TMI Blog2010 (11) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... y the revenue against the order dated 17th January, 2003 of the Commissioner of Income-tax (Appeals)-XXXI, Mumbai. 2. In this appeal the revenue has projected its grievance against the order of the learned Commissioner of Income-tax (Appeals) whereby the CIT(A) held that there was no obligation on the part of the assessee to deduct tax at source on certain payments made by the assessee to non-residents. 3. The grounds of appeal taken by the revenue reads as follows: On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in holding that the payment to agent and reimbursement of expenses are not taxable without appreciating the fact that these are integral parts of payment to artists and the division is artificial. 4.1 Wizcraft International Entertainment Pvt. Ltd. hereinafter referred to as the appellant or Wizcraft is a Private Limited Company. It is engaged in the business of entertainment event management and marketing. It is mainly engaged in organizing corporate events, product launches, dealer meets, mega theme parties, concerts, pub promotions, exhibitions, entertainment extravaganzas, etc. It has organized the events/performance of renow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cost of travel of the artiste, out of pocket expenses while in India and expenses for transit of equipments used by Artiste and in respect of such reimbursement of expenses there is no element of income and therefore there is no obligation to deduct tax at source at the time of making payment. 4.5 The Assessing Officer however treated commission payable and re-imbursement of expenses in the following cases as liable to tax and raised demand for the same. Amount in US$ Name of the Artiste/Group and country Performance fees Commission Reimbursement of expenses Total No. of persons travelled. Against Diana KingUSA 30,000 7,500 17,500 55,000 6 Diana KingUSA 55,000 20,000 - 75,000 6 UB40-UK 35,000 25,000 90,000 150,000 27 Acrobazia-Canada ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sonal services) and 16 (Dependent personal services) of this convention, income derived by entertainers (such as stage, motion picture, radio or television artistes and musicians) or athletes, from their personal activities as such may be taxed in the Contracting State in which these activities are exercised. 2. Where income arising from personal activities are such as exercised in a Contracting State by an entertainer or athlete accrues not to that entertainer or athlete himself but to another person, that income may notwithstanding the provisions of Article 7 (Business profits), 15 (independent personal services) and 16 (Dependent personal services) of this convention, be taxed in that Contracting State. 8. For commission income of Colin Davie, it was submitted by the appellant that Colin Davie has rendered services outside India for limited purpose of coordinating the engagement of the Artiste from outside India to perform the services on the dates of engagement. Therefore, it was submitted that the provisions of Article 18 of the DTAA are not applicable in case of Colin Davie as the same are intended to cover payments to artist management companies for performance of ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resaid, the profits of the enterprise may be taxed in the other State but only so much of them as is directly or indirectly attributable to that permanent establishment. The appellant pointed out that Colin Davie does not have any PE in India. The term PE is defined in Article 5 of DTAA between India and UK. In view of Para 1 of Article 7, it was submitted that the profits by way of commission payable to Colin Davie shall be taxable only in U.K. as he does not have a PE in India. 10. The appellant relied on the decision of the Hon ble Supreme Court in the case of Carborandum Co. v. CIT [1977] 108 ITR 335, wherein it was held that the carrying on of activities or operations in India is essential to make the non-resident have business connection in India in order that he may be liable to tax in respect of the income attributable to that business connection. In this contest, the appellant relied rely on the CBDT Circular No. 17(XXXVII) of 1953 dated 17th July, 1953 where it has been stated as follows: Foreign agents of Indian exporters - A foreign agent of an Indian exporter operates in his own country and no part of his income arises in India. Usually, his commission is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses relating to the performers in India like travelling, hospitality and all the related expenses. He has however observed that whatever payments have been made to the Artiste or their agent comprises the income in their hands until unless the expenses are claimed and substantiated in their hands. In this context, the appellant submitted that from the list of expenses, which are to be borne by appellant, it was clear that it included travelling of performing artistes from their home country to India and such payments are purely reimbursements in which there can be no element of income. This is mainly because, the appellant has separately reimbursed the same to them. In addition to that whatever expenses are to be incurred in India, the appellant has undertaken to bear the same directly. The appellant submitted that while inviting any artiste for any show to be performed in India, it is very common rather it is mandatory practice that all the costs relating to the show will have to be borne by the organizer. Accordingly, the appellant had to bear all the expenses. The appellant pointed out that it paid all expenses incurred in India while the expenses to be incurred by the artistes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17. The appellant thus submitted that the amount reimbursed by it to various artiste/performers was lower than the present air travel fare rates. 18. In respect of supporting vouchers/evidence in respect of above reimbursement of expenses, the Appellant pointed that it had all the copies of invoices available in respect of expenses incurred for all the shows. The copies of the invoices for UB-40 tour, where the reimbursement of expenses was higher were filed Name of the party Nature of expenses Amount(in UK ) Sealandair Travel Service Travel 4,990 Sealandair Travel Service Travel 7,320 Sealandair Travel Service Travel 23,379 SSE Hire Ltd. Hire and control charges of equipment 7,050 Sound Moves (UK) Ltd. Import handling charges charges 3,115 Sound Moves (UK) Ltd. Carnet for world tour 1,8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing Officer. He drew our attention to the various clauses of the agreement between the Assessee and Mr. Colin Davie and submitted that those terms of the agreement could not have been performed by Mr. Colin Davie without coming to India. According to him the services rendered by Mr. Colin Davie have therefore to be considered as having been rendered in India. The learned counsel for the Appellant reiterated the stand of the Appellant as was put forth before CIT(A) and the order of the CIT(A). 26. We have considered the rival submissions. We will examine the Agreements between the appellant and Mr. Colin Davie. (a) Agreement dated 4-1-1999: Copy of this agreement is at pages 41-59 of Appellant s paper book. Mr. Colin Davie has agreed to act as agent for getting the performance of artiste Diana King in India on certain dates. The agreement recites that he has a power to act as appellants agent and entering into agreement with artiste. He has also held out that he has authority to enter into the agreement with the appellant on behalf of the artiste. Schedule-2 to the agreement clearly specifies that the Artiste will be paid $15000 each for two concerts to be performed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each for the said two concerts as agents commission. Schedule-2 Part-C of this agreement recites that the Appellant has to bear expenses of $90,000 for transportation of equipments. The schedule also gives a break up of the expenses. The case of the Assessing Officer as far as this artiste is concerned hinges on the fact that the commission is exorbitant. This by itself is not sufficient to conclude that the payment of commission was in fact payment made to artiste. The terms of the agreement cannot be ignored. The artiste UB 40 is a renowned group from the United Kingdom, which started its journey in the music world. Since the early 80 the group is from the West Midlands, they are a large mixed race group playing music of Jamaican origin. UB 40 formed their own, record company, DEP International. In September 1983 UB40 released the album titled Labour of Love , including the astonishingly popular single Red Wine , was in the British chart for two years. It gave UBs their first truly world-wide hit and, eventually, their first American No. 1 UB40 have maintained their instantly recognizable and highly distinctive style through nine more albums, as well as two hits compilations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g from a different country. They are renowned international performers and receive overwhelming responses for their performances in their respective countries as well as the rest of the world including India. However, scheduling their performances in India is not a smooth task. As a unique practice in vogue in the entertainment industry, those artists/performers are not easily approachable. Discussing with them about performing in India, time schedule, structure of the show/concert, venues, itinerary, fees etc. requires good business negotiation and persuasive skill apart from those accessibility. These artists/performers are quite unapproachable and emotional and are known for their varied and sometimes unpredictable behaviors. Here comes the role of agent who acts as a link acumen and skills to negotiate with such artists/performers. Further, they deal with such artists on a regular basis. For rendering such services, depending upon the nature of the deals and time and effort involved such agent claims commission from the organizers. We are of the view that the There is no material on record to substantiate the conclusion of the Assessing Officer that the entire consideration inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure. Though, the above circular is issued in the context of commission paid to foreign agent of Indian exporters, it applies with equal force to commission paid to agents for services rendered outside India. 29. In view of the above, we hold that commission income of agent is not liable to tax in India and consequently there was no obligation on the part of the appellant to deduct tax at source at the time of making payment. 30. As far as reimbursement of expenses is concerned, the factual details have already been set out in paras 13 to 21 of this order. It is clear from those details that the payments referred to therein were reimbursement of expenses. The law is well settled that any payment made towards reimbursement of expenses is not chargeable to tax. The Hon ble Bombay High Court in the case of DIT (IT) v. Krupp UDHE Gmbh [2010] 38 DTR 251 following its own decision in CIT v. Siemens Aktiongesellschaft [2008] 220 CTR (Bom.) 4251 has laid down that reimbursement of expenses are not chargeable to tax a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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