The central legal point established in the judgment is the interpretation of the term 'Royalty' as defined in Explanation 2 to Clause (vi) of Section 9(1) of the Income Tax Act, 1961, in the context of the transfer of rights related to cinematographic films.

T.S. Sivagnanam, J.

1. This appeal by the assessee is directed against the order passed by the Income Tax Appellate Tribunal, Chennai "D" Bench dated 30.09.2013 in ITA No.1289/Mds/13 for the assessment year 2009-2010.

2. The assessee is a person carrying on business in the purchase and sale of Telugu films. The assessee filed return of income for the assessment year 2009-2010 on 29.09.2009 admitting a total income of Rs.33,10,829/-. The case was selected for scrutiny and a notice under Section 143(2)of the Income Tax Act, 1961 [The Act] was issued on 24.08.2010. The assessment proceedings were completed under Section 143(3) of the Act and the order of assessment dated 29.12.2011 was passed. The Assessing Officer made various additions, viz., (a) an addition of Rs.52,884/- as disallowance under Section 69C of the Act; (b) an addition of Rs.4,00,000/- on the advance received, which was treated as income; (c) disallowance of Rs.8,268/- under Section 14A r/w Rule 8D of the Income Tax Rules, 1962; (d) disallowance of Rs.7,16,15,000/- for non-deduction of TDS under Section194J of the Act and (e) an addition of Rs.40,07,949/- on the basis of a disallowance of loan credit. Accordingly, the total income of the assessee was assessed at Rs.7,93,94,930/- and the total demand was calculated at Rs.2,75,87,552/-.

3. The assessee preferred appeal to the Commissioner of Income Tax (Appeals). The First Appellate Authority by order dated 27.12.2012 allowed the appeal in part by deleting the addition made under Section 69C of the Act and also reversed the finding of the Assessing Officer, which made a disallowance of Rs.7,16,15,000/- for non-deduction of TDS under Section 194J of the Act by invoking Section 40(a)(ia) of the Act. The Assessing Officer disallowed the said deduction of TDS under Section 194J 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 had concluded 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 First Appellate Authority while reversing the finding given by the Assessing Officer 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 First Appellate Authority held that the payments for acquiring of the film rights were not exigible for deduction of Tax at Source under Section 194J of the Act as they did not qualify as 'Royalty'.

4. Aggrieved by such order, the Revenue preferred appeal before the Income Tax Appellate Tribunal [The Tribunal]. The Revenue contended that a perusal of the agreement would show that there was no purchase or sale, but a mere assignment of certain rights and the assessee was obligated to deduct tax at source under Section 194J of the Act at the time of making payment and having failed to effect deduction of tax at source, the assessee was liable for disallowance under Section 40(a)(ia)of the Act.

5. The assessee filed a Cross Objection before the Tribunal against that portion of the order of the First Appellate Authority, which was not in favour of the assessee. In the said Cross Objection, the assessee contended that the so called assignment agreement involved purchase of the copy right itself and is not in any way transfer of all or any other rights but transfer of copy right itself, which is a specific product, comprising a bundle of right. Further t