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TMI Blog2015 (8) TMI 1154X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction and therefore doe not fall under definition of royalty, without appreciating that the right acquired by the assessee is only an assignment of the right and not a purchase transaction?." 4. As could be seen from the grounds raised, the solitary issue arising for consideration is whether the CIT (A) is correct in holding that the payments made by the assessee for purchasing satellite telecasting right of films is in the nature of 'royalty' thereby requiring deduction of tax at source u/s 194J of the Act. 5. Briefly, the facts are, assessee, an individual, is the Managing Director of M/s. Aishwarya Art Creations (P) Ltd. During a survey u/s 133A conducted in case of Aishwarya Art Creations (P) Ltd, it was found that assessee has not deducted tax at source in terms with section 194J on an amount of Rs. 14,14,53,471 paid to producers towards purchase of satellite rights films for A.Y 2008-09. Similar payments made for A.Y 2009-10 without deduction of tax was found to be Rs. 3,26,72,500. AO was of the view that payments made to the producer towards acquiring satellite rights of films is in the nature of royalty, hence provisions of section 194J of the Act is attracted. He, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court held that the assessee acquired absolute rights including the right to exhibit the films in theaters without any geographical restrictions for a perpetual period. Therefore, it would amount to sale and purchase, and provisions of section 194J do not apply. Even in the present case the appellant entered into an agreement with film producers for purchase of satellite rights for period of 99 years and such rights are irrevocable. Therefore, the appellant is simply engaged in the business of buying and selling the telecast rights of cine films. Therefore, provisions of section 194J are not applicable. Further, the Cinematograph Act, 1952, refers to exhibition of films in a particular place, theatres. From careful reading of this Act, one can clearly understand that the purpose of this Act was to ensure the safety of cine goers. In 1952 obviously there were no Television Channels and telecast through TV Channels would not have been imagined in 1950s. Therefore, I consider exhibition of film cannot be restricted to only theatres. Further, the common understanding of the term 'royalty' is the amount received by a person who has exclusive right over a property, for allowing ano ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat provisions of section 194J of the Act is attracted to the payments made by assessee to the producers towards assignment of satellite rights, but, from the tenor of the order passed by AO, it can be inferred that, according to AO, the payments by assessee are in the nature of royalty, accordingly, section 194J of the Act is applicable requiring assessee to deduct tax at source on such payment of royalty. In this context, it will be appropriate to look into the relevant statutory provisions. Section 194J of the Act, enjoins upon any person not being an individual or a hindu undivided family to deduct tax at source on certain payments, one of them being royalty, to a resident. Clause (ba) of Explanation to section 194J(1) defines royalty, by referring to the meaning given in clause (vi) of Explanation 2 to section 9(1). For ready reference, Explanation 2 of section 9(1) is extracted hereunder: "Explanation 2.-For the purposes of this clause, "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- (i) the transfer of all or any rights (including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any right, for a consideration. That being the case, the payment made by assessee to the producers for acquiring satellite rights is towards outright sale, distribution or exhibition of cinematographic films, which are specifically excluded under clause (v) of Explanation 2 from being is treated as consideration paid towards royalty. In that view of the matter, the payments are outside the purview of section 194J of the Act. Hence, assessee cannot be fastened with liability u/s 201(1) and 201(1A) for having defaulted in deducting tax at source in terms of section 194J. 10. It will be worth mentioning here that the Hon'ble Madras High Court in judgment dated 03/12/2013 in case of K.Bhagyalakshmi Vs. DCIT in Tax Case (Appeal) No. 748 of 2013 while considering identical nature of payment made towards acquisition of satellite rights for perpetual period of 99 years, held that such payments being towards sale, distribution or exhibition of cinematographic films would fall outside the scope of royalty as defined under Explanation 2 of section. The observations made by Hon'ble Madras High Court, is as under: "16. In the preceding paragraphs, we have made an elaborate reference to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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