2015 (7) TMI 1012 - AT - Income Tax

Acquiring satellite rights of films - whether are in the nature of royalty as defined u/s. 9(1) Explanation (2) of the Income Tax Act thereby requiring deduction of tax at source in terms with Section 194J - Held that - The ratio laid down in case of K.Bhagyalakshmi Vs. DCIT 2013 (12) TMI 1215 - MADRAS HIGH COURT clearly applies to the facts of the case of assessee wherein held The transfer deed clearly states that the transfer in favour of the assessee is for a perpetual period of 99 years - 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 - The nature of transaction, being a perpetual transfer for a period of 99 years, would undoubtedly fall within the scope of sale - 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 defined under clause (v) to Explanation (2) of Section 9(1) of the Act. In the aforesaid view of the matter, we have no hesitation in holding that the payments made by assessee not being in the nature of royalty, the provisions of section 194J will not apply. Consequentially, order 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. - Decided in favour of assessee. Penalty u/s. 271C - Held that - Ld.CIT(A) correctly following the decision of CIT(A) in AY.2008-09 held that the transaction is primarily is in the nature of purchase and sale of telecast rights and therefore not liable to TDS under 194J, therefore penalty levied u/s. 271C cannot be sustained - Decided in favour of assessee.

Summary

Issues involved:
1. Tax deduction on amounts paid for acquiring satellite rights of films.
2. Penalty under section 271C for not deducting tax at source.

Issue 1: Tax deduction on amounts paid for acquiring satellite rights of films

The judgment revolves around the disagreement between the assessee and the Department regarding the nature of payments made for acquiring satellite rights of films. The Commissioner of Income Tax (Appeals) had upheld the amounts paid by the assessee as 'royalty' under section 9(1) Explanation (2) of the Income Tax Act, necessitating tax deduction at source under Section 194J. The Assessing Officer estimated the purchase consideration due to the unavailability of exact figures, treating the amount as 'royalty' and imposing tax and interest under sections 201(1) & 201(1A). However, the ITAT analyzed the issue and ruled in favor of the assessee, stating that the payments for acquiring satellite rights did not fall within the definition of 'royalty' as per the Act. The ITAT highlighted that the payments were akin to outright sale, distribution, or exhibition of cinematographic films, explicitly excluded from the purview of royalty under Explanation 2 of section 9(1). The judgment also referenced a decision by the Madras High Court, supporting the view that such payments were not royalty. Consequently, the ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s order, and set aside the penalties imposed under section 271C.

Issue 2: Penalty under section 271C for not deducting tax at source

The second issue addressed in the judgment pertains to the penalty imposed under section 271C on the assessee for not deducting tax at source. The CIT(A) held that the transactions were primarily related to the purchase and sale of telecast rights, not attracting TDS under section 194J. The ITAT, consistent with its decision on the first issue, upheld the CIT(A)'s stance, leading to the dismissal of the Revenue's appeals against the penalties. It was clarified that the ITAT's decision in previous assessment years supported the conclusion that the purchase and sale of telecast rights did not involve royalty payments under section 194J. The ITAT emphasized that the Revenue's appeals were filed merely to safeguard interests and lacked merit, resulting in the dismissal of both appeals. Ultimately, the assessee's appeal was allowed, while the Revenue's appeals were rejected.

In summary, the judgment by the ITAT Hyderabad addressed the issues of tax deduction on payments for acquiring satellite rights of films and penalties under section 271C. The decision favored the assessee, ruling that the payments were not royalty as per the Income Tax Act, thereby dismissing the Revenue's appeals and upholding the CIT(A)'s orders.