9911796707
TMI Blog2009 (6) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the payments made to the producers for financing the productions of films - a) Vishesh Entertainment Ltd - Film 'Inteha' b) Prakash jha - Film 'Gangaajal' 2) Whether the CIT(A) erred in upholding the order passed by the A.O U/s. 201(1) of the Act raising the demand against the assessee ? 3) Whether the Ld. CIT(A) erred in upholding the levy of interest u/s.201(1A) of the Act? Grounds for the A.Y. 2004-05 "1) Whether the Ld. CIT(A), Mumbai has erred in confirming the order of the I.T.O (TDS) U/S. 201(1) and 2O1(1A) of the I.T. Act dated 8.2.2006 by holding that the assessee is liable to deduct tax u/s. 194C of the Act in respect of the payments made to the producers for financing the productions of films - a) Prakash Jha - Film Gangaajal' b) Vishesh Entertainment Ltd - Film 'Inteha' c) Romesh Film - Film 'Dil Jo Bhi Kahey' d) Prakash Jha Production - Film 'Apaharan' 2) Whether the CIT(A) erred in upholding the order passed by the A.O U/s. 201(1) of the Act raising the demand against the assessee ? 3) Whether the Ld. CIT(A) erred in upholding the levy of interest u/s.201(1A) of the Act ? Grounds for the A.Y. 2005-06 "1) Whether the Ld. CIT(A), Mumbai has erred i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see company namely Shri Amol Gorey was recorded. It was noticed by the A.O that the assessee company had made payments to the various film and T. V. serial Producers and Directors under the different agreements which included some famous film personalities, who were the producers and directors in the Film Industry. The agreements entered into between the assessee and different producers and directors of the films were examined and it was noticed that the assessee has incurred an expenditure for production of the films as a whole and after the film is produced, it acquires the entire right of the film concerned, including the intellectual property right as well as complete ownership of rights in respect of the distribution and exhibition of the films and serials. It was seen that as per the terms of the agreement, the assessee make the advances to the producers and directors for the production of films as per the payment schedules i.e. in installments. The A.O was of the opinion that the advances made by the assessee company to the producers and directors are covered under the provisions of Section 194C and 194J of the I.T. Act. It was noticed that except in one or two cases, no TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company as regards the film making. He is actually the author of the film who is fully in command of making the film. The Assessee company has not hired his services for making the film and he is in process of making the film on his own. When Assessee company smells the business opportunity of giving financial assistance to such reputed producer, agreement for financial assistance is made with him. The Assessee company generally takes control of the negative rights of the completed film as assurance of realization of the money from the producer. The Assessee also take control of the distribution of the film, on behalf of the producer so that best price available can be recovered from the distribution of the film. Generally, the distribution money is directly recovered by the company from the distributors and appropriated as per the agreement with the producer. The agreements with the distributors are made by Assessee company with consent of the producers only as security for money advanced. The company has only given an assistance to produce films and it has not given any contracts for production of films. The company has only assisted the producers to produce of the films b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he advances and payments made to the different producers and directors for making the films. The A.O., therefore, raised the following demands against the assessee by passing the orders u/s. 201(1) and 201(1)(1A) of the IT. Act : Asstt. Year Tax Demanded u/s.201(1)/201(1A) Interest Total 2003-04 Rs.2889204 Rs. 114434 Rs. 4033230 2004-05 Rs.2227283 Rs.792815 Rs. 3020098 2005-06 Rs.3652323 Rs.497944 Rs. 4150267 2006-07 Rs.9555342 Rs.434118 Rs. 9989460 The assessee challenged the respective orders raising the demands against the assessee before the Learned CIT(A), 6. The Ld. CIT(A) disposed of the appeals filed by the assessee by common order dated 24.11.2006 giving part relief to the assessee. The assessee filed the detailed submission which has been reproduced by the Learned CIT(A) in the Order from page No. 4 to 26. The Ld, CIT(A) after considering the submissions made by the assessee in respect of some of the agreements held that the provisions of Section 194C has no application as the assessee company has not entirely financed or advanced the film making. The Ld. CIT(A) held in the following cases that as there is no relationship of the principal and contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y work which is contemplated in second limb of sec. 194C but at the most said agreements are for contract of sale. The Ld. Consule reiterated the submissions made before before the Ld. CIT(A) as his arguments. The LD. CIT(A) has already reproduced detail arguments of the Ld. Consule in his order. The Learned Counsel relied on the following decisions to support his plea : i) State of Madras v/s. ALS Productions (1974), 33 STC 335 (Mad.) ii) Wadilal Dairy International Ltd. 81 ITD 238(Pune) iii) Andhra Pradesh State Road Transport Corp 119 Taxman 73 (Hyd.) 10. Per contra, the Ld. D.R. supported the order of the Ld. CIT(A). 11. We have heard the rival submissions of the parties. We have also considered all the agreements filed by the assessee which are the subject matters of the controversy before us. The core controversy after considering the agreements between the assessee company and the film producers and directors, whether the provisions of Section 194C are attracted in respect of all the payments made by the assessee company as per the terms of the respective agreements. So far as applicability of Section 194J is concerned, no much more importance is given by the A.O as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in case of advertising, (ii) in any other case two per cent, of such sum as income-tax on income comprised therein: Provided that no individual or a Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family.] (2) Any person (being a contractor and not being an individual or a Hindu undivided family) responsible for paying any sum to any resident (hereafter in this section referred to as the sub-contractor) in pursuance of a contract with the sub-contractor for carrying out, or for the supply of labour for carrying out, the whole or any part of the work undertaken by the contractor or for supplying whether wholly or partly any labour which the contractor has undertaken to supply shall, at the time of credit of such sum to the account of the subcontractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to one per cent of such sum as income-tax on income comprised therein: [Provided that an indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leasing goods carriages, on production of a declaration to the person concerned paying or crediting such sum, in the prescribed form and verified in the prescribed manner and within such time as may be prescribed, if such sub-contractor is an individual who has not owned more than two goods carriages at any time during the previous year: Provided also that the person responsible for paying any sum as aforesaid to the sub-contractor referred to in the second proviso shall furnish to the prescribed income-tax authority or the person authorised by it such particulars as may be prescribed in such form and within such time as may be prescribed; or] (ii) any sum credited or paid before the 1st day of June, 1972; [or] [(iii) any sum credited or paid before the 1st day of June, 1973, in pursuance of a contract between the contractor and a co-operative society or in pursuance of a contract between such contractor and the sub-contractor in relation to any work (including supply of labour for carrying out any work) undertaken by the contractor for the co-operative society.] [Explanation.-For the purposes of clause (i), "goods carriage" shall have the same meaning as in the Explanation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is that the renowned producers/contractors approach the assessee with the film project including the story and script and if the assessee company agrees to finance the same, then only the agreement is made in respect of particular film or T.V. serial. It is the further contention of the assessee that till the point of obtaining the Certificate from the Censor Board, the assessee has no role to play. There is no relationship as a principal or contractor between the assessee company and the respective film producers/directors. In some of the cases, additional remuneration is agreed to be paid to the director but that is not a separate one, it is part of budget of film. Though the Ld CIT(A) has discussed the terms of each agreement entered into between the assessee company and the respective film producers/directors, but again, their distinction is made merely on the basis that in some of the cases, entire budget of the film is financed by the assessee company and the assessee has grabbed the major share in the surplus which will be after re-payment of the principal amount. In our opinion, after examining of the agreements, the terms and conditions are almost identical. We f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point to be seen is whether in the present case, whether the assessee has engaged any contractor for carrying out any work. The expression 'contractor for carrying out any work' implies that the contractor should have carried out such activities. The term 'carried out' suggests an executory contract rather than a case of a mere supply or sale of goods. If a person engages the services of another and gives him a job of manufacturing goods or articles and for the purpose supplies him raw material, it would be a clear case of a contract of work. In such cases, the provisions of section 194C would undoubtedly be applicable. But, if, on the other hand, a manufacturer on his own purchases material and manufactures product which he sells to the assessee and it may be that such product might be customer-specific as per the requirement of the customer, it is still a case of a sale and not for carrying out any work. In such sale which is customer-specific, the fact that the goods manufactured are according to the requirement of the customer does not mean or imply that any work has been carried out on behalf of the contractee. A distinction between a sale and works contract is very significa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Government or any other specified person and the property in such article or thing passes to the Government or such person only after such article or thing is delivered, the contract will be a contract for sale and as such outside the purview of this section. This para really answers in a very clinching manner the objection raised by the department in the present case. As per para (b), even in fabrication contracts if the property in the article passes to the Government or other person after its delivery, still it is. a case of contract for sale. The fact that fabrication has been carried out as per specification given by the contractee is not considered to be relevant. The assessee's case would appear to fall squarely within clause (b) above, because in the assessee's case the property in the packing material passes only after the same is delivered by supplier to the assessee. Obviously in such cases since these are contracts for sale, sales-tax and excise duty are being levied. Thus the payment of sales-tax and excise duty by supplier, though not conclusive, is clearly indicative of the fact under those laws, the transaction is considered to be that of sale. In view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to distinguish between the contracts of sale and the contracts of work because the distinction between the two types of contracts is very thin and the Courts have faced tremendous difficulty at times in constructing the true nature of a contract. This problem gets magnified further when the contract is a composite one involving both a contract of work and labour and a contract of sale. Certain guidelines have been laid down by the apex court in the case of P.S. Company v. State of Andhra Pradesh 56 STC 283 to determine the true construction of a contract so as to determine in turn as to whether transaction covered by that contract is one of sale or of work and labour. Though these guidelines cannot be termed as infallible tests yet they provide valuable help and insights to arrive at correct decision. These guidelines are as under: (1) The essence of the contract or the reality of the transaction as a whole has to be taken into consideration in judging whether the contract is for a sale or for work and labour. (2) If the thing to be delivered has any individual existence before the delivery, as the sole property of the party who is to deliver it, then it is a sale. (3) If the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal to the sale. If the primary object of the contract is the carrying out of work by bestowal of labour and services and materials are incidentally used in execution of such work then the contract is one for work and labour, [see para 14(2)]. If the thing to be delivered has any individual existence before the delivery as the sole property of the party who is to deliver it, then it is a sale, [see para 14(3)]. If the bulk of material used in construction belongs to the manufacturer who sells the end-product for a price, then it is a strong pointer to the conclusion that the contract is in substance one for the sale of goods and not one for labour. However, the test is not decisive. It is not bulk of the material alone but the relative importance of the material qua the work, skill and labour of the payee which have to be weighed. If the major component of the end product is the material consumed in producing the chattel to be delivered and skill and labour are employed for converting the main components into the end products, the skill and labour are only incidentally used, the delivery of the end product by the seller to the buyer would constitute a sale. On the other hand, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rinciples have enunciated and culled out from Halsbury Laws of England, 3rd Edn., Vol. 34, 6-7." In our opinion as both the above cases are on interpretation of second limb of sec. 194C i.e. expression 'any work' and in that context it is held that contract for sale is out of purview of sec. 194C of the Act 18. After examining the copies of the agreements placed before us , we are of the opinion that no relationship of a 'Principal' and a 'contractor' is created between the assessee company and film producers/contractors, but all agreements are finance agreements with unique features to participate in the surplus by taking the risk of the losses also. It is also seen that in majority of the agreements, film makers and producers have right to participate in the surplus after re-payment of the principal amount and the said terms support the case of the assessee that the status of the film makers/producers is also like principal as in the normal commercial practices, once the contract is executed, the contractor is out of the project and the entire surplus whatever may be is enjoyed by the principal. Considering the totality of the facts, in our opinion, there is no justification in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly deliver any print of the movie for screening in any of the territory, that should not be questioned by the A.O or the Ld. CIT(A) as the assessee can decide how to protect his money which is advanced in film industry. It is also not disputed in these cases that in respect of many of the films, even to the extent of 50%, there is a participation of the producers in the surplus. 21. In respect of the T.V, serials also, the Ld. CIT(A) has accepted that the finance made to Sobhana Desai Production Pvt. Ltd. is purely a financial transaction and not for production of film or serials but, in respect of the finance made for Bheesma International, Cinemavision India, Eagle Films Pvt. Ltd., etc., the Ld CIT(A) comes to the conclusion that the agreements are in the nature of the contract. Merely because, the producers are under contractual obligation, to procure a slot letter from Doordharshan for the telecast of the serial in favour of the assessee, thereby the assessee company can commercially exploit serial that does not mean that agreements between respective T. V. Serial producers are in the nature of agreement with the contractors . In our opinion, the said contractual obligation, i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
