TaxTMI 
TaxTMI 
2013 (12) TMI 1215
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....ssessing Officer made various additions, viz., (a) an addition of Rs.52,884/- as disallowance under Section 69C of the Act; (b) an addition of Rs.4,00,000/- on the advance received, which was treated as income; (c) disallowance of Rs.8,268/- under Section 14A r/w Rule 8D of the Income Tax Rules, 1962; (d) disallowance of Rs.7,16,15,000/- for non-deduction of TDS under Section194J of the Act and (e) an addition of Rs.40,07,949/- on the basis of a disallowance of loan credit. Accordingly, the total income of the assessee was assessed at Rs.7,93,94,930/- and the total demand was calculated at Rs.2,75,87,552/-. 3. The assessee preferred appeal to the Commissioner of Income Tax (Appeals). The First Appellate Authority by order dated 27.12.2012 allowed the appeal in part by deleting the addition made under Section 69C of the Act and also reversed the finding of the Assessing Officer, which made a disallowance of Rs.7,16,15,000/- for non-deduction of TDS under Section 194J of the Act by invoking Section 40(a)(ia) of the Act. The Assessing Officer disallowed the said deduction of TDS under Section 194J of the Act on the ground that the purchase of film rights fell under the term "Royalty"....
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....ee submitted that neither Section 40(a)(ia) nor Section 194J of the Act would have any applicability to the assessment. The Tribunal by order dated 30.09.2013, allowed the appeal filed by the Revenue in part. Accepting the submission of the Revenue, the Tribunal held that the First Appellate Authority has erred in deleting the disallowance under Section 40(a)(ia) of the Act. For arriving at such a finding, reliance was placed on the decision of the Co-ordinate Bench of the Tribunal in the case of Assistant Commissioner of Income Tax vs. M/s.Shri Balaji Communications passed in ITA No.1744/Mds/2011 dated 20.12.2012 and by relying upon the said decision, the Tribunal concluded that the payments made by the assessee amounted to 'Royalty' as defined in Explanation 2 to clause (vi) of Section 9(1) of the Act. Hence, the Tribunal held that the assessee failed to deduct the tax at source under Section 194J of the Act and therefore, the disallowance made by the Assessing Officer under Section 40 (a)(ia) of the Act was correct. 6. Aggrieved by such order passed by the Tribunal, the assessee has filed this appeal and seeks admission of the Tax Case on the following substantial questions of ....
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....eated in Explanation (2) and the consideration paid for the sale of such rights stands excluded in terms of the said Explanation. 9. Learned counsel appearing for the assessee also referred to various other conditions in the agreement and submitted that the transfer in favour of the assessee is a transfer in perpetuity. Reference was also made to Section 26 of the Copy Right Act, 1957. Learned counsel for the assessee further submitted that the Tribunal placed reliance on its Co-ordinate Bench decision in the case of Shri Balaji Communications [cited supra] and the said decision is not applicable to the facts of the present case as the rights which was transferred in the said case were only for a period of 20 to 25 years and the Tribunal found that such transfer was not permanent. Therefore, the said decision is clearly distinguishable on facts. 10. Learned Standing Counsel appearing for the Revenue sought to sustain the order passed by the Tribunal. Learned Standing Counsel referring to the sample transfer deed dated 30.01.2008 filed by the assessee, which was entered into between the assessee and one Ms.Kakatiya Films and the terms of the agreement contained therein, submitted ....
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....ample agreement dated 30.01.2008 has been filed before this Court. 13. From a perusal of the said agreement, it is seen that the first party to the agreement is the holder of the World Negative Rights and Copy Rights of Cinematography Telugu Feature Film and the said party was desirous of disposing of the World Negative Rights, satellite rights and all other rights pertaining to the said picture of any interested purchaser. The assesee expressed their desire to acquire the same from the said Kakatiya films and the terms and conditions of transfer, which was recorded by means of deed of transfer dated 30.01.2008. The total consideration payable under the agreement has been mentioned in clause (1) of the agreement. For the purpose of this case, the entire sample agreement is extracted here under for ready reference: This Deed of Transfer executed at Chennai on this 30th January, 2008 Between M/s.Kakatiya Films,having their office at Plot No.219, I Floor, Phase III, Road No.78, Jubilee Hills, Hyderabad 500 033, represented by Mrs.Pengoti Saraswathi,W/o.Mr.Rammohan Rao, hereinafter referred to as 'ASSIGNOR' which term shall include his heirs, executors, administrators and legal rep....
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....g rights, sole exclusive copyright for broadcasting the said film through any Satellite system, (Indian or foreign) exclusive World Satellite Rights, Satellite Broadcasting service, Satellite television broadcasting service, Satellite Radio Broadcasting, Public service broadcasting, Private Communication/broadcast, Terrestrial Broadcasting Service, Terrestrial Digital Service/Broadcasting, Cable Television Service, Station, Doordarshan, Direct to Home Service, Airborne rights, Seaborne rights, Railborne rights, pay TV rights, VCD, DVD, Laser Disc, Internet, I P TV, D V B T, Radio (all dimensions), FM, Broadband, telephony, video, local delivery service, MMDS, Cable wire, wireless, any forms of communications like Signs, signals, writing, pictures, images and sounds of all kinds of transmission of electro magnetic waves through space or through cable intended to be received by general public either directly or indirectly through the medium of relay stations and all its grammatical variations and cognate expressions shall be construed accordingly or any other system without restriction of geographical area for a period of 99 years of the Telugu Feature Film "BATHUKAMMA" from the date....
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....ll respects shall be subject to the jurisdiction of the Courts of Law in Chennai city only. IN WITNESS WHEREOF THE PARTIES HEREUNTO HAVE SET THEIR HANDS ON THE DAY, MONTH AND YEAR FIRST ABOVE WRITTEN. SCHEDULE TITLE : 'BATHUKAMMA' STARRING : SINDHU THULANI, BHANUCHANDER, NAVABHARAT BALAJI, ALAPATI LAKSHMI etc. DIRECTION : T.PRABHAKAR MUSIC : T.PRABHAKAR LABORATORY : GEMINI COLOUR LAB PERIOD : FOR A PERPETUAL PERIOD OF 99 YEARS FROM THE DATE OF THIS AGREEMENT BANNER : KAKATIYA FILMS Sd/ Sd/ ASSIGNOR ASSIGNEE WITNESSES: 14. From the above conditions of transfer, it is seen that the total consideration payable is Rs.40 lakhs. On receipt of the payment as mentioned in Clause (1) above, M/s.Kakatiya films have assigned exclusive World Negative (picture and sound) Rights including theatrical and commercial rights of distribution, exhibition and exploitation of 35 mm though valid only after five years from the date of first theatrical release, 16 mm, 8 mm and any dimensions in all media performing rights and reproduce that film from the picture and sound negatives, etc. That apart, world satellite rights, satellite broadcasting service and Satellite ....
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....on of a cinematography film, then it would fall outside the scope of "Royalty" as defined under Explanation (2) in the proceedings. 16. In the preceding paragraphs, we have made an elaborate reference to the nature of transaction entered into by the assessee with the third parties. The sample transfer deed, clearly states that 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 assessee was desirous of disposing World Negative Rights, Satellite Television Rights and all other rights pertaining to the picture and the assessee enjoys the exclusive status, as the World Negative rights including theatrical rights owner. The assessee was also entitled to assign the said rights, 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 transfer for a period of 99 years, would undoubtedly fall within the scope of sale. 17. We have seen the various conditions contained in the sample transfer deed and there is a transfer of copy right in favour of the assessee. Though....