ITO, NEW DELHI vs. SH. YASHOVARDHAN TYAGI, GURGAON

In ITA No. 2880/Del/2016, following grounds have been raised by the Revenue: “The CIT(A) erred on facts and circumstances of the case by deleting the addition of Rs.2,00,00,000/- in respect of claim of royalty for non deduction of TDS observing that the ‘Minimum Guarantee Royalty’

The assessee is in the business of film distribution in the name of M/s Sukrit Pictures.

The relevant facts are that the assessee has paid an amount of Rs.2 crores as Minimum Guarantee Royalty (MGR) and has not deducted TDS. The Assessing Officer held that the payment would fall within the definition of “Royalty” and failure to deduct TDS as per Section 194J of the Income Tax Act, 1961 would attract provisions of Section 40(a)(ia) of the Act. The ld. CIT (A) deleted the addition on the grounds that the provisions of Section 194J of the Act cannot be applicable to the instant case.

Before us during the arguments, the ld. DR quoted the provisions of the Section 194J of the Act and argued that

Heard the arguments and perused the material available on record.

The provisions of Section 194J of the Act with relation to “Royalty” are as per the Explanation 2 to Clause (vi) of Sub- Section (1) of Section 9.

The Explanation 2 to Section 9(1)(vi) reads as under: “Explanation 2.—For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for—

We find that Clause (v) of Explanation 2 to Section 9(1) consists of two different transactions, one inclusive another non-inclusive. The inclusive part consists of 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. The non-inclusive part consists of consideration for the sale distribution or exhibition of cinematographic films. The Assessing Officer misread the provision in the second part of the clause with regard to exhibition of cinematographic films. He wrongly held that what the assessee purchased is copyrights and hence liable to TDS. In fact, the copyrights are always with the producer. The distributor is only given the right exhibition of cinematographic films. Hence, such transactions do not attract

The Assessing Officer observed that the assessee was a shareholder and director in M/s Associated Cine Exploiters Pvt. Ltd. (ACEL) and obtained loan of Rs.1,00,000/-. The Assessing Officer held this to be a deemed dividend in accordance with the provisions of Section 2(22)(e) of the Act. After hearing the arguments and perusal of the material on the record, we find that the assessee has received Rs.1,50,000/- as commercial advance for granting rights for distribution of movie and the amount was paid to M/s Sukrit Pictures on 03.05.2010 was commercial advance for screening of the movie. It is a fact on record that the amount received from ACEL which is running a Cinema Theatre in Rohtak has given loan to Sukrit Pictures which is the distributor. Thus, this is the amount received from the theatre owner to the distributor of the films. It is a pure commercial transaction between the movie theatre and the distributor. In view of the judgment of Hon’ble Jurisdiction High Court in the case of CIT Vs Creative Dyeing & Printing Pvt. Ltd. 318 ITR 476 wherein it has been held that amounts advanced to the assessee by another company for the business purpose

The Assessing Officer observed that as per capital account appearing in the balance sheet as on 31.03.2010, the capital of the assessee was mentioned at Rs.(-)1,39,578/- whereas as per capital account appearing in the balance sheet as on 31.03.2011, the opening capital of the assessee as on 01.01.2010 was at Rs.27,37,241/-. Hence, the Assessing Officer made addition of Rs.28,76,819/- (Rs.27,37,241/- + Rs.1,39,578/-).

As per the submissions filed before the ld. CIT (A), the assessee has transferred the capital from M/s Sukrit Pictures of Rs.1,22,60,619/-. Further, the profit of the Sukrit Pictures of Rs.14,06,155/- has been added. Thus, the total amounts stands at Rs.1,35,27,196/-. Out of this amount of Rs.1,35,27,196/-, an amount of Rs.1,13,21,118/- has been withdrawn. The closing balance reflected is Rs.22,06,078/-. The ld. CIT (A) has examined the entire account and did not find any discrepancy. Hence, the addition made by the Assessing Officer can be said to be an addition made cursorily without looking into the capital introduced and the profits of the year. Therefore, the addition is hereby directed to be deleted.

The Assessing Officer observed that the assessee made cash deposits of Rs.9,17,000/- in the bank account of Karur Vysya Bank Ltd. and treated the same as unexplained. Before us the ld. DR argued that the assessee could not prove the sources of this cash deposits satisfactorily. We find as per ld. CIT (A), the cash was duly reflected in the cash book and the same has been deposited in the bank account. The ld. CIT (A) held that the assessee has earned an amount of Rs.2,06,73,705/- which was generated during the course of film distribution business. The ld. CIT (A) has examined the cash book and tallied the same with the sales register. The ld. CIT (A) thereafter deleted the addition since no discrepancy has been found. The factual observation of the ld. CIT (A) could not be controverted by the revenue by any documentary evidence. Hence, we hereby decline to interfere with the order of the ld. CIT (A).

Facts relevant to the adjudication of the issue are that the assessee has leased his commercial property at a monthly rent of Rs.3,00,000/-, for a period of three years commencing from 04.03.2010 to 03.03.2013. The assessee received rent which has been paid by the tenant only for a period of two months and no further payments have been received during the year. The assessee has declared an amount of Rs.5,40,000/- as the annual rental value u/s 23 of the Income Tax Act, 1961 and after claiming deduction u/s 24(a) of Rs.1,62,000/- offered an

The ld. CIT (A) confirmed the addition holding that in this case, the assessee has submitted no evidence that the defaulting tenant has vacated the property in question and no evidence whatsoever was submitted by the assessee showing that the steps have been taken to compel the defaulting tenant to vacate the property. Further, the assessee did not furnish any document as regards to satisfaction that the legal

The provisions relating to the taxability of the income from house property are as under: “23. (1) For the purposes of section 22, the annual value of any property shall be deemed to be— (a) the sum for which the property might reasonably be expected to let from year to year; or (b) where the property or any part of the property is let and the actual rent received or receivable by the owner in respect thereof is in excess of the sum referred to in clause (a), the amount so received or receivable; or (c) where the property or any part of the property is let60 and was vacant during the whole or any part of the previous year and owing to such vacancy the actual rent received or receivable by the owner in respect thereof is less than the sum referred to in clause (a), the amount so received or receivable: Provided that the taxes levied by any local authority in respect of the property shall be deducted (irrespective of the previous year in which the liability to pay such taxes was incurred by the owner according to the method of accounting regularly employed by him) in determining the annual value of the property of that previous year in which such taxes are actually paid by him.

The facts with relation to the Act are to be interpreted as under: [Section 23(1)]

The Explanation can be invoked if (B) above is applicable. When (B) is invoked, the benefit of explanation is subjected to the rules (Rule 4).

Rule 4 reads as under: “4. For the purposes of the Explanation below sub-section (1) of section 23, the amount of rent which the owner cannot realise shall be equal to the amount of rent payable but not paid by a tenant of the assessee and so proved to be lost and irrecoverable where,—

We find that the ld. CIT (A) has confirmed the addition owing to failure of the assessee to fulfill the conditions laid

During the year, the assessee has sold jewellery on 23.10.2010 for Rs.12,75,220/-. The assessee filed purchase bills of such jewellery which reflects the purchase of gold ornaments whereas the sale bills of the jewellery reflects sale of gold bars. Before the Assessing Officer, the assessee submitted that they sold 500 gms gold bars standard @1950 per gm and the purchase was of ornaments. It was argued before the ld. CIT (A) that the bullion was received at the time of marriage and cost of acquisition should be taken as Nil. Thus, we find that there are two different explanation offered by the assessee. No evidence of gold bars received by the assessee.

We have gone through the order of the ld. CIT (A) wherein the issues relating to purchase of gold ornaments in the year 1999 and 2000 have been adequately demolished by going through the items purchased and items sold which do not tally and could not be reconciled. Hence, we hereby uphold the decision of the ld. CIT (A) on this issue.

The Assessing Officer made addition of Rs.64,17,645/- on account of cash deposits in Karur Vysya Bank. Assessing Officer observed that as per AIR information there was cash deposit of Rs.64,17,645/- in his saving bank account. Assessee stated that amount did not pertain to him or his family members. Assessing

It is seen that the deposits of Rs.39,47,470/- and Rs.24,70,175/- was in the name of M.S. Education Society and Tyagi Public School in which assessee was the authorized signatory. It is a fact that the amounts of cash deposits were reflected against the assessee in the AIR information as the amounts were clubbed under the same PAN. It is a fact that M.S. Education Society and Tyagi Public School are different entities other than the assessee. Therefore, right course of action would have been examine these deposits in the cases of M.S. Education Society and Tyagi Public School. From the perusal of pages 27 to 31 of Paper Book which is a confirmation from Chief Manager of Karur Vysya Bank dated 07.03.2014, it is seen that transactions of Rs.39,47,470/- dated 30.03.2011 and of Rs.24,70,175/- dated 31.03.2011 were in the name of M.S. Education Society and Tyagi Public School. It was also stated that Sh. Yashovardhan Tyagi was the authorized signatory for these accounts. Therefore, it is a fact that deposits of Rs.39,47,470/- and Rs.24,70,175/- were made in the accounts of M.S. Education Society and Tyagi Public School which are separate entities. The fact that assessee is an authorized signatory of those accounts does not establish that accounts belonged to the assessed when both these entities are

In the result, the appeal of the revenue is dismissed and the appeal of the assessee is partly allowed. Order Pronounced in the Open Court on 27/04/2020.