2014 (1) TMI 850 - AT - Income Tax

Disallowance of deduction u/s 40a(ia) of the Act TDS on Live telecast Royalty u/s 194J - Held that - The decision in DIT v. Neo Sports Broadcast (P) Ltd. 2011 (11) TMI 23 - ITAT MUMBAI Followed - The question of granting exclusive right to do any work can arise only when such work has come into existence - the existence of work is a pre-condition and must precede the granting of exclusive right for doing of such work - As the meaning of copyright u/s 14 in the context of cinematograph film clearly refers to make a copy of the film and not its original recording obviously the broadcast of live telecast cannot be equated with the copy right of such film - There is no creation of any work as income is generated from betting on the basis of live telecast and the same was being shared on reciprocal basis and cannot be termed as royalty under the Act and therefore was not liable for tax deduction at source and consequent disallowance u/s 40a(ia) of the Act Decided in favour of Assessee.

Summary

Issues:
Appeal against order of Ld CIT(A) regarding disallowance of deduction u/s 40a(ia) of the Income Tax Act, 1961.

Analysis:
The assessee, engaged in horse racing business, disputed the disallowance of deduction of Rs.56,45,593 under section 40a(ia) of the Income Tax Act, 1961. The Assessing Officer contended that royalty payments made by the assessee to other Race Clubs for telecasting races were covered under section 194J, hence TDS should have been deducted. The assessee argued that the payments were not royalty as per section 9(1)(vi) and Explanation-2, and no TDS was required. The Ld CIT(A) partially upheld the disallowance, deleting payments made before 13.7.2006. The assessee appealed, presenting its case before the ITAT.

The ITAT considered the nature of horse races conducted by the assessee and the sharing of collections. It was clarified that the live telecast of races did not constitute a copyright work as defined in the Act. Referring to case laws, including DIT v. Neo Sports Broadcast (P) Ltd., it was argued that the income generated from live telecast betting did not involve the creation of a copyright work, hence not falling under the definition of royalty. The ITAT emphasized that live events like sporting events or horse races do not infringe any copyright, and live telecast does not involve the transfer of copyright. Therefore, the income shared on a reciprocal basis from live telecast betting was not liable for TDS deduction and subsequent disallowance u/s 40a(ia) of the Act.

In conclusion, the ITAT allowed the appeal filed by the assessee, ruling in favor of the assessee's position that the income from live telecast betting on horse races did not constitute royalty under the Income Tax Act, 1961. The order was pronounced on June 14, 2013.