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2015 (8) TMI 1154 - ITAT HYDERABAD

2015 (8) TMI 1154 - ITAT HYDERABAD - [2015] 42 ITR (Trib) 427 (ITAT [Hyd]) - TDS liability - purchase of telecast rights from the film producers - whether is not in the nature of ‘royalty’ payment and therefore not liable for TDS u/s 194J - Held that:- What the assessee has paid to the producers is consideration towards acquisition of satellite rights over the films for a period of 99 years, which is also irrevocable. This finding of fact recorded by the ld CIT (A) has not been controverted by t .....

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on 194J would not apply. In the aforesaid view of the matter, we uphold the order of ld CIT (A) by dismissing the grounds raised by the Department. See Mrs. K. Bhagyalakshmi Versus The Deputy Commissioner of Income Tax [2013 (12) TMI 1215 - MADRAS HIGH COURT ] - Decided in favour of assessee. - ITA Nos.1860 & 1861/Hyd/2014 - Dated:- 5-8-2015 - Shri P.M. Jagtap and Shri Saktijit Dey, JJ. For The Revenue: Shri K.J. Rao, DR For The Assessee: NONE ORDER Per Saktijit Dey, J.M. Aforesaid appeals by th .....

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hts from the film producers is not in the nature of royalty payment and therefore not liable for TDS u/s 194J?. 2. Whether ld CIT (A) is correct in holding that the transaction of acquisition of rights to telecast the film in TV channels from film distributors is a purchase transaction and therefore doe not fall under definition of royalty, without appreciating that the right acquired by the assessee is only an assignment of the right and not a purchase transaction?. 4. As could be seen from the .....

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d that assessee has not deducted tax at source in terms with section 194J on an amount of ₹ 14,14,53,471 paid to producers towards purchase of satellite rights films for A.Y 2008-09. Similar payments made for A.Y 2009-10 without deduction of tax was found to be ₹ 3,26,72,500. AO was of the view that payments made to the producer towards acquiring satellite rights of films is in the nature of royalty, hence provisions of section 194J of the Act is attracted. He, therefore, initiated p .....

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of the Act as such payments are in the nature of royalty. Accordingly, for the failure on the part of assessee in deducting tax at source on such payments, AO proceeded to raise demand u/s 201(1) of the Act as well as levied interest u/s 201(1A) of the Act for both the A.Ys. 6. Being aggrieved of such orders passed u/s 201(1) and 201(1A) of the Act, assessee preferred appeals before the ld CIT (A). Before the first appellate authority, primary contention of the assessee was, the transactions in .....

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y. Ld CIT (A) after considering the submissions of the assessee in the light of the ratio laid down by the Hon ble Madras High Court in case of Smt. K. Bhagyalakshmi vs. DCIT (Supra) held that provisions of section 194J are not applicable to the payments made by the assessee as it is towards purchase of satellite rights and not towards payment of royalty. Finding of the ld CIT (A) is extracted hereunder for the sake of convenience: 7.2. The Hon ble Madras High Court in the case of Smt.K. Bhagyal .....

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ny geographical restrictions for a perpetual period. Therefore, it would amount to sale and purchase, and provisions of section 194J do not apply. Even in the present case the appellant entered into an agreement with film producers for purchase of satellite rights for period of 99 years and such rights are irrevocable. Therefore, the appellant is simply engaged in the business of buying and selling the telecast rights of cine films. Therefore, provisions of section 194J are not applicable. Furth .....

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ceived by a person who has exclusive right over a property, for allowing another person to make use of such property [CIT Vs. Neyveli Ignite Ltd. (2000) 243 ITR 459.] In the instant case, the film producers have transferred the telecast rights to the appellant for a period of 99 years. Such rights are absolute and irrevocable. Therefore, it cannot be considered that the payment made by the appellant to the film producers is in the nature of royalty. Hence, in the facts and circumstances of the c .....

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on going through the facts on record, we find that what the assessee has paid to the producers is consideration towards acquisition of satellite rights over the films for a period of 99 years, which is also irrevocable. This finding of fact recorded by the ld CIT (A) has not been controverted by the ld DR by bringing any evidence on record. Thus, once it is established that the assessee has acquired an irrevocable right over the exhibition of films for a period of 99 years, it cannot be said th .....

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e Coordinate Bench of this Tribunal while considering identical nature of dispute in case of ACIT vs. M/s Aishwarya Art Creations (P) Ltd in ITA No.516/Hyd/2012 dated 10.12.2014 for A.Y 2008-09 following the aforesaid decision of the Hon ble Madras High Court held as under: 8. Before taking a decision on the issue, let us examine the relevant facts of the case. As can be seen, from the assessment order, though AO has not given absolutely any reason why, he considers that provisions of section 19 .....

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ins 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, royalty means consideration (including any lump sum consideration but ex .....

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ny patent, invention, model, design, secret formula or process or trade mark or similar property ; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ; [(iva) the use or right to use any industrial, commercial or scientific equipment10a but not including the amounts referred to insection 44BB;] (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or .....

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y services in connection with the activities referred in sub-clause (i) (v). It is further evident from the aforesaid provision that payments made by assessee can only be classified within clause (v) of the Explanation 2 to section 9(1). On careful reading of the said clause (v), it becomes clear that though consideration paid towards transfer of all or any rights in respect of copy right, literal, artistic or technical work including films or video tapes for use in connection with television or .....

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he assignee has assigned all the rights without retaining any right, for a consideration. That being the case, the payment made by assessee to the producers for acquiring satellite rights is towards outright sale, distribution or exhibition of cinematographic films, which are specifically excluded under clause (v) of Explanation 2 from being is treated as consideration paid towards royalty. In that view of the matter, the payments are outside the purview of section 194J of the Act. Hence, assess .....

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ion of cinematographic films would fall outside the scope of royalty as defined under Explanation 2 of section. The observations made by Hon ble Madras High Court, is as under: 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 .....

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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 the agreement speaks of perpetual transfer for a period of 99 years, in terms of Section 26 of the Copy Right Act, 1957, in the case of cinematographic film, copy right shall subsist until 60 years from the beginning of the calendar year next following the .....

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