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TMI Blog2011 (3) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... ow of films sale of satellite rights and other distribution rights of Hindi feature films. During the year there is no release of feature film production No. 5 and production No. 6 are under production. Income declared is from the realization of films released in earlier years. Cost of production claimed in respect of these films incurred during the year was examined. In respect of film Kal Ho Na Ho the cost of production includes 'special effect' expenditure of Rs. 4,71,491. Since the picture has already been released in the previous year, assessee was asked to furnish the details of special effect expenses claimed in this year. It is found to be the withholding tax reimbursed to Tata Elxsi to whom the job for visual effect was given. As p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee." 4. The AO rejected the arguments of the assessee for the following reasons; (i) The confirmation letter dated 10-9-2003 from Tata Elxsi clearly states that price of visual effects is Rs. 76 lakhs. Note 2 & 3 of this letter clearly states that over and above 76 lakhs assessee shall bear government taxes including withholding tax at 20% and all travelling boarding & lodging expenses incurred overseas on behalf of Dharma Production. (ii) Tata Elxsi has accordingly debited assessee's account after paying withholding tax of Rs. 471491 it has only issued debit note and not bill as claimed by assessee. (iii) It was in the knowledge of the assessee that they have to bear the withholding tax liability even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the instant case, the Ld. Counsel mentioned that it is a part if contractual obligation that any amount of tax has to be borne by the assessee. For the assessee the tax so borne forms the cost of special effect which is the cost of production for the assessee. It was pleaded that the AO had erred in invoking the provisions of section 40(a)(ii) of the IT Act, 1961. 6. The CIT(A) dismissed the assessee's claim by holding as under: " I have carefully considered the facts of the case and I am not convinced by the arguments given by the Ld. Counsel. The reading of the agreement with Tata Elxsi clearly stipulates that all taxes including withholding tax @ 20% has to be borne by Dharma Productions section 40(a)(ii) clearly prohibits the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t payable by the assessee to Tata Elxsi. The assessee has not entered into a contract with the Non-resident and it is not the assessee who had contracted to bear the tax of the non-resident. Hence in our opinion the amount of Rs. 4,71,491 is part of the agreed fees payable to Tata Elxsi and hence is an allowable deduction. 9. The Ld. Counsel for the assessee further relied on the decision of ITAT Mumbai Bench in the case of Air India Ltd. v. Dy. CIT [2009] 118 ITD 401 wherein it has been held that it is not the form but the substance of the transaction that helps to determine the true character of the payment. 10. The Ld. Counsel also relied on the decision in the case of Dashmesh Transport Co. (P.) Ltd. v. CIT [1974] 93 ITR 275 (Punj. & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 Taxman 47, at page 658 has held as follows: " The Government of India had in this case permitted the payee BHEL to bear the tax liability on the payment to be made to the engineer of the foreign supplier. The tax liability borne by BHEL has to be deemed to be the payment made to the engineer of the foreign supplier for the purpose of computing that foreign national's income and the tax payable on that gross amount, viz., the amount actually paid to the foreign national plus the tax liability thereon has to be treated as his gross income." 15. From the above it is clear that what is being paid by the Indian resident payer, be it TATA Elxsi or the assessee when they reimburse TATA Elxsi, is only the income of the Non Resident payable as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All sums deducted in accordance with the foregoing provisions of this Chapter shall for the purpose of computing the income of an assessee, be deemed to be income received: 17. Section 28(iva) reads as under: "(iv) the value of any benefit or perquisite whether convertible into money or not, obtained by any representative assessee mentioned in clause (iii) or clause (iv) of sub-section (1) of section 160 or by any person on whose behalf or for whose benefit any income is receivable by the representative assessee (such person being hereafter in this sub-clause referred to as the beneficiary and any sum paid by the representative assessee in respect of any obligation which but for such payment would have been payable by the beneficiary" 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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