ACIT 11(1), MUMBAI V. MANISH DUTT, MUMBAI

ITA 4017/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49190 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V V SHASTRI
• Keywords: TDS; Capital Gains
• Section: 40(a)(ia); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH H, MUMBAI BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI R.K.PANDA (A .M) ITA NO.4017/MUM/2010(A.Y. 2007-08) THE ACIT 11(1), ROOM NO.439, AAYKAR BHAVAN, MK MARG, MUMBAI 20. (APPELLANT) VS. SHRI MANSIH DUTT, 19, CHHEDVA APARTMENTS, SION TROMBAY ROAD, CHEMBUR, MUMBAI 400 071. PAN: AABPD 8907G (RESPONDENT) APPELLANT BY : SHRI V.V.SHASTRI RESPONDENT BY : MS. USHA DALAL ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORD ER DATED 12/3/2010 OF CIT(A) III, MUMBAI RELATING TO ASSESSMENT YEAR 2007 -08. GROUND NO.1 RAISED BY THE ASSESSEE READS AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO ALLOW DEDUCTION U/ S. 40(A)(IA) 25% OF THE ROYALTY PAID IGNORING THE FACT THAT IF THE PAYM ENT IS A ROYALTY, THE SAME IS LIABLE TO TDS U/S. 194J OF THE I.T.ACT AND IF THE ASSESSEE FAILS TO COMPLY WITH THE TDS PROVISIONS, THE ENTIRE AMOUN T PAID AS ROYALTY WARRANTS DISALLOWANCE U/S. 40(A)(IA). 2. THE ASSESSEE IS AN INDIVIDUAL. HE CARRIES ON BU SINESS AS PROPRIETOR OF M/S. VISUAL REALITY AND DOES BUSINESS OF DUBBING WO RK AND DEALING IN MOVIES. DURING THE PREVIOUS YEAR THE ASSESSEE HAD MADE A PAYMENT OF RS. 26,87,310/- TO ONE M/S. SAHAMONGKOFILM INTERNATIONA L CO. LTD., 388, S.P. BLDG., 9 TH FLOOR, ZONE-3, PHAHOLYOTHIN ROAD, SAMSENNAI, PHAYA THAI, BANGKON 10400, THAILAND. SINCE THE PERSON TO WH OM THE PAYMENT WAS MADE WAS A NON-RESIDENT, THE ASSESSING OFFICER EXAM INED THE QUESTION AS TO ITA NO.4017/MUM/2010(A.Y. 2007-08) 2 WHETHER THE ASSESSEE SHOULD DEDUCT TAX AT SOURCE ON THE PAYMENT MADE TO THE NON-RESIDENT AND AS TO WHETHER THERE WAS ANY IN COME EMBEDDED IN SUCH PAYMENT ARISING IN INDIA CHARGEABLE TO TAX IN THE H ANDS OF THE NON-RESIDENT IN INDIA. IF IT IS FOUND CHARGEABLE TO TAX IN INDI A AND IF THE ASSESSEE FAILS TO DEDUCT TAX AT SOURCE, THEN THE ASSESSEE WILL NOT BE ENTITLED TO CLAIM PAYMENT AS A DEDUCTION, IN VIEW OF THE PROVISIONS OF SECTIO N 40(A)(IA) OF THE ACT. THE PLEA OF THE ASSESSEE WAS THAT THE PAYMENT WAS MADE IN CONNECTION WITH DISTRIBUTION AND EXHIBITION OF CINEMATOGRAPHIC FILM S AND, THEREFORE, THE PAYMENT CANNOT BE CONSTRUED AS ROYALTY WITHIN THE M EANING OF SECTION 9(1)(VI) EXPLANATION-2 CLAUSE(V) OF THE INCOME TAX ACT, 1961 (THE ACT). THE ASSESSING OFFICER HOWEVER HELD THAT THE PAYMENT WAS IN THE NATURE OF ROYALTY AND THEREFORE CHARGEABLE TO TAX IN INDIA. SINCE TH E ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE, THE ASSESSING OFFICER DISAL LOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF A SUM OF RS.26,87,310/- W HICH WAS CLAIMED AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. 3. BEFORE CIT(A), THE ASSESSEE FURNISHED THE COPY O F AGREEMENT WITH M/S. SAHAMONGKOFILM INTERNATIONAL CO. LTD. ON PERUSAL OF THE AGREEMENT IT WAS NOTICED THAT THE ASSESSEE HAD ACQUIRED PAY TV FOR T ERRESTRIAL, CABLE AND SATELLITE, FREE TV RIGHTS FOR TERRESTRIAL, CABLE SA TELLITE AND OTHER TV RIGHTS I.E. PAY PER VIEW AND VIDEO ON DEMAND FOR BOTH SUBT ITLED AND DUBBED VERSIONS IN INDIAN ORIGINAL LANGUAGES AND ENGLISH. THE FILMS IN QUESTION WERE BOA AND PASSION. THE ASSESSEE DREW THE ATTE NTION OF THE CIT(A) TO THE DEFINITION OF ROYALTY AS PER THE PROVISION OF SEC. 9(1)(VI), EXPLANATION (2) CLAUSE (V):EXPLANATION 2, WHICH PROVIDES THAT FOR T HE PURPOSE OF THIS CLAUSE, (I.E., CLAUSE (V) OF EXPLN. 2 TO SEC.9(1)(VI) OF TH E ACT), ROYALTY 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 TRANSFER OF ALL OR AN Y RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF ANY COPY RIGHT , LITERARY, ARTISTIC OR ITA NO.4017/MUM/2010(A.Y. 2007-08) 3 SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADI O BROADCASTING , BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS;. THE ASSESSEE SUBMITTED THAT THE PAYMENT IN QUESTION WAS CONSIDERATION FOR DISTRIBUTION OR EXH IBITION OF CINEMATOGRAPHIC FILMS. THE ASSESSEE ALSO HAD RIGHT TO EXHIBIT TH E AFORESAID CINEMATOGRAPHIC FILMS. 4. THE CIT(A) WAS OF THE VIEW THAT OUT OF THE CONSI DERATION RS. 26,87,310/- A PORTION OF THE PAYMENT HAS TO BE ATTR IBUTED TO THE RIGHTS IN RESPECT OF PAY TV, FREE TV AND OTHER TV RIGHTS. TH E CIT(A) THEREFORE CALLED UPON THE ASSESSEE TO SHOW CAUSE AS TO WHY LEAST A P ORTION OF THE ROYALTY PAYMENT BE NOT ATTRIBUTABLE TO THE RIGHTS IN RESPEC T OF PAY TV, FREE TV AND OTHER TV RIGHTS. IN RESPONSE ASSESSEE SUBMITTED TH AT IN SO FAR AS THE FILM BOA WAS CONCERNED THE RECEIPTS FROM TV RIGHTS DISTR IBUTION WERE 4,75,000/- AS COMPARED TO THE TOTAL COLLECTION OF RS. 43,93,00 0/-. THE CONTRACT COPY FOR TV RIGHTS DISTRIBUTION WAS FILED BEFORE THE CIT (A) IN RESPECT OF THE FILM BOA WHERE THE SATELLITE TV BROADCASTING RIGHTS ONLY WERE FOUND TO BE LICENSED FOR A SUM OF RS. 4,75,000/-, RS. 25,000/- FOR BOA IN ENGLISH LANGUAGE AND FOR RS. 4,50,000/- FOR ANACONDA RETURN S IN HINDI LANGUAGE. THE HINDI LANGUAGE FILM CALLED ANACONDA RETURNS WAS ORIGINALLY BOA. THE CIT(A) ON CONSIDERATION OF THE ABOVE SUBMISSIONS, H ELD AS FOLLOWS: 2.1.4 IT IS THEREFORE, SEEN THAT THE SATELLITE TV BROADCASTING RIGHTS ACCOUNTED FOR APPROXIMATELY 11% OF THE RECEIPTS ON BEHALF OF THE FILM BOA OF THE APPELLANT. CONSIDERING THAT THE OTHER 9 I) RIGHTS FOR PAY TV, (II) TERRESTRIAL AND CABLE RIGHTS FOR FEE TV AND ( III) OTHER TV RIGHTS WERE NOT ASSIGNED BY APPELLANT, THERE WOULD BE ROYA LTY PAYMENT ATTRIBUTABLE TO THESE BEYOND THE 11% FOR SATTELLITE TV RIGHTS ALSO. THEREFORE, ON THE FACTS OF THE CASE IT IS HELD THA T 25% OF THE AMOUNT PAID ON ROYALTY WAS ATTRIBUTABLE TO THE TAXABLE POR TION ON WHICH TAX SHOULD HAVE BEEN DEDUCTED. IN RESPECT OF PASSION T HOUGH APPELLANT HAD PAID ROYALTY OF RS. 4,47,885/-, THE FILM WAS ST ATED TO HAVE NOT BEEN IMPORTED AS APPELLANT CONSIDERED IT WOULD NOT BE CENSORED FOR ITA NO.4017/MUM/2010(A.Y. 2007-08) 4 THEATRICAL RIGHTS DUE TO BOLD SCENES IN THE MOVIE. NEVERTHELESS, ROYALTY PAID INCLUDED THE RIGHTS FOR TV ALSO. BASED ON THE ABOVE ARGUMENTS, 25% OF ROYALTY PAID IS HELD TO BE ATTRIBUTABLE TO T V RIGHTS ON WHICH APPELLANT OUGHT TO HAVE DEDUCTED TAX. THE DISALLOW ANCE U/S. 40(A) (IA) MAY BE WORKED OUT ACCORDINGLY BY THE AO WHILE GIVIN G EFFECT TO THIS ORDER. 5. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENU E HAS RAISED GROUND NO.1 BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE SUBMISSIONS OF THE LD. D.R WHO RELIED ON THE ORDER OF THE ASSESSING OFFICER. IT IS CLEAR FROM THE ORD ER OF THE CIT(A) THAT THE PAYMENT IN QUESTION WAS MADE BY THE ASSESSEE FOR OB TAINING CERTAIN RIGHTS OVER THE FILM BOA AND PASSION. THE RIGHTS ACQUIRED BY THE ASSESSEE COMPRISES OF SEVERAL RIGHTS. SUCH RIGHTS INCLUDED DISTRIBUTION AND EXHIBITION OF CINEMATOGRAPHIC FILMS AND ALSO SATELLITE TV PROT ECTING RIGHTS. IN VIEW OF THE SPECIFIC PROVISIONS OF EXPLANATION2, CLAUSE (V) OF SECTION 9(1)(VI) OF THE ACT CONSIDERATION FOR DISTRIBUTION OR EXHIBITION OF CIN EMATOGRAPHIC FILMS ARE EXCLUDED FROM THE PURVIEW OF DEFINITION OF ROYALTY. THE CIT(A) BIFURCATED THE VALUE OF THE RIGHTS ACQUIRED BY THE ASSESSEE AND HA S ATTRIBUTED 25% OF THE PAYMENTS MADE AS ATTRIBUTABLE TO TV RIGHTS WHICH W OULD BE ROYALTY TAXABLE IN THE HANDS OF THE NON-RESIDENT IN INDIA. TO THAT EXTENT THE CIT(A) HAS RESTRICTED THE DISALLOWANCE TO BE MADE UNDER SECTIO N 40(A)(IA) OF THE ACT. BEFORE US THE FACTS AS IT TRANSPIRED BEFORE THE CIT (A) ARE NOT DISPUTED. IN SUCH CIRCUMSTANCES WE ARE OF THE VIEW THAT THE CONC LUSIONS ARRIVED AT BY THE CIT(A) ARE PROPER AND HAVE TO BE UPHELD. WE, THERE FORE, UPHOLD THE ORDER OF THE CIT(A) AND DISMISS GROUND NO.1 RAISED BY THE RE VENUE. 7. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLLO WS: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 1, 45,455/- MADE ON ACCOUNT OF PAYMENT MADE ON STUDIO HIRE CHARGES @ 2. 04% INSTEAD OF ITA NO.4017/MUM/2010(A.Y. 2007-08) 5 @ 22.44% U/S. 194 I OF THE I.T. ACT BY WRONGLY RELY ING ON THE PROVISIONS OF SEC. 194C(7) EXPLANATION (IV). 8. WE HAVE ALREADY SEEN THAT THE ASSESSEE IS ENGAGE D IN THE BUSINESS OF DOING DUBBING WORK. THE ASSESSEE WAS HAVING HIS OW N STUDIO COMPRISING OF VARIOUS DUBBING EQUIPMENTS AND PROFESSIONAL ARTIST TO CARRY ON THE WORK OF DUBBING. WHENEVER THE ASSESSEES OWN STUDIO COULD NOT BE USED THE ASSESSEE USED TO GIVE THE JOB OF CARRYING OUT DUBBI NG WORK TO OTHER DUBBING STUDIOS. IN RESPECT OF ONE SUCH WORK ENTRUSTED BY THE ASSESSEE TO ANOTHER STUDIO BY NAME NINETY DEGREES THE ASSESSEE HAD MADE A PAYMENT OF RS. 1,60,000. ACCORDING TO THE ASSESSE, THE PAYMENT WA S MADE TO A SUB- CONTRACTOR FOR EXECUTION OF A CONTRACT AND, THEREFO RE, IN TERMS OF SECTION 194C THE ASSESSEE DEDUCTED TAX AT SOURCE AT 2%. TH E ASSESSING OFFICER HOWEVER, WAS OF THE VIEW THAT THE PAYMENT IN QUESTI ON WAS RENT PAID BY THE ASSESEE AND, THEREFORE, IN TERMS OF SECTION 194-I O F THE ACT THE ASSESSEE OUGHT TO HAVE DEDUCTED TAX AT SOURCE AT 20%. SINCE THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE AT THE PROPER RATE THE ASSESSI NG OFFICER DISALLOWED THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF A SUM OF RS. 1,60,000/- UNDER THE HEAD STUDIO HIRE CHARGES BY INVOKING THE PROVISION S OF SECTION 40(A)(IA) OF THE ACT. 9. BEFORE THE CIT(A), THE ASSESSEE SUBMITTED THAT T HE CONTRACT DETAILS WERE NOT CALLED FOR DURING THE ASSESSMENT AND THAT THE WORK DONE BY 90 DEGREE WAS FOR WORK AS PROVIDED FOR U/S. 194C OF TH E ACT. THE ASSESSEE POINTED OUT THAT STUDIO IS BOOKED AND DUBBING WORK IS UNDERTAKEN USING STUDIO EQUIPMENT, STAFF ETC. THE WORD STUDIO HIRE IS A TERM GENERALLY USED BY INDUSTRY TO DENOTE THE VARIOUS SERVICES RENDERED BY THE DUBBING STUDIO. BUT THE REAL NATURE OF WORK IS A CONTRACT FOR CARRY ING OUT WORK. THE ASSESSEE RELIED ON EXPLANATION TO SECTION 194C(7) WHERE AT ( IV) WORK WOULD INCLUDE BROADCASTING AND TELECASTING INCLUDING PRODUCTION OF PROGRAMMES FOR SUCH ITA NO.4017/MUM/2010(A.Y. 2007-08) 6 BROADCASTING OR TELECASTING. THE ASSESSEE FURNISHE D DETAILS OF THE WORK CARRIED OUT BY IT FROM STUDIO 90 DEGREE WHICH SHOWE D THAT IN RESPECT OF TV SERIAL KARMA THE ASSESSEE UNDERTOOK DUBBING WORK. THE AGREEMENT BETWEEN THE ASSESSEE AND TURNER ENTERTAINMENT A TELECASTING COMPANY WAS ALSO FILED. 10. ON CONSIDERATION OF THE ABOVE SUBMISSIONS, THE CIT(A) HELD AS FOLLOWS: 2.3.2. FACTS AND MATERIALS ON RECORD ARE CONSIDER ED. IT IS SEEN THAT AO HAD ONLY ASKED APPELLANT TO EXPLAIN THE PAYMENT BUT HAD NOT SPECIFIED ANY EVIDENCE TO BE FURNISHED. THE SUBMIS SIONS MADE DURING THE APPEAL INDICATE THAT THE STUDIO WAS HIRED FOR U TILIZING THE DUBBING FACILITIES WHICH INCLUDED SERVICE THROUGH THE STUDI O STAFF. CONDITION OF SEC. 194C(7) EXPLANATION (IV) ARE MET ALSO. AS SUC H THE PAYMENT MADE WAS COVERABLE U/S. 194C UNDER WHICH TAX WAS DEDUCED . ON FACTS, THEREFORE, THE DISALLOWANCE MADE U/S. 40(A)IA) IS D ELETED. 11. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENU E HAS RAISED GROUND NO.2 BEFORE THE TRIBUNAL. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS. AS CAN BE SEEN FROM THE ORDER OF THE CIT(A), THE ASSESSEE HAD UTILIZED THE SERVIC ES OF DUBBING STUDIO NINETY DEGREES BY USING THEIR EQUIPMENTS AS WELL AS THE AR TISTS WHO WERE WORKING FOR STUDIO NINETY DEGREES. THE ASSESSEE HAD THUS C ARRIED OUT THE WORK OF DUBBING BY ENGAGING SERVICES AND THE SAME WAS OF TH E NATURE OF GETTING WORK DONE THROUGH A SUB-CONTRACTOR. THE FINDINGS OF THE CIT(A) IN THIS REGARD ARE NOT IN CHALLENGE BEFORE US. IN SUCH CIRCUMSTANCES WE ARE OF THE VIEW THAT THE PROVISIONS OF SECTION 194C WERE APPLICABLE AND THE ASSESSEE HAS RIGHTLY DEDUCTED TAX AT SOURCE AT 2% TREATING THE PAYMENT A S A PAYMENT TO SUB- CONTRACTOR FOR CARRYING OUT A WORK. WE DO NOT FIND ANY GROUND TO INTERFERE WITH THE ORDER OF CIT(A). CONSEQUENTLY GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. ITA NO.4017/MUM/2010(A.Y. 2007-08) 7 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 17 TH DAY OF JUNE, 2011. SD/- SD/- (R.K.PANDA ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 17 TH JUNE.2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3 . THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RH BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.4017/MUM/2010(A.Y. 2007-08) 8 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 10/6/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 14/6/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER