WITHIN THE SCOPE AND AMBIT OF SECTION 194C, THE LEGISLATURE WOULD NOT HAVE RESORTED TO THIS EXERCIS E. IT CANNOT BE ASSUMED THAT THE LEGISLATURE USES OR INDULGES IN ON EXERCISE FOR BRINGING SOMETHING BY WAY OF SURPLUS. LIKEWISE, IT MAY BE NOTICED THAT THE PROFESSION/BUSINESS OF ADVERTISING , BROADCASTING AND TELECASTING INCLUDING PRODUCTION OF PROGRAMMES FOR SUCH BROADCASTING OR TELECASTING, CARRIAGE OF GOODS BY R AILWAY ETC. WHICH ARE BEING NOW BEEN DESIGNED TO BE INSERTED TO BE GIVEN EFFECT WITH EFFECT FROM JULY 1, 1995. IN VIEW OF TH IS CLEAR INTENTION OF INCLUDING BEING EFFECTIVE FROM A PROSP ECTIVE DATE, IT IS CLEARLY BY INDICATE OF THE FACT THAT THE PROPOSE D AMENDMENT IS NOT BROUGHT BY WAY OF CLARIFICATION OF ANY EXISTING PROFESSIONS BUT IS INTENDED TO BRING SUBSTANTIAL CHANGE IN THE EXISTING PROVISION. WE MAY NOT BE TAKEN TO HAVE CONSTRUED TH E EXISTING PROVISION WITH THE AID OF THE PROPOSED AMENDMENT, B UT WE HAVE REFERRED TO THEM ONLY BY WAY OF STRENGTHENING THE C ONCLUSION TO WHICH WE HAVE ARRIVED INDEPENDENTLY OF IT. 10. THEREFORE, THERE IS NO POSSIBILITY OF ANY ASS UMPTION THAT LEGISLATURE USES OR INDULGES IN EXERCISE FOR BRINGI NG SOMETHING BY WAY OF SURPLUS. THE ACTIVITY MENTIONED IN THE EX PLANATION III ONLY CAN BE CONSIDERED TO BE AS A 'WORK' WITHIN THE EXTENDED MEANING OF 'WORK'. THE EXHIBITION OF FILM IN THE TH EATRE HAS NOT BEEN DESCRIBED IN THE ABOVE EXPLANATION THEREFORE A LSO, THERE IS NO CASE OF THE REVENUE, BY WHICH IT CAN BE HELD THA T THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE FROM THE PAYME NTS MADE BY IT TO THE DISTRIBUTOR OF FILMS. IN VIEW OF ABOVE DI SCUSSION ON FACTS AND LAWS, WE FIND NO MERITS IN THE APPEALS FILED BY THE DEPARTMENT AND THE SAME ARE DISMISSED.' WE ENTIRELY AGREE WITH THE ABOVE FINDING OF THE TRI BUNAL, AHMEDABAD BENCH 'C'. NO CONTRARY DECISION IS BROUGH T TO OUR KNOWLEDGE. IN VIEW OF ABOVE, WE HOLD THAT THE ASSES SEE WAS NOT REQUIRED TO DEDUCT IDS ON SHARING OF RECEIPT FROM T HE EXHIBITION ITA NOS. 1808/AHD/17 & 388/AHD/18 [ITO VS. M/S. EYLEX FILMS P. LTD.] A.YS. 2014-15 & 2013-14 - 9 - OF FILMS WITH THE DISTRIBUTOR. ACCORDINGLY, WE QUAS H THE ORDERS PASSED UNDER SECTION 201(1) AND 201(1A). 7. IN THESE APPEALS THE ONLY COMMON GROUND RAISED B Y THE ASSESSEE IS AGAINST THE LEVY OF PENALTY UNDER SECTI ON 271(1)(C)-C AMOUNTING TO RS. 1,93,160, RS. 1,23,100 AND RS. 1,1 9,254 FOR ASSESSMENT YEARS 2002-03, 2003-04 AND 2004-05 RESPE CTIVELY. THE ASSESSING OFFICER HAS LEVIED THE PENALTY FOR FA ILURE OF THE ASSESSEE TO DEDUCT THE TAX ON THE PAYMENT TO DISTRI BUTOR. WHILE CONSIDERING THE ASSESSEE'S APPEALS AGAINST THE ORDE RS UNDER SECTION 201, WE HAVE ALREADY HELD THAT THE ASSESSEE WAS NOT REQUIRED TO DEDUCT THE TAX ON THE PAYMENT OF DISTRI BUTOR'S SHARE BY THE ASSESSEE. SINCE WE HAVE ALREADY CANCELLED TH E ORDERS OF ASSESSING OFFICER UNDER SECTION 201 (1)/201(1A), TH E PENALTY BASED UPON SUCH ORDER CANNOT BE SUSTAINED. THE SAME ARE ALSO CANCELLED. 8. IN THE RESULT, THE ASSESSEE'S APPEALS ARE ALLOWE D.' 3.9.1. SIMILARLY, THE HONOURABLE ITAT SMC BENCH, AHMEDABAD IN THE CASE OF ACIT VS. ESSEM ENTERTAINMENT PVT. LTD. IN I T APPEAL NO.3731 & 3732 OF 2004 HAS HOLD THE SIMILAR VIEWS. 3.9.2. IN ANOTHER JUDGMENT OF THE HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT(A) VS. CITY GOLD ENTERTAINMENT LTD. IN ITA NO.236 OF 2006 DTD. 28,11.2014 HAS HELD THAT EXHIBITION OF FILMS ARE NOT COVERED UNDER THE DEFINITION OF WORK UNDER EXPLANATION TO S ECTION 194C OF THE ACT. 3.10. HAVING CONSIDERED THE FACTS AND SUBMISSION, I T IS APPARENT THAT THE PROCUREMENT CHARGES PAID BY THE APPELLANT TO TH E FILM DISTRIBUTORS DOES NOT ATTRACT THE TDS PROVISIONS AS ALLEGED BY T HE AO AND THEREFORE INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF I.T . ACT IS NOT JUSTIFIED AND THE DISALLOWANCE MADE BY THE AO IS DELETED . THE GROUND OF APPEAL IS ACCORDINGLY ALLOWED . 8.2 A PERUSAL OF THE ORDER OF THE CIT(A) WOULD SHOW THAT ASSESSEE IS IN THE EXHIBITION OF FILMS PROCURED FROM DISTRIBUTO RS ON REVENUE SHARING BASIS. THE REVENUE SHARED BY THE ASSESSEE WITH THE DISTRIBUTOR TO EXHIBIT THE CINEMATOGRAPHIC FILM IS OUTSIDE THE SCOPE OF EXPRESSION ROYALTY UNDER CLAUSE (V) TO EXPLANATION 2 TO SECT ION 9(1)(VI) OF THE ACT REFERRED TO UNDER THE PROVISIONS OF SECTION 194 J OF THE ACT. THEREFORE, SUCH PAYMENT TO DISTRIBUTOR DOES NOT CAL L FOR DEDUCTION OF TDS. THE CIT(A), IN OUR VIEW, HAS RIGHTLY HELD IN APPLICABILITY OF SECTION 194J OF THE ACT OR OTHER SIMILAR PROVISIONS OF THE ACT AND ITA NOS. 1808/AHD/17 & 388/AHD/18 [ITO VS. M/S. EYLEX FILMS P. LTD.] A.YS. 2014-15 & 2013-14 - 10 - THUS, RIGHTLY CONCLUDED THAT SECTION 40(A)(IA) OF T HE ACT DO NOT COME INTO PLAY FOR DISALLOWANCE OF THE EXPENSES INCURRED BY THE ASSESSEE FOR EXHIBITION OF FILMS. WE THUS FIND NO INFIRMITY IN THE PROCESS OF REASONING ADOPTED BY THE CIT(A) WHILE DETERMINING T HE ISSUE IN FAVOUR OF THE ASSESSEE. HENCE, THE REVENUES APPEAL IS WI THOUT ANY MERIT. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. 10. IN PARITY, REVENUES APPEAL IN ITA NO. 388/AHD/ 2018 RAISING IDENTICAL GRIEVANCE IS ALSO DISMISSED. 11. IN THE COMBINED RESULT, BOTH APPEALS OF THE REV ENUE ARE DISMISSED. SD/- SD/- (JUSTICE P. P. BHATT) (PRADIP KU MAR KEDIA) PRESIDENT ACCOUNTANT MEMBER AHMEDABAD: DATED 12/03/2019 TRUE COPY S. K. SINHA !'#' / COPY OF ORDER FORWARDED TO:- &. / REVENUE 2. / ASSESSEE (. )*+ , / CONCERNED CIT 4. ,- / CIT (A) /. 012 33*+4 *+#4 56) / DR, ITAT, AHMEDABAD 7. 289 / GUARD FILE. BY ORDER / 4 /5 *+#4 56) THIS ORDER PRONOUNCED IN OPEN COURT ON 12/03/201 9