DCIT, CHENNAI vs. GANAPATHY MEDIA P LTD., CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER: Both, the appeal of the Revenue and cross-objection of the assessee are directed against the very same order of

2 I.T.A. No.1286/Mds/13 C.O. No.158/Mds/13 Commissioner of Income Tax (Appeals)-VI, Chennai, dated

24.12.2012. We heard both the appeal and the cross-objection

together and disposing of the same by this common order. The only

issue arises for consideration is with regard to disallowance of `17,60,79,987/- under Section 40(a)(ia) of the Income-tax Act, 1961

(in short 'the Act').

Representative, submitted that the assessee purchased copyrights of film for an amount of `22,01,25,000/-. However, no tax was

deducted either under Section 194C or under Section 194J of the

Act. According to the Ld. D.R., the assessee claimed that the term

“royalty” does not include consideration paid for sale, distribution or

exhibition of cinematographic film. According to the Ld. D.R., the

assessee’s further claim was that it was in the business of buying

and selling of satellite rights of the feature films. On verification, the

Assessing Officer found that the so-called agreement of assignment

is not an agreement to purchase. The Ld. D.R. further submitted

that the assessee was described in the agreement as “assignee”

and not as “buyer”. The assessee was given the rights for a period

of 99 years. Therefore, it is not a sale. According to the Ld. D.R., it

is only granting satellite rights for the movie produced by the

3 I.T.A. No.1286/Mds/13 C.O. No.158/Mds/13 producer. According to the Ld. D.R., in view of the satellite rights,

the assessee only gets a specific right for satellite exhibition.

Therefore, the judgment of Karnataka High Court in Samsung

Electronics Co. Ltd. & Others [2011] 16 taxmann.com 141 is

applicable.

without permanently transferring the right to the assessee for a

particular period, is subject to deduction of TDS under Section 194J

of the Act. Therefore, the CIT(Appeals) is not justified in allowing

the claim of the assessee. The Ld. D.R. has also placed his

reliance on the decision of this Bench of the Tribunal in ACIT v. Shri

Balaji Communications (2013) 140 ITD 687.

the assessee, submitted that the assessee was assigned the right

of telecasting the films through satellite for a specific period.

Referring to the copy of the agreement dated 15.07.2008, the

Ld.counsel submitted that the assessee has approached the

assignor only for assigning of satellite right of the film. Therefore,

according to the Ld. counsel, what was given to the assessee is

only a right to telecast the feature film for the satellite media. Hence

the provisions of Section 194J of the Act is not applicable. The

4 I.T.A. No.1286/Mds/13 C.O. No.158/Mds/13 Ld.counsel further submitted that the assessee is engaged in the

purchase and sale of satellite right of feature films as a trader for

consideration. The satellite right was given to the assessee for 99

years. According to the Ld. counsel, the life of any film is less than

99 years. Therefore, when the exclusive right of exhibition is given

to the assessee, it amounts to sale of films. Therefore, there is no

question of deduction of tax under Section 194J of the Act.

perused the relevant material on record. The only issue arises for

consideration is whether the right to telecast the cinematographic

film through satellite is a mere assignment of right or it is a purchase

of the feature films. The assessee claims that it amounts to

purchase of films since the satellite right was given to the assessee

for 99 years. However, the Revenue claims that it is only an

assignment, therefore, the assessee has to deduct tax under

Section 194 of the Act. We have carefully gone through the so-

called assignment agreement dated 15.07.2008. As rightly

submitted by the Ld. D.R., the parties to the agreement were

described as “assignor” and “assignee” and not as vendor and

purchaser. The agreement shows that an exclusive right for

broadcasting the films through satellite television was given to the

5 I.T.A. No.1286/Mds/13 C.O. No.158/Mds/13 assessee for 99 years. In fact the right given to the assessee is

described in the Schedule to the said agreement which reads as

follows:-

“RIGHTS : Exclusive copyright for broadcasting our Film through any Satellite Television Broadcasting Rights mean Rights to use Satellites in extra terrestrial orbit to beam down a microwave signal to Satellite antennas, Direct Broadcasting, Point to point broadcasting and any other Television Systems and rebroadcast in any territory of entire India along with it foot print wherever the Channel is beamed without restriction of geographical area for a perpetual period of 99 (Ninety Nine) years.”

professional service or fees for technical service or remuneration

fees or commission to a Director of a company or respectively or

any sum referred to in Section 28(va) of the Act, deduction has to

be made at 10% of the sum as income-tax. In this case, the

assessee claims that it is neither a fee nor a royalty. The assessee

claims that it is only a purchase price paid to the owner of the film.

However, the Revenue claims that what was given to the assessee

is a right to telecast a film for a definite period, therefore, what was

paid was royalty. Therefore, tax has to be deducted under the

provisions of Section 194 of the Act. We have gone through the

decision of this Bench of the Tribunal in Shri Balaji Communications

6 I.T.A. No.1286/Mds/13 C.O. No.158/Mds/13 (supra). The case before this Tribunal was that the assessee is

engaged in purchase and sale of right of satellite movies. However,

the Assessing Officer found that the agreement entered between

the parties is only for assignment of right to the assessee and not

sale of feature film. The right assigned to the assessee is only 20 to

25 years. Therefore, the Assessing Officer found that what was

paid by the assessee is in the nature of royalty. Hence, there was

no sale as claimed by the assessee. However, the CIT(Appeals)

found that the assignment agreement was nothing but purchase

agreement whereby the assessee purchased exclusive ownership

of satellite copyright by virtue of purchase. Though the assessee

was described in the agreement as “assignee”, in fact, the assessee

is only a purchaser. Referring to Explanation 5 to Section 9(1)(vi) of

the Act, the Commissioner came to a conclusion that the assessee

is not liable to deduct tax under Section 194J of the Act. On further

appeal before this Tribunal by the Revenue, this Tribunal found that

the transfer of all or any of the rights in respect of any copyright,

including copyright for films and video tapes used in connection with

television or tapes, will fall within the definition of “royalty”. What is

excluded is consideration for sale, distribution and exhibition of

cinematographic films. The Tribunal came to a conclusion that the

assessee did not purchase feature films as such through the

7 I.T.A. No.1286/Mds/13 C.O. No.158/Mds/13 transactions. The assessee had only received right for satellite

broadcasting. The Tribunal came to a conclusion that as long as

the transfer of right relates to copyright of a film, which is used in

connection with television or tapes, the consideration paid would be

royalty only. Accordingly, the assessee was duty bound to deduct

tax under Section 194J of the Act.

Court in K. Bhagyalakshmi v. DCIT (2014) 265 CTR (Mad) 545. In

the case before the Madras High Court, the assessee was in the

business of sale and purchase of television right for films. The

assessee obtained satellite right and all other rights pertaining to

Telugu feature films. The assessee before the High Court was

given right of telecast for 99 years. The Assessing Officer found

that the assignment of right for the film for definite period would

come within the meaning of “royalty”, therefore, the assessee has to

deduct tax under Section 194J of the Act. The Tribunal by placing

reliance in its earlier order in K. Bhagyalakshmi (supra), found that

what was transferred to the assessee is only a right of telecast for a

fixed period. Therefore, it is not a case of purchase and sale of the

film. Hence, the payment made by the assessee would fall within

the definition of “royalty”. On those facts, the High Court after

8 I.T.A. No.1286/Mds/13 C.O. No.158/Mds/13 referring to agreement between the parties, found that the exclusive

right, including theatrical and commercial rights of distribution,

exhibition and exploitation was given to the assessee. The High

Court further found that the total consideration paid by the assessee

is for assignment of exclusive right, including theatrical, commercial,

distribution, exhibition, shall for five years from the date of first

release of the film. Apart from that, the World Satellite Rights,

Satellite Broadcasting Service, Satellite television broadcasting

service, and copyrights also stood transferred in favour of the

assessee. Such transfer was without any restriction of geographical

area for a period of 99 years from the date of the transfer deed.

The Madras High Court further found that though the agreement

speaks of perpetual transfer for a period of 99 years, the copyright

of the film under Section 26 of the Copy Right Act, 1957, shall

subsist for a period of 60 years from the beginning of the calendar

year next following the year in which the film was published.

Therefore, the agreement in the case on hand is beyond the period

of 60 years for which the copyright would be valid. Therefore, the

agreement between the parties would be treated only as a sale.

Referring to the decision of this Tribunal in the case of Shri Balaji

Communications (supra), the right in that case was transfer only for

a period of 20 to 25 years and not of permanent nature. Therefore,

9 I.T.A. No.1286/Mds/13 C.O. No.158/Mds/13 the High Court found that the decision is clearly distinguishable.

Ultimately, the High Court found that the transfer in favour of the

assessee for a period 99 years is sale, therefore, it was excluded

from the definition of royalty. In this case also, as we have

extracted above from the Schedule, the right transferred to the

assessee is to telecast the feature film in extra terrestrial areas for a

perpetual period of 99 years. As found by the High Court, the

copyright subsists only for a period of 60 years. Therefore, the right

given to the assessee beyond the period of 60 years has to be

treated as sale of the right for cinematographic film. Hence, this

Tribunal is of the considered opinion that the decision of this

Tribunal in Shri Balaji Communications (supra) may not be

applicable to the facts of the case. This Tribunal is of the

considered opinion that the judgment of Madras High Court in the

case of K. Bhagyalakshmi (supra) would be squarely applicable.

This view of the Madras High Court is also followed by a

subsequent Division Bench of Madras High Court in 252 ITR 310.

the order of the CIT(Appeals). By following the judgment of Madras

High Court in K. Bhagyalakshmi (supra) and for the reason stated

therein, we uphold the order of the lower authority.

10 I.T.A. No.1286/Mds/13 C.O. No.158/Mds/13

Order pronounced on 19th June, 2015 at Chennai.

sd/- sd/- (A. Mohan Alankamony) (N.R.S. Ganesan) (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 19th June, 2015.

Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. Assessee 2. Assessing Officer 3. आयकर आयु�त (अपील)/CIT(A)-VI, Chennai 4. आयकर आयु�त/CIT-IV, Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.