Asst. Commissioner of Income Tax, Circle-14(1), Hyderabad V. Aishwarya Art Creations (P) Ltd, Hyderabad

ITA 516/HYD/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7750 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 16-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 11-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJAT MITRA
• Assessee Lawyers: T CHAITANYA KUMAR
• Keywords: Search and seizure
• Section: 133A; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 516/HYD/2012 ASSESSMENT YEAR: 2008-09 ASST. COMMISSIONER OF INCOME- TAX, CIRCLE 14(1), HYDERABAD. M/S AISHWARAYA ARTS CREATIONS P. LTD., HYDERABAD PAN HYDA08691E (APPELLANT) (RESPONDENT) REVENUE BY SHRI RAJAT MITRA ASSESSEE BY SHRI T. CHAITANYA KUMAR DATE OF HEARING 03-12-2014 DATE OF PRONOUNCEMENT 10-12-2014 O R D E R PER SAKTIJIT DEY, J.M.: IN THE AFORESAID APPEAL, DEPARTMENT HAS CALLED UPO N US TO DECIDE WHETHER PAYMENTS MADE BY ASSESSEE FOR ACQUIR ING SATELLITE RIGHTS OF FILMS IS IN THE NATURE OF ROYALTY AS DEFI NED U/S 9(1) EXPLANATION 2 THEREBY REQUIRING DEDUCTION OF TAX AT SOURCE IN TERMS WITH SECTION 194J. 2. BRIEFLY THE FACTS ARE, ASSESSEE IS A COMPANY. DU RING SURVEY U/S 133A CONDUCTED ON 22/07/2009 TO VERIFY TDS COMPLIA NCE BY ASSESSEE, IT WAS FOUND THAT ASSESSEE DURING FY 200 7-08 CORRESPONDING TO AY 2008-09 HAD MADE PAYMENTS FOR A CQUIRING SATELLITE RIGHTS ASSIGNED BY VARIOUS PRODUCERS IN F AVOUR OF ASSESSEE. AO, THEREFORE, ISSUED A SHOW CAUSE NOTICE TO ASSESS EE REQUIRING HIM TO FURNISH DETAILS OF THE TAX DEDUCTED, IF ANY, ON THE AMOUNTS PAID TOWARDS ASSIGNMENT /PURCHASE OF SATELLITE RIGHTS FO R BROADCASTING OR 2 ITA NO. 516/HYD/2012 AISHWARAYA ART CREATIONS PVT. LTD. TELECASTING. AO FOUND THAT DURING THE YEAR ASSESSEE HAD MADE PAYMENT OF RS. 1,55,00,000 TO DIFFERENT PRODUCERS, WHICH ARE IN THE NATURE OF ROYALTY AS DEFINED UNDER EXPLANATION 2 TO CLAUSE (VI) OF SECTION 9(1) THEREBY ATTRACTING THE PROVISIONS OF S ECTION 194J. THOUGH, ASSESSEE RESPONDED TO THE SHOW CAUSE NOTICE ISSUED BY AO BY FURNISHING ALL THE DETAILS AND EXPLAINING THAT T HE PAYMENTS MADE CANNOT BE TREATED AS ROYALTY SO AS TO ATTRACT PROVI SIONS OF SECTION 194J, AO, HOWEVER, REJECTING ALL THE EXPLANATIONS O F ASSESSEE ULTIMATELY PASSED AN ORDER PURPORTEDLY U/S 201(1) & 201(1A) OF THE ACT, RAISING TAX DEMAND AT RS. 11,12,400 U/S 201(1) AND INTEREST OF RS. 2,73,876 U/S 201(1A). BEING AGGRIEVED OF THE AS SESSMENT ORDER SO PASSED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A). 3. IN COURSE OF HEARING OF APPEAL BEFORE LD. CIT(A) , ASSESSEE MADE ELABORATE SUBMISSIONS OBJECTING TO THE DEMAND RAISED. IT WAS SUBMITTED BY ASSESSEE THAT AS PAYMENTS MADE BY ASSE SSEE IS FOR SALE, DISTRIBUTION, OR EXHIBITION OF CINEMATOGRAPHI C FILMS, IT WILL NOT COME WITHIN THE TERM ROYALTY AS DEFINED U/S 9(1) CLAUSE (V) OF EXPLANATION 2. 4. LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE IN THE CONTEXT OF FACTS AND MATERIALS ON RECORD, FOUND TH E ORDER PASSED U/S 201(1) AND 201(1A) TO BE UNSUSTAINABLE AND ACCORDIN GLY, ALLOWED APPEAL OF ASSESSEE. THE OBSERVATIONS MADE BY LD. CI T(A) IS EXTRACTED HEREUNDER FOR THE SAKE OF CONVENIENCE: THE ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APP ELLANT HAVE BEEN CONSIDERED CAREFULLY. THOUGH THE AO QUOTE D THE PROVISIONS OF THE SECTIONS 194J AND OF THE IT ACT I N THE ASSESSMENT ORDER, HE DID NOT GIVE ANY REASONS/EXPLA NATION AS TO HOW THE PAYMENTS UNDER CONSIDERATION FALL UNDER THE ABOVE SAID SECTIONS. IN FACT ON PAGE 3 OF THE ASSESSMENT ORDER, THE AO HAS DISCUSSED AS TO WHY HE DID NOT CONSIDER CERT AIN LOANS FOR THE PURPOSE OF SECTION 194 BUT HE HAS NOT MADE ANY COMMENT OR OBSERVATIONS AS TO HOW THE PAYMENTS MADE TOWARDS PURCHASE OF SATELLITE RIGHTS AMOUNTS TO ROYALTY U/S 9 SO AS TO ATTRACT THE PROVISIONS OF SECTION 194J. SINCE THE L EVY OF TAX AND 3 ITA NO. 516/HYD/2012 AISHWARAYA ART CREATIONS PVT. LTD. INTEREST U/S 201(1) AND 201(1A) IS NOT SUBSTANTIATE D WITH ANY COGENT OR EVEN ANY REASONS, I AM AFRAID, THE SAME C ANNOT SURVIVE AND THEREFORE THE APPEAL IS ALLOWED. 5. BEING AGGRIEVED OF THE AFORESAID ORDER, THE DEPA RTMENT IS BEFORE US. 6. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. LD. DR JUSTIFYING THE ORDER OF AO, SUBMITTED THAT A S AMOUNTS PAID BY ASSESSEE FOR ACQUIRING THE SATELLITE RIGHTS OF FILM S IS IN THE NATURE OF ROYALTY AS DEFINED IN EXPLANATION 2(V) OF SECTION 9(1), PROVISIONS OF SECTION 194J OF THE ACT, IS ATTRACTED TO SUCH PAYME NTS. 7. THE LD. AR, ON THE OTHER HAND, SUBMITTED THAT AO HAS OVERLOOKED A PART OF THE PROVISIONS CONTAINED UNDER CLAUSE (V) TO EXPLANATION 2 OF SECTION 9(1) WHILE COMING TO CONCL USION THAT PAYMENTS MADE BY ASSESSEE IS ROYALTY. REFERRING TO A SAMPLE COPY OF THE AGREEMENT FOR ASSIGNMENT OF SATELLITE RIGHTS, A COPY OF WHICH IS AT PAGE 3 OF PAPER BOOK, LD. AR SUBMITTED THAT ASSESSE E HAS ACQUIRED PEPETUAL SATELLITE RIGHTS FOR A PERIOD OF 99 YEARS WITHOUT ANY RESTRICTION OF GEOGRAPHICAL AREA. LD. AR SUBMITTED THAT AS THE CONSIDERATION PAID BY ASSESSEE WHILE ACQUIRING THE SATELLITE RIGHTS IS TOWARDS OUTRIGHT SALE/PURCHASE AND THE ASSIGNOR DOE S NOT RETAIN ANY RIGHT WHATSOEVER, IT IS IN THE NATURE OF OUTRIGHT S ALE, HENCE, COMES WITHIN THE EXCLUSIONARY PROVISION AS CONTAINED IN C LAUSE (V) OF EXPLANATION 2 TO SECTION 9(1). THEREFORE, PROVISION S OF SECTION 194J WOULD NOT APPLY. 8. BEFORE TAKING A DECISION ON THE ISSUE, LET US E XAMINE THE RELEVANT FACTS OF THE CASE. AS CAN BE SEEN, FROM TH E ASSESSMENT ORDER, THOUGH AO HAS NOT GIVEN ABSOLUTELY ANY REASO N WHY, HE CONSIDERS THAT PROVISIONS OF SECTION 194J OF THE AC T IS ATTRACTED TO THE PAYMENTS MADE BY ASSESSEE TO THE PRODUCERS TOWARDS ASSIGNMENT OF 4 ITA NO. 516/HYD/2012 AISHWARAYA ART CREATIONS PVT. LTD. SATELLITE RIGHTS, BUT, FROM THE TENOR OF THE ORDER PASSED BY AO, IT CAN BE INFERRED THAT, ACCORDING TO AO, THE PAYMENTS BY ASSESSEE ARE IN THE NATURE OF ROYALTY, ACCORDINGLY, SECTION 194J OF THE ACT IS APPLICABLE REQUIRING ASSESSEE TO DEDUCT TAX AT SOUR CE ON SUCH PAYMENT OF ROYALTY. IN THIS CONTEXT, IT WILL BE APP ROPRIATE TO LOOK INTO THE RELEVANT STATUTORY PROVISIONS. SECTION 194J OF THE ACT, ENJOINS UPON ANY PERSON NOT BEING AN INDIVIDUAL OR A HINDU UNDIVIDED FAMILY TO DEDUCT TAX AT SOURCE ON CERTAIN PAYMENTS, ONE OF THEM BEING ROYALTY, TO A RESIDENT. CLAUSE (BA) OF EXPLANATION TO SECTION 194J(1) DEFINES ROYALTY, BY REFERRING TO THE MEANING GIVEN IN CLAUSE (VI) OF EXPLANATION 2 TO SECTION 9(1). FOR READY REFERENCE, EXPLANATION 2 OF SECTION 9(1) IS EXTRACTED HEREUNDER: EXPLANATION 2.FOR THE PURPOSES OF THIS CLAUSE, 'R OYALTY' MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UND ER THE HEAD 'CAPITAL GAINS') FOR (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENCE) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMU LA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (II) THE IMPARTING OF ANY INFORMATION CONCERNING TH E WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESI GN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TE CHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR S KILL ; [(IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COM MERCIAL OR SCIENTIFIC EQUIPMENT 10A BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTI ON 44BB ;] (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR T HE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS ; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WI TH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO [(IV), (IVA) AND] (V). 9. AS CAN BE SEEN FROM THE PROVISION EXTRACTED HERE INABOVE, ROYALTY AS PER CLAUSE (VI) WOULD TAKE WITHIN ITS AM BIT RENDERING OF ANY SERVICES IN CONNECTION WITH THE ACTIVITIES REFERRED IN SUB-CLAUSE (I) TO 5 ITA NO. 516/HYD/2012 AISHWARAYA ART CREATIONS PVT. LTD. (V). IT IS FURTHER EVIDENT FROM THE AFORESAID PROVI SION THAT PAYMENTS MADE BY ASSESSEE CAN ONLY BE CLASSIFIED WITHIN CLAU SE (V) OF THE EXPLANATION 2 TO SECTION 9(1). ON CAREFUL READING OF THE SAID CLAUSE (V), IT BECOMES CLEAR THAT THOUGH CONSIDERATION PAI D TOWARDS TRANSFER OF ALL OR ANY RIGHTS IN RESPECT OF COPY RIGHT, LITE RAL, ARTISTIC OR TECHNICAL WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONN ECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADI O BROADCASTING, BUT, IT SPECIFICALLY EXCLUDES CONSIDERATION RECEIVED FOR SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS. ON A PERUSAL O F ASSIGNMENT AGREEMENT BETWEEN ASSESSEE AND PRODUCERS OF FILM, A SAMPLE COPY OF WHICH IS PLACED AT PAGE 3 OF PAPER BOOK, IT BECOMES CLEAR THAT RIGHT OVER THE FILMS HAVE BEEN ASSIGNED IN FAVOUR OF ASSE SSEE PERPETUALLY FOR A PERIOD OF 99 YEARS WITHOUT ANY RESTRICTION OF GEOGRAPHICAL AREA. IT IS FURTHER EVIDENT THAT THE ASSIGNEE HAS ASSIGNED A LL THE RIGHTS WITHOUT RETAINING ANY RIGHT, FOR A CONSIDERATION. THAT BEIN G THE CASE, THE PAYMENT MADE BY ASSESSEE TO THE PRODUCERS FOR ACQUI RING SATELLITE RIGHTS IS TOWARDS OUTRIGHT SALE, DISTRIBUTION OR EX HIBITION OF CINEMATOGRAPHIC FILMS, WHICH ARE SPECIFICALLY EXCLU DED UNDER CLAUSE (V) OF EXPLANATION 2 FROM BEING IS TREATED AS CONS IDERATION PAID TOWARDS ROYALTY. IN THAT VIEW OF THE MATTER, THE PA YMENTS ARE OUTSIDE THE PURVIEW OF SECTION 194J OF THE ACT. HENCE, ASSE SSEE CANNOT BE FASTENED WITH LIABILITY U/S 201(1) AND 201(1A) FOR HAVING DEFAULTED IN DEDUCTING TAX AT SOURCE IN TERMS OF SECTION 194J. 10. IT WILL BE WORTH MENTIONING HERE THAT THE HONB LE MADRAS HIGH COURT IN JUDGMENT DATED 03/12/2013 IN CASE OF K.BHA GYALAKSHMI VS. DCIT IN TAX CASE (APPEAL) NO. 748 OF 2013 WHILE CON SIDERING IDENTICAL NATURE OF PAYMENT MADE TOWARDS ACQUISITIO N OF SATELLITE RIGHTS FOR PERPETUAL PERIOD OF 99 YEARS, HELD THAT SUCH PAYMENTS BEING TOWARDS SALE, DISTRIBUTION OR EXHIBITION OF CINEMAT OGRAPHIC FILMS WOULD FALL OUTSIDE THE SCOPE OF ROYALTY AS DEFINED UNDER EXPLANATION 2 OF SECTION 9(1). THE OBSERVATIONS MADE BY HONBLE MADR AS HIGH COURT, IS AS UNDER: 6 ITA NO. 516/HYD/2012 AISHWARAYA ART CREATIONS PVT. LTD. 16. IN THE PRECEDING PARAGRAPHS, WE HAVE MADE AN E LABORATE REFERENCE TO THE NATURE OF TRANSACTION ENTERED INTO BY THE AS SESSEE WITH THE THIRD PARTIES. THE SAMPLE TRANSFER DEED, CLEARLY STATES T HAT THE TRANSFER IN FAVOUR OF THE ASSESSEE IS FOR A PERPETUAL PERIOD OF 99 YEARS. THE PARTY, WHO EXECUTED THE AGREEMENT IN FAVOUR OF THE ASSESSE E WAS DESIROUS OF DISPOSING WORLD NEGATIVE RIGHTS, SATELLITE TELEVISI ON RIGHTS AND ALL OTHER RIGHTS PERTAINING TO THE PICTURE AND THE ASSESSEE E NJOYS THE EXCLUSIVE STATUS, AS THE WORLD NEGATIVE RIGHTS INCLUDING THEA TRICAL RIGHTS OWNER. THE ASSESSEE WAS ALSO ENTITLED TO ASSIGN THE SAID R IGHTS, WHICH WAS TRANSFERRED IN THEIR FAVOUR. FURTHER THE AGREEMENT WAS IRREVOCABLE AND SHALL REMAIN IN FORCE FOR A PERIOD OF 99 YEARS. IN SUCH A FACTUAL SITUATION THE NATURE OF TRANSACTION, BEING A PERPETUAL TRANSF ER FOR A PERIOD OF 99 YEARS, WOULD UNDOUBTEDLY FALL WITHIN THE SCOPE OF S ALE. 17. WE HAVE SEEN THE VARIOUS CONDITIONS CONTAINED I N THE SAMPLE TRANSFER DEED AND THERE IS A TRANSFER OF COPY RIGHT IN FAVOUR OF THE ASSESSEE. THOUGH THE AGREEMENT SPEAKS OF PERPETUAL TRANSFER FOR A PERIOD OF 99 YEARS, IN TERMS OF SECTION 26 OF THE C OPY RIGHT ACT, 1957, IN THE CASE OF CINEMATOGRAPHIC FILM, COPY RIGHT SHALL SUBSIST UNTIL 60 YEARS FROM THE BEGINNING OF THE CALENDAR YEAR NEXT FOLLOW ING THE YEAR IN WHICH THE FILM IS PUBLISHED. THEREFORE, THE AGREEMENT IN THE CASE ON HAND, IS BEYOND THE PERIOD OF 60 YEARS, FOR WHICH THE COPY R IGHT WOULD BE VALID, THE DOCUMENT COULD ONLY BE TREATED AS ONE OF SALE. 18. AS FAR AS THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF BALAJI COMMUNICATIONS (CITED SUPRA), THE RIGHTS WHICH WAS THE SUBJECT MATTER OF THE SAID DECISION WERE ONLY FOR A PERIOD OF 20 TO 2 5 YEARS AND NOT OF PERMANENT NATURE. THEREFORE, THE SAID DECISION IS C LEARLY DISTINGUISHABLE ON FACTS AND CANNOT BE APPLIED TO THE ASSESSEE'S CA SE. 19. IN THE LIGHT OF THE ABOVE DISCUSSION, WE HAVE N O HESITATION TO HOLD THAT THE FINDINGS OF THE FIRST APPELLATE AUTHORITY WAS PERFECTLY JUSTIFIED IN HOLDING THAT THE TRANSFER IN FAVOUR OF THE ASSESSEE AS SALE AND THEREFORE, EXCLUDED FROM THE DEFINITION OF 'ROYALTY' AS DEFINE D UNDER CLAUSE (V) TO EXPLANATION (2) OF SECTION 9(1) OF THE ACT. 11. THE RATIO LAID DOWN BY THE HONBLE MADRAS HIGH COURT AS AFORESAID ALSO CLEARLY APPLIES TO THE FACTS OF THE CASE OF ASSESSEE. IN THE AFORESAID VIEW OF THE MATTER, WE HAVE NO HESITA TION IN HOLDING THAT THE PAYMENTS MADE BY ASSESSEE NOT BEING IN THE NATU RE OF ROYALTY, THE PROVISIONS OF SECTION 194J WILL NOT APPLY. CONS EQUENTIALLY, ORDER 7 ITA NO. 516/HYD/2012 AISHWARAYA ART CREATIONS PVT. LTD. PASSED U/S 201(1) AND 201(1A) WILL HAVE NO LEGS TO STAND. ACCORDINGLY, WE UPHOLD THE ORDER OF LD. CIT(A) AND DISMISS GROUND RAISED BY REVENUE. 12. IN THE RESULT, APPEAL OF THE DEPARTMENT IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON 10/12/2014. SD/- SD/- (B. RAMAKOTAIAH) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 10 TH DECEMBER, 2014 KV COPY TO:- 1) ACIT, CIRCLE 14(1), 4 TH FLOOR, IT TOWERS, AC GUARDS, HYDERABAD 2) SHRI S. PANDURANGA RAO, MD, M/S AISHWARYA ART C REATIONS (P) LTD., PLOT NO. 14, 2 ND FLOOR, PHASE I, KAMALAPUR COLONY, HYDERABAD. 3) CIT(A)-II, HYDERABAD 4)CIT(TDS), HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.