2016 (5) TMI 31 - AT - Income Tax

Tribunal rules in favor of assessee, disallowances under Income-tax Act deleted.

The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection. The disallowance of Rs. 2,53,47,173/- under Section 40(a)(ia) for ... TDS u/s 194C - placing the magazines on the back of the seats of the aircraft - payment made by the assessee to KAL on account of sharing of incremental advertisement - Held that:- The agreement between the two was on account of sharing of incremental advertisement only and nothing else. According to Ld. DR, displaying of magazine to the captive audience by KAL in its flight would itself fall within the definition of 'work'. In this regard we beg to differ with the views of Ld. DR. The admitted facts are that KAL has purchased the magazines, which was a separate transaction and for which KAL had made payment to the assessee. Thus displaying of magazines by KAL was for its own consumption and purposes. Once the product of the assessee was purchased by KAL, thereafter whatever has been done by KAL with the said product was for own benefits, advantages and purposes of KAL only. Under these circumstances it could not be said at all that KAL had displayed the magazine for and on behalf of the assessee, nor it could be said that by placing the magazines on the back of the seats of the aircraft, KAL had done a 'work' for the assessee. KAL provided magazines to its guest passengers as part of its effort for creating a five star in-flight experience for its customers. Thus, increase in the advertisement revenue cannot be said to have occurred directly as a result of any 'work' done by KAL for on behalf of the assessee. Further, no such 'work' could have been recognized or merged in any tangible or quantifiable terms. Thus, without any hesitation, we can say that the impugned payment made by the assessee to KAL on account of sharing of incremental advertisement revenue shall not fall within the provisions of section 194C. - Decided in favour of assessee. TDS u/s 195 - payment for for procuring images and figures to be published in assessee's magazines in India - Held that:- To be included in the definition of 'royalty', the payment should be made for use of a copyright of the items. Even if we presume, although denied by the assessee, that photograph will fall in any one or more of the items mentioned in the above said definition, even, then it is mandatory on the part of the revenue before applying these provision to show that the payment was for use of 'copyright' and not 'copyrighted article'. In our opinion, use of copyright and 'copyrighted article' are altogether two different things as has been held in many judgments also. The admitted fact is that the photograph has been given to the assessee for the limited purpose of its one time use in the magazine. The assessee can neither edit the photograph nor can it make copies of the photograph to be sold further or to be used elsewhere. The assessee is not permitted to make resale of these photographs to any other person for any other use. Thus, what has been permitted to the assessee is to make use of the article and not use of the copyright. Thus, we find that the transactions of downloading of photographs for exclusive one time use for publication in the magazine did not fall within the provisions of relevant Article 12 of DTAA and therefore, assessee was not liable to deduct tax on the payments made for the same. It is further brought to our notice that in the assessment year 2009-10 also payments were made to these very parties namely M/s Getty Images and M/s Famous-Pictures & Features Agency, for downloading of photos. But no disallowance has been made by the assessing officer in the assessment order passed under section 143 (3) dated 24.11.2011.- Decided in favour of assessee. Issues Involved:1. Disallowance of Rs. 2,53,47,173/- under Section 40(a)(ia) for non-deduction of tax on payments made to Kingfisher Airlines Ltd.2. Disallowance of Rs. 7,59,645/- under Section 40(a)(i) for non-deduction of tax on payments made to Getty Images and Famous Pictures.Issue 1: Disallowance under Section 40(a)(ia) for Payments to Kingfisher Airlines Ltd.The Revenue challenged the decision of the CIT(A) to delete the disallowance of Rs. 2,53,47,173/- made under Section 40(a)(ia) for non-deduction of tax on payments made to Kingfisher Airlines Ltd. (KAL). The assessee, engaged in publishing magazines, entered into an agreement with KAL to publish an 'in-flight' magazine variant of Hi-Blitz. The agreement included sharing 50% of the incremental advertisement revenue above Rs. 3 million per quarter with KAL. The Assessing Officer (AO) disallowed the payment for non-deduction of tax at source, considering it a service contract under Section 194C.The CIT(A) found that the agreement was not a service contract but a revenue-sharing arrangement, and thus, tax deduction at source was not required. The Tribunal upheld the CIT(A)'s decision, stating that the payment was for sharing incremental advertisement revenue, not for any 'work' done by KAL. The Tribunal noted that KAL purchased the magazines for its own use and displayed them on flights for its passengers, which did not constitute 'work' for the assessee. Consequently, the provisions of Section 194C were not applicable, and the disallowance was unjustified.Issue 2: Disallowance under Section 40(a)(i) for Payments to Getty Images and Famous PicturesThe assessee contested the CIT(A)'s decision to uphold the disallowance of Rs. 7,59,645/- under Section 40(a)(i) for non-deduction of tax on payments made to Getty Images and Famous Pictures. These payments were for procuring images for publication in the assessee's magazines. The AO treated these payments as royalty, requiring tax deduction at source.The CIT(A) concluded that the payments were for limited rights to use the photographs, which fell under the definition of royalty in the Double Taxation Avoidance Agreements (DTAAs) with Singapore and the UK. However, the Tribunal disagreed, stating that the payments were for the use of copyrighted articles, not the copyrights themselves. The assessee was given limited rights to use the photographs for one-time publication in its magazines, without the right to edit, resell, or further distribute them.The Tribunal emphasized that the payments did not fall within the definition of royalty under the relevant DTAAs and thus, tax deduction at source was not required. The Tribunal also noted that similar payments in the assessment year 2009-10 were not disallowed by the AO, indicating inconsistency in the AO's approach.Conclusion:The Tribunal dismissed the Revenue's appeal and allowed the assessee's cross-objection. The disallowance of Rs. 2,53,47,173/- under Section 40(a)(ia) for payments to Kingfisher Airlines Ltd. was deleted, and the disallowance of Rs. 7,59,645/- under Section 40(a)(i) for payments to Getty Images and Famous Pictures was also deleted. The Tribunal's decision was based on the interpretation of the agreements and the relevant provisions of the Income-tax Act and DTAAs, concluding that tax deduction at source was not required in both cases.