TaxTMI 
TaxTMI 
2015 (7) TMI 681
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....ts to the producers and collected royalty on transfer of rights to various TV channels. The persons who have received the rights from the assessee have paid the amounts after deducting the tax at source u/s.194J of the IT Act. 3. The AO has also disallowed Rs. 10,78,32,153/- u/s. 40(a)(ia) for non deduction of tax at source on the ground that the payments made were in the nature of royalty. The AO has stated it is seen from the P&L account assessee has purchased film rights to the extent of Rs. 17,27,17,500/-. As per the agreements furnished by the assessee, assessee has entered into agreement with the sellers as a assignee purchased rights of the films to be telecasted from the assignors (producers). As the assessee has not deducted tax at source as per the provisions of Sec.194J (payment for royalty) r. w .s. 9 of IT Act (Explanation Sec.9). Assessee was asked why the expenditure of Rs. 10,78,32,153/- (total purchases of Rs. 17,27,17,500 - Rs. 6,48,85,347, TDS deducted and not paid) should not be disallowed u/s.40(a)(ia). Vide his explanation letter dated 02.12.2010 has explained the TDS provisions u/s.194J is not applicable in his case. 4. Note given by the assessee on deducti....
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.... of the calendar year next to the year in which the sound recording/cinematograph is published, the transfer is temporary in nature and such rights would again vests with the original owner after the expiry of the assigned period. It is not a transfer in the right to use the goods but is a temporary transfer of rights. But when the transfer is for perpetual period or 99 years or when negative rights are transferred then it amounts sale but not royalty. Hence the assessee has not deducted tax on such transactions. For the certain transactions, the assessee has deducted TDS in to make sure that the sellers come under Tax purview." 5. The AO stated as follows: " I have carefully considered the reply given by the assessee and the same is rejected for the following reasons. a. It is seen from the very nature of the business assessee is in the business of trading of rights of films. He has purchased entire ownership of the film with exclusive world negative (picture and sound), rights including the theatrical, nontheatrical and commercial rights of distribution, exhibition and exploitation. However, the sale is not complete because exploitation of theoretical rights are still with....
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....m "John Apparao 40 plus" which was referred to by the AO has also been carefully perused by him. The CIT (A) stated that as per the agreement it was agreed to transfer by way of sale the entire ownership of the film along with their exclusive world negative (picture & sound) rights including the theoretical and non-theoretical and commercial rights of distribution, exhibition and exploitation by 35 mm(35mm rights are withheld by the assignors for the first five years from the first release of the film in theatres and it was also mentioned that the assignors (the producer) transfers to the assignees (the appellant) the sole and exclusive ownership rights over the said film for the entire world on perpetual and permanent basis for a consideration of Rs. 80,00,000. The CIT (A) observed that the assignees (the appellant) permitted to censor the film with the same title or anything else as per their desire for which the assignors have no objection and it was also agreed that the assignors will not have a single right left with them except dubbing rights and re-making rights for Tamil, Malayalam & Hindi languages and except 35mm theoretical exploitation for the first five years from the ....
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....nt which can be exploited separately and withholding of one such right for use for a term of five years (theoretical right in respect of 35mm film) with the consent of both the parties does not affect the character of sale of other rights. The CIT (A) observed that even the limiting the ownership in respect of first five years of theoretical exhibition of the film to the producer also does not restrict the right of the assessee perpetually and by the end of five years from the date of first release that particular right also vests with the assessee without any further agreement or deed to that effect and this does not mean that the other rights were not transferred absolutely. The CIT (A) stated that this shows that the assessee has received the absolute ownership of the rights over the film excluding one right for a limited period and upon the expiry of the limited period that right also vests with the appellant without any further act by the parties concerned. 9. The CIT (A) pointed out that the contention of the AO that the buyers for television rights have deducted TDS u/s.194J on the payments made to the assessee (para 6.c of assessment order) will not support the stand taken....
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....saction with regard to satellite rights as outright sale/purchase ignoring the fact that there are no rights passed on for the first five years. 3. Without prejudice to the above, the learned CIT(A) ought to have treated the payment made for exploitation of satellite rights by the assessee as acquisition of intangible asset and allowed depreciation @ 25% rather than allowing the entire payment as revenue expenditure. 13. We find that similar identical issue has been considered by the Hyderabad Bench of the Tribunal in the case of ACIT vs. Aishwarya Arts Creations (P) Ltd (53 Taxmann.com 221) dated 10.12.2014 wherein it has been held as follows: "Section 194J enjoins upon any person not being an individual or a Hindu Undivided Family to deduct tax at source on certain payments, one of them being royalty, to a resident. Clause (ba) of Explanation to section 194J(1) defines royalty, by referring to the meaning given in clause (vi) of Explanation 2 to section 9(1). [Para 8] As can be seen from the provision extracted hereinabove, royalty as per clause (vi) would take within its ambit rendering of any services in connection with the activities referred in sub clauses (i) to (v). ....