ITO, CHENNAI vs. INDO OVERSEAS FILMS, CHENNAI

आदेश/ O R D E R

PER S. JAYARAMAN, ACCOUNTANT MEMBER:

:-2-: ITA Nos. 1422&1423/Mds/2017 Taxation-1(2), Chennai for non-deduction of tax at source in respect of the payments made outside India.

For assessment year 2012-13

Sl.No Name of the foreign producer Name of the Film Cost (in Rs.) 1 Icon Infact (Far East) Pte Singapore 1911 68,07,741 2 Copenhagen Bombay Productions, The Great Bear 4,40,970 Denmark 3 Icon Infact (Far East) Pte Singapore Born to Fight 26,92,413 4 Golden Network Asia Limited, Hongkong Sing to the Dawn 4,40,970 5 CMG Cinema Management Group, USA Littlest Angels 3,11,069

For assessment year 2013-14

Sl.No Name of the foreign producer Name of the Cost (in Rs.) Film 1 Icon Infact (Far East) Pte Singapore China Strike 7,82,945 Force 2 Jackie and Jj International Ltd., Chinese Zodiac 1,70,72,010 Hongkong 3 Icon Infact (Far East) Pte Singapore High Kickers 32,76,130 4 Icon Infact (Far East) Pte Singapore Island of Fire 27,26,820 5 Star Bright Communication Ltd., King of street 22,96,324 Hongkong 6 Megavision Project Dist. Hongkong Naked Soldier 25,16,187

:-3-: ITA Nos. 1422&1423/Mds/2017 u/s.201(1) and 201(1A) of the Act, it is clear that the assessee has purchased rights to exhibit the cinematographic films in various mediums for a certain period of time. In the orders u/s.201(1) and 201(1A), the AO observed that the assessee has entered into agreements with various television channels for exhibiting and telecasting these films and accordingly concluded that payments made to the above referred parties constituted “Royalty” u/s.9(1)(vi) and also as per Article 12, 13 & 12 of the DTAA between India & Singapore, India & Denmark and India & USA, respectively, and there is no DTAA between India & Hongkong for the assessment year 2012-13 and between India & Singapore and India & Hongkong for the assessment year 2013-14

“2. The CIT(A) ought to have considered the payments made by the assessee to Non-Residents for obtaining distribution rights as Royalty as per section 9(1)(vi) of the Act.

2. The Ld CIT(A) erred in not considering the exclusionary clause provided in clause (v) of the Explanation 2 to section 9(1)(vi) which is provided only for "exhibition of cinematographic films".

3. The Ld. CIT(A) failed to consider that the payments made by the assessee were towards rights obtained for broadcasting/telecasting the films in radio/television and other medium and do not come under the purview of the exclusionary clause.

:-4-: ITA Nos. 1422&1423/Mds/2017

4. The CIT(A) erred in not considering that as per Article 12 and 13 of DTAA with Thailand and China, the term 'Royalty' include cinematographic films, phonographic records and films or tapes for radio or television broadcasting.”

“ The appellant’s above written submission have been carefully considered. In the assessee's own case for AY 2008-09 on the similar facts, the Hon'ble ITAT has held as under on the similar facts and the relevant portion of the finding is captioned as under:

7. We have heard the rival submissions and perused the materials available on record. We find that the short issue for our consideration is whether the payments made by the assessee to those parties constitutes "royalty" U/s. 9(1} (vi) of the Act and whether tax ought to have been deducted at source 195 of the Act. The assessee has made payments for the cost of rights in the cinematographic films to exhibit them in India through various mediums. From a perusal of the deal memos

:-5-: ITA Nos. 1422&1423/Mds/2017 and agreements entered with the parties reproduced in the order U/s. 201 and 201(1A) of the Act, it is clear that the assessee is only a distributor who has been grated licensed rights by the parties to exhibit those cinematographic films in India. From a plain reading of clause (v) to Explanation 2 to section 9(10 (vi) it is clear that there is a specific exclusion for exhibition of cinematographic films from the purview of cinematographic "royalty" While in the first part of the clause there is reference to films or video tapes for use in connection with television and video tapes for use in connection with radio broadcasting, there is a specific mention of cinematographic films in the last part of the clause that excludes certain transaction form the purview of "royalty". Therefore it is abundantly clear that the law has expressly excluded consideration paid for exhibition of cinematographic films form the ambit of section 9(1)(vi).Further irrespective of the medium in which the cinematographic films ave been exhibited, the same only constitutes" exhibition of cinematographic films". Hence, the consideration paid by the assessee to the non-residents does not fall within the ambit of “royalty" U/s. 9(1)(vi) of the Act. We find that section 90(2) of the Income Tax Act which states that either the provisions of the Income Tax Act or the DTAA, whichever is more beneficial to an assessee, would be applicable to the assessee. Further, CBDT circular No. 728 dated 30.10.1995 clarifies that tax should be deducted at source as per the provisions of the Act or DTAA whichever is more beneficial to the assessee. Since the provisions of the Act are beneficial to the assessee, the same would apply and consequently the sums are not chargeable to tax in India and do not warrant deduction of tax at source U/s. 195 of the Act. In this regard, we find that the Hon'ble supreme Court in the case GE India Technology Cen. (P) Ltd Vs CIT reported in (2010) 327 ITR 456 (SC) had held that TDS

:-6-: ITA Nos. 1422&1423/Mds/2017 obligation would arise on the assessee only when the sum is chargeable to tax in India U/s. 4,5, & 9 of the Act. 7.1 view of the our aforesaid findings in the facts and circumstances of the case and respectfully following the judicial precedent relied upon hereinabove, we hold that the assessee in the instant case cannot be treated as assessee in default U/s. 20191) of the Act consequently the interest U/s. 201(1A) of the Act could not be levied on the assessee. Accordingly, the grounds raised by the assessee are allowed.

8. In the result, the appeal of the assessee is partly allowed" Accordingly, similar being the facts of this case, and respectfully following the decision of jurisdictional ITAT in the assessee's own case Indo Overseas Films vs. ITO, for AY 2008-09 (supra), held that distribution/ exhibition rights of cinematographic films falls within the exclusion clause (v) of Explanation 2 to Section 9. Therefore, the payment to the foreign parties for distribution/exhibition rights of cinematographic films does not fall within the ambit of royalty u/s 9(1)(vi) of the Act. Moreover, the Hori'ble ITAT has held that the provision beneficial to the assessee has to be applied in the judgement given supra. Therefore, respectfully following the same and also relying on the Hon'ble Supreme Court decision in the case of GE India Technology Cen, (P) Ltd vs CIT reported in (2010) 327 ITR 456 (SC), wherein Hon'ble Court had held that TDS obligation would arise on the assessee only when the sum is chargeable to tax in India u/s. 4, 5 & 9 of the Act. In view of our aforesaid findings in the facts and circumstances of the case and respectfully relying on the judicial precedent relied upon hereinabove and respectfully following the jurisdictional ITAT Chennai, C Bench, decision in the assessee's own case for AY 2008-09, ITA No.2404/Mds/2016 I hold that the assessee in the instant case cannot be treated as assessee in default u/s 201(1) of the Act and consequently the tax and interest u/s. 201(1A) of the Act could not be levied on the assessee. The AO is accordingly directed to delete the levy of :-7-: ITA Nos. 1422&1423/Mds/2017 tax and interest u/s. 201(1) r.w.s.201(1A) of the Act. Accordingly the grounds raised by the assessee are allowed.”

6. Since, there is no change in the facts and the CIT(A) has followed this tribunal decision, the orders of the CIT(A) does not require any interference.

The revenue’s grounds are dismissed for both the assessment years.

Order pronounced on Monday, the 09th day of October, 2017 at Chennai.