INCOME TAX ACT, 1961

Section 194J

Tax deduction at source - Under section 194J - Royalty - Minimum Guarantee Royalty (MGR) paid by distributor for acquiring exhibition rights of movie

Assessee-distributor claimed deduction of Minimum Guarantee Royalty (MGR) paid by it for acquiring exhibition rights of movie. AO held the payment in the nature of royalty and accordingly, disallowed deduction for want of TDS. Assessee contended that assessee did not purchase cinematographic film but purchased only theatrical distribution rights. Held: Clause (v) of Explanation 2 to section 9(1) consists of two different transactions, one inclusive another non-inclusive. The inclusive part consists of 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 provision in 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, copyrights were always with the producer. The distributor is only given right of exhibition of cinematographic films. Hence, such transactions did not attract provisions of TDS. Further, minimum guarantee amount which is paid by distributor for acquiring exhibition rights of movie is fixed expenditure for the distributor that is paid to producers irrespective of the fact whether film generates a profit or incurs losses. Hence, payments made by assessee did not fall under the term 'Royalty' and did not attract provisions of TDS.

REFERRED :

FAVOUR : In assessee's favour

A.Y. : 2011-12

INCOME TAX ACT, 1961

Section 2(22)(e)

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