TMI Blog2018 (10) TMI 1261X X X X Extracts X X X X X X X X Extracts X X X X ..... ch are purely administrative in nature, cannot be brought within the sweep of the definition of “FTS” within the meaning of Explanation 2 to Sec.9(1)(vii) of the Act or Article 12 of the India-South Africa tax treaty. The amount received by the assessee for rendering of the aforesaid administrative services cannot be characterised as “FTS”. we have already observed that the services rendered by the assessee to Endemol India Pvt. Ltd. are not in the nature of a managerial, technical or consultancy services, therefore, we refrain from further adverting to and adjudicating upon the observations arrived at by the A.O/DRP in context of the rulings of the Hon’ble AAR [2014 (2) TMI 902 - AUTHORITY FOR ADVANCE RULINGS]. We are of the considered view that as the term royalty under Article 12 of the India-Sought Africa Tax Treaty, takes within its sweep only consideration received for the use or right to use, any copyright, thus, the observations of the lower authorities that the consideration received by the assessee was for ‘transfer’ of the copyright to Endemol India Pvt. Ltd., in any way, would on the said count also fall beyond the sweep of the term “royalty” as defined in Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scrutiny assessment and its total income was assessed at ₹ 9,60,23,838/-, vide a draft assessment order, dated 27.03.2015 passed under Sec. 144C(1) r.w.s. 143(3) of the Act. The assessee filed its objections before the Dispute Resolution Panel-1, Mumbai (for short DRP ). 3. The assessee in its objections assailed the proposal of the A.O to subject the income of ₹ 9,60,23,838/- received by the assessee company for Line Production Services from Endemol India Pvt. Ltd. to tax under Article 12 of the India-South Africa tax treaty by characterising the same as royalty and fees for technical services (for short FTS ). As claimed by the assessee, it did not have any presence in India in terms of a branch, office, factory, workshop, project office, subsidiary company or agent during the year under consideration. 4. The facts involved in the present case lies in a narrow compass. Endemol India Pvt. Ltd., which is a company incorporated in India was commissioned to produce a television series viz. Fear Factor , based on the US version/form of the same for broadcast in India on the Colors channel . The show involved filming of the episodes on various locations in Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the year under consideration viz. A.Y: 2012-13 received an amount of ₹ 9,60,23,838/- from Endemol India Pvt. Ltd. for providing line production services in South Africa. It was submitted by the assessee, that as the aforesaid payment was received outside India, hence, tax was deducted at source on the same by Endemol India Pvt. Ltd. Further, it was the contention of the assessee that as the payments received for rendering the line production services did not qualify as FTS under the Act and the India-South Africa tax treaty, hence the same in the absence of any business connection/P.E of the assessee in India could not be brought to tax in India. It was further submitted by the assessee, that its services were engaged by Endemol India Pvt. Ltd. to carry out line production services, which involved various administrative services viz. (i). making logistic arrangements; and (ii). acting as a facilitator and coordinator for filming of the television series in South Africa. It was the claim of the assessee that the services which it was required to perform were contemplated in Clause 6.2 of the agreement with Endemol India Pvt. Ltd., which read as under: Arranging all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Endemol India Pvt. Ltd. In the backdrop of his aforesaid observations, the DRP was of the view that it could safely be concluded that the assessee was not merely providing administrative services to Endemol India Pvt. Ltd, but was providing both managerial and technical services to it. In order to fortify its aforesaid conviction, the DRP observed that as per Article 10.2 of the agreement the assessee remained under an obligation of assigning all its copyrights (if any) conferred by the Copyright Act 98 of 1978, as well as all intellectual rights etc. that may be vested with it in future as a result of producing materials for Endemol India Private Ltd., to the latter. On the basis of its aforesaid deliberations, it was observed by the DRP that as the assessee was engaged in the co-production of the television series viz. Fear Factor in South Africa, and was engaged as a line producer to provide certain agreed locations filming/recording services, thus its claim that it was providing just line production services as a facilitator was not factually correct. Rather, the DRP was of the view that the assessee was providing the technical inputs and technical manpower to Endemol India P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de India for rendering the Line Production Services was not in the nature of royalty or FTS and accordingly, not taxable in India, hence, the assessee had filed its return of income declaring Nil income. It was submitted by the ld. A.R that the lower authorities being of the view that the assessee had provided managerial and technical services to Endemol India Pvt. Ltd., had thus held the same as being in the nature of royalty and FTS , and brought the amount of ₹ 9,60,23,838/- to tax at the rate of 10% as per Article 12 of the India-South Africa tax treaty. The ld. A.R in her attempt to dislodge the aforesaid observations of the lower authorities, submitted that the taxability of the line production services had already been considered and decided by the Authority for Advance Ruling (for short AAR ), vide its order dated 13.12.2013, passed in AAR No. 1083 of 2011 and in AAR No. 1081 and 1082 of 2011, dated 19.02.2014. It was submitted by the ld. A.R that the aforesaid ruling was obtained by Endemol India Pvt. Ltd., in respect of line production services which were received from Endemol Argentina (Non-resident) and Utopia Films (Non-Resident), outside India. The ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention of the ld. A.R, that the A.O/DRP misconstruing Clause 10 of the agreement had wrongly concluded that the amount received by the assessee qualified as royalty under the India-South Africa tax treaty. In support of her aforesaid contention, the ld. A.R averred that the lower authorities had lost sight of the fact that the agreement between the assessee and Endemol India Pvt. Ltd was for providing of line production services facilitating the shooting of television series viz. Fear Factor in different locations of Cape town, South Africa, and was not for granting a right in any copyright. Alternatively, it was submitted by the ld. A.R that as the entire consideration received by the assessee in terms of the agreement was for the services rendered to Endemol India Pvt. Ltd., thus, no part of the consideration received by the assessee could be related to royalty for copyright. Further, the ld. A.R submitted that the inference drawn by the A.O/DRP that the amount received by the assessee from Endemol India Pvt. Ltd was for grant of copyright was not only factually incorrect, but the same would tantamount to re-writing of the agreement executed between the parties. Rather, it w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment framed by the A.O, wherein the aforesaid amount was brought to tax at the rate of 10% under Article 12 of the India-South Africa tax treaty could not be sustained and was liable to be vacated.. 11. Per contra, the ld. Departmental Representative (for short D.R) relied on the orders of the lower authorities. It was submitted by the ld. D.R, that as the assessee had provided managerial and technical services, along with other coordination activities forming part and parcel of such services, as well as assigned its copyrights in the programmes, thus, the lower authorities had rightly held that the same was liable to be taxed in India as per Article 12 of the India-South Africa Tax Treaty. The ld. D.R averred that as the appeal of the assessee did not merit acceptance, thus, the same may be dismissed. 12. We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present appeal, has been sought by the assessee to adjudicate as to whether the A.O/DRP had rightly concluded that the services rendered by the assessee in relation to the shooting of the epis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he India-South Africa tax treaty. In the backdrop of the aforesaid observations of the lower authorities, we shall now look into the aspect as to whether the nature of services rendered by the assessee would bring them within the sweep of FTS and royalty , or not. 14. We shall first look into the characterisation of the fees received by the assessee, as FTS by the A.O/DRP. We find that in terms of Explanation 2 to Section 9(1)(vii) of the Act, the term FTS means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel), but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries . Further, in similar terms, as per Article 12 of the India- South Africa Tax Treaty, the FTS is defined to mean payments of any kind received as a consideration for the services of a managerial, technical or consultancy nature, including the provision of services by technical or consultancy personnel. Thus, on a peru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not fall within the realm of the term managerial services . ( II) Technical Services:- The term technical services takes within its sweep services which would require the expertise in technology or special skill or knowledge relating to the field of technology. As per the concise oxford dictionary, the term technical services means belonging or relating to art, science, profession or occupation involving mechanical arts and applied sciences. We are of the considered view, that as the administrative services viz. arranging for logistics etc. by the assessee does neither involve use of any technical skill or technical knowledge, nor any application of technical expertise on its part while rendering such services, hence the same cannot be characterised as technical services. ( III) Consultancy Services: The term consultancy services, in common parlance, means providing advice or advisory services by a professional. Usually consultancy services are professional services requiring specialized qualification, knowledge, expertise of a professional person, and are more dependent on skill, intellect and individual characteristics of the person rendering it. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliberating on the nature of the aforementioned services concluded, that as the same were purely commercial services falling in the category of logistic arrangement services, thus, the consideration received as regards rendering of such services would constitute business profits of the said overseas service providers. It was further observed, that as the said service providers had no Permanent Establishment (P.E) in India during the year under consideration, hence the business profits were not taxable in India in their hands as per Article 7 of the respective tax treaties between India and the abovementioned countries. We have deliberated at length on the facts involved in the case before us, and find that the nature of services rendered by the overseas service providers in the aforementioned case of Yashraj Films Pvt. Ltd.(supra) are somewhat similarly placed and rather overlapping to some extent, as in comparison to the services rendered by the assessee in the case before us. In terms of our aforesaid observations, we find that our view that the services rendered by the assessee are administrative services and not in the nature of managerial, technical or consultancy services, al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of Columbia Sportswear Company Vs. DIT, Bangalore (2012) 346 ITR 161 (SC). We are further of the considered view, that though the lower authorities had declined to take cognizance of the observations of the Hon ble AAR on the ground that the tax treaties involved in the said case were different as against that involved in the present case, however, there is no mention of any such material fact which could persuade us to conclude that the definition of FTS in the said respective tax treaties would be absolutely unworkable, and hence could not be applied in the case before us. We thus, are of the considered view, that the lower authorities had erred in failing to appreciate that the ruling rendered by the Hon ble AAR in the case of Endemol Argentina and Utopia Films, though was not binding, but did have a persuasive value while adjudicating the issue under consideration. Be that as it may, we are not impressed by the outright scrapping by the lower authorities of the aforesaid rulings rendered by the Hon ble AAR in context of taxability of Line production services provided by the overseas service providers viz. (i). Endemol Argentina (Non-resident);and (ii). Ut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be the first owner of the copyright, thus, now when the work viz. the television series Fear Factor is commissioned by Endemol India Pvt. Ltd. under the contract of service, therefore, it would always be the first owner of the work produced by the assessee and the owner of the copyright and the question of assigning any copyright under the copyright law would not arise; and (vii) that as the term royalty defined in Article 12 of the India-South Africa Tax Treaty includes only payment for use and right to use any copyright, thus, the claim of the A.O/DRP that the consideration received by the assessee was for transfer of the copyrights by the assessee to Endemol India Pvt. Ltd. would not fall within the realm of the definition of royalty in the tax treaty. 19. We have given a thoughtful consideration to the issue before us, in the backdrop of the contentions raised by the authorized representatives of both the parties and the material available on record. We find, that the term royalty as defined in Article 12 of the India-South Africa tax treaty, reads as under:- 3. The term royalties as used in this Article means payments of any kind received as a considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of law the ownership of the copyright remains vested with Endemol India Pvt. Ltd, hence the question of assigning of the same by the assessee in favour of Endemol India Pvt. Ltd would not arise at all. We thus, are of the considered view that now when in terms of our aforesaid observations, it can safely be concluded that there would be no occasion for assigning of any copyright by the assessee to Endemol India Pvt. Ltd. (i.e the first owner of the copyright), therefore, no payment of consideration in lieu of transfer of any copyright can be comprehended. 20. We further find that the A.O/DRP had brought the consideration received by the assessee within the sweep of the term of royalty, on the ground that the assessee had transferred the copyright in the program viz. Fear Factor to Endemol India Pvt. Ltd. The assessee has vehemently assailed the said observations of the lower authorities. It is the contention of the assessee, that as the amount received from Endemol India Pvt. Ltd. was in lieu of line production services rendered, and not for licensing of rights in any programme, thus, the consideration received by the assessee was wrongly assumed by the A.O/DRP to have been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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