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TMI Blog2016 (1) TMI 126X X X X Extracts X X X X X X X X Extracts X X X X ..... And Waseem Ahmed, AM For the Appellant : Shri J P Khaitan Shri Pratyush Jhunjhunwala, Advs For the Respondent : Shri R P Nag, JCIT, Sr DR ORDER Per Shri Mahavir Singh, JM This appeal by assessee is arising out of order of CIT(A)-XIX, Kolkata in Appeal No.445/CIT(A)-XIX/ACIT,Cir-59(TDS)/08-09 dated 24.08.2009. Assessment was framed by ACIT, Cir-59, Kolkata u/s. 201(1)/201(1A) r.w.s. 194J of the Income-tax Act, 1961 (hereinafter referred to as the Act ) for AY 2008-09 vide its order dated 20.03.2008. 2. The only issue in this appeal of assessee is, against the order of CIT(A) confirming the action of AO in treating the outright purchase of copyright as payment of royalty, thereby, treating the assessee-default for not deducting TDS u/s. 194J of the Act and, therefore, raising demand u/s. 201(1) and also charging consequent interest u/s. 201(1A) of the Act. For this, assessee has raised following three effective grounds: The grounds mentioned hereinafter are without prejudice to one another. 1(a). That on the facts and circumstances of the case, the learned CIT (Appeals) erred in upholding the action of the Assessing Officer in treating the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Payment Date Amount of royalty payment (Rs.) Non TDS (Rs.) Interest u/s. 201(1A) (Rs.) M/s. Rasika Entertainments 22.08.07 550,000 55,000/- 9,900/- M/s. 3G digital Solutions 16.04.07 350,000 17,500/- 2,100/- Sree Chakra Films Pvt. Ltd. 07.08.07 750,000 75,000/- 5,250/- Moxie Entertainment Pvt. Ltd. 29.06.07 1,500,000 1,50,000/- 13,500/- Rituparna Ghosh Productions 18.06.07 8,500,000 8,50,000/- 76,500/- Total For F/Year 2007-08 11,650.000 11,47,500/- 1,07,250/- Hence, the AO raised demand u/s. 201(1) of the Act for non-deduction of TDS at ₹ 11,47,500/- and consequent interest u/s. 201(1A) of the Act at ₹ 1,07,250/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Moxie Entertainment Pvt. Ltd. the payments are to be treated as payment of Royalty in view of provisions of clause (v) of Explanation-2 of section 9(1)(vi) of the I. T. Act because the payments have been made for transfer of all the assigned rights, title and interest in all works of a literary, dramatic, musical and artistic nature together with the sound recordings. However, in the case of payment to Rituparno Ghosh Productions, the payment has been made for purchase of all exclusive copyrights of the film Khela . Thus, the payment of ₹ 85,00,000/- made to Rituparno Ghosh Productions cannot be treated as payment of royalty covered under clause (v) of Explanation-2 of section 9(1)(vi) of the 1. T. Act. In view of above, the A.O. is directed to delete the tax demand of ₹ 8,50,000/- raised u/s. 201(1) and interest of ₹ 76,500/- charged u/s. 201(1A) of the 1. T. Act in the case of Rituparno Ghosh Productions. The demand raised u/s. 201(1) and interest charged u/s. 201(lA) of the Act in the cases of balance four parties is confirmed. Aggrieved, assessee is in second appeal before Tribunal. 4. We have heard rival submissions and gone through facts and circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out hereunder. Ld. Counsel for the assessee at the same page drew our attention to clause 1(1) i.e. contract for works and the relevant clause reads as under: 1.1 'Contract Works' shall mean all works of a literary, dramatic, musical and artistic nature together with the sound recordings as well as the cinematograph works/audiovisual recordings of the song sequences in the said Film, the particulars whereof are set forth in the Annexure hereto. He also explained that the entire right, title and interest in the property is transferred by virtue of clause (4), which reads as under: 4. The Assignor hereby transfers and assigns all rights, title and interest in the Contract Works for the Territory for the full copyright period as per the Copyright Act, 1957, as amended from time to time. The Company can exercise these rights at any time throughout the territory solely at the Company's discretion. According to him, the assessee company will be the owner of original plate within the meaning of Copyright Act, 1957 and any extension or modification thereof of any performance/works in pursuance of this agreement will be that of the assessee. For this, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p sum payment of outright purchase of copyright because it is not a royalty payment. He relied on certain case laws which will be discussed in later part of this order. 5. On the other hand, the Ld. Sr. DR relied on the orders of the lower authorities i.e. the order of CIT(A) and the A.O. 6. We have heard rival submissions and gone through facts and circumstances of the case. We have gone through the entire clause of the agreement and it is seen that the assessee has outright purchased the copyrights and payments for such outright purchase of copyrights was made in lump-sum. We also find that revenue has not contradicted the factum of outright purchase of copyrights by the assessee. The assessee has also treated such payments capital expenditure and not claimed as revenue in nature. All the agreement entered into between the assessee and other parties for outright acquisition of copyrights of music/films from the music producers i.e. transfer of ownership of copyright for a lump sum consideration are identically worded and for sample basis, the clauses of one of the agreement is reproduced above, which clearly reveals that the copyrights are outright purchase. Now it is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved but only right to use has been granted. Ownership denotes the relationship between a person and an object forming subject matter of ownership. This consists of rights, all of which are right in rem, being good against the entire world but not merely against a specific person and such rights are indeterminate in duration and residuary in character. When right in respect of a property is transferred, and not the right in the property, then, there is no transfer of the rights in rem which may be good against the world but not against the transfer. In that case the transferee does not have the rights, which are indeterminate in duration and residuary in character. The consideration paid in lump sum is not the decisive factor in the matter. That sum may be agreed for the transfer of the one right, two rights but not the ownership of the asset. Thus the definition of term royalty in respect to copyright, literary, artistic or scientific work, patent, inventions, process etc. does not extend to the outright purchase of the right to use an asset. In the case of the royalty, the ownership of the property or rights remains with the owner and the transferee is permitted to use the right i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns with owner and the transferee is permitted to use the right in respect of such property. A payment for the absolute assignment and ownership of rights transferred is not a payment for the use of something belonging to another party and, therefore, no royalty. In an outright transfer to be treated as sale of property as opposed to licence, alienation of all rights in the property is necessary. 9. Ld. Counsel for the assessee also relied on the decision of Hon'ble Telengana Andhra Pradesh High court in the case of CIT Vs. Andhra Petrochemicals Ltd. (2015) 373 ITR 207 (T AP), wherein the very nature of sum payable to the owner of trademark by another for using it, is clearly held to be opposed to outright purchase. It is held as under: 17. Royalty, by its very nature is a sum payable to the owner of a design, invention or trade mark by another for using it. It is clearly opposed to an outright transfer. The original patent or the facility of other description continues to remain with the owner and the user would be permitted to avail of the facility in a limited or absolute manner on payment of royalty. On cessation of the arrangement, the user loses the right and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r words, a kind of exercise ; specific sums paid annu ally, or at others stated periods, for the right to use a patented device, whether it is used much or little or not at all. The word has been held an appropriate term as applied to improvements which are non-patentable. In oil and gas leases, a share of the product or profit reserved by the owner for permitting another to use the property ; the amount reserved or the rental to be paid to the original owner of the whole estate ; the compensation for the privilege or rights created by the lease ; the compensation provided for the privilege of drilling for oil and gas, and consists of a share in the oil and gas produced under existing leases ; the share of the product or profit paid to the owner of the property. As applied to an existing lease, a share in the oil and gas produced, but the term does not include a perpetual interest in the oil and gas in the ground. 19. If these tests are applied to the amount that is paid by the respondent to the foreign company, it becomes difficult to treat it as royalty. Firstly, the amount is paid in a lump sum and it is not referable to any particular period. Secondly, though there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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