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TMI Blog2013 (12) TMI 1215X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - Decided in favour of assessee. - Tax Case (Appeal) No.748 of 2013 and M.P.No.1 of 2013 - - - Dated:- 3-12-2013 - Chitra Venkataraman And T. S. Sivagnanam,JJ. For the Appellant : Mr. Suhrith Parthasarathy For the Respondent : Mr. S. Swaminathan Standing Counsel for Income Tax Department JUDGMENT (Order of The Court Was Made By T. S. Sivagnanam,J. ) This appeal by the assessee is directed against the order passed by the Income Tax Appellate Tribunal, Chennai "D" Bench dated 30.09.2013 in ITA No.1289/Mds/13 for the assessment year 2009-2010. 2. The assessee is a person carrying on business in the purchase and sale of Telugu films. The assessee filed return of income for the assessment year 2009-2010 on 29.09.2009 admitting a total income of Rs.33,10,829/-. The case was selected for scrutiny and a notice under Section 143(2)of the Income Tax Act, 1961 [The Act] was issued on 24.08.2010. The assessment proceedings were completed under Section 143(3) of the Act and the order of asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue preferred appeal before the Income Tax Appellate Tribunal [The Tribunal]. The Revenue contended that a perusal of the agreement would show that there was no purchase or sale, but a mere assignment of certain rights and the assessee was obligated to deduct tax at source under Section 194J of the Act at the time of making payment and having failed to effect deduction of tax at source, the assessee was liable for disallowance under Section 40(a)(ia)of the Act. 5. The assessee filed a Cross Objection before the Tribunal against that portion of the order of the First Appellate Authority, which was not in favour of the assessee. In the said Cross Objection, the assessee contended that the so called assignment agreement involved purchase of the copy right itself and is not in any way transfer of all or any other rights but transfer of copy right itself, which is a specific product, comprising a bundle of right. Further the assessee contended that the rights acquired was for 99 years and in terms of Section 26 of the CopyRight Act, 1957 the copy right would be valid and subsisted only for a period of 60 years and consequently any payment made towards cost of acquisition cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here would be no necessity to answer the other questions raised by the assessee. 8. Mr.Suhrith Parthasarathy, learned counsel appearing for the assessee after referring to the findings rendered by the First Appellate Authority submitted that under Explanation 2 to Clause (vi) of Section 9(1) of the Act, "Royalty" means consideration (including any lump sum consideration, but excluding any consideration, which would be the income of the recipient chargeable under the Head Capital Gains) for the transfer of all or any rights including granting of a licence in respect of any copy right, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films. By placing emphasis on the second limb of the Explanation and by referring to the various conditions and covenants contained in the agreement entered into between the assessee and the owner of the film, it is submitted that the assessee had purchased the world negative rights for a period of 99 years and the rights transferred included theatrical an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antamount to Royalty?" 12. The assessee is in the business of purchase and sale of television rights for films and filed the return of income for the assessment year 2009-2010. The said return was selected for scrutiny and after issuing notice under Section 143(2) of the Act and after hearing the assessee, an order of assessment was passed on 29.12.2011. Aggrieved by such order, the assessee preferred appeal to the First Appellate Authority wherein the assessee contended that even according to the Assessing Officer, the nature of business of the assessee is purchase and sale of satellite Television rights of the films and on going through the agreement entered into between the assessee and the third parties, will leave no doubt that the assessee under the agreement acquired absolute rights including theatrical rights over the pictures, negative rights without any geographical area restrictions and the rights so transferred is for a perpetual period and therefore, it would amount to sale and the provisions of Section 194J of the Act nor any provisions of the Act governing the tax deduction at source is applicable. The First Appellate Authority examined 14 such agreements, which ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer into writing. NOW THIS DEED OF TRANSFER WITNESSETH: 1. That in pursuance of the aforesaid agreement and in consideration of the total amount of Rs.40,00,000/- (Rupees forty lacs only) to be paid in the following manner: Rs.18,00,000/- (Rupees eighteen lakhs only) by cheque/DD Bearing No......... on ..... Bank, on receipt of confirmed lab lette confirming the rights by the ASSIGNOR in favour of ASSIGNEE from the respective Laboratory. Rs.16,00,000/- (Rupees sixteen lacs only) to be paid to M/s.GEMINI LABS, Hyderabad by the ASSIGNEE on behalf of the ASSIGNOR, and final settlement of Rs.6,00,000/- (Rupees six lacs only) to be paid two days before the release of the said film. 2. The ASSIGNORS have assigned the Exclusive World Negative(Picture Sound) rights including the theatrical and commercial rights of Distribution, Exhibition and Exploitation by 35 mm (valid only after 5 years from the date of first theatrical release of the film) 16 mm, 8mm and any dimensions in all media, performing rights and reproduce the film from the picture and sound negatives of the film in original or in dupe Master Negatives or from a positive print of the film or Video compact disc (a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the ASSIGNOR shall not have the right to claim for any revenue or consideration received by the ASSIGNEE. 8. The ASSIGNOR hereby declare that they have not earlier assigned, alienated or in any manner encumbered and they have full and absolute right to assign the copyright to broadcast the said FILM as aforesaid to the ASSIGNEE and agree to indemnify and keep indemnified the ASSIGNEE against any losses, claims or damages that may arise in this regard. 9. They have not assigned or granted any licence or parted with their interest in the FILM to any Lessee, Rightholder, Financier, Artists, Technicians, Video Right holder or any other person whomsoever in such a manner as to affect their copyright to Broadcast the said film as aforesaid and undertake not to do so at any time in future. 10. They shall indemnify the ASSIGNEE and any person acting or deemed to be acting on the authority of the ASSIGNEE against any claims or damages that may arise by reason of any civil or criminal proceedings that may be instituted against the ASSIGNEE including defamation or infringement of copyright assigned to the ASSIGNEE under this agreement. 11. That this agreement is irrevocable and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferor in favour of the assessee. The said deed of transfer was irrevocable till the expiry of the period for 99 years. The schedule of the agreement also states that the period of the agreement is for a perpetual period of 99 years from the date of the said agreement. 15. It has to be seen as to whether the transfer effected in favour of the assessee would fall within Section 9(1) r/w Explanation (2)(v) to of the Act. Clause (vi) to Explanation (2) defines the "Royalty" to mean consideration (including any lump sum consideration, but excluding any consideration, which would be the income of the recipient chargeable under the Head Capital Gains) and in terms of Clause (v) to Explanation 2 of Section 9(1)of the Act, the transfer of all or any rights (including the granting of a licence) in respect of any copy right, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films. Therefore, to fall within the exclusion, as defined under clause (v) to Explanation (2) to Section 9(1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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