2017 (2) TMI 1412 - AT - Income Tax

TDS u/s 195 - non-deduction of tax at source in respect of the payments made outside India to non-resident film producers for distribution of their films in India - addition u/s 201(1) and u/s 201(1A) - assessee has purchased rights to exhibit the cinematographic films in various mediums for a certain period of time - whether payments made to non-resident film producers is royalty under section 9(1)(vi) ? whether payments made towards rights for exhibition and telecasting of cinematographic films in different platforms like television and satellite broadcasting did not constitute payments for sale, distribution, exhibition of cinematographic films? - HELD THAT - The law has expressly excluded consideration paid for exhibition of cinematographic films from the ambit of section 9(1)(vi). Further, irrespective of the medium in which the cinematographic films have been exhibited, the same only constitutes exhibition of cinematographic films . Hence, the consideration paid by the assessee to the non-residents does not fall within the ambit of royalty u/s. 9(1)(vi) of the Act. We find that section 90(2) of the Income tax Act which states that either the provisions of the Income tax Act or the DTAA, whichever is more beneficial to an assessee, would be applicable to the assessee. Further, CBDT Circular No.728 dated 30.10.1995 clarifies that tax should be deducted at source as per the provisions of the Act or DTAA whichever is more beneficial to the assessee. Since the provisions of the Act are beneficial to the assessee, the same would apply and consequently the sums are not chargeable to tax in India and do not warrant deduction of tax at source u/s 195 of the Act. Hon ble Supreme Court in the case of GE India Technology Cen. (P) Ltd vs CIT 2010 (9) TMI 7 - SUPREME COURT OF INDIA had held that TDS obligation would arise on the assessee only when the sum is chargeable to tax in India u/s 4, 5 & 9 of the Act. We hold that the assessee in the instant case cannot be treated as assessee in default u/s 201(1) of the Act and consequently the interest u/s 201(1A) of the Act could not be levied on the assessee. Accordingly, the grounds raised by the assessee are allowed.

Summary

Issues:
1. Jurisdiction of the Assessing Officer under sections 201(1) and 201(1A) of the Income Tax Act regarding non-deduction of tax at source for payments made outside India.
2. Classification of payments made to non-resident film producers for rights to exhibit cinematographic films in India as "royalty" under section 9(1)(vi) of the Income Tax Act.
3. Applicability of section 90(2) of the Income Tax Act in determining tax liability for payments made to non-resident parties.
4. Whether tax deduction at source under section 195 of the Income Tax Act is required for the payments made to non-resident film producers.

Analysis:
1. The appellant challenged the jurisdiction of the Assessing Officer under sections 201(1) and 201(1A) of the Income Tax Act, contending that the order was without jurisdiction. However, the Additional Ground of Appeal raised on this issue was dismissed as not pressed during the hearing.
2. The core issue revolved around whether payments made to non-resident film producers for rights to exhibit cinematographic films in India constituted "royalty" under section 9(1)(vi) of the Act. The Assessing Officer and the Appellate Authority held that such payments fell under the definition of "royalty." The appellant argued that the exclusion clause in section 9(1)(vi), Explanation 2, clause (v) exempted consideration for the sale, distribution, or exhibition of cinematographic films from being classified as royalty.
3. The appellant invoked section 90(2) of the Income Tax Act, which allows the application of either the Act or the Double Taxation Avoidance Agreements (DTAAs) for determining tax liability, whichever is more beneficial to the assessee. The appellant contended that the provisions of the Act, specifically the exclusion clause in section 9(1)(vi), Explanation 2, clause (v), were more favorable and should apply in this case.
4. The Tribunal analyzed the nature of the payments made by the assessee to non-resident parties for rights to exhibit cinematographic films in India. It concluded that the consideration paid for the exhibition of cinematographic films did not constitute "royalty" under section 9(1)(vi) of the Act. The Tribunal relied on the specific exclusion for the exhibition of cinematographic films in the legislative provisions and judicial precedents to support its decision. Consequently, the Tribunal held that the assessee was not in default under section 201(1) of the Act, and interest under section 201(1A) could not be levied.

This detailed analysis of the judgment highlights the key issues addressed by the Tribunal concerning the classification of payments to non-resident film producers and the applicability of tax deduction at source provisions under the Income Tax Act.