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TMI Blog2017 (3) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... unts & Finance’, Shri Amitabh Shukla designated as ‘Avid Incharge’, Shri Vishal Punjabi designated as ‘Production Executive’, and Shri Rajesh Wanmali designated as ‘Production Assistant’. The remaining terms and conditions in the case of all these persons were same. Thus, the facts and the evidences brought before us clearly establish that there existed an employer-employee relationship between these persons and the assessee and thus, the assessee was liable to deduct TDS u/s 192 because the remuneration paid to them constituted ‘salary’. TDS u/s 194C OR 194J - expenses incurred as part of post production activities - Held that:- The impugned expenses incurred by the assessee are in the nature of post production activities. Therefore, the assessee was obliged to deduct TDS u/s 194C only and not u/s 194J. TDS u/s 194C OR 194J - nature of professional fee - DTAA - PE in India - Held that:- In the facts of the case before us, VHQ has carried out post production job. In this process, no technology or skill has been made available to the assessee. In case assessee would need similar job again, then he will have to go back to VHQ to get this job done. No replication or repetition is poss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmon order. 2. First, we shall take up appeal for A.Y. 2005-06 in ITA No.6655/Mum/2014 filed by the assessee against the order of Commissioner of Income-tax (Appeals)-14, Mumbai [hereinafter called CIT(A)]dated 14-08-2014 for A.Y. 2005-06 on the following grounds:- "1. The Learned CIT (A) erred in upholding that the fees paid to various professionals as being liable for deduction of tax u/s 192 of the Act, though the appellant company has rightfully deducted the appropriate tax on such payments u/s 194J of the Act. 2. Alternatively and without prejudice to any other ground of appeal, the Learned CIT (A) erred in upholding that the Six professionals namely Mr.Sanjiv Chawla, Ms. Shushma Chitnis, Mr. Blesson Oommen, Mr. Amitabh Shukla, Mr. Vishal Panjabi and Mr. Rajesh Wanmali had an employeremployee relationship with the appellant company. 3. Alternatively and without prejudice to any other ground of appeal, the learned CIT (A) has erred in not appreciating that the demand of ₹ 3,73,166/- for alleged short deduction of tax (being the difference of tax deducted as between provisions of Sec 194,1 and 192 of the Act) as made by the Assessing officer is erroneous and bad in l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directing that the interest u/s201(IA) will be levied till the date of payment of taxes by the payee namely Adlabs Films Pvt. Ltd. 11. Alternatively and without prejudice to any other ground of appeal, the learned CIT (A) has erred in upholding that the payment of ₹ 8,00,96/made to Empire Audio Centre Pvt. Ltd. was fees for professional or technical services liable for deduction of tax u/s 194J, though the appellant company had concluded that the payments of contract with the party was liable for deduction u/s194C and had deducted tax thereon accordingly. 12. Alternatively and without prejudice to any other ground of appeal the learned CIT (A) has erred in upholding the demand of ₹ 28,431/- on account of payment made to empire Audio Centre Pvt Ltd. towards digital mixing work due to the difference being due to the tax deducted u/s 194C as contract for work visa-a-vis technical services as u/s 194J." 3. Grounds 1 to 4: These grounds involve identical issue wherein assessee has contested the action of the lower authorities in holding that remuneration paid to six professionals engaged by the company was liable for deduction of tax at source u/s 192 as the same was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, unless the company is certain about the sustainability of the need of their respective services for the business of the company. During the year, the company has utilized the services of the following persons and fees were paid to them as per the understanding of retainership. Name of the professional Gross fees Services rendered Sanjeev Chowla 6,60,000 Production Management Services Sushma Chiitnis 6,60,000 Executive Services Blesson Oomen 3,02,500 Account Finance Services Amitabh Shukla 2,03,500 Editing Services Vishal Punjabi 1,50,000 Direction Services Rajesh Wanmali 1,20,000 Production Management Services These persons were not employees of the company and they were free to give their services to any other party. The company found it desirable to keep them on contract till such time the business of the company stabilized. Therefore they were not taken on employment but there services were contracted. While they were under the contract as professionals and not employed by the company, the company deducted tax @ 5% plus applicable surcharge and cess from the fees paid to them u/s 1941 as these persons were professionals. However, assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work but were engaged in capacities that require and high amount of autonomy, inherent skills and qualification. The designations given to such professionals were 'Production manager', 'Executive Assistant to the chairman', 'Manager accounts and finance', 'Avid in charge', 'Production executive', 'VFX service', 'Direction Services', Editing Services', "Executive services, 'Supervisory Services' and ' Production assistant' which res ipsa shows that they were not mere executors and there was a large degree of professional discretion and that their tasks required technical or professional skills or experiences. The fact that they were given designations does not by itself show that an employer employee relationship exists but merely spoke to the scope of the type of assignments that were given to them. 3. The covenants in contracts by themselves were wide in nature and afforded a large degree of flexibility for the retainers. There were no restrictive covenants on timings to come to office or leave, or any exclusivity bar. They were not subject to the general rules and regulations. They were not authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m that cases relied upon by the Ld. Counsel have been delivered on the basis of facts of those cases which are distinguishable from the facts of the case of the assessee before us. 9. We have gone through the orders passed by the lower authorities service contract with aforesaid 6 persons and also the submissions made before us. Firstly, we have analysed the service contract with these persons which have been enclosed in the paper book filed before us. One of the contracts is reproduced hereunder, for the sake of ready reference:- "SERVICE CONTRACT This service agreement is made on this 1st December, 2003 between, RED CHILLIES ENTERTAINMENTS PRIVATE LTD Mannat, B.J. Road, Bandstand, Bandra West, Mumbai 400 050 (Hereinafter referred to as "RC") And SANMJIV CHAWLA, 153, Oxford Towers Andheri West, Mumbai 400 058 (Hereinafter referred to as "SANJIV") Whereas RC is desirous of appointing SANJIV on contractual basis for the purpose of performing certain duties, which may be assigned by RC from time to time and SANJIV has consented to being appointed on following terms and conditions: DUTIES: You shall be designated as "PRODUCTION MANAGER and perform all such duti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as 'Production Manager' for performing all the duties as may be assigned to him from time to time. In the case of professional, who is engaged on independent basis, assignments/duties to be executed are generally specified in advance whereas in the case of Shri Chawla it has been clarified that he shall perform all the duties as will be assigned to him from time to time. The independent professionals are engaged in specific assignments / jobs whereas employees are assigned with the duties which are not feasible to be defined in specific terms in advance. Only designation can be given and functional profile can be assigned in advance and that is what has been done. 10. Further, the remuneration has been fixed @ ₹ 60,000/- per month. There is no variation clause or escalation clause indicating that remuneration shall be increased or decreased depending upon the quantum of work. Thus, it indicates that the remuneration has been fixed keeping in view the relationship of an employee and employer. It is also worthwhile to note here that Shri Chawla has been provided with a company car along with a mobile phone. These perks have been provided as are generally provided in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Chawla. Similarly in the case of other persons, it is noted that all the terms and conditions are identical. Ms. Sushma Chitnis designated as 'Executive Assistant to the Chairman', Shri Blesson Oomen has been designated as 'Manager Cum Accounts & Finance', Shri Amitabh Shukla designated as 'Avid Incharge', Shri Vishal Punjabi designated as 'Production Executive', and Shri Rajesh Wanmali designated as 'Production Assistant'. The remaining terms and conditions in the case of all these persons were same. Thus, the facts and the evidences brought before us clearly establish that there existed an employer-employee relationship between these persons and the assessee and thus, the assessee was liable to deduct TDS u/s 192 because the remuneration paid to them constituted 'salary'. The judgments relied upon by the Ld. Counsel are not applicable on the facts of the case before us. These judgments were delivered on the basis of peculiar facts of those cases and were based upon the contracts entered in those cases. Therefore, keeping in view totality of facts and circumstances of this case as discussed above, these grounds are rejected. 15. Grounds 5 & 6 were not pressed, therefore thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 259 (Bombay HC)(Mag) - The Hon'ble ITAT held that cinematographic films can be covered under the ambit of 'productions of programs for broadcasting and telecasting' and that the payment made for production of such films would fall for consideration u/s 194C of the Act (Pg. 20 - Case Law PB 3). The said ground was not appealed by the Revenue before the Hon'ble High Court and hence can be said to have been accepted by the revenue. ACIT v. Sahara One Media & Entertainment Ltd. [2014] 41 Taxmann.com 488 (Mumbai-Trib) - Dubbing expenses print processing fees are in the nature of a part of production of programmes and are covered u/s 194C ACIT v. Zee Entertainment Enterprises Ltd. [2014] 51 Taxmann.com 231 (Mumbai - Trib) -Equipment, labour and operators hired for production purposes. CIT(A) also examined the issue of hiring of equipment u/s 1941 of the Act and found in favour of the Assessee. The Hon'ble ITAT rendered a considered opinion that there was no error in the CIT(A) order." 19. We have gone through these judgments and find that case of the assessee is squarely covered in its favour. The impugned expenses incurred by the assessee are in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de by the appellant company including the fact that a part of the amount was paid for food. 7.The learned CIT (A) has erred in concluding that the payment of ₹ 3,68,557/- made to Roop Niwas Palace Hotel was liable to deduction of tax u/s 194I amounting to ₹ 82,704/-; ignoring the submissions made by the appellant company including the fact that a part of the amount was paid for food. 8.The learned CIT (A) has erred in concluding that the payment of ₹ 1,76,727/- made to Grand Hotel was liable to deduction of tax U/S 1941 amounting to ₹ 39,658/-; ignoring the submissions made by the appellant company including the fact"that a part of the amount was paid for food. 9. The learned CIT (A) has erred in concluding that the payment of ₹ 3,12,933/- made to Alfa Properties & Investment Pvt. Ltd. was liable to deduction of tax U/S 1941 amounting to ₹ 70,223/-; ignoring the submissions made by the appellant company including the fact that a part of the amount was paid for food. 10.The learned CIT (A) has erred in concluding that the payment of ₹ 6,19,000/- made to Cross Country Hotel was liable to deduction of tax U/S 1941 amounting to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was not liable to deduction of tax for this payment. It may be appreciated from the bills that the services were rendered by a non-resident company to which the DTAA between the two countries applies. Further, even as per the certificate issued in annexure B by a Chartered Accountant, no tax was liable to be deducted on this payment. In light of the above submissions and the bills/ vouchers submitted, we request Your Honour to delete the demand of ₹ 81,878/- made on ac of the payment to KBW Ltd. by the assessing officer and oblige." 23. However, Ld. CIT(A) did not accept the submissions of the assessee. It was held by him that amendment was brought in section 9(1) wherein it was provided that situs of rendering services was not relevant in determining the taxability of the income of the payee u/s 9 of the Act as far as payment on account of FTS was concerned. It was held that services rendered in Singapore for production of advertisement film was used in India, therefore, the same was taxable in India and accordingly the order of the AO was upheld. 24. During the course of hearing before us, Ld. Counsel of the assessee vehemently contested this issue. The arguments made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e an Assessee in default. 25. Per contra, Ld. DR vehemently supported the order of the Ld. CIT(A) and AO and submitted that since payment has been made for the work used in India, the assessee should deduct TDS u/s 194J. 26. We have gone through the facts and circumstances of this case and orders passed by the lower authorities. The undisputed fact is that 'VHQ', i.e. the recipient merely carried out post production activities. Nothing has been brought before us to indicate or show that in the process of carrying out any work, whether any technical knowledge, experience, skill, know-how or process was made available to the assessee. VHQ is resident of Singapore. This is also an admitted fact that it had no PE in India. This amount could be brought to tax in India only subject to the provisions of Double Taxation Avoidance Agreement between India and Singapore. Since this activity was not carried out through any PE in India, it cannot be taxed as business profit of VHQ under Article 7 of India Singapore DTAA. Therefore, we have to examine its taxability under Article 12 of India Singapore DTAA which provides for taxability of Fee for Technical Services. It has been stipulated in A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 194C and not u/s 194J. Accordingly, this ground is partly allowed. 30. Grounds 4 to 10: These grounds deal with the issue of non-deduction of tax at source on the hotel expenses incurred by the assessee. It was held by the AO that assessee should have deducted tax at source u/s 194I for 'rent' of hotel expenses incurred during shooting done at various locations. Ld. CIT(A) agreed with the contention of the assessee partly and held that bills for the hotel expenses also include expenses on account of food on which TDS should not be made and, therefore, he reduced the amount of food expenses from the bills of hotels and also in those cases where the expenses on hotel stay did not exceed aggregate amount of ₹ 1,20,000/- as prescribed u/s 194I. Therefore, he provided relief to the assessee. However, for all those hotels, where the stay expenses after deduction of the food expenses was more than ₹ 1,20,000, it was held by him that TDS was required to be deducted u/s 194I on the whole of such amount. 31. During the course of hearing before us, Ld. Counsel of the assessee relied upon the CBDT circular No.5 of 2002 dated 30-07-2002 wherein it was clarified that where earm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act) as made by the Assessing officer is erroneous and had in law. 4. Without prejudice to any other ground of appeal as taken by appellant, the Learned CIT (A) erred in upholding that in this particular circumstance where the six professionals have paid their due taxes, interest u/s 201(A) will remain chargeable till date of filing of return by the payee and in directing the assessing officer to recompute the same. 5. Alternatively and without prejudice to any other ground of appeal, the Learned CIT (A) erred in upholding that payments made for various activities of post production work aggregating to ₹ 47,60,935/- were fees for professional or technical services and liable for deduction u/s194J as opposed to contracts liable for deduction u/s 194C as actually deducted by the Appellant. 6. Alternatively and without prejudice to any other ground of appeal, the Learned CIT(A) failed to appreciate that the various activities of Post production work (Annex-A) are merely work contracts which do not require any professional or specialized technical knowledge and hence are liable for deduction u/s 194C. 7. Without prejudice to any other ground of appeal taken by appellant, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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