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TMI Blog2019 (6) TMI 110X X X X Extracts X X X X X X X X Extracts X X X X ..... nterfering in such matters, except where the petitioner satisfies the Court that one or more of the following exceptions exist in the case in question, bearing in mind that the flaw alleged should go to the root of the matter and should be purely legal in nature. Instances of such illegality may be culled from several judgements of the Supreme Court to be (a) a challenge to the constitutionality or vires of a statutory provision (b) a bar of limitation (c) assumption of jurisdiction by the officer where none exists (iii) patent and apparent illegality in the framing of the order, in contravention of the statutory provisions in play. The applicable provisions in question straddle two statutes the Finance Act 1994 levying Service tax and The Copyright Act 1957. The interpretation and interplay adopted by the Revenue is wholly contrary to the basic scheme of the statutes, particularly the CR Act, and if such interpretation is left untouched, the purport and scheme of both statutes would stand distorted. It is on the aforesaid premise that the writ petitions have been filed. Whether the petitioners are correct in their averments and allegations against the Revenue is a different matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though in excess of the period stipulated in the Act, is temporary, appears, to me, fundamentally unsound and defies logic. Petition allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... the tax net and only those works referred to in (b) and (c) have been made taxable under service tax law. 7. The petitioners are engaged in the production of cinematograph films. In the regular course of business, the petitioners enter into various agreements with distributors, exhibitors and television channels assigning to them exclusive rights for broadcast and exhibition of various cinematograph films, both produced as well as purchased by them. The rights include satellite television broadcast, direct to home broadcast, direct satellite service, terrestrial television broadcast and all other rights connected therewith including exhibition of the film by means of wireless diffusion and by wire for communication to the public through television broadcast. 8. The salient features of the arrangements entered into by the petitioners with distributors/exhibitors are common across the writ petitions and broadly set out below. The narration to follow also takes into account the admitted facts, the relevant features of the assignment agreements and the submissions on merits advanced by both parties: * All petitioners are companies engaged in the production and distribution of cine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n effecting such payment. Subject to the satisfaction of the aforesaid condition, the transfer/assignment of the copyright is irrevocable. * Thus it is only to protect against a default in payment by the assignee that the petitioners had provided for revocability of the agreement, as, in the alternative, the transfer of copy right would have been completed without the petitioners having received the full consideration in respect thereof. * Several provisions of the CR Act are referred to in extenso by learned counsels for the petitioners in support of their submissions as above and I will detail them in the paragraphs to follow. * In some cases the petitioners have raised the plea of limitation. According to them, the issue in question was well within the knowledge of the service tax department from as early as in 2010 when one of the petitioners in this batch, AGS Entertainment Private Limited, along with several other similarly placed assesses, had approached this Court challenging the vires of the provisions of Section 65(105)(zzzzt). After completion of pleadings, a Division Bench of this Court had upheld the validity of the provision vide order dated 26.06.2013. Thus t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondent, the use of the word 'perpetual' in the agreement is only a sham, designed to camouflage the true intent of the petitioner which is to enter into a temporary transaction. Thus, the transactions are vitiated as being colourable. * The Assessing Authority relies substantially upon the decision of the Division Bench in the case of AGS Entertainment Private Limited v. Union of India (2013) (32) STR 129 (Mad.). * According to him, the perpetual transfer as per agreement is not an 'absolute transfer for the reason that the transfer of legal right to copyright has to be to the exclusion of all person including the transferor and during the period of such transfer, the transferor cannot again transfer the same rights to others. AGS make commercial exploitation of copyright in many ways including theatre rights, satellite and television rights, DVD rights dubbing and remake rights, etc. Further, these rights are granted to various people simultaneously for exploitation in different regions. Entire copyright should be transferred to the other person to constitute permanent transfer or perpetual transfer which is not so in the case of AGS'. Therefore, in order to constitute a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd all learned counsel exhaustively on the question of maintainability. As far as the question of maintainability and alternative remedy is concerned, it is all too well settled that where a legal infirmity is pointed out and established, there is no fetter on this Court to consider the validity or otherwise of such order of assessment of even a show cause notice. The golden rule of guidance is that, as a rule, the court will exercise extreme restraint in interfering in such matters, except where the petitioner satisfies the Court that one or more of the following exceptions exist in the case in question, bearing in mind that the flaw alleged should go to the root of the matter and should be purely legal in nature. Instances of such illegality may be culled from several judgements of the Supreme Court to be (a) a challenge to the constitutionality or vires of a statutory provision (b) a bar of limitation (c) assumption of jurisdiction by the officer where none exists (iii) patent and apparent illegality in the framing of the order, in contravention of the statutory provisions in play. Of course, in determining the aforesaid, the Court will not embark upon an examination of disputed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Applying the ratio of the decisions of the Supreme Court, we hold that the Parliament is well within its legislative competence in levying service tax resorting to Entry 97 of List I.' 15. The issue before me is not a challenge to the statutory provisions, but an alleged, gross mis-interpretation of the same. The petitioners are certainly bound by the provisions, as they exist, particularly seeing as their constitutionality has been upheld. However, the case of the petitioners' is that the provisions have been erroneously interpreted and applied to the business transactions in their case. The applicable provisions in question straddle two statutes - the Finance Act 1994 levying Service tax and The Copyright Act 1957. The interpretation and interplay adopted by the Revenue is wholly contrary to the basic scheme of the statutes, particularly the CR Act, and if such interpretation is left untouched, the purport and scheme of both statutes would stand distorted. It is on the aforesaid premise that the writ petitions have been filed. Whether the petitioners' are correct in their averments and allegations against the Revenue is a different matter. However, one thing is clear. The lis be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thillu Mullu 2 and Payum Puli during the period June 13 and Sep 15 respectively; during the production of the film, Thillu Mullu 2, an Under production agreement was entered into by Vendhar Movies with M/s Vijay Television Private Limited for transfer of satellite rights of the film and they earned consideration on the same; * Vendhar Movies have temporarily assigned and permitted the use and enjoyment of the copyright to M/s Vijay Television Network Ltd., the Satellite rights of the Tamil feature film "Thillu Mullu 2" produced by the for a perpetual period for a consideration of ₹ 2,99,00,000/-; * For the movies "Paayum Puli: and "Lal Bahadhur Shastri", Vendhar Movies have earned into an agreement with M/s Sun TV Network Limited and have temporarily assigned and permitted the use and enjoyment of the copyright of the movie produced by them for a perpetual period for a consideration of ₹ 3,00,00,000/- and ₹ 2,25,00,000/- respectively; * From the assignment agreement entered with M/s Sun TV, it appears that the assignment of copyright for the broadcast of the films will be restricted only to the rights specified in clause 4 the agreement and M/s Vendhar Movie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to different parties, for the same time period for exploitation in different regions or different media. The agreement whose nature of transfer is in question does not bestow rights outside the area of assignment. On perusal of various clauses in the agreements it is seen that the producer or the absolute owner assign specific rights for a specific territory, that the agreement does not bestow rights outside the area of assignment and the distributor only gets positive prints or digital copies of the film for exhibition of the film in a specified area. From the above clauses of the assignment agreement it is clear that it is only a temporary transfer of copyright or permission to broadcast the film in a specified territory for a specified period of time. 5.5. Further these transactions cannot be called as absolute sale as in the case of sale the buyer will acquire all the rights of the seller which will enable him to exploit such acquired rights for unrestricted exploitation and the seller would cease to have any rights which is not the case in the transactions discussed above. In the case of first copy sale, all forms of rights in respect of the films in question, are trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a work may relinquish all or any of the rights comprised in the copyright in the work by giving notice in the prescribed from to the Registrar of Copyrights and thereupon such rights shall, subject to the provisions of sub-section (3), cease to exist from the date of the notice. (2) On receipt of a notice under sub-section (1), the Registrar of Copyrights shall cause it to be published in the Official Gazette and in such other manner as he may deem fit. (3) The relinquishment of all or any of the rights comprised in the copyright in a work shall not affect any rights subsisting in favour of any person on the date of the notice referred to in sub-section." 23.2. Further Rule 5 of Copyright Rules, 1958, which deals with relinquishment of Copy right read as follows: "Notice of relinquishment.- The author of a work desiring to relinquish under section 21 all or any of the rights comprised in the copyright in the work shall give notice to the Registrar of Copyright in accordance with Form." 23.3. I find that no relinquishment as contemplated in the Section 21 of the Copyright Act, 1957 or Rule 5 of Copyright Rules, 1958 was performed by AGS. In the absence of relinquishing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the rights that would arise when the title is transferred to the assignee. 24. From the above discussion I find it is the duty of the service provider to properly classify their service, get themselves registered for the taxable services provided by them , file ST-3 returns and to determine and pay their correct tax liability, which they failed. Had the officers of DGCEI not conducted the detailed inquiry, the said rendering of taxable services by AGS would have escaped assessment and resulted in non payment of service tax. They were aware of the facts regarding payment of service tax on the above services rendered by them and disguised such temporary transfer of copy right as transfer for perpetual period to claim the same as permanent transfer of copy right. The suppression with intent to evade payment, on part of AGS is proved beyond doubt and proviso to Section 73(1) of the Finance Act, 1994 has been rightly invoked in the instant case and the demand of service tax for the period 2010- 11 (July 2010 to March 2011) to 2014-15 is justified. . . . . 28.2. In the instant case, as suppression of the material facts have been established beyond doubt as discussed above, I cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the cinematographic film would only be temporary in nature. This, in essence, is the argument of the respondent. 20. In order to appreciate the controversy raised by the Service tax Department, it is necessary to advert to some of the provisions of the CR Act and understand the scheme of the statute, its purport and the interplay with the provisions of the Act. 21. The provisions of Section 13 of the CR Act detail the works in which copyright subsists and states that subject to the provisions of this Section and other provisions of the CR Act, copyright shall subsist throughout India in: a) original literary, dramatic, musical and artistic works; (b) cinematograph films; and (c) sound recording. 'Copyright' is defined in Section 14 as follows:- '14. Meaning of Copyright.- For the purposes of this Act, "copyright" means the exclusive right subject to the provisions of this Act, to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof, namely:- (a) in the case of a literary, dramatic or musical work, not being a computer programme,- (i) to reproduce the work in any material form including the storing of it in any medi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aph films. 23. The Proviso to Section 17 of the CR Act recognizes the independent copyright of first owners of individual works incorporated in a film and reads thus:- '...Provided that in case of any work incorporated in a cinematograph work, nothing contained in clauses (b) and (c) shall affect the right of the author in the work referred to in clause (a) of sub-section (1) of section 13.' 24. Sections 18 of the CR Act deals with assignment of copyright in the following terms: 18. Assignment of copyright.- (1) The owner of the copyright in an existing work or the prospective owner of the copyright in a future work may assign to any person the copyright either wholly or partially and either generally or subject to limitations and either for the whole term of the copyright or any part thereof: . . . . (2) Where the assignee of a copyright becomes entitled to any right comprised in the copyright, the assignee as respects the rights so assigned, and the assignor as respects the rights not assigned, shall be treated for the purposes of this Act as the owner of copyright and the provisions of this Act shall have effect accordingly. (3) In this section, the expression "assig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itself. It is the lack of appreciation of the aforesaid point that, in my view, is the fundamental and fatal flaw in the impugned show cause notice and orders of assessment. 29. I can do no better that to quote from the judgement of the Supreme Court in the case of Indian Performing Right Society Ltd. Vs. Eastern Indian Motion Pictures Association and Others [PTC (Suppl) (1) 877 (SC)], where Justice V.R.Krishna Iyer, in conclusion and to supplement the majority judgment, states thus: 22. A cinematograph is a felicitous blend, a beautiful totality, a constellation of stars, if I may use these lovely imageries to drive home my point, slurring over the rule against mixed metaphor. Cinema is more. than long strips of celluloid, more than miracles in photography, more than song, dance and dialogue and indeed, more than dramatic story, exciting plot, gripping situations and marvellous acting. But it is that ensemble which is the finished product of orchestrated performance by each of the several participants, although the components may, sometimes, in themselves be elegant entities. Copyright in a cinema film exists in law, but Section 13(4) of the Act preserves the separate surviva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove. Section 21 deals with the 'relinquishment' or the 'giving up' of a right and not the 'assignment' thereof. The two are different concepts. The assignment of a copyright is by way of transfer, dealt with under section 18 and 19 of the CR Act. On the other hand, sub-section (1) of Section 21 entitles the author to 'relinquish' the whole or any part of the rights comprised in the work. This cannot be equated with a 'transfer' of a copyright which is what is dealt with under the Act for the purposes of levy of Service tax. Reference to Section 21 by the respondents is wholly misconceived as it hardly comes to their aid. Rather, it supports the case of the petitioners as, incidentally, Section 21 itself provides for the entitlement of an author to relinquish his copyright specifically using the phrase 'all or any of the rights comprised in the copy rights in the work'. This supports the conclusion that a work may either comprise of a 'single right' or a 'bundle of rights', some that may be relinquished and others that are pursued and will survive. 33. The petitioners before me all confirm that the documentation entered into by them with Television Channels specifically uses the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stantial questions of law raised for its resolution in terms of Section 260-A of the Income Tax Act 1961: 1.Whether on the facts and circumstances of the case, the learned Income Tax Appellate Tribunal erred in upholding the disallowance under Section 40(a)(ia) of the Income Tax Act, 1961 as against the appellant? 2.Whether the learned Income Tax Appellate Tribunal erred in failing to appreciate the proposition that a disallowance of expenses under Section 40(a)(ia) of the Income Tax Act, 1961 would not lie on payments already made? 3.Whether the learned Income Tax Appellate Tribunal erred in concluding that the payments made by the appellant were tantamount to Royalty? 4.Whether the learned Income Tax Appellate Tribunal erred in relying upon the decision of a Coordinate Bench of the Tribunal in the Shri Balaji Communications case? 5.Whether the learned Income Tax Appellate Tribunal's findings are perverse on the facts and circumstances of the case, and therefore liable to be set aside?" 37. The Division Bench was concerned with the case of an individual who was carrying on business in purchase and sale of Telugu Films and whether she was liable to deduct tax at source u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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