GAYATRI FILMS & MUSIC P.LTD,MUMBAI vs. ASST CIT CIR 11(1), MUMBAI

आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण आयकर अपीलीय अिधकरण, , , , मुंबई आयकर अपीलीय अिधकरण मुंबई मुंबई “जी मुंबई जी जी” ” ” ” खंडपीठ जी खंडपीठ खंडपीठ खंडपीठ Income-tax Appellate Tribunal -“G”Bench Mumbai सव�ी सव�ी सव�ी राजे�� सव�ी राजे�� राजे��, लेखा राजे�� लेखा लेखा सद�य लेखा सद�य सद�य एवं सद�य एवं एवं राम एवं राम राम लाल राम लाल लाल नेगी लाल नेगी नेगी, �याियक नेगी �याियक �याियक सद�य �याियक सद�य सद�य सद�य Before S/Shri Rajendra,Accountant Member and Ram Lal Negi,Judicial Member आयकर अपील आयकर अपील संसंसंसं./I.T.A./3493/Mum/2016, िनधा�रण िनधा�रण वष� वष� /Assessment Year: 2009-10 आयकर आयकर अपील अपील िनधा�रण िनधा�रण वष� वष� M/s. Gayatri Films & Music Addl CIT,Central Circle -11 (1) 4th Floor, R.No.467,Aayakar Bhavan, Pvt.Ltd. Sagar Villa, Road No.12A, J.V.P.D. Scheme, Vile Parle (W) Vs. M.K. Road Mumbai-400 049. Mumbai-400 020. PAN:AAACG 8142 J (अपीलाथ� /Appellant) (��यथ� / Respondent) Revenue by: Ms. Arju Garodia-DR Assessee by: Shri K. Gopal सुनवाई क� तारीख / Date of Hearing: 23.05.2017 घोषणा क� तारीख / Date of Pronouncement: 23.05.2017 आयकर आयकर आयकर अिधिनयम आयकर अिधिनयम अिधिनयम,1961 क� अिधिनयम क� क� धारा क� धारा धारा 254(1)केकेकेके अ�तग�त धारा अ�तग�त अ�तग�त आदेश अ�तग�त आदेश आदेश आदेश Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order 29/01/2016 of the CIT (A)-4, Mumbai the assessee has filed the present appeal.During the course of hearing before us, the Authorised Representative(AR)did not press fourth ground of appeal. Hence, same stands dismissed as not pressed. 2.It was stated that there was delay of 11 days in filing the appeal before the Tribunal. An affidavit in that regard has been filed stating that the person authorised to sign the appeal memo was out of station on the due date of filing the appeal, that there was no malafide intention in not filing the appeal in time. The AR reiterated the arguments that are part of the affidavit and the application filed for condoning the delay.Considering the peculiar facts and circumstances of the case,we have decided to adjudicate the appeal on merits and condone the delay in filing the appeal. 3.Effective ground of appeal(GOA-2)is about addition of Rs.7,26,49,359/-.Assessee- company,engaged in the business of production and distribution of TV serials, filed its return of income on 30/09/ 2009,declaring total income of Rs. 1.81 crores.Initially the return was processed u/s.143(1) of the Act.Later on the Assessing Officer (AO)issued a notice u/s.148 and completed the assessment u/s.143(3) r.ws. 147 on 27/02/2014,determining its total income of Rs. 9.13 crores by making addition of Rs.7.26 crores out of an accrued income and Rs.32.07 lakhs on account of value added tax(VAT).

3493/M/16(09-10) Gayatri Films 4.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority (FAA).Before him,it was argued that assessee was following Mercantile system of accounting,that income was to be determined only on accrual basis,that it had entered into an agreement with Moser Baer India Ltd for telecasting re-edited TV serials,that the tenure of the said agreement was 6 years, that during the relevant year it had received a sum of Rs. 1.08 crore only out of the entire agreement value and had offered the same for tax, that the balance amount had been amortised in next 5 AY.s,that the addition made by the AO of Rs.7.26 crores was unjustified as the same was an accrued income during the year under appeal,that in the case of one of the assessee group concerns the FAA deleted the addition made on the same ground,that the AO had erred in treating the VAT as income of the assessee,that income receivable out of the agreement with Moser Baer India Ltd. was inclusive of 4%VAT. The FAA,after considering the available material, confirmed the order of the AO. 5.Before us, the AR stated that the Tribunal had decided the identical issue in case of Moti Sagar, a group entity,on 06/01/2017(ITA/5629/Mum/2012,AY.2009-10).The Departmental Representa -tive (DR) stated that matter could be decided on merits. 6.We find that in case of Moti Sagar,the Tribunal had deliberated upon the similar issue. We would like to reproduce the relevant portion of the order of the Tribunal and it reads as under: 2.The effective Ground of appeal is about addition of Rs.41.66 lakhs.During the assessment proceedings the AO found that the assessee had entered into an agreement for sale of a TV serial vide agreement dt.10.4.2008 for Rs.50.00 lakhs, that the assessee had offered income of Rs.8.33 lakhs for the year under consideration. The AO directed the assessee to reconcile the income as per agreement and income offered for tax. The assessee stated that he had proposed to offer the income proportionately from the year under consideration to AY 2014-

15. ( Rs.8.33 lakhs) per year. 3.After considering the submission of the assessee the AO referred to the terms of contract, (Cl1.15),(Cl.3),(Cl.6)and held that there was nothing in the agreement that allowed termina - tion of the agreement by the licensor,that the deliverables and performance of obligations under the agreement were completed at the time of signing the agreement, that there was no deferment of contractual obligation to any future date ,that the rescinding of the contract vested only with the licensee and not with the assessee,that the agreement was conclusively binding on the assessee, that the entire income, being the contract values, had fructified on the date of signing and execution of agreement, that there was no scope of any kind of deferment of income, that the entire consideration was received during the year. Therefore, he made addition of Rs.41.66 lakhs (Rs.50 lakhs – Rs.8.33 lakhs offered by the assessee for the year under appeal). The AO also placed reliance on AS-9 and referred to the case of Union Land & Building Society (P.) Ltd. (83ITR794). 4.Aggrieved by the order of the AO,the assessee preferred an appeal before the First Appellate Authority(FAA)before whom he made elaborate submissions.After considering the assessment order and the contentions of the assessee the FAA held that the assessee had entered into an agreement with Moser Baer for the period dt. 31.5.09 to 31.5.14, that being a licensor he was the sole and absolute owner of the Home video rights, that he had sold his rights to the licensee, that he had received Rs.50.00 lakhs during the year under considera - 3493/M/16(09-10) Gayatri Films tion,that he had sold the license as per agreement for a period of 6 years, that he had handed over deliverables to the buyer, that the consideration received by him was in lieu of transfer of sale of rights and goods,that the AO was right in bringing to tax the entire consideration received during the year under appeal to tax. Finally, he upheld the order of the AO. 5.During the course of hearing before us, the Authorised Representative (AR) argued that the AO had wrongly treated the transaction as sale of goods, it was payment of royalty to the assessee,that Home video licensing rights were to come back to the assessee after a period of 6 years ,that the assessee received royalty for using the asset , royalty was intangible asset. He referred to the case of K.E. Gnanavelraja (361ITR446) and T.N.K. Govindrajulu Chetty (165 ITR 231).On a query by the Bench he stated that the assessee had offered income of Rs.8.33 lakhs in all the subsequent years, that orders for AY.s 2011-12 to 2013-14 were passed u/s. 143(3) of the Act, that the AO had taxed income of Rs.8.33 lakhs in all these years as well as in the year 2010-11,when an intimation u/s. 143(1) was issued, that the AO had doubly taxed the same income.He referred to para 6-7 of the Agreement and stated that Home Video Licensing agreement could not be construed as agreement for sale, that the agreement clearly stipulated the parties as licensor and licensee and not seller and buyer, that he was following mercantile system of accounting and revenue was recognised based on accrual basis.As per Accounting Standared-9 income from royalty has to be recognized proportionately over a period of time, that the agreement proved receipt of money in advance, that receipt would not constitute income, that the time of receipt would not alter the character of receipt. DR supported the order of the FAA. 6.We have heard the rival submissions and perused the material before us. We find that the assessee had entered into an agreement with Moser Baer India Ltd., that he received Rs.50 lakhs in pursuance of the Agreement, that he distributed the income over a period of 6 years, that a sum of Rs.8.33 lakhs (being 1/6th ) was recognised as income for the year under appeal, that the balance amount of Rs.41.66 lakhs was deferred for the remaining 5 years and was recognized as liability in the balance sheet,that he offered income of Rs.8.33 lakhs in the subsequent AY.s and same was taxed by the AO.s in those years. Before proceeding further we would like to refer to para 6 and 7 of the Agreement and same read as under :- “6.2. Effect of Event of Default. 6.2.1. In addition to any other rights available under this agreement or any other legal recourse available to Licensee, on the occurrence of an event of default, licensee shall have the right to withhold the consideration proportionate to the said film. 6.2.2 the Licensor fails to cure the event of Default within the stipulated 10(Ten) Days, the Licensor may offer to replace the said Title with another Cinematograph Title of same value ("Alternative Titles"), which Licensee may agree to but shall not be under obligation to accept the Licensor shall provide source material of such Alternative Tiles agreed by Licensee within 15 days from the date of such agreement and due amendment of Schedule 1 of the present agreement. 6.2.3. If the Licensor fails to provide Alternative Titles acceptable to Licensee as set out in Clause 6.2.2 above, Licensee shall at its sole discretion restrict the scope of the license and reduce the Consideration payable in respect thereof in the same proportion. If the consideration for the said Title has already been made by Licensee to the Licensor, the Licensor shall reimburse licensee with the same within 15 days along with Interest @ 12 % per annum from the date of payment of the Consideration till the date of payment and/or realization. 6.2.4. Notwithstanding the foregoing, in any Event of Default, Licensee shall have the right but not the obligation to terminate this Agreement forthwith and on such termination, the Licensor shall be liable to reimburse Licensee for the entire consideration amount paid by Licensee to the Licensor within 15 days along with interest @ 12% per annum from the date of payment of the consideration till the date of payment and /or realization.” A perusal of the above conditions reveal that the agreement could be terminated within a period of 6 years and amount had to be refunded.The assessee had allowed licensee to use 3