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TMI Blog2009 (4) TMI 541X X X X Extracts X X X X X X X X Extracts X X X X ..... money recoverable in cash or against rights being sold, is a contractual agreement being work contract and section 194C is applicable and has thus erred in confirming that appellant was liable to deduct tax as per section 194C and hence deemed to be an assessee in default under section 201(1) of the Income-tax Act, 1061. 2.The ld. CIT(A) has erred in confirming that assessee has committed a default under section 201(1) and 201(1A) and section 200 of the Income-tax Act and liable for payment of interest under section 201(1A) of the Income-tax Act 1961. 3.The appellant have leave to add, alter or renew above several grounds of appeal before or at time of hearing." 2. Briefly stated, relevant facts of the case are that the assessee is a company engaged in the business of production, distribution, exhibition of films, film financing and equipment hire, etc. Survey action under section 133A was conducted at the premises of the assessee on 27-8-2003 and a statement of Sri Navin Golcha, Finance Manager of the company was recorded. The information collected during the survey and post-survey periods revealed that the assessee made certain payments of advances to M/s. Kapoor and Kaushik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount being advanced as recoverable advance; (ii) not the contractual agreement or contractual payments; (iii) the payment of Rs. 13.25 crores, being recoverable advances, is for financing purposes and further, the said purpose do not fall either in the ambit of 'for the purpose of carrying out of any work' or in the extended definition of 'any work' provided in Explanation III to section 194C of the Act. 4. On considering the above reply of the assessee, the Assessing Officer did not agree with the assessee as evident from the Order of the Assessing Officer under section 201(1) and 201(1A) of the Act dated 18-1-2006 and in that order, the Assessing Officer held that (i) the said agreement dated 2-8-2000 is a contractual agreement; (ii) the entry in the books of account of the assessee as the 'advances recoverable...' is resulted out of the mutual accommodation of the deductor and deductee; and (iii) the said arrangement is aimed at defeating the provisions of section 194C of Act. Thus, the Assessing Officer proceeded to determine the Tax payable under section 194C read with section 201(1) on the amount of Rs. 2,72,85,852 for the assessment year 2001-02 at Rs. 5,73,003. The f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee by way of recoupment of the said finance and the accountability of the KKEPL to the assessee, confirms that the said agreement constitute a contractual agreement. Accordingly the CIT(A) confirmed the orders of the Assessing Officer for all the three assessment years under consideration. 6. Aggrieved with the above decision of the CIT(A), assessee has filed the present appeals as well as the paper book. Shri K. Sivaram, Ld. Counsel for the assessee, has taken us through the documents of all the three appeals as well as the paper book. Ld. Counsel has reiterated all the submissions made before the revenue authorities. In addition, taking us through the above referred Apex Court judgment, Ld. counsel has made out that the said Apex Court judgment has no application to the instant case as this is the case of financing and the financing contracts are outside the ambit of the provisions of section 194C. Further, taking us through the provisions of section 194J also professions fee, he has argued stating that the alleged transactions are outside the scope of either the "professional services" or "fees for technical services" as defined in the said section or explained by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, it is noticed that the case of the assessee is that the 'financing or advancing to the film producers for production of a film, which are characterised by the special mode of recovery of the said finances, has to be understood as a specific transactions. No recoverable advances can be a subjected to TDS provisions as held in the case of Shri Kamrej Vibhag Sahakari Khand Udyog Mandli Ltd. (supra). So far as the enormous rights conferred by the agreement on the assessee on the film are concerned, these are unique to the film financing business, which are characterised by (i) the lending huge amounts; (ii) higher rate of interest rates; and (iii) short-term financing. Further, the 'film finance arrangements' are not 'work contracts'. On the other hand, the case of the revenue is that the agreement between the assessee and the producer-KKEPL is a contractual agreement for carrying out of the work of production of film and it is a 'work contract'. The amounts paid to KKEPL in pursuance of the contract fall under the ambit of the provisions of section 194C. Referring to the said Apex Court Judgment in the case of Associated Cement Co. Ltd. (supra), the scope of words 'any work' refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is contractor and the contractor is under the contractual obligation to carry out the work contract. These components are readable in the instant agreement with the arrangement, (c) With reference to the words 'any work', it is noticed there is huge lot of controversy on the topic. Briefly stated, the words "any work" undisputedly has wider connotation and 'any work' shall not only include work contracts but also other types of contracts and however, it shall not include contracts of sale of goods as explained by the Supreme Court in the case of State of Himachal Pradesh v. Associated Hotels of India Ltd. [1972] 29 STC 474. In the light of the Apex Court judgment in the case of Associated Cement Co. Ltd. ( supra) that provisions of section 194C would apply all types of contracts including transport contracts, labour contracts, service contracts. As per the fresh guidelines issued by the Board, the provisions of section 194C shall apply to transport contracts, service contracts, advertisement contracts, broadcasting contracts, telecasting contracts, labour contracts, material contracts and work contracts with effect from 1-7-1995 consequent to the amendments to the section 194C by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and the provisions of clause (b) of Explanation III to section 194C in particular. Clause (b) provides that the 'any work' includes 'broadcasting and telecasting including production of programmes for such broadcasting or telecasting'. There is no provision for inclusion of either film financing or the production of films or the composite activities in the said clause. In the absence of specific provisions in this regard, the present issue needs to be decided under general meaning of 'any work', (d ) With reference to the words 'in pursuance of a contract', it is a settled law that the contract may be written or oral and the contractor is under obligation to follow the terms and conditions of the said contract in matters of carrying out the work. (e) Generally, the contract envisages that the contractee pays the amounts to the contractor-the payee for carrying out work as per the contract and usually the contractor does not have to repay the same. In other words, this issue of recovery of the paid advances from the contractee, as the amounts paid are towards the work contract, service contract etc. as the case may be. It does not happen that the contractor shall carry out the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect is carried out as he has to recover the given finances with interest. Thus, between the two objectives, the dominant objective of the alleged arrangement is the financing and the auxiliary objective is to produce the film so that the assessee-financier can recover the dues out of realizations. Per contra, so far as the producer-KKEPL is concerned, with all the essentials needed for production of film are in place with the exception of the requisite finance, the dominant objective in taking the finance is to produce a film for him. In fact, the project specific financing activities of the Financial Institutions (FI) such as the Banks are comparable one insofar as the paying of advances/loans, disbursement of advances, close monitoring of the progress of the project by the FI, hypothecation of the assets etc. Should the Banks do TDS on such project specific advances/loans because the assets are hypothecated to the Bank within the meaning of section 194C. The answer is negative. This is for the reason these financing activities involve the return of the advances/loans with interest. 14. With the refundability of the advances along with the interest at the rate of 21 per cent on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have otherwise recovered the given advances. Further, when the KKEPL carry out the work of producing a film by keeping in place the requisite infrastructure and raw material such as story selection, film stars, directors etc. and in the process, takes the financing from the assessee and in return, transfer some rights to the assessee to facilitate recovering the finance by an arrangement and by this arrangement, the assessee can never be the owner of the film. At any stage or under any circumstances, the said arrangement does not provide for the transfer of the ownership rights of the film to the financier as evident from various clauses even in the circumstances of default by the KKEPL. In fact, clause 28 provides for legal recourse in case of defaults of the producer, if any. All the rights bestowed on the assessee by virtue of the arrangement shall end soon after the finances are recovered fully. In such circumstances, we do not subscribe to the suspected ownership of the film as well as the allegation of mutual accommodation. Thus, the assessee is not a contractee and KKEPL is not a contractor. Therefore, the revenue's arguments that the said arrangement is 'work contract' and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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