TMI Blog2020 (8) TMI 318X X X X Extracts X X X X X X X X Extracts X X X X ..... on ordinary activities before taxation. This is sole activity being carried out by M/s DBPL. Therefore, the provision of Article-10 of the treaty, in our considered opinion, could not be applied in such a situation since it could not be said that the assessee participated directly or indirectly in management, control or capital of M/s DBPL. Further, M/s DBPL was a loss-making entity coupled with the fact that the assessee was assessed u/s 143(3) on 27/01/2014 wherein its returned income was duly accepted by the revenue and there was no allegation of over / under payment to M/s DBPL. Therefore, the assessee could not be said to be Associated Entity of M/s DBPL in terms of Article-10 of the Treaty. Hence, the conclusion drawn by Ld. AO, in this regard, could not be sustained as per the Treaty terms. In our considered opinion, M/s DBPL was acting as an independent entity which was required to carry out the assigned work independently and the assessee could not said to be PE of that entity in India. So far as the terms of service agreement between M/s DBPL and M/s EIFPL are concerned, we have concluded that the contract between the two entities was primarily that of a principal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved, the appeals were heard together and are now being disposedoff by way of this common order for the sake of convenience and brevity. It is admitted position that adjudication in any one year would equally apply to the other year also. 1.2 We have carefully heard arguments advanced by both the representatives during the course of hearing as well as during clarification and perused relevant material on record including documents placed in the paper-book. The judicial pronouncements as cited during the course of hearing has been deliberated upon. Our adjudication to the appeals would be as given in succeeding paragraphs. First, we take up appeal for AY 2011-12. ITA No. 3782/Mum/2016, AY 2011-12 2.1 Briefly stated the assessee is a resident corporate entity. It entered into a commissioning agreement (in short agreement ) with another UK based non-resident corporate entity namely M/s Desi Boyz Production Ltd. (in short DBPL ) on 01/09/2010 to produce, complete and deliver a feature film namely Desi Boyz (in short film ) as per the terms and conditions agreed therein. The copy of the agreement has been placed on record. As per the terms of the agreement, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry authorities. M/s DBPL was required to deliver the film as per specifications which was to be fully synchronized as to dialogue, music and effects. M/s DBPL was to complete pre-production, production and post-production of the film in a first-class manner and of a technically acceptable quality and ready for commercial exploitation and suitable to enable the commissioning party to commercially exploit the film without further processes or expenditure. 2.3 As per the terms of the agreement, the production of the film was primarily to take place in the United Kingdom and also in India in accordance with the production schedule. It was agreed and understood that in no event shall the period of principal photography of the film in UK was to exceed 90 days. 2.4 Further M/s DBPL was to ensure that the film would satisfy all requirements for qualifying as a British Film for the purposes of the Films Act, 1985 and it was required to carry out all necessary procedures and compliances, in this regard. The assessee was required to render required assistance for this purpose, at the cost of M/s DBPL. 2.5 To ensure that the film was produced and delivered in accordance with material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erary material relating thereto, all original music, lyrics, physical material of any kind etc. would be owned and solely and exclusively by the assessee and would vest in the assessee. These rights would include sole and exclusive right to exhibit, broadcast, distribute, publicize and exploit the film by every means and rights including benefits of all agreements entered into by M/s DBPL with third parties. 2.9 M/s DBPL had sole responsibility of any overspend except where changes were required by assessee. M/s DBPL was required to deliver the delivery material at its own cost to the assessee as per specified delivery date. The other terms of the agreement provide for warranties, events of default, termination, confidentiality, force majeure etc. which are general in nature. 2.10 The Schedule-1 of the agreement contain film specification. Schedule-2 contain Budget. Schedule-3 contain production schedule. As per the said Schedule, the shoot was to take place in India for 23 days whereas the period of shoot in UK was 55 days. Development preITA production was to take place from April to October, 2010 whereas final delivery date was estimated to be 3rd Quarter of 2011. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments for India shoot, production co-ordination, insurance for cast crew, equipment, cameras, costumes etc., freight transportation of camera, lighting equipment, props, costumes for use on the shoot, ensure accounting, payment reconciliation of taxes, obtaining invoices/contracts from the contributors in India etc. 3.3 As per clause 2.5 of this agreement, the producer was to have the day-to-day administration and control of the film and would have creative, business and financial control with respect to the production of the film. The service company was required to procure the services of all persons required by the producer to be engaged by the service company in the provision of the production services in India and UK. All the suppliers and personnel engaged or contracted by the service company were referred to as the contributors. The contributors were to enter into contracts with service company directly. The service company was responsible for making direct payments to the contributors. 3.4 As per clause 5.1, the producer licensed the service company such necessary rights to enable the service company to carry out on behalf of and as an agent for the producer, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , TDS provisions as contained in Sec.195 were not applicable and the assessee could not be held to be assessee-in-default for non-deduction of tax at source. 4.2 However, a show-cause notice was issued to the assessee on 17/02/2014 wherein it was stated that as per the terms of commissioning agreement, the assessee participated directly or indirectly in the management and control or budgeting of the company M/s DBPL. 4.3 Referring to agreement between M/s DBPL and M/s EIFPL, it was alleged that the entire film production of film Desi Boyz was being managed and carried on by M/s EIFPL. In the notice, attention was drawn to the fact that another Indian entity namely Eros International Media Ltd. (EIML) was co-producer of the film in association with the assessee. M/s EIFPL M/s EIML were subsidiaries of M/s Eros International PLC and hence, sister concerns. 4.4 In the said background, it was opined that entire film production activities and budgeting of the film was carried out by the assessee, M/s EIML and M/s EIFPL. Therefore, all these three entities as well as M/s DBPL would be Associated Enterprises (AE) within the meaning of Article-10 of India-UK Double Taxation Av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... naging and controlling all the activities of the film production. The role of M/s DBPL was only that of facilitator and it had no expertise or experience in film production. In the aforesaid facts, the claim that it was transaction of buying and selling of film was rejected. From the perusal of production schedule, it was noted that production activities relating to shooting in UK were for 55 days whereas all the other activities from the stages of pre-production to post-production were carried out in India which was for a greater period of around 374 days. 4.8 Referring to the term Associated Enterprises as given in Article 10 of Treaty, the facts deduced were that entire decision making was with the assessee and assessee was to dictate the terms and specifications on the basis of which film was to be made. It reserved all rights and authorities for approving any changes to the film story / cast crew / locations / budget etc. Therefore, the assessee directly or indirectly controlled the project activities in making of the film. The entire capital for the project was received by M/s DBPL from the assessee. Any change in consideration would require approval of the assessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ratio of 25% against remittances so made by the assessee. Since M/s EIFPL was carrying out all the core functions of production of film, the rate of profit attribution towards PE was estimated to be 80%. In other words, the effective profit rate that would accrue to M/s DBPL would be 25% of 80% i.e. net 20%. Considering the applicable tax rate of 40%, the effective rate of tax would be 8% (20% of 40%) which was to be further increased by surcharge and educationcess. The net effective rate thus worked out to be 8.4872% which was applied to the remittances made by the assessee to M/s DBPL during the year, to work out the TDS default. Consequently, the assessee would be liable for interest component u/s 201(1A) for non-deduction of tax. Finally, a demand was raised against the assessee u/s 201(1) 201(IA) for AYs 2011-12 2012-13, in the following manner: - No. AY Tax Liability u/s 201 Interest u/s 201(1A) Total Demand 1. 2011-12 2,66,63,812/- 1,05,46,085/- 3,72,09,897/- 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equisite services in relation to delivery of a feature film. M/s EIFPL was entrusted with the responsibility of arranging the crew and the requisite equipment which were to be procured from India. The said contract was given to the Indian entity in order to perform the Indian part of the production services and M/s DBPL was to pay the requisite fees. M/s EIFPL carried out independent activity and the relationship of M/s EIFPL M/s DBPL was on principal-to-principal basis. The activities of M/s EIFPL could not be influenced or changed by M/s DBPL. The activities carried out by M/s EIFPL were performed by their own personnel. Reliance was placed on the decision of Authority for Advance ruling in the case of Pintsch Bamag (226 CTR AAR 1 ) rendered under similar circumstances wherein it as held that since agent appointed by foreign entity continue to carry its independent status, the same could not be termed as the PE of foreign entity. On the strength of the factual matrix, it was submitted that M/s EFIPL was an independent agent and therefore, could not be treated as PE of foreign entity as per Article-5 of the Treaty. M/s EIFPL could not be treated as place of management in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) r.w.s. 195. Rival Submissions 6.1 The arguments of Ld. AR are multi folds. Drawing attention to the production service agreement, Ld. AR submitted that scope of work to be carried out by M/s EIFPL was limited to appointing and negotiating with certain cast and crew members since they were located in India. M/s EIFPL was required to make travel arrangements for crew members, arranging for costumes and equipment and getting the same transported to UK. The payment to lead cast and all the other major expenses were to be borne by M/s DBPL only. The same would be evident from the fact that fact that out of total production budget of ₹ 90 Crores as given to M/s DBPL, the work only to the extent of ₹ 7 Crores was assigned to M/s EIFPL. 6.2 It has further been submitted that the period of film production was 452 days as per the production schedule of the commissioning agreement which included only 23 days of film production in India and remaining 429 days was to be performed in UK itself. The period of shooting as per production services agreement was for 78 days out of which only 23 days of film were to be performed in India. The period of activities in India for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the activities of M/s DBPL were to be carried out with assessee s consultation with a view to ensure that the film was produced exactly as per the specification and in line with storyline. The said stipulations were to ensure that the film was produced and delivered in accordance with the material requirements and with a view to prevent any modification to the screenplay or other material requirement as the feature film needed to be very accurate with its storyline and screenplay. Nevertheless, M/s DBPL acted as independent service provider having entire responsibility to produce the film. It was free to take own decisions for the same and could enter into independent contracts. For all these services, it was to be reimbursed with lump sum budgeted cost after adjustment of certain items as mentioned in the agreement which has already been elaborated by us. Any over-spend was to be borne by M/s DBPL. Upon perusal of various terms and conditions of the contract, it could be said that the various conditions / stipulations requiring prior consultation of the assessee was purely with the motive of passive monitoring of the film production activity since the same was very technical in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 76.27 Crores for AYs 2011-12 2012-13 respectively as against total fees of ₹ 3 Crores received by it from M/s DBPL and therefore, the proportion of fees vis- vis total turnover would be very miniscule. On the basis of the same, it could be said that the status of M/s EIFPL would be that of independent agent and not a dependent agent as alleged by Ld.AO. Further, we concur with Ld. AR s submissions that the said agreement was merely to assist the production of the film and to provide limited services in relation to delivery of a feature film. M/s EIFPL was entrusted with the responsibility of arranging the crew and the requisite equipment which were to be procured from India. The said contract was given to the Indian entity in order to perform the Indian part of the production services and M/s DBPL was to pay the requisite fees. M/s EIFPL carried out its activities as an independent agent. Therefore, it could not be termed as Permanent Establishment for M/s DBPL in terms of Article-5 of the Treaty. This view, as taken by lower authorities, could not be concurred with. 9. Therefore, on the facts and circumstances, we hold that the assessee and M/s DBPL could not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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