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12-03-2019, Eylex Films, Section 40(a)( ia), 194J, 9, Tribunal Ahmedabad

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2 months 6 days ago #8793 by amit
Section - 40(a)( ia), 194J, 9
Order Date - 12-03-2019
Favouring - Assessee
Court - Tribunal Ahmedabad
Appellant - ITO
Respondent - Eylex Films Pvt. Ltd.
Citation - 319Taxpundit241
Appeal No. - I.T.A. Nos. 1808/Ahd/2017 & 388/Ahd/2018
Asstt. Year - 2014-15 & 2013-14



The captioned appeals have been filed at the instance of the Revenue against the respective orders of the Commissioner of Income Tax (Appeals)-2, Ahmedabad (‘CIT(A)’ in short), dated 04.05.2017 & 02.11.2017 arising in the respective assessment orders dated 13.12.2016 & 22.03.2016 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act) concerning AYs 2014- 2015 & 2013-14.

2. As claimed on behalf of the Revenue, the facts are similar and common issues are involved in both assessment years and therefore both the appeals were heard together and disposed of by common order.

3. The controversy involved in both the assessment years is identical and based on similar facts Accordingly, both the appeals have been heard together and are being disposed of by this common order.

4. We shall take note of facts and issue involved in ITA No. 1808/Ahd/2017 concerning AY 2014-15 for adjudication purposes for the sake of convenience.

ITA No. 1808/Ahd/2017 - AY 2014-15

5. The grounds of appeal raised by the assessee read as under:

“1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of Rs.4,76,26,714/- u/s. 40(a)(ia) of the IT Act on account of non deduction of TDS.”

6. When the matter was called for hearing, the learned DR for the Revenue relied upon the observations made by the AO and contended that the payments made by the assessee to the distributors are in the nature of royalty. The assessee having failed to deduct tax at source under s.194J of the Act, the AO has rightly disallowed the expenses of Rs.4,76,27,714/- by invoking Section 40(a)(ia) of the Act.

7. The learned AR for the assessee, on the other hand, broadly reiterated the facts placed before the CIT(A) and relied upon the decision drawn by the CIT(A). The learned AR for the assessee in furtherance referred to the judgment of the Hon’ble Madras High Court in the case of Mrs. K. Bhagyalaxmi vs. DCIT [2013] 40 350 (Mad.) and decision of the co-o dinate bench referred in the case of Indo-Overseas Film vs ITO (2017) 81 378 (Chennai) for the proposition that revenue sharing expenses paid to the distributor of the cinematographic film out of revenue earned from exhibition of film is out of the ambit of Section 194J of the Act which in turn refers to Explanation 2 to Clause (vi) of subsection (1) of Section 9 for the purposes of ascertaining the meaning of expression ‘royalty’. The learned AR referred to the aforesaid Explanation o Section 9 and submitted that the aforesaid Explanation clearly excludes the consideration for the sale, distribution or exhibition of cinematographic film from the sweep of definition of royalty. It was thus submitted that Revenue sharing
expenses incurred by the assessee with the Distributors of the Film does not partake the character of royalty for the purposes of Section 194J of the Act in view of the express statutory exclusion. The learned AR asserted that the CIT(A) has correctly appreciated the facts in proper perspective and rightly decided the issue in favour of the assessee in view of the judicial decisions as well as the express and unambiguous language of Section 194J r.w.s. 9(1) of the Act. The learned AR accordingly submitted that no interference with the order of the CIT(A) is plausible.

8. We have carefully considered the rival submissions. The short controversy as to whether payments made by the assessee to the Distributors of the Films constitutes fee for professional or technical services within the ambit of Section 194j of the Act. Section 194J of the Act inter alia includes ‘royalty’ for the purposes of deduction of tax at source. It is the case of the assessee that the revenue sharing expenses incurred by the assessee in the nature of royalty is not covered within the sweep of Section 194J of the Act in view of the specific exclusion provided for consideration for the sale, distribution or exhibition of cinematographic film. Thus, the payment in respect of exhibition films is specifically excluded under s 194J of the Act. It is thus the case of the assessee that provisions of Section 40(a)(ia) of the Act does not get triggered in the absence of any obligation to deduct TDS under s.194J of the Act. On facts a reference was made to sample invoices raised by the Distributors, namely, Rose Valley Films Pvt. Ltd. and UTV Software Communication Ltd. to demonstrate the sharing of the revenue between the assessee and Distributors out of gross revenue collected from exhibition of the Film.

8.1 We have perused the order of the CIT(A) taking note of the relevant facts and applicable law in great length while concluding the issue. It will be apt to reproduce the relevant operative para of the order of the CIT(A) in this regard:

“3.3 I have carefully considered the facts of the case, assessment order and submission of the appellant. The AO has made the disallowance of Rs.4,76,27,714/- towards the payment made by the appellant for purchase of the films from the distributors invoking the provisions of Section 40(a)(ia) of the Act stating that the appellant has not made the TDS on the aforesaid payments and hence it has violated the provisions of Section 194J of the Act. The AO observed that the aforesaid payments were in the nature of royalty for acquiring rights in the intellectual property of the produce through the distributors.

3.4. On the other side, the appellant has submitted that it was mainly the exhibitor of the films by procuring from the distributors. Further it has also derived the monthly fixed charges income for facilitating small

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