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2016 (1) TMI 126 - AT - Income TaxTDS u/s 194J - outright purchase of copyright - non deduction of TDS - Assessee in default - Held that - The assessee is an Indian company engaged, inter alia, in the business of manufacture and sale of audio cassettes, CDs etc. and also in production of films/TV Serials and in its course of business activities assessee made payments for acquisition of copyright of music/films from the music producers, i.e. transfer of ownership of copyrights for a lump sum consideration. The assessee is not dealing in copyrights or sale or purchase of copyrights is not its business. Accordingly, the transaction was a transaction of outright purchase of copyright and not a mere payment for past and future royalties. The price paid for outright purchase of copyright was price paid for acquiring a capital asset. Accordingly, we are of the view that neither AO nor CIT(A) was justified in treating the assessee in default for not deducting TDS on these transactions. - Decided in favour of assessee.
Issues Involved:
1. Treatment of outright purchase of copyright as payment of royalty. 2. Assessee being treated as in default for not deducting TDS under Section 194J. 3. Recovery of tax under Section 201 from the appellant. 4. Charging of interest under Section 201(1A). Detailed Analysis: 1. Treatment of Outright Purchase of Copyright as Payment of Royalty: The primary issue in this appeal was whether the outright purchase of copyright by the assessee should be treated as a payment of royalty. The Assessing Officer (AO) treated the lump sum payments made for outright purchase of music rights as royalty payments under Section 194J of the Income-tax Act, 1961. The AO's stance was based on the interpretation that lump sum payments for the transfer of rights in artistic works fall under the definition of royalty as per Explanation 2 to Section 9(1)(vi) of the Act. However, the assessee contended that these payments were for the outright purchase of assets, not royalties, and thus should not be subject to TDS under Section 194J. 2. Assessee Being Treated as in Default for Not Deducting TDS: The AO treated the assessee as in default under Section 201(1) for not deducting TDS on the lump sum payments made for outright purchase of music rights. The CIT(A) upheld this action for four parties but not for the fifth party, Rituparno Ghosh Productions, as the payment to them was for the purchase of exclusive copyrights of a film, which did not fall under the definition of royalty. The Tribunal examined the agreements and found that the payments were indeed for outright purchase, not for the use of rights, and thus did not fall under the definition of royalty. 3. Recovery of Tax Under Section 201: The CIT(A) confirmed the AO's action in recovering tax under Section 201 from the appellant for the payments made to four parties. However, for Rituparno Ghosh Productions, the CIT(A) directed the AO to delete the tax demand, as the payment was for the outright purchase of exclusive copyrights and not for royalty. The Tribunal agreed with the CIT(A) regarding the nature of the transactions and concluded that the payments were for outright purchase of copyrights, thus not attracting TDS under Section 194J. 4. Charging of Interest Under Section 201(1A): The AO also charged interest under Section 201(1A) for the non-deduction of TDS. The CIT(A) upheld this for the four parties but directed deletion for Rituparno Ghosh Productions. The Tribunal, agreeing with the assessee's contention, held that since the payments were for outright purchase of copyrights and not royalties, the assessee was not liable for TDS, and consequently, no interest under Section 201(1A) should be charged. Conclusion: The Tribunal allowed the appeal, concluding that the payments made by the assessee for the outright purchase of copyrights did not constitute royalty payments under Explanation 2 to Section 9(1)(vi) of the Act. Therefore, the assessee was not in default for not deducting TDS under Section 194J, and no tax or interest under Sections 201(1) and 201(1A) should be recovered from the assessee. The appeal was allowed, and the order was pronounced in the open court on 20.11.2015.
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