TaxTMI 
TaxTMI 
2016 (1) TMI 126
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.... grounds mentioned hereinafter are without prejudice to one another. 1(a). That on the facts and circumstances of the case, the learned CIT (Appeals) erred in upholding the action of the Assessing Officer in treating the appellant as assessee in default for the purpose of section 201 of the Act for not deducting TDS under section 194J of the Act on outright purchase of copyright. 1(b). That on the facts and circumstances of the case, the learned CIT (Appeals) erred in upholding the action of the Assessing Officer in treating the outright purchase of copyrights by the appellant as payments for royalty. 2. That on the facts and in the circumstances of the case, the CIT (Appeals) erred in confirming the action of the Assessing Officer in recovering the tax u/s 201 of the Act from the appellant whereas the respective producers must have paid taxes on such income. 3 That on the facts and the circumstances of the case, the CIT(Appeals) erred in confirming the decision of the Assessing Officer in charging interest under Section 201(lA) of the Act." 3. Briefly stated facts are that the assessee is engaged in the business of producing music cassette, CDs, DVDs etc. According to....
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....e through the A.O's order u/s. 201(1)/201(lA) of the 1. T. Act. During the relevant previous year, the appellant has made total payments of Rs. 1,16,50,000/- to M/s. Rasika Entertainments (Rs.5,50,000/-), M/s. 3G Digital Solutions (Rs.3,50,000/-), Sree Chakra Films Pvt. Ltd. (Rs.7,50,000/-), Moxie Entertainment Pvt. Ltd. (Rs.15,00,000/-) and M/s. Rituparno, Ghosh Productions (Rs.85,00,000/-) as lump sum payments for music rights and film etc. while making the payment to aforesaid persons, the appellant has not deducted tax u/s. 194J of the I. T. Act. As per the A.O., the payment to the aforesaid persons was in the nature of payment of royalty and hence the appellant was required to deduct the tax u/s. 194J of the Act. According to the A.O. the appellant's case is covered under the clause (v) of Explanation-2 to clause (vi) of subsection (1) of Section 9. On the other hand, the appellant's contention before the A.O. as well as before me was that the payments made by the appellant to aforesaid persons did not qualify the definition of royalty because the appellant has made outright purchase of the rights and those rights were directly shown in the balance sheet as assets ....
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....of royalty to the music producers or artist from time to time. ii) acquisition of copyrights of music/films from the music producers i.e. transfer of ownership of copyright for a lump sum consideration. The assessee claimed before us that in respect to item (i) above it does deduct TDS u/s. 194J of the Act and also claimed the expenditure as revenue. But while making payment of items mentioned in clause (ii), the assessee did not deduct TDS on the ground that such payment does not fall within the definition of royalty as defined under Explanation (2) to section 9(1)(vi) of the Act. The Ld. Counsel for the assessee now took us to assessee's paper book and particularly the agreement entered with M/s. 3G Digital Solution Inc. dated 10.04.2007 wherein he drew our attention to the primary clause (A) and (C) of the agreement (which is enclosed in assessee's paper book at page 48), which reads as under: "A. The Assignor by virtue of an agreement dated 7th February 2007 has obtained from M/s. Parker Bros., the sole and exclusive assignment of copyrights and all other rights in the Sound Recordings together with that of the Literary, Musical, Dramatic, Artistic works embodied in....
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.... "CONSIDERATION AND PAYMENTS: In consideration, the Company agrees to pay to the Assignor a total consideration of Rs. 3,50,000/- (Three Lakhs Fifty Thousand Rupees) only, being the all-inclusive amount for acquisition of all rights in the Contract Works for their exploitation in the Territory, as per schedule as follows: i. On execution of this Agreement Rs.1,00,000/- ii. On hand over of the DAT/Master/Digibeta/Betacam to Company Rs.2,50,000/- Total Rs.3,50,000/-" In the eventuality of any violation in terms and conditions, the assessee company being owner of copyrights and all other rights is free to initiate legal proceedings against any person for enforcement and protection of its rights assigned to it under the terms and conditions of the agreement vide clause 20, which reads as under: "20. The Company being the owner of the copyrights and all other rights in the Contract Works assigned pursuant to this agreement, the Company shall have the right to conduct, in such form and manner as the Company may deem reasonable, any legal proceedings in the name of the Company against any person for the purpose of enforcement and protection of its rights assigned to....
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.... head "Capital gains") for- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;] (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or (vi) the rendering of any s....
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....w the aforesaid principles, we now embark upon the interpretative process in defining the ambit and scope of term royalty' appearing in Explanation 2 to subclause (vi) of Section 9(1) of the Act. Sub-clause (i) deals with the transfer of all or any rights (including the granting of a licence) in respect of a patent, etc. Thus, what this sub- right in the property. The two transfers are distinct and have different legal effects. In first category, the rights are purchased which enable use of those rights, while in the second category, no purchase is involved, only right to use has been granted. Ownership denotes the relationship between a person and an object forming the subject matter of his ownership. It consists of a bundle of rights, all of which are rights in rem, being good against the entire world and not merely against a specific person and such rights are indeterminate in duration and residuary in character as held by the Supreme Court in the case of Swadeshi Ranjan Sinha Vs. Hardev Banerjee [AIR 1992 SC 1590]. When rights in respect of a property are transferred and not the rights in the property, there is no transfer of the rights in rem which may be good against the worl....
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....s ascribed to the word royalty. "Royalty. Has several meanings : (1) percentages or dues payable to landowners for mining rights ; (2) sums paid for the use of a patent ; (3) percentages paid to an author by a publisher on the sales of a book. Other definitions : A royalty is a tax or duty paid to the owner of a patent for the privilege of manufacturing or using the patented article ; Royalty is a tax or duty paid to the owner of a patent for the priv ilege of manufacturing or using the patented article ; something pro portionate to the use of a patented device, in other words, a kind of exercise, specific sums paid annually, or at other stated periods, for the right to use a patented device, whether it is used much or little or not at all. 'Royalty' is the most appropriate word to apply to rental based on the quantity of coal or other mineral that is or may be taken from a mine." 18. In Corpus Juris II, royalty is defined as under : "Royalty or royalties. A. As noun. In its primary and natural sense, merely the English translation or equivalent of 'regalitates,' 'jura rega lia,' 'jura regia.' Formerly the word referred to the prerog....