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TMI Blog2010 (11) TMI 609X X X X Extracts X X X X X X X X Extracts X X X X ..... ent 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 renowned foreign artists/groups in India. 4.2 For various events/performance of international artists in India, the Assessee entered into agreements with Colin Davie Artiste Services and Planet - 7, both were proprietary concerns of Mr. Colin Davie, having its registered office at P.O. Box 46, Skegness, Lincolnshire, U.K. PE24 5WA. Mr. Colin Davie is engaged in the business of acting as agent to and in co-ordination with several worldwide event management companies and provides artiste management services around the world. The appellant appointed Colin Davie as its agent - (a) To act on its behalf with limited authority, subject to approval by Wizcraft (b) To enter into a contr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000 - 75,000 6 UB40-UK 35,000 25,000 90,000 150,000 27 Acrobazia-Canada 5000 3,000 7,000 15,000 2 Shaggy-USA 9000 - 6,000 15,000 1 4.6 As already stated, the appellant deducted tax at source on the performance fees paid to the artistes who performed in India and to this extent there is no dispute between the appellant and the revenue. In respect of the commission paid to Mr. Colin Daive and reimbursement of expenses, the appellant did not deduct tax at source. We will deal with the argument with regard to non taxability in India of commission payment and reimbursement of expenses separately. Payment of Commission 5. The stand of the appellant for not deducting tax at source on payment of commission to Mr.Colin Daive was that Mr.Colin Davie is resident of U.K. The government of the Republic of India (India) and the United Kingdom (U.K.) have entered into an Agreement for Avoidance of Double taxation and Prevention of Fiscal Evasion ('DTAA'). The Central Board of Direct taxes (CBDT) has issued a Circular No. 333 dated 2-4-1982, which reads as follows: "Where a double taxation avoidance agreement provides for a particular mode of computation of income, the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 7(2) of the DTA model. The appellant relied on the commentary on model convention on Para 2 of Article 17 given at para 4 on page 850 of book by Klaus Vogel on Double Taxation Convention, which reads as follows: "The purpose of paragraph 2 is a counteract certain tax avoidance devices in cases where remuneration for the performance of an entertainer or athlete is not paid to the entertainer or athlete himself but to another person, e.g., a so-called artiste-company, in such a way that the income is taxed in the State where the activity is performed neither as personal service income to the entertainer or athlete nor as profits of the enterprise in the absence of a permanent establishment. Paragraph 2 permits the State in which the performance is given to impose a tax on the profits diverted from the income of the entertainer or athlete to the enterprise where for instance the entertainer or athlete has control over or rights to the income thus diverted or has obtained or will obtain some benefit directly or indirectly from that income. It may be however, that the domestic laws of some States do not enable them to apply such a provision. Such States are free to agree to altern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian Income-tax." 11. Further, reliance was placed on the CBDT circular No. 786 dated 7-2-2000 regarding taxability of export commission payable to non-resident agents rendering services abroad. It is stated in the said circular that "No tax is therefore deductible under section 195 and consequently, the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes allowable expenditure." The appellant submitted that although, 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. 12. In view of the above, the appellant requested that it be held 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. Reimbursement of expenses 13. In addition to fees payable to artiste and commission payable to agent, as per the agreement, the appellant was also liable to reimburse all the expenses incurred by the artiste in respect of the said performance/shows. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of expenses amounting to US $17,500 but there was no expense for 2nd performance. This is mainly because the 1st series of performance were on 16 & 17 January, 1999 and the 2nd series of performances were during 19 to 27 January, 1999. Since for doing the 1st performance, she was there in India with her troupe there was no travel cost reimbursed to them for 2nd performances. The appellant submitted that this was a clear indication that wherever there is actual travel involved only then the appellant had reimbursed the expenses and not for fabricating the nature of payment to the artiste. The appellant also pointed out that the travel cost differed on the basis of country from where artiste/performer had travelled and the number of persons travelled. 16. The appellant pointed out that the artiste's were high profile celebrities and travel expense would be commensurate with their standing. It was also pointed out that the amount reimbursed to them towards air travel per person was very reasonable. The Appellant gave a chart of cost of air travel to different destinations to demonstrate the reasonable of the costs shown by the appellant. Amount to US$ Country/Class Economy B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s which are later bifurcated into fees for artistes, agents commission and expenses. (d) The artiste did not sign any of the agreements. (e) Therefore, all payments made by the Assessee are a single consideration payable to the artistes. The bifurcation of consideration has been done by the Appellant to avoid taxes in India because the appellant had agreed to pay to the non residents consideration "nett of taxes". Since the appellant was to bear the taxes, the appellant had deliberately bifurcated the consideration into service charges, reimbursement and fees paid to artistes. The final conclusion of the Assessing Officer in this regard are contained in para-7 of his order which reads as follows: (reproduce para-7 of Assessing Officer's order) 23. On appeal by the Appellant, the CIT(A) held as follows: [reproduce para 5.15 & 5.16 of CIT(A)'s order] [reproduce para 6.7 of CIT(A)'s order] 24. Aggrieved by the order of CIT(A), the revenue has preferred the present appeal before the Tribunal. 25. The learned D.R. relied on the order of the Assessing Officer. He drew our attention to the various clauses of the agreement between the Assessee and Mr. Colin Davie and submitted that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not possible to get their performances in India without the help of Agents. There is no material on record to substantiate the conclusion of the Assessing Officer that the entire consideration including the fee to be paid to Mr. Colin Davie is in fact the fees payable to the artiste for performance in India. This conclusion of the Assessing Officer in our view is purely on surmises and was rightly held by the CIT(A) to be incorrect. (c) Agreement dated 29-1-1999: Copy of this agreement is at pages 79-98 of Appellant's paper book. Mr. Colin Davie has agreed to act as agent for getting the performance of artiste UB 40 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 $17500 each for two concerts to be performed in Mumbai, India and at Colin Davie will be paid $12500 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant has to pay airfare, visa of $7000 for two artistes. Acrobazia is a group of 2 artistes of International repute of Canada. Both of them are balancing and circus artiste and have performed five regularly in Canada, US, UK etc. The group came to India to perform during the Filmfare Award Ceremony on 21st February 1999 and for live concert on 22nd February 1999 in Mumbai. (e) Agreement dated 10-1-2000: Copy of this agreement is at pages 118-129 of Appellant's paper book. This agreement is between the appellant and Shaggy Troupe, the artiste who performed in India. Mr. Colin Davie has acted as agent of Shaggy Troupe and signed this agreement. There is no payment of commission. The artiste was to be paid $9000 as remuneration. A sum of $6000 was to be paid for air travel expenses. Shaggy is a popular coloured Artiste from the United States of America. He came to India for performance on 15 January 2000 in Pune. 27. The above artist is internationally reputed and well known in the entertainment industry. Each of them is coming from a different country. They are renowned international performers and receive overwhelming responses for their performances in their respective ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore there was no obligation on the part of the Assessee to deduct tax at source on payments to Mr. Colin Daive. The Hon'ble Supreme Court in the case of Carborandum Co. (supra) 108 ITR 335, has 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. The CBDT in Circular No. 17(XXXVII) of 1953 dated 17th July, 1953 has 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 remitted directly to him; and is, therefore, not received by or on his behalf in India. Such an agent is not liable to Indian Income-tax." The CBDT circular No. 786 dated 7-2-2000 regarding taxability of export commission payable to non-resident agents rendering services abroad has stated that "No tax is therefore deductible under section 195 and consequently the expenditure on export commission and other related charges payable to a non-resident for services rendered outside India becomes all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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