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TMI Blog2012 (12) TMI 761X X X X Extracts X X X X X X X X Extracts X X X X ..... d outside India for which payments are made in foreign exchange to various overseas services providers. During the year under consideration, such payments were made to five parties aggregating to Rs. 18,77,84,736/-. On verification, the AO noticed that the tax at source was not deducted by the assessee from the said payments as required by the provisions of section 195 of the Act. He, therefore, required the assessee to offer its explanation in the matter. In reply, it was submitted by the assessee that the said payments were made on account of shooting expenses which involved arrangement for transport, getting permission for shooting, hotel accommodation etc. It was contended that the said payments constituted business profits of the overseas companies and since they had no permanent establishment in India during the year under consideration, no tax was required to be deducted at source from the said payments as the business profits of the non-resident companies was not chargeable to tax in India as per Article 7 of the relevant DTAAs. It was also contended on behalf of the assessee that in the services availed from the overseas companies, no element of technical services was invo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aste' As per the copy of agreement furnished, it is seen that the said remittee is the provider and also engaged in production of films. As per Article 2 of the said agreement, the service provider has provided all technical and service elements for shooting of film in Poland. This included arranging of extras, arranging for the police and security, arranging for locations restoration, providing services of local line producer, location manager, contracting locations and obtaining all necessary licenses/permits etc. for the shooting of the films. Thus, the services provided are in the nature of technical services. (iii) Payment made to Utopia Films: The assessee has made total payments of Rs.3,28,06,004/- during Funancial Year 2005-06 to this remittee for production services for the film titled 'Dhoom-2' for shooting at Rio de Janwiro. The payments are made for arranging of extras, arranging for locations, providing all technical services for shooting of film and providing of services of local line producers, casting director etc. For shooting of film at Rio de Janeiro. As per the copy of agreement, the remittee was to provide production service with local crew, transport, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons were made on behalf of the assessee in respect of each and every payment made to non resident parties in the light of relevant agreements entered into with the said parties as well as the relevant articles of the DTAA to show that the payments made to the said parties were not in the nature of fees for technical services chargeable to tax in India but the same represented business profits of the said non resident parties which were not chargeable to tax in India. The submissions made by the assessee in this regard as discussed by the learned CIT(Appeals) in his impugned order are reproduced below : "2.15 PARTY NO 1 : Payment to Hybrid Enterprises UK GBP 26912. The appellant explained that the service Provider M/s Hybrid is a company incorporated in UK and has provided the services of 'make up' for the main protagonists of the movie. The appellant stated that the service is provided during shoot outside India and the make up crew of the service provider has not come to India for providing any such services nor does the service provider have any permanent establishment (P.E.) in India. The appellant sated that there is nothing 'technical' in these services. The appellant furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ualify as Independent personal services under Article 15 of the India UK DTAA. The said article 15 states as follows: Independent personal services - Income derived by an individual, whether in his own capacity or as a member of a partnership, who is a resident of a Contracting State in respect of professional services or other independent activities of a similar character may be taxed in that State. Such income may also be taxed in the other Contracting State if such services are performed in that other State and if: (a) he is present in that other State for a period or periods aggregating to 90 days in the relevant fiscal year .. or (b) he, or the partnership, has a fixed base regularly available to him, or it, in that other State for the purpose of performing his activities .. but in each case only so much of the income as is attributable to those services. 2. For the purposes of paragraph I of this Article an individual who is a member of a partnership shall be regarded as being present in the other State during days on which, although he is not present, another individual member of the partnership is so present and performs professional services or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant stated that the overseas company has not rendered any technical or consultancy services and 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 appellant stated that since these are not in the nature of fees for technical services and since none of the recipients had a P.E. in India, the same are in the nature of 'business profits' and hence cannot be taxed in India. The AR thus argued that as a consequence, no tax was required to be deducted at source as no one from the 'production service company' M/s Utopia has visited India, or provided any services from overseas to India. M/s Utopia has provided only local service in their home country. 2.23 The appellant further argued that M/s Utopia is a resident of Brazil, due to which the relevant clauses of the Indo Brazil treaty would be applicable and that if provisions of DTAA are beneficial to the assessee, the same should prevail over the provisions of I.T. Act. The appellant stated that the DTAA with Brazil does not have a separate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding services of local crew, transport, working meals, locations, casting, models/actors, equipment, including coordination of necessary licenses and permits. The appellant stated that the services provided by Mis Oakbridge Productions are not at all in the nature of fees for technical services. The Movie Neal N Nikki was totally shot on the location of Canada . The AR argued that these service providers, provide services outside India, and also they do not have any permanent establishment (P.E.) in India. Moreover, the services are not rendered in India. Thus the AR argued that the remittances made to overseas service providers for shooting films abroad are not in the nature of 'fees for included services' as envisaged in Article 12 of the India Canada DTAA as the services so rendered do not 'make available' technical knowledge, experience, skill, know how or processes or consist of development and transfer of technical plan or technical design. Such services would thus fall under Article 7 'business profit'. The appellant stated that if provisions of DTAA are beneficial to the assessee, the same should prevail over the provisions of I. T. Act. Therefore, the appellant pleaded tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical plan or technical design. Hence these payments do not fall under the clause of 'fees for included services'. The AR further argued that as M/s Oakbridge Productions do not have any permanent establishment (P.E.) in India hence Article 7 of the India Canada DTAA would not be applicable too. Hence the AR argued that since these payments are not in the nature of 'fees for included services' and since the same are in the nature of 'business profits'; they cannot be taxed in India as none of the recipients have a P.E. in India as a consequence of which, no tax was required to be deducted at source. 2.28 PARTY NO 4 Payment to M/s Rowmar Media - Australia of Rs. 3.25 Crores. The appellant stated that the total payment to Mis ROWMAR MEDIA is for services obtained from the said service provider during the shooting of the film 'SALAAM NAMASTE'. The payments were made for arranging extras, arranging for locations and other incidental activities. The film was shot in Australia. The agreement with M/s ROWMAR MEDIA is for services identical to those provided by other overseas companies discussed in the preceding paras i.e. providing of food, transport, accommodation, and other extras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a company engaged in business of production of films and Advertisement Films. The payments were made to Mis Grupa Filmova for arranging extras arranging for locations, providing of Police Security, obtaining all local necessary permission and other activities. These kind of services provided by the GRUPA FILMOWA is not at all in the nature of fe~s for technical services as alleged by AO. 2.32. The appellant also referred to the DTAA with the POLAND which has a separate article 13 for' Fees for Technical Services; the same is reproduced as follows: "ARTICLE 13 (a) 4. 4 The term "fees for technical services" as used in this article means payments of any amount to any person other than payments to an employee of a person making payments, in consideration for the services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel. 2.33 The appellant stated that the Second half of the Movie FANAA was extensively totally shot on the location of Poland. The overseas company only provided the team from India the transport, meal, accommodation insurance and other day to day requirement during the stay of shooting. The appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT(Appeals) held that the above services were in the nature of purely commercial services and the amounts paid for such services would fall in the category of business profit taxable in India only if the foreign service providers had a permanent establishment in India. On perusal of the relevant agreements entered into by the assessee with the service providers, he held that the service provided by them were in the form of making logistic arrangement for the assessee and there was no consultancy services that could be said to be provided by them to the assessee. He held that the said services were purely of commercial nature and could not be termed as technical services or managerial services. He held that the foreign services providers in the case of the assessee thus were remunerated for their efforts and time spent in making logistic arrangement for the assessee and they had nothing to do with rendering of any technical, managerial or consultancy services to the assessee. He held that the entire payments made by the assessee to the foreign service providers thus were not in the nature of fees for technical services within the meaning of Explanation 2 to section 9(1)(vii) and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kills for providing the said services. He submitted that similarly for obtaining of the licenses and permits for the shooting of the films, knowledge of local law was required. Relying on the decision of Mumbai Bench of ITAT in the case of DDIT v. TISCO 34 SOT 83, he contended that legal services provided are held to be in the nature of fees for technical services by the Tribunal He also filed copies of invoices raised by the overseas service providers on the assessee and submitted that going by the description of services given therein, it cannot be said that the nature of services rendered by them was purely of making logistic arrangement. He contended that the payments made by the assessee to all the overseas service providers thus were in the nature of fees for technical services within the meaning of Explanation 2 to section 9(1)(vii) as rightly held by the AO and the same being chargeable to tax in India, the assessee was required to deduct tax at source from the said payments. 12. The learned counsel for the assessee, on the other hand, submitted that the payments in question were made by the assessee to the overseas service providers basically for providing services in con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. He also relied on the decision of ITAT in the case of Dy. CIT v. Parasrampuria Synthetics 20 SOT 248 (Delhi) and in the case of Stock Engineers & Contractors 27 SOT 452 (Mum.). 14. We have considered the rival submissions and also perused the relevant material on record. It is observed that the assessee company in the present case is engaged in the business of production of films, the shooting of which is often done outside India. For shooting the films outside India, its production unit goes abroad and the services required in connection with the work of shooting abroad are availed from the various overseas service providers. During the year under consideration, the assessee had paid a total amount of Rs. 18,77,84,736/- to five such overseas service providers for the services availed in connection with the shooting of different films which mainly included arranging for extras, arranging for the security, arranging for locations, arranging for the accommodation of cast and crew, arranging for necessary permissions from local authorities, arranging for makeup of the stars, arranging for insurance cover etc. The AO held that these services provided by the concerned ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he concerned overseas service providers. He held that since the said service providers had no permanent establishment in India during the year under consideration, the business profit was not taxable in India in their hands as per the relevant Article of applicable DTAAs. 16. It is observed that the learned CIT(Appeals) has also considered the issue relating to applicability of Explanation 2 to section 9(1)(vii) relied upon by the AO giving the definition of the term "fees for technical services" and held in this regard that the services rendered by the overseas providers in connection with logistic arrangements were not in the nature of managerial, technical or consultancy services. He held that the said services partook the character of commercial services and could not be termed as technical, managerial or consultancy services. After having perused the terms and conditions of the relevant agreements entered into by the assessee with the concerned service providers and keeping in view the nature of services rendered by the said providers to the assessee, we find ourselves in agreement with the conclusion arrived at by the learned CIT(Appeals). 17. Before us, the learned DR has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmission, underwriting commission etc. in respect of GDR issue was not income by way of fees for technical services because although the lead managers had rendered technical, managerial or consultancy services for bringing out the GDR issue, such services are not made available to the assessee inasmuch as it only derived the benefit of the technical services provided by the lead managers without getting any technical knowledge, experience or skill in its possession for use as its own. It was held that such commission in respect of GDR issue paid to the lead managers, therefore, was in the nature of business profit and since the non-resident lead manager was having no PE in India, the same was outside the ambit of tax in India as per Article 7 of DTAA. 19. Keeping in view the ratio of the various decisions of the coordinate benches of this Tribunal discussed above and having regard to the nature of the services rendered by the overseas service providers to the assessee as spelt out in the relevant agreements, we are of the view that the said services cannot be treated as technical services within the meaning given in Explanation 2 to section 9(1)(vii). We are in agreement with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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