Case Law Details
ITO Vs Yashovardhan Tyagi (ITAT Delhi)
Conclusion: Minimum guarantee amount which was paid by the distributor for acquiring the exhibition rights of a movie was a fixed expenditure for the distributor that was paid to producers irrespective of the fact whether the film generated a profit or incurs losses. Hence, the payments made by assessee did not fall under the term “Royalty” and did not attract the provisions of TDS.
Held: Assessee had paid an amount of Rs.2 crores as Minimum Guarantee Royalty (MGR) and had not deducted TDS. AO held that the payment would fall within the definition of “Royalty” and failure to deduct TDS as per Section 194J would attract provisions of Section 40(a)(ia). Assessee contented that assessee’s payments could not be regarded as for sale, distribution or exhibition of films. Assessee did not purchase the cinematographic film but purchased only theatrical distribution rights. It was held that Clause (v) of Explanation 2 to Section 9(1) consists of two different transactions, one inclusive another non-inclusive. The inclusive part consists of the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting. The non-inclusive part consists of consideration for the sale distribution or exhibition of cinematographic films. AO misread the provision in the second part of the clause with regard to exhibition of cinematographic films. He wrongly held that what assessee purchased was copyrights and hence liable to TDS. In fact, the copyrights were always with the producer. The distributor was only given the right exhibition of cinematographic films. Hence, such transactions did not attract the provisions of TDS. Further, the minimum guarantee amount which was paid by the distributor for acquiring the exhibition rights of a movie was a fixed expenditure for the distributor that was paid to producers irrespective of the fact whether the film generated a profit or incurs losses. Hence, the payments made by assessee did not fall under the term “Royalty” and did not attract the provisions of TDS.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeals have been filed by the revenue and the assessee are directed against the order of ld. CIT (A)-12, New Delhi dated 29.02.2016.
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