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2020 (8) TMI 318 - AT - Income TaxTDS u/s 195 - Default u/s 201(1) & 201(IA) - Production Services Agreement - Permanent Establishment (PE) in India - India-UK DTAA - commissioning agreement with another UK based non-resident corporate entity namely M/s Desi Boyz Production Ltd. (in short ‘DBPL’) on 01/09/2010 to produce, complete and deliver a feature film namely Desi Boyz (in short ‘film’) - responsibility to produce the film was on M/s DBPL against certain lump-sum consideration - DBPL entered into one production services agreement on same datewith another resident entity namely Eros International Films Private Limited (EIFPL / service company) as a producer of the proposed film, with a view to avail certain specific and limited production services from M/s EIFPL, entered into this contract. HELD THAT:- M/s DBPL could not said to be solely dependent upon the assessee for finance requirements. In financial year 2011-12, the revenue earned by M/s DBPL from the assessee on account of commissioning of film has been reflected as its turnover. M/s DBPL has reflected loss of 1.67 million pounds as loss on ordinary activities before taxation. This is sole activity being carried out by M/s DBPL. Therefore, the provision of Article-10 of the treaty, in our considered opinion, could not be applied in such a situation since it could not be said that the assessee participated directly or indirectly in management, control or capital of M/s DBPL. Further, M/s DBPL was a loss-making entity coupled with the fact that the assessee was assessed u/s 143(3) on 27/01/2014 wherein its returned income was duly accepted by the revenue and there was no allegation of over / under payment to M/s DBPL. Therefore, the assessee could not be said to be Associated Entity of M/s DBPL in terms of Article-10 of the Treaty. Hence, the conclusion drawn by Ld. AO, in this regard, could not be sustained as per the Treaty terms. In our considered opinion, M/s DBPL was acting as an independent entity which was required to carry out the assigned work independently and the assessee could not said to be PE of that entity in India. So far as the terms of service agreement between M/s DBPL and M/s EIFPL are concerned, we have concluded that the contract between the two entities was primarily that of a principal and agent. M/s EIFPL, acting on behalf of producer, was required to provide limited production services against lump sum fee of ₹ 300 Lacs. The said services were to be provided under control, supervision as well as the direction of the producer. Status of M/s EIFPL would be that of independent agent and not a dependent agent as alleged by AO. We concur with AR’s submissions that the said agreement was merely to assist the production of the film and to provide limited services in relation to delivery of a feature film. M/s EIFPL was entrusted with the responsibility of arranging the crew and the requisite equipment which were to be procured from India. The said contract was given to the Indian entity in order to perform the Indian part of the production services and M/s DBPL was to pay the requisite fees. M/s EIFPL carried out its activities as an independent agent. Therefore, it could not be termed as Permanent Establishment for M/s DBPL in terms of Article-5 of the Treaty. This view, as taken by lower authorities, could not be concurred with. On the facts and circumstances, we hold that the assessee and M/s DBPL could not be held to be Associated Enterprises in terms of Article-10 of the Treaty. The assessee could not be treated as PE of M/s DBPL in India. Further, the status of M/s EIFPL vis-à-vis M/s DBPL would be that of an independent agent and M/s EIFPL could not said to be PE of M/s DBPL. No profit could be said to have accrued to M/s DBPL in India as alleged by the revenue. As a logical consequence, the assessee could not be treated as assessee-in-default in terms of Sec.201(1) & 201(1A) of the Act. Therefore, by deleting the impugned demand, we allow the appeal of assessee.
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