Receipts For Sale Distribution Of Cinematographic Films Is Not Royalty, Hence Not Liable For TDS Deduction U/S 194J: Mumbai ITAT

While clarifying that amount received for sale distribution or exhibition of cinematographic films would not fall under the domain of 'Royalty', the Mumbai ITAT deleted the demand/addition for non-deduction of TDS u/s 194J of the Income Tax Act, 1961.

The Member of the ITAT comprising of N. K. Choudhry (Judicial Member) and Prashant Maharishi (Accountant Member) observed that “Explanation-(2) to section 9(1)(vi) of the Act defines 'Royalty' and including certain consideration such as transfer of all or any rights (including the granting of a license) qua any copyright, literacy work or scientific work including film(s) or video tapes for using connection with Television or tapes for using in connection with Radio broadcasting by but carved out the exception by excluding 'the consideration for the sale, distribution or exhibition of cinematographic film(s)' which goes to show that consideration for the sale, distribution or exhibition of cinematographic film(s) has been excluded in the clause of 'Royalty'.”

As per the brief facts of the case, the agreement executed between the Assessee and Salman Khan Ventures Pvt. Ltd. (SKVPL), reveals that Yash Raj Films Pvt. Ltd. has taken distribution rights of the film(s) from SKVPL, for a limited period of 1 (one) year. Further, royalty has been paid to SKVPL by Yash Raj Films Pvt. Ltd. for such rights. The AO found that the transaction is not payment for purchase of cinematographic films but consideration for transfer of rights in respect of artistic work films. Therefore, the said transaction is covered within the meaning of royalty as per Sub- clause (v) of Explanation 2 to Clause (vii) of Sub-section (1) of Section 9. Accordingly, TDS at the applicable rate of 10% had to be deducted by Yash Raj Films Pvt. Ltd on royalty payment u/s 194J, however, the same has not been done. Consequently by issuing notice, the AO show caused the Assessee to explain as to why the Assessee should not be treated as an Assessee in default within the meaning of section 201(1)/201(1A) with regard to the non-deduction of TDS on the payment made to SKVPL.

The Coram found that the Assessee represented itself as a reputed company being engaged inter-alia in the business of distribution and marketing of Cinematographic films in India and rest of the world.

The Bench also found that as per agreement SKVPL (Principal) has appointed the Assessee to arrange and facilitate for distribution of the Movie (Race-3 in Hindi) on behalf of SKVPL and further authorized the Assessee to enter into an agreement(s) on its behalf for distribution of the Movie.

The Bench further stated that SKVPL has also agreed for expenses to be incurred for the distribution of the Movie and accordingly authorized the Assessee to incur such expenses as an agent on its behalf.

The Bench observed from the clauses of alleged agreement that the Assessee has acquired theatrical rights/distribution rights of the Movie Race-3 on behalf of SKVPL and therefore, question emerge “whether the distribution/theatrical rights is covered under the definition of 'Royalty' or not”.

The Bench observed that consideration amount received for sale distribution or exhibition of cinematographic films, would not fall under the domain of 'Royalty' and consequently warrants no demand/addition for non-deduction of TDS u/s 194J of the ACT.

The Bench found it strange that the Assessee and SKVPL and even otherwise both the authorities below blindly relied upon the alleged agreement, which is otherwise lacking the basic conditions of contract and infact in derogation of laws of land such as Contract Act 1872, Indian Registration Act 1908 and Indian Stamp Act 1899, etc.

Therefore, the ITAT directed the AO to verify the veracity of the alleged agreement and claim of the Assessee by examining other supportive documents and on finding the claim of the Assessee as genuine and in accordance with law as applicable hereto, and then delete the demand/addition made.

Counsel for Appellant/ Department: Raj Singh Meel

Counsel for Respondent/ Taxpayer: Rajesh P. Shah

Case Title: Dy. CIT verses M/s Yash Raj Films Pvt. Ltd.

Case Number: ITA No. 1814/Mum/2023

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