TaxTMI 
TaxTMI 
2013 (2) TMI 373
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....ssee had debited in its account a sum of Rs. 25,71,19,000/- for purchasing satellite rights of films and programs. On verification of records, the Assessing Officer found that such rights were brought from various parties at varying cost. Assessee had filed the agreements with all the parties. The A.O. was of the opinion that such agreements were only for assignment of rights and not for sale of right to assessee. As per A.O., assignor only assigned his rights to the assessee through such agreements. The rights were only for 20 to 25 years and were not of permanent nature. Therefore, according to him, there was no sale of rights to the assessee. Further, as per A.O., Section 194J was applicable since payments were in the nature of royalty. 3. A.O. put the assessee on notice as to why Section 40(a)(ia) should not be applied since tax was not deducted at source when payments were effected. Reply of the assessee was that it was only purchasing and selling broadcasting rights and the obligation to deduct tax at source was only on the ultimate owner of broadcasting rights. However, the Assessing Officer was not impressed. According to him, assessee had paid the sum of Rs. 25,71,19,00....
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.... submitted that royalty would include transfer of any right including copyright. As per learned D.R., the argument that the assessee had acquired the rights only for a particular period, clearly showed that it was not a perpetual right received by the assessee. It was of varying terms from 20 to 25 years. Therefore, what the assessee was doing was not purchasing the rights. It was only a temporary transfer of rights to it. According to her, assessee could not say that it had purchased rights altogether. Explanation 2 under Section 9(1)(vi) of the Act, clearly brought such type of payments within the purview of Royalty. Assessee having not deducted tax at source as required under Section 194J of the Act, Assessing Officer had rightly invoked Section 40(a)(ia) of the Act. 7. Per contra, learned A.R. strongly supporting the order of ld. CIT(Appeals), submitted that the agreements clearly showed the rights to have been purchased by the assessee. Such rights which assessee had acquired for a period of 99 years were perpetual in nature. There were no residuary value in a film after 25 to 100 years of its release. In such a situation, it could not be considered that the payments effect....
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....What is excluded are consideration for sale, distribution and exhibition of cinematographic films. What the assessee paid here was not consideration for sale, distribution or exhibition of cinematographic films. Assessee did not purchase the cinematographic films as such through the transactions. Assessee had only received right for satellite broadcasting. The definition also does not say that it would apply only if the rights are considered only for a definite period. Even if the transfer of rights is perpetual or even if the transfer is only a part of the rights, as long as transfer is of any right relatable to a copyright of a film or video tape, which is to be used in connection with television or tapes, the consideration paid would be royalty only. Thus, the impugned transaction, in our opinion, would fall within the definition of "royalty". One of the typical agreements placed at paper-book page 22 is reproduced as under:- "Now this Agreement Withnesseth as Follows: (1) The Assignor irrevocably assigns to the Assignee the said picture sole and exclusive copyrights for broadcasting the above said Film through any Satellite System, Satellite Broadcasting Rights, Sat....
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....". In such a situation, we are of the opinion that assessee was duty bound under Section 194J to deduct tax at source on the payments effected. Such deduction having not been made, rigours of Section 40(a)(ia) stood attracted. Insofar as reliance placed by the learned A.R. on the decision of the decision of Hon'ble Bombay High Court in the case of Abdulgafar A. Nadiadwala (supra) and that of Hon'ble jurisdictional High Court in the case of V.C. Kuganathan (supra), these were not concerned with eligibility to claim exemption of Section 194J, but were all concerned with claim of deduction claimed by the assessee under Chapter VIA of the Act. Such cases will not help the assessee in any manner on an issue of disallowance under Section 40(a)(ia) of the Act, where tax as required under Section 194J has not been deducted. 9. Now coming to the cross-objections of the assessee, one of its contentions is that the payments were in the nature of direct cost and Section 40(a)(ia) could not be applied. Learned A.R., in support of such cross-objection, submitted that Hyderabad Bench of this Tribunal in the case of Teja Constructions v. Asstt. CIT [2010] 39 SOT 13 (Hyd.) (URO), had held that r....