Satellite telecasting rights acquisition was not royalty, so tax deduction at source under section 194J did not apply.

Payments for acquisition of irrevocable satellite telecasting rights for 99 years were treated as an outright purchase of telecast rights, not a mere licence to use the film rights. On that basis, and because consideration for the sale, distribution or exhibition of cinematographic films is excluded from the royalty definition in Explanation 2 to section 9(1), the amount did not constitute royalty. Section 194J TDS therefore did not apply, and the consequential demand and interest under section 201 could not survive.

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Issues: Whether the payments made for acquisition of satellite telecasting rights of films for a period of 99 years constituted royalty so as to attract deduction of tax at source under section 194J and consequent liability under section 201.

Analysis: The payments were found to be made for acquisition of irrevocable satellite rights for a period of 99 years. On the facts, the transfer was treated as an outright purchase of telecast rights and not a mere licence to use rights. The applicable definition of royalty under Explanation 2 to section 9(1) excludes consideration for the sale, distribution or exhibition of cinematographic films. Following the earlier view taken on identical facts, such payments were held to fall outside the scope of royalty, and therefore the TDS provision in section 194J was not attracted. Once section 194J did not apply, the demand and interest levied under section 201 also could not survive.

Conclusion: The payments for satellite rights were not royalty and were not liable for deduction of tax at source under section 194J; the Department's challenge failed.

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