TMI Blog2012 (12) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... ers in connection with making logistic arrangement are in the nature of commercial services and the amount received by them from the assessee for such services constitutes their business profit which is not chargeable to tax in India in the absence of any PE in India of the said service providers. The requirement of knowledge of local laws on the part of the service providers to render the services such as obtaining the permissions for shooting from the local authorities or for arranging insurance of the crew members and shooting equipments would not change the basic nature of the services which otherwise are commercial services. The assessee, therefore, was not liable to deduct tax at source from the said payments and the AO was not justified in treating the assessee as in default u/s 201 - in favour of assessee. - IT APPEAL NOs. 4856 & 4882 (MUM.) OF 2008 and 2113 (mum.) of 2009 - - - Dated:- 20-12-2012 - P.M. JAGTAP AND VIJAY PAL RAO, JJ. Poras Kaka for the Appellant. Narendra Kumar for the Respondent. ORDER P.M. Jagtap, Accountant Member - Out of these three appeals, two appeals being ITA No. 4856/Mum/2006 and 4882/Mum/2008 are cross appeals for assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to come out of the said law on the ground that the said payments were chargeable to tax in India, the assessee ought to have made an application to the AO u/s 195(2). He held that it was thus not open to the assessee to make payments to the non-residents by taking an unilateral decision that the said payments are not sums chargeable to tax in India without taking the concurrence of the AO as provided in section 195(2). The AO then proceeded to examine as to whether the said payments made by the assessee to the non-residents were in the nature of fees for technical services as defined in Explanation 2 to section 9(1)(vii) and on such examination, he recorded the following findings in the assessment order : "(i) Payments made to Hybrid Enterprises: The assessee has made total payment of GBP 26,912 equivalent of Rs.17,67,927/- to the said non-resident for shooting of their The film titled 'Dhoom-2'. The copies of invoices raised by the remittee shows that the payment is for the life casting, make up and prosthetic design and creation for the film 'Dhoom-2' with Hritic Roshan and Aishwarya Rai which includes three prosthetic design and 10 toned down characters with wigs and teeth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has made total payments of Rs.6,19,30,119/- for shooting of film titled 'Niel Nikki' at Canada. The remittee company was to provide services similar to those mentioned above in connection with shooting of their film at Canada. (v) Payments to M/s Ramar Media Pvt. Ltd. The total payment of Rs.3,24,93,414/- for shooting of film titled 'Salam Namaste'. The nature of service rendered but the remittee to the assessee company are similar to those mentioned in above mentioned cases." 5. On the basis of above findings recorded by him, the AO came to the conclusion that the total payments amounting to Rs. 18,77,84,736/- made by the assessee were in the nature of fees for technical services as per the provisions of section 9(1)(vii) read with Explanation 2 thereto. He held that the concerned payees had provided technical services in connection with shooting of the films which in many cases had also made available the technical knowledge to the assessee company. Accordingly, he held that the payments made by the assessee to the non resident parties were in the nature of fees for technical services and represented income of the said parties chargeable to tax in India being income dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2. 2.16 The appellant stated that the party to whom the payments are made by the appellant is a resident of UK, hence entitled to the application of the relevant clauses of the Indo UK treaty. The appellant stated that the A.O. has not taken cognizance of the Double Taxation Avoidance Agreement with the India UK Treaty and has not examined the applicability thereof. The appellant stated that it is clear that if provisions of DTAA are beneficial to the assessee, the same should prevail over the provisions of I. T. Act. 2.17 The appellant referred to the India UK treaty where the 'Fees for Technical Services' is defined in Article 12 as under: "4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term "fees for technical services" means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or 5. The definitions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e most be treated as fees for independent personal services but cannot be held to be taxable in India as the conditions stipulated in the said article 15 are not fulfilled. Thus in view of the said circumstances the appellant stated that the AO has wrongly considered the services of make up as fees for Technical Services and has also erred in not considering the applicability of the India - U.K. DTAA 2.20 PARTY NO 2: Payment to Utopia Films Brazil of Rs. 3.28 Crores . The appellant stated that the payment was made for the services utilized in the shooting of the film 'Dhoom 2' which was shot in abroad. The appellant stated that payments are made for arranging extras, arranging for locations and other related activities. 2.21 The appellant produced before me the agreement with Mis Utopia films, the relevant clauses of which are reproduced below:- 1 Production Service Company will provide production service with local crew, transport, working meals, locations, casting, models/actors, equipment, including coordinating necessary licenses and permits 2. Production Service Company agrees to provide full local insurance for local crew/ talent/equipment /vehicle/ locations pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so 'much of them as is attributable to that permanent establishment. 2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment. 2.24 On the other hand the AO came to the conclusion that as per the agreement, the services provided by the overseas company are nature of fees for technical services as per definition given in Explanation 2, to section 9(I)(vii). The Authorized Representative argued that these services do not amount to 'Technical services' as envisaged under Explanation 2, to section 9(1)(vii). The AR also argued that the overseas company UTOPIA Films, does not have any permanent est ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia. As a consequence, no tax was required to be deducted at source. 2.26 The appellant argued that that M/s Oakbridge Productions is a resident of Canada, due to which the relevant clauses of the India Canada treaty would be applicable. The DTAA with Canada has a separate article for Fees for Included Services' which states as follows: ARTICLE 12 4. For the purposes of this Article, 'fees for included services' means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design. 5. Notwithstanding paragraph 4, 'fees for included services' does not include amount paid: (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State bill only so IIIl1ch of them as is attributable to : (a) that permanent establishment, or (b) sales within that other Contracting State of goods or merchandise of the same or a similar kind as those sold, or other business activities of the same or a similar kind as those carried on, through that permanent establishment. " 2.30 On the other hand the AO came to the conclusion that as per the agreement, the services provided by the overseas party are in the nature of fees for technical services as per definition given in Explanation 2, to section 9(1)(vii) (he mentioned that these services are similar to those mentioned in above mentioned cases). The appellant stated that none of the concerned payments could be treated as fees for technical services as they were payments for arranging for extras, arranging police security in foreign locations, arranging necessary permissions, arranging make up of stars etc. The appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices would qualify for being 'business profit' they cannot be taxed in India as none of the recipients have a P.E. in India. As a consequence, no tax was required to be deducted at source. The appellant also stated that if provisions of India Poland DT AA are beneficial to the assessee, the same should prevail over the provisions of I. T. Act. 2.34 On the other hand the AO came to the conclusion that as per the agreement, the services provided by the overseas party are in the nature of fees for technical services. The appellant submitted that the AO has wrongly considered the services of make up as fees for Technical Services and has also erred in making no reference to INDIA POLAND DTAA." Based on the above submissions, it was contended on behalf of the assessee before the learned CIT(Appeals) that the impugned payments made by it to the non resident parties not being chargeable to tax in India, it was not required either to deduct tax at source from the said payments or to move an application u/s 195(2) before the AO seeking any concession in the matter of such TDS. 7. The learned CIT(Appeals) found merit in the submissions made on behalf of the assessee. According to him, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding applicability of DTAAs as academic and did not adjudicate upon the same. Aggrieved by the order of the learned CIT(Appeals), the Revenue and assessee both are in appeal before the Tribunal. 9. The common issue raised in ground No. 1 and 2 of the Revenue's appeal is that the learned CIT(Appeals) erred in holding that the assessee was not required to make an application u/s 195(2). As agreed by the learned representatives of both the sides, this issue is squarely covered in favour of the assessee by the decision of Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. v. CIT 327 ITR 456 wherein it was held that if the relevant payment does not contain the element of income taxable in India, the payer cannot be made liable to make an application u/s 195(2). Respectfully following this decision of Hon'ble Apex Court, we dismiss ground No. 1 and 2 of Revenue's appeal. 10. In ground No. 3 to 6, the Revenue has challenged the action of the learned CIT(Appeals) in holding that the payments made by the assessee to the overseas service providers are not in the nature of "fees for technical services" chargeable to tax in India. 11. The learned DR, at the outset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istic and coordinating activities. He contended that rendering of such services at the most may include management skill which is entirely different from managerial services referred to in Explanation 2 to section 9(1)(vii). He submitted that the entire production unit including technicians go abroad for shooting of the films and along with main equipment and what they require and avail from the local companies there is the help for arranging and coordinating the logistic. He contended that the assessee is in the business of film production for last 50 years and has shot the films abroad on regular basis, but no such order u/s 201/201(1A) has been passed in its case for any other year. He also took us through the other agreements between the assessee company and overseas service providers to contend that the services rendered by the overseas service providers as specified therein are mainly in connection with logistic arrangements and they are not in the nature of technical, managerial or consultancy services within the meaning of Explanation 2 to section 9(1)(vii). He also contended that neither the AO nor the learned CIT(Appeals) has examined this issue with reference to the Doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the provisions of section 195 and since the assessee had failed to do so, he held the assessee to be in default u/s 201 of the Act and also levied interest u/s 201(1A). A perusal of the assessment order passed by the AO, however, shows that he has not given any cogent reasons or basis in support of its conclusion that the services provided by the concerned overseas service providers were in the nature of fees for technical services. 15. The learned CIT(Appeals), on the other hand, has discussed the nature of services rendered by each of the five service providers in the light of agreements entered into by the assessee with them and finally summarized the nature of such services in paragraph No. 4.11 of his impugned order as under : "On a careful consideration of the agreements entered into by the appellant with various service providers, and the material on record, the payments made by the appellant to various service providers is nothing but a payment for service for making logistics arrangement for the appellant to facilitate the shooting of films abroad. In all the t it is seen that the services to be provided by the service provider was of the following nature: i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledge of local laws on the part of the service providers to render the services such as obtaining the permissions for shooting from the local authorities or for arranging insurance of the crew members and shooting equipments would not change the basic nature of the services which otherwise are commercial services as held by the learned CIT(Appeals). 18. In the case of UPS SCS (Asia Ltd.), services rendered as per the terms of the relevant agreement were in the nature of freight and logistic services such as, transport, procurement, custom clearance, sorting, delivery, warehousing and picking up services outside India in respect of export consignment of M and the fees paid by M of such services was held to be taxable in India by the Revenue authorities as "fees for technical services" u/s 9(1)(vii) being in the nature of managerial, technical or consultancy services. The Tribunal, however, held that it was too much to categorize such restricted services as managerial services. It was also held by the Tribunal that there was nothing like giving any consultancy worth the name and, therefore, payment in lieu of freight and logistic services could not be ranked as consultancy servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in treating the assessee as in default u/s 201. Ground No. 3 to 6 of the Revenue's appeal are accordingly dismissed. 20. In its cross appeal for assessment year 2006-07, assessee has raised the following grounds : 1. On the facts and under the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in not adjudicating the ground if appeal no. 4 relating to applicability of provisions of Double Tax Avoidance Agreement for payments made to Non Resident companies. 2. On the facts and under the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in not adjudicating the issue relating to payments made to party of Polond of Rs.5.88 crores. 21. As regards ground No. 1, it is observed that the issue raised therein has become academic as a result of our decision rendered above while disposing of Revenue's appeal upholding the decision of the learned CIT(Appeals) that the payment made by the assessee to overseas service providers are not chargeable to tax in India as per the domestic law. Ground No. 1 of the assessee's appeal is accordingly dismissed. 22. As regards ground No.2, the learned counsel f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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