2015 (10) TMI 379 - AT - Income Tax

Disallowance u/s 40(a)(ia) for non deduction of tax u/s 194J - Copyright or the literary work of the authors for the purpose of printing and publication for the use of the students - Held that - Admittedly, the recipient of the amount being the literary work, the payment made by the assessee shall be in respect of any copyright or the literary work transferred to the assessee. Explanation 2(v) clearly says that transfer of all or any rights in respect of copyright, literary, etc. shall be treated as royalty. Since admittedly, the payment was made for copyright or the literary work of the authors for the purpose of printing and publication for the use of the students, this Tribunal is of the considered opinion that the payment has to be treated as royalty. The co-ordinate bench of this Tribunal in the case of Majestic Prakashan (2012 (8) TMI 558 - ITAT, MUMBAI) found that the literary work was not used for radio broadcasting and hence the payment made by the assessee cannot be treated as royalty within the meaning of Explanation 2(v) to section 9(1)(vi) of the Act. Accordingly, the Mumbai Bench of this Tribunal found that the assessee was not expected to deduct tax u/s 194J of the Act; hence, there is no question of any disallowance u/s 40(a)(ia) of the Act. We find that in Explanation 2(v) to section 9(1)(vi) of the Act after the words copyright and literary the legislature uses punctuation mark coma (,). It is well settled principles of law that while interpreting taxation statutes the punctuation marks cannot be ignored. The use of coma after the words copyright , literary , artistic or scientific work clearly shows that the legislature intended to treat the words copyright , literary independent of artistic or scientific work. In respect of artistic or scientific work, the legislature intended to include films or video tape for use in connection with television or radio broadcasting. Since the legislature uses coma (,) in between copyright literary both the words have to be treated independently and separately; hence, it may not have any connection with television or radio broadcasting. This distinction or use of coma in between the words copyright literary was not considered by the Mumbai Bench of this Tribunal in Majestic Prakashan (supra), therefore, it may not be applicable to the facts of this case. In the case before us, the payment was admittedly made for copyright / literary work; hence it has to be considered as royalty. Hence, the assessee is liable for deducting tax u/s 194J of the Act. Failure to do so, the provisions of section 40(a)(ia) would come into operation. - Decided against assessee.

Summary

Issues:
Disallowance u/s 40(a)(ia) of the Act for non-deduction of tax u/s 194J of the Act.

Analysis:
The judgment involves three appeals against a common order passed by the CIT(A) for the assessment years 2007-08, 2008-09, and 2009-10. The main issue is the disallowance u/s 40(a)(ia) of the Act for the non-deduction of tax u/s 194J of the Act. The appellant, a cooperative society engaged in printing and publication, argued that the payments made to authors did not fall under royalty as per section 9(1)(vi) and hence tax deduction was not required. The appellant relied on a Mumbai Bench decision to support their claim. However, the respondent contended that payments exceeding a certain amount without tax deduction to authors constituted royalty as per section 9(1)(vi) of the Act.

The Tribunal analyzed section 9(1)(vi) which defines income by way of royalty. The Tribunal noted that the payments made by the appellant to authors without tax deduction exceeded the specified limit. The Tribunal examined the provisions of section 9(1)(vi) in detail, emphasizing the definition of royalty and the transfer of rights in copyright, literary, or artistic works. The Tribunal observed that the literary work payments made by the appellant were for copyright or literary works, falling under the definition of royalty as per Explanation 2(v) to section 9(1)(vi) of the Act.

The Tribunal further discussed the interpretation of punctuation marks in legislative texts and concluded that the use of a comma after "copyright" and "literary" in Explanation 2(v) indicated the independent treatment of these terms. The Tribunal found that the appellant's payments for copyright/literary work constituted royalty, making them liable for tax deduction u/s 194J. The Tribunal disagreed with the appellant's interpretation based on the Mumbai Bench decision, stating that the specific use of punctuation marks in the legislative text supported a different conclusion. Consequently, the Tribunal upheld the lower authority's orders, confirming the disallowance u/s 40(a)(ia) of the Act.

In conclusion, all three appeals of the appellant were dismissed, and the orders of the lower authority were upheld.