September 2019

Section 194J, section 40(a)(ia) Payment made by film exhibitor to distributor is neither royalty nor FTS and is not covered by section 194J and, consequently, does not attract disallowance u/s 40(a)(ia)

Jagdish T.Punjabi | Devendra Jain | Tejaswini Ghag
Chartered Accountants

29.  [2019] 71 ITR 332 (Ahd. Trib.) ITO vs. Eyelex Films Pvt. Ltd. ITA No.: 1808 (Ahd.) of 2017 & 388 (Ahd.) of 2018 A.Ys.: 2013-14 and 2014-15 Date of order: 7th March, 2019;

 

Section 194J, section 40(a)(ia) Payment made by film exhibitor to distributor is neither royalty nor FTS and is not covered by section 194J and, consequently, does not attract disallowance u/s 40(a)(ia)

 

FACTS

The assessee was an exhibitor of films. It purchased cinematographic films from the distributors for exhibition in cinema houses. The revenue earned from box office collections was shared with the distributors as a consideration for purchase of films. The assessee had not deducted tax at source on the said payments under the belief that the payment does not fall under any of the provisions mandating TDS. However, the AO categorised the said payments as royalty u/s 194J and, in turn, disallowed the said payments u/s 40(a)(ia).

 

Aggrieved, the assessee preferred an appeal to the CIT(A) who allowed the appeal. In turn, the aggrieved Revenue filed an appeal before the Tribunal.

 

HELD

The Tribunal discussed the observations made by the CIT(A) and concurred with its view which was as under:

 

Section 194J defines royalty in Explanation 2 to section 9(1)(vi). As per the said definition, the consideration for sale / distribution or exhibition of cinematographic films has been excluded. The payment made by the appellant could not be included under the definition of royalty u/s 9 of the Act, and therefore the provisions of section 194J were not applicable. Payments made by the assessee to the distributors were nothing but the procurement charges, meaning purchases of the rights of exhibition for a certain period as per the terms and conditions of the contract.

 

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