S. 45 : Capital Gains – Sale of Film Rights-Transfer of bundle of rights in 31 cinematographic films held to be transfer of capital assets- Consideration received taxable as capital gains and not as business income. [S. 2(11)(B), 2(14) 28(i), 28(va), 55(2)(a)]
The assessee, a partnership firm engaged in film production since 1953, had produced 31 feature films between 1958 to 1998. On 20.04.2016, it entered into an Assignment Agreement with Red Chillies Entertainment Pvt. Ltd., transferring all rights, title, and interest (present and future) in these films, including intellectual property rights, exploitation rights, copyright, goodwill, and derivative rights. The assessee declared the consideration of ₹14.11 crore as long-term capital gains. The AO held that since the assessee was engaged in film production and had shown income from exploitation of film rights as business income in earlier years, the consideration from transfer of rights should also be assessed as business income. CIT(A) held that film rights are intangible assets covered under s. 2(14) and s. 55(2)(a). Their cost of acquisition was nil, and they constituted capital assets. The transfer of all rights in perpetuity amounted to transfer of a capital asset, hence taxable under capital gains. On appeal by the revenue the Tribunal held that the assessee transferred its entire bundle of rights in 31 films in perpetuity, thereby forfeiting all future earning potential, such rights constituted capital assets within the meaning of s. 2(14), being intangible property Reliance placed on Johnson & Johnson Pvt. Ltd. v. DCIT (ITA No.1756/Mum/2023 dt.10 -2-2025, Novartis Healthcare Pvt. Ltd. v. Addl. CIT [2015] 58 taxmann.com 216 / 69 SOT 72 (URO(Mum)( Trib) Jammu C. Sugandh v. DCIT (ITA No.711/Mum/2009 dt. 2-9 -2010 and Khandelwal Laboratories Pvt. Ltd. v. CIT (ITA Nos. 2765 & 2702/Mum/2014), wherein transfer of trademarks, copyrights, and brands were held to be transfers of capital assets Karnataka High Court in Syndicate Bank v. ACIT(1995 ) (155 ITR 681( Kran )( HC) held that the term “capital asset” has wide connotation, including intangible rights. Accordingly, the Tribunal held that the consideration received by the assessee was liable to be taxed as capital gains, and not as business income. Revenue’s appeal dismissed. (AY. 2016-17)( ITA No. 3204/Mum/2025, “E”, dt. 24.09.2025)
ACIT v. Eagle Films (Mum)(Trib) www.itatonline .org .
[Coram : Hon’ble Shri Pawan Singh, JM & Hon’ble Smt.Renu Jauhri, AM]