By K. B. Bhujle, Advocate
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Mrs. K. Bhagyalakshmi vs. Dy. CIT; 2013] 40 taxmann. com 350 (Mad):
The assessee is a person carrying on business in the purchase and sale of Telugu films. For the A. Y. 2009-10, the Assessing Officer, made a disallowance of Rs.7,16,15,000/- for non-deduction of TDS u/s. 194J of the Income-tax Act,1961 by invoking section 40(a) (ia) of the Act on the ground that the purchase of film rights fell under the term “Royalty” and that the agreement entered into between the assessee with respect to purchase of film rights was termed as an assignment agreement and the assignee of the satellite rights and the person who transferred such rights was the assignor and such rights were given for a period of 99 years. Therefore, the Assessing Officer held that it is not a sale but a mere grant of satellite right in the movie produced by the assignor and the payments made for transfer of such rights fall within the meaning of “Royalty”. The CIT(A) allowed the assessee’s appeal and held that the payments made by the assessee could not be termed as ‘Royalty’ as they are not covered by Explanation 2 to Clause (vi) of section 9(1) of the Act and the payment were covered by section 28 of the Act as trading expenses and there was no scope for invoking section 40(a)(ia) of the Act and therefore the CIT(A) held that the payments for acquiring of the film rights were not exigible for deduction of Tax at Source u/s. 194J of the Act as they did not qualify as ‘Royalty’. The Tribunal reversed the decision of the CIT(A) and upheld the disallowance.
On appeal by the assessee, the Madras High Court reversed the decision of the Tribunal and held as under:
“i) We have seen the various conditions contained in the sample transfer deed and there is a transfer of copy right in favour of the assessee. Though the agreement speaks of perpetual transfer for a period of 99 years, in terms of section 26 of the Copy Right Act, 1957, in the case of cinematographic film, copy right shall subsist until 60 years from the beginning of the calendar year next following the year in which the film is published. Therefore, the agreement in the case on hand, is beyond the period of 60 years, for which the copy right would be valid, the document could only be treated as one of sale.
ii) We have no hesitation to hold that the findings of the First Appellate Authority was perfectly justified in holding that the transfer in favour of the assessee as sale and therefore, excluded from the definition of “Royalty” as defined under clause (v) to Explanation (2) of section 9(1) of the Act.
iii) In the result, the order of the Income Tax Appellate Tribunal shall stand set aside and the Tax Case(Appeal) is allowed.”
