2012 (12) TMI 761 - AT - Income Tax

Non deduction of TDS - shooting of films held outside India - payments made in foreign exchange to overseas services providers - application u/s 195(2) - India - U.K. DTAA - Held that - This issue is squarely covered in favour of the assessee by the decision of in the case of GE India Technology Centre P. Ltd. v. CIT 2010 (9) TMI 7 - SUPREME COURT OF INDIA wherein 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). Merely because some managerial skill is required to render the services, it would not make the services to be managerial services as envisaged in Explanation 2 to section 9(1)(vii). Keeping in view the nature of services rendered by the overseas service providers to the assessee the said services cannot be treated as technical services within the meaning given in Explanation 2 to section 9(1)(vii). As in agreement with the CIT(Appeal s) that the said services rendered outside India by the overseas service providers 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.

Summary

Issues Involved:
1. Requirement for the assessee to make an application under section 195(2).
2. Nature of payments made to overseas service providers and whether they constitute "fees for technical services" chargeable to tax in India.
3. Applicability of Double Tax Avoidance Agreements (DTAAs) for payments made to non-resident companies.

Detailed Analysis:

1. Requirement for the Assessee to Make an Application Under Section 195(2):
The Revenue argued that the assessee was required to make an application under section 195(2) if it believed that the payments made to non-residents were not chargeable to tax in India. The Tribunal referred to the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. v. CIT 327 ITR 456, which held that if the payment does not contain the element of income taxable in India, the payer is not liable to make an application under section 195(2). Consequently, the Tribunal dismissed the Revenue's grounds on this issue.

2. Nature of Payments Made to Overseas Service Providers:
The core issue was whether the payments made by the assessee to various overseas service providers for services rendered in connection with the shooting of films abroad constituted "fees for technical services" under section 9(1)(vii) of the Income Tax Act.

The Assessing Officer (AO) held that the payments were for technical services and thus chargeable to tax in India. However, the CIT(A) found that the services provided were for logistical arrangements, such as arranging shooting locations, obtaining permits, arranging for extras, and providing meals and transport, which were purely commercial services. The CIT(A) concluded that these services did not fall under the category of technical, managerial, or consultancy services.

The Tribunal agreed with the CIT(A), noting that the services rendered were logistical in nature and not technical. The Tribunal also referenced several decisions, including those in the cases of URS-SCS (Asia) Ltd. v. ADIT and Parasrampuria Synthetics Ltd., which supported the view that such logistical services do not constitute technical services.

3. Applicability of Double Tax Avoidance Agreements (DTAAs):
The assessee argued that the payments made to non-residents fell under the category of business profits under the relevant DTAAs and were not chargeable to tax in India in the absence of a Permanent Establishment (PE) in India. The CIT(A) did not adjudicate on the DTAA applicability, considering it academic after concluding that the payments were not "fees for technical services" under domestic law.

The Tribunal upheld the CIT(A)'s decision, agreeing that the payments were business profits and not chargeable to tax in India due to the absence of a PE. Consequently, the Tribunal dismissed the Revenue's appeal on this issue.

Conclusion:
The Tribunal dismissed all appeals, upholding the CIT(A)'s findings that the payments made by the assessee to overseas service providers were not "fees for technical services" and were not chargeable to tax in India. The Tribunal also affirmed that the assessee was not required to make an application under section 195(2) and that the payments constituted business profits under the relevant DTAAs.