By TIOL News Service

MUMBAI, MAR 31, 2017: M/S Phonographic Performance Ltd is a company registered with the Central Government as a 'copyright society' under the Copyright Act, 1957. Its membership comprises of music companies that own copyright in various sound recordings; there is no membership fee or subscription fee.

It acts as a license issuing authority for public performance and broadcasting of sound recordings belonging to its members and, in accordance with the Copyright Act, 1957 collects license fee/royalty from the licensees. The fees so collected are distributed to the owners of the rights after deducting administration expenditure incurred.

The society was issued with demand notices for having rendered 'Club or Association service' for the period from 16 th June 2005 to March 2010. Tax Liability of Rs.6,01,70,407/- was confirmed by the adjudicating authority with interest and penalties. The appellant is before the CESTAT and so is the Revenue which is aggrieved for non-imposition of penalty for failure of the appellant to obtain registration.

The other appellant is M/s. Indian Performing Rights Society Ltd, which too is a company limited by guarantee incorporated under the Companies Act, 1956 and whose members are writers, publishers, music composers and authors owning copyright in musical works. Membership is conferred upon payment of membership fee as prescribed and members, by deed, assign the performing and mechanical rights in music and literary works to the society which, thereafter, exclusively belong to the society. As consideration, the owner of the copyright receives payments from an allocation made by the society. The society is registered under Section 33 of Copyright Act, 1957 as 'copyright society' and permits the rights assigned to it through license agreements to be used by entities such as restaurants, malls, hotels, airlines etc. Demand notices were issued for the period 16 June 2005 to March 2010 and accordingly, a total liability of Rs.1,83,62,149/- was fastened on the appellant.

The appeal of Revenue pertains only to imposition of penalty on M/s Phonographic Performance Ltd. whereas the appeals of the assessees challenge the taxability itself.

The Bench summed up the case of the department thus -

++ M/s Phonographic Performance Ltd is a society comprising of music companies whose copyright material is routed for public performance or broadcasting through the society for which fees are collected and expenditure in connection with such activity being deducted thereon before remitted to the owner of copyright. It is the case of the tax authorities that the amount retained on account of amounts expended is a consideration received by it for rendering 'club or association service' and is, therefore, liable to tax and Finance Act, 1994.

++ M/s. Indian Performing Rights Society is, admittedly, an association of those in possession of copyright in music, literary works etc., and charges a fee for inducting members into the society. Unlike the other assessee, M/s Indian Performing Rights Society does not act as an intermediary for distribution of copyright material to users. On the contrary, it acts on its own behalf to negotiate with potential users and receives license fee which is then allocated to its members in accordance with its internal regulations. Tax authorities have sought to exact a levy on both the membership fee and the amount retained on account of expenditure incurred.

The first appellant placed sample of invoices issued by them to licensees and which carry the endorsement that the taxable service is 'copyright'. Citing the decision in Indian National Shipowners Association 2009-TIOL-150-HC-MUM-ST [affirmed by Supreme Court], it is argued that the taxability as 'copyright service' having been accepted would preclude recovery of tax under any other previously existing category of taxable service.

The second appellant submits that no service has been rendered for a consideration and that the transaction of the appellant, as the owner of copyright by deed of assignment, is akin to a sale by the member to the appellant and thereafter by the appellant to the user of the copyright material. It is argued that an existing taxable service, 'intellectual property right service', specifically excludes copyright material and hence precludes being subjected to tax as provider of any other service. [Ranchi Sports Club Ltd. 2012-TIOL-1031-HC-JHARKHAND-ST refers.]

After considering the submissions, the Bench observed -

+ Appellant is an association of persons. Doubtlessly, the members have paid a certain amount for the privilege of membership. They have likewise participated in contributing to the common expenses of the association. It is the contention of Revenue that, by virtue of being an association and being a recipient of contributions from its members, such receipts are rendered taxable. In Cricket Club of India 2015-TIOL-2062-CESTAT-MUM, (held) that taxability does not follow upon the existence of these two facets unless the rendering of a service is also perceptible in the transaction of club or association with its members. That Members may come together for a common purpose which may involve membership fee and participation in common expenditure is an accepted reality of the existence of social man. To take it beyond that perspective to the hard reality of subjection to tax, the object of the tax law must also be fulfilled which , in relation to Finance Act, 1994 is the rendering of a service. The impugned order has failed to convince that a service is rendered by the appellant to its members and the contributions are the quid pro quo for that service.

+ Section 33 of Copyright Act, 1957 requires that copyright transactions be handled only through a society registered under the Act. With such a statutory mandate in force, the option of transaction except through societies such as the two appellants is non-existent.

+ A legal mandate to act only through a society erases the exercise of option and such activity ceases to be a service. Moreover, the definition of 'club or association service' specifically excludes - 'any body established or constituted under any law for the time being in force'. There can be no doubt that 'copyright societies' are established under law and hence not liable to be taxed on any receipts from its members.

Holding that the demand of tax fails, the appeals of M/s Phonographic Performance Ltd and M/s Indian Performing Rights Society were allowed. The Revenue appeal is rejected.

(See 2017-TIOL-1070-CESTAT-MUM)