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2019 (3) TMI 1154 - AT - Income TaxTDS u/s 194J - payments to the Distributors of the Films constitutes fee for professional or technical services or royalty - Addition u/s 40(a)(ia) - HELD THAT - Assessee is in the exhibition of films procured from distributors on revenue sharing basis. The Revenue shared by the assessee with the distributor to exhibit the cinematographic film is outside the scope of expression royalty under Clause (v) to Explanation 2 to Section 9(1)(vi) of the Act referred to under the provisions of Section 194J of the Act. Therefore, such payment to distributor does not call for deduction of TDS. Section 40(a)(ia) of the Act do not come into play for disallowance of the expenses incurred by the assessee for exhibition of films. - Decided in favour or assessee.
Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 for non-deduction of TDS. 2. Classification of payments made to distributors as royalty under Section 194J of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 for non-deduction of TDS: The primary issue in these appeals is whether the payments made by the assessee to film distributors should be disallowed under Section 40(a)(ia) of the Income Tax Act, 1961 due to non-deduction of TDS. The Assessing Officer (AO) disallowed expenses amounting to ?4,76,26,714/- on the grounds that the payments were in the nature of royalty, and the assessee failed to deduct TDS under Section 194J of the Act. The CIT(A) deleted the disallowance, concluding that the payments made by the assessee to distributors for the exhibition of films do not fall under the definition of royalty as per Section 9(1)(vi) of the Act. The CIT(A) reasoned that the payments were for the distribution and exhibition of cinematographic films, which are specifically excluded from the definition of royalty under the said section. 2. Classification of payments made to distributors as royalty under Section 194J of the Income Tax Act, 1961: The Revenue contended that the payments made to distributors were in the nature of royalty and thus required TDS deduction under Section 194J. The assessee argued that these payments were revenue-sharing expenses for the exhibition of films, which are excluded from the definition of royalty under Explanation 2 to Clause (vi) of Section 9(1) of the Act. The Tribunal examined the orders of the CIT(A) and the relevant legal provisions. The CIT(A) noted that the payments made by the assessee were for procuring films from distributors for exhibition purposes. These payments were based on revenue-sharing agreements and did not constitute royalty. The CIT(A) also referred to judicial precedents, including the Hon’ble Madras High Court's judgment in Mrs. K. Bhagyalaxmi vs. DCIT and the ITAT's decision in Indo-Overseas Film vs. ITO, which supported the assessee's position that such payments are outside the scope of Section 194J. The Tribunal upheld the CIT(A)'s findings, stating that the payments made by the assessee to distributors for the exhibition of films do not attract TDS under Section 194J. Consequently, the disallowance under Section 40(a)(ia) was not justified. Conclusion: The Tribunal dismissed the Revenue's appeals, affirming that the payments made by the assessee to film distributors for exhibition purposes do not constitute royalty and are not subject to TDS under Section 194J. Therefore, the disallowance under Section 40(a)(ia) was correctly deleted by the CIT(A).
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