POMEGRANATE MEDIA (PTY) LTD (FORMERLY KNOWN AS ENDEMOL SOUTH AFRICA (PROPRIETARY) LTD),BRYANSTON GAUTENG vs. ASST CIT (IT)-3(3)(2), MUMBAI

ORDER PER RAVISH SOOD, J.M:

The captioned appeals filed by the assessee are directed against the respective orders passed by the A.O u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (for short „Act‟), dated 31.07.2019 and 27.08.2019 for A.Y. 2011- 12 and A.Y. 2015-16, respectively. As a common issue is involved in the aforementioned appeals, therefore, the same are being taken up and disposed off together by way of a consolidated order. We shall first take up the appeal for A.Y. 2011-12. The assessee has assailed the impugned order on the following grounds before us:

&6659/Mum/2019 A.Ys. 2011-12 & 2016-17 2 Pomegranate Media (Pty) Ltd. Vs. Assistant Commissioner of Income Tax, IT-3(3)(2)

“1 On the facts and circumstances, of the case and in law, (he Hon'ble Dispute Resolution Panel ('DRP') erred in dismissing the application filed by the appellant in Form 35A in limine by holding [hat [he application is invalid and non-est.

2. On the facts and circumstances of the case and in law, the Hon'ble DRP failed to appreciate that me defect pointed out was curable defect.

3. On the facts and circumstances of the case and in law, the Hon'ble DRP further erred in not adjudicating the matter on merits [i.e. not adjudicating on taxability of income received by the Appellant for Line Production Services from Endemol India Private Limited of Rs.1,57,31,566]. It is prayed that the Hon'ble DRP be directed to not dismiss the application in limine of the Appellant and consider the application on merits.

4. Without prejudice lo above, on the facts and circumstances of the case and in law, the learned Assessing Officer („AO‟) has erred in holding that the income received by the Appellant for line production Services from Endemol India Private Limited of Rs.1,57,31,566/- should be taxed at the rate of 10% under Article 12 of the India-South Africa Tax Treaty. The appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”

passed by the Tribunal in the assessee‟s own case for the succeeding years i.e A.Y. 2012-13 in dated 03.10.2018 and that for A.Y. 2014-15 and A.Y. 2015-16 in ITA Nos. 698 & 808/Mum/2019, dated 30.06.2020. It was submitted by the ld. A.R that the Tribunal vide its consolidated order passed while disposing off the appeals for A.Y. 2014-15 and A.Y. 2015-16 in ITA Nos. 698 & 808/Mum/2018, dated 30.06.2020 had followed its earlier view for A.Y 2012-13 in ITA No. 1732/Mum/2016, dated 03.10.2018. In support of its aforesaid claim the ld. A.R took us through the relevant orders of the Tribunal for the aforementioned years.

“9. We have considered rival submissions and perused the material on record. Undisputedly, the contract between Endemol India Pvt. Ltd. and the assessee for &6659/Mum/2019 A.Ys. 2011-12 & 2016-17 5 Pomegranate Media (Pty) Ltd. Vs. Assistant Commissioner of Income Tax, IT-3(3)(2) rendering of certain services relating to filming of an entertainment program called “Fear Factor” has remained the same from the very beginning. Therefore, the contractual terms and other relevant facts on the basis of which the Tribunal has decided the issue in assessment year 2012–13 remains unchanged/unaltered in the impugned assessment year as well. Even, the learned Departmental Representative has not disputed the aforesaid factual position. The only submission made by the learned Departmental Representative for not following the decision of the Tribunal in assessment year 2012– 13 is, the Tribunal has not appreciated the facts in right perspective. However, in our considered view, while discharging judicial function we, as a matter of propriety, cannot find fault with the decision of another coordinate Bench rendered in case of the very same assessee on identical issue without any material difference in facts. Further, on careful perusal of the earlier order passed by the Bench, we find that it has dealt with the issue exhaustively after taking into consideration all material facts, the submissions made by the parties as well as the judicial precedents cited before it. The finding of the Tribunal on the issue is reproduced hereunder for better appreciation:– “13. We have deliberated at length on the issue under consideration in the backdrop of the contentions advanced by the authorized representatives of both the parties. We find, that from a perusal of the various clauses of the agreement dated 19.04.2011, it can safely be gathered that the same is a contract for providing services, and not for granting a right in any copyright. We shall now deliberate on the observations of the lower authorities that the assessee had traversed beyond the terms of the aforesaid agreement dated 18.04.2011, and had rendered managerial/technical services to Endemol India Pvt. Ltd. We find, that the A.O/DRP had brought the amount of Rs.9,60,23,838/- to tax by concluding that the said sum received by the assessee was taxable as “FTS” as also “royalty”, both under the Act and the India-South Africa tax treaty. In the backdrop of the aforesaid observations of the lower authorities, we shall now look into the aspect as to whether the nature of services rendered by the assessee would bring them within the sweep of “FTS” and “royalty”, or not.

store the footage. In the backdrop of our aforesaid observations, we shall now deliberate on the aspect, that as to whether the services rendered by the assessee to Endemol India Pvt. Ltd can be characterised as services of a managerial, technical or consultancy nature, which therein would bring the same within the sweep of FTS. For this, we shall look into the scope and gamut of managerial, technical and consultancy services, as under: (I) Managerial Services: The term managerial services, ordinarily means handling management and its affairs. As per the concise oxford dictionary, the term managerial services means rendering of services which involves controlling, directing, managing or administering a business or part of a business or any other thing. However, the services provided by the assessee are clearly found to be in the nature of administrative services (such as making logistic arrangements etc.). Accordingly, the services rendered by the assessee would not tantamount to providing of any managerial or management functional services to Endemol India Pvt. Ltd. Thus, as the services rendered by the assessee in no way involves controlling, directing, managing or administering the business or part of a business of Endemol India Pvt. Ltd, therefore, it can safely be concluded that the same does not fall within the realm of the term „managerial services‟. (II) Technical Services:- The term „technical services‟ takes within its sweep services which would require the expertise in technology or special skill or knowledge relating to the field of technology. As per the concise oxford dictionary, the term technical services means belonging or relating to art, science, profession or occupation involving mechanical arts and applied sciences. We are of the considered view, that as the administrative services viz. arranging for logistics etc. by the assessee does neither involve use of any technical skill or technical knowledge, nor any application of technical expertise on its part while rendering such services, hence the same cannot be characterised as technical services. (III) Consultancy Services: The term consultancy services, in common parlance, means providing advice or advisory services by a professional. Usually consultancy services are professional services requiring specialized qualification, knowledge, expertise of a professional person, and are more dependent on skill, intellect and individual characteristics of the person rendering it. We are of the considered view that as the services rendered by the assessee do not involve providing of any advice or consultancy to Endemol India Pvt. Ltd., thus, the same cannot be brought within the purview of “consultancy services”.

15. We thus, in terms of our aforesaid observations, are of the considered view that as the various coordination/facilitation services rendered by the assessee viz. arranging for locational crew, producer, transportation, paper work for various stunts to be performed and other requirements for setting up and filming the series etc, are in the nature of Line Production Services, thus, the same cannot be termed as technical, managerial or consultancy services. Thus, the consideration received by the assessee for rendering of the aforesaid services, which are purely administrative in nature, cannot be brought within the sweep of the definition of “FTS” within the meaning of Explanation 2 to Sec.9(1)(vii) of the Act or Article 12 of the India-South Africa tax treaty. We thus, in the backdrop of our aforesaid deliberations are of the considered view, that the amount received by the assessee for rendering of the aforesaid administrative services cannot be characterised as “FTS”.

16. We may herein observe, that a similar view had earlier been arrived at by the ITAT, Mumbai, in the case of Yashraj Film Pvt. Ltd. Vs. ITO (IT) (2012) 231 ITR (T) 125 (Mum.). On a perusal of the facts involved in the aforementioned case, it emerges that the &6659/Mum/2019 A.Ys. 2011-12 & 2016-17 7 Pomegranate Media (Pty) Ltd. Vs. Assistant Commissioner of Income Tax, IT-3(3)(2)

Tribunal had observed that as the services rendered by the non-resident service providers for making logistic arrangements were in the nature of commercial services, thus, the same cannot be treated as managerial, technical or consultancy services within the meaning given in Explanation 2 to Sec. 9(1)(vii) of the Act. In the aforementioned case, the assessee had made payments to various overseas services providers belonging to U.K, Poland, Brazil, Canada & Australia for services availed in connection with the shooting of different films. The services rendered by the aforementioned non- resident service providers included arranging for extras, arranging for the security, arranging for locations, arranging for the accommodations for the cast and crew, arranging for necessary permissions from local authorities, arranging for makeup of the stars, arranging for insurance cover etc. The Tribunal after deliberating on the nature of the aforementioned services concluded, that as the same were purely commercial services falling in the category of logistic arrangement services, thus, the consideration received as regards rendering of such services would constitute business profits of the said overseas service providers. It was further observed, that as the said service providers had no Permanent Establishment (P.E) in India during the year under consideration, hence the business profits were not taxable in India in their hands as per Article 7 of the respective tax treaties between India and the abovementioned countries. We have deliberated at length on the facts involved in the case before us, and find that the nature of services rendered by the overseas service providers in the aforementioned case of Yashraj Films Pvt. Ltd.(supra) are somewhat similarly placed and rather overlapping to some extent, as in comparison to the services rendered by the assessee in the case before us. In terms of our aforesaid observations, we find that our view that the services rendered by the assessee are administrative services and not in the nature of managerial, technical or consultancy services, also stands fortified by the aforesaid order of the coordinate bench of the Tribunal. We thus, in the backdrop of our aforesaid deliberations, and finding ourselves to be in agreement with the view taken by the Tribunal in the aforesaid case viz. Yashraj Films Pvt. Ltd. (supra), herein conclude that the consideration received by the assessee for rendering of the services to Endemol India Pvt. Ltd. cannot be held as “FTS”.

17. Still further, we also find that the issue of taxability of amount received outside India for rendering Line production services to the assessee company viz. Endemol India Pvt. Ltd, had also been considered and decided by the Hon‟ble Authority for Advance Ruling (for short „AAR‟), vide its rulings rendered in the case of Endemol Argentina (Non- resident) [AAR No. 1082 of 2011; dated 13.12.2013] and Utopia Films (Non-resident) [AAR No. 1081 and 1082 of 2011; dated 19.02.2014]. In the aforementioned rulings, it was observed, that the consideration received outside India by the concerned overseas service providers by providing line production services to the assessee, viz. providing line producer, local crew, stunt services, transport etc. would not qualify as “FTS” under the Act. We find that in the present case, the A.O/DRP had declined to rely on the aforesaid rulings of the AAR, for the reasons viz. (i). that as per Sec. 245S, the advance ruling is pronounced on the basis of facts of a particular case and hence, it is binding on only the applicant in respect of the transactions in relation to which advance ruling was sought; and (ii). that the ruling was rendered by the Hon‟ble AAR in context of different DTAA‟s, as against that involved in the case of the assessee. We have deliberated at length on the aforesaid observations of the lower authorities and are unable to persuade ourselves to accept the same. We find that though it is an admitted fact that an “advance rulings‟ having been rendered on the basis of the facts of a particular case, thus, would only be binding on the applicant, and that too in respect of the transactions in relation to which the same was obtained, however, such ruling would still have a persuasive value in respect of other parties as well and accordingly, may be relied upon by the authority itself or by the applicant/department. We find that our aforesaid view is fortified by the judgment of the Hon‟ble Supreme Court in the case of Columbia Sportswear Company Vs. DIT, Bangalore (2012) 346 ITR 161 (SC). We are further of the considered view, that though the lower authorities had declined to take cognizance of the observations of the &6659/Mum/2019 A.Ys. 2011-12 & 2016-17 8 Pomegranate Media (Pty) Ltd. Vs. Assistant Commissioner of Income Tax, IT-3(3)(2)

Hon‟ble AAR on the ground that the „tax treaties‟ involved in the said case were different as against that involved in the present case, however, there is no mention of any such material fact which could persuade us to conclude that the definition of “FTS” in the said respective tax treaties would be absolutely unworkable, and hence could not be applied in the case before us. We thus, are of the considered view, that the lower authorities had erred in failing to appreciate that the ruling rendered by the Hon‟ble AAR in the case of Endemol Argentina and Utopia Films, though was not binding, but did have a persuasive value while adjudicating the issue under consideration. Be that as it may, we are not impressed by the outright scrapping by the lower authorities of the aforesaid rulings rendered by the Hon‟ble AAR in context of taxability of Line production services provided by the overseas service providers viz. (i). Endemol Argentina (Non-resident);and (ii). Utopia Films (Non-resident) to the assessee company viz. Endemol India Pvt. Ltd. However, we are of the considered view, that as we have already observed that the services rendered by the assessee to Endemol India Pvt. Ltd. are not in the nature of a managerial, technical or consultancy services, therefore, we refrain from further adverting to and adjudicating upon the observations arrived at by the A.O/DRP in context of the rulings of the Hon‟ble AAR.

scientific work (including cinematograph film and film, tapes or discs for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.” It is the contention of the assessee that the consideration received in terms of the agreement was for rendering of the Line Production Services, and not for granting any right in any copyright to Endemol India Pvt. Ltd. We find that admittedly, as per the agreement between the assessee and Endemol India Pvt. Ltd., the entire consideration to be paid to the assessee was in respect of the production cost or production fees and not for any licensing rights in any programme. Further, Clause 1 to 6 of the agreement, specifically spells out the various coordination / facilitation services which were to be rendered by the assessee as line producer viz. arranging for locational crew, producer, transportation, paper work for various stunts to be performed and other requirements for setting up and filming the series etc. In sum and substance, the agreement was for rendering of line production services by the assessee to Endemol India Pvt. Ltd., in order to facilitate and enable the latter to produce the television series viz. “Fear factor”. We also find that Sec. 17 of the Indian Copyright Act, 1957 states, that where the work is specifically commissioned under the contract of service at the instance of a person, then such person would be the first owner of the copyright. Further, as per the South Africa Copyright Act No. 98 of 1978, the person who commissioned the making of a cinematograph film shall be the owner of the copyright subsisting in the work made in pursuance of that commission. In the backdrop of the aforesaid mandate of law, we are of the considered view that since the work (that is the television series) was commissioned by Endemol India Pvt. Ltd. under the contract of service thus, as averred by the ld. A.R, Endemol India Pvt. Ltd. shall be the first owner of the work produced by the assessee, and the owner of the copyright. We find substantial force in the aforesaid contention of the assessee, that now when as per the mandate of law the ownership of the copyright remains vested with Endemol India Pvt. Ltd, hence the question of assigning of the same by the assessee in favour of Endemol India Pvt. Ltd would not arise at all. We thus, are of the considered view that now when in terms of our aforesaid observations, it can safely be concluded that there would be no occasion for assigning of any copyright by the assessee to Endemol India Pvt. Ltd. (i.e the first owner of the copyright), therefore, no payment of consideration in lieu of transfer of any copyright can be comprehended.

providing Line production Services as “royalty” and “Fees for technical services”. We thus, set aside the order of the A.O and delete the addition of Rs. 9,60,23,838/-.The Grounds of appeal

No. 1 and 2 are allowed in terms of our aforesaid observations.”

10. On a careful reading of the aforesaid observations, it is very much clear that while deciding the issue on the basis of identical facts and on the same contractual terms, the Tribunal has come to a categorical conclusion that the amount received by the assessee is neither in the nature of royalty nor fees for technical services. Facts being identical, the aforesaid decision of the Tribunal would be clearly applicable to the issue raised in the present appeals also. Therefore, adhering to the norms of the judicial discipline, we respectfully follow the aforesaid decision of the Tribunal to hold that the amount received by the assessee from Endemol India Pvt. Ltd. in both the assessment years is neither royalty nor fees for technical services, hence, cannot be taxed in India either under the provisions of the Act or under the tax treaty in the absence of a PE.

11. As regards the alternative contention of the learned Departmental Representative that the issue may be referred to the Special Bench, with due respect, we are unable to accept the same. This is for the simple reason that, firstly, we do not find any valid reason to deviate from the decision of the Tribunal in assessee‟s own case for the assessment year 2012–13 wherein identical facts were involved and secondly, as per the submissions of the learned Departmental Representative, against the order of the Tribunal in assessment year 2012–13, the Revenue has already preferred an appeal before the Hon‟ble High Court. For these reasons, we are not inclined to accede to the request of the learned Departmental Representative for referring the issue to the President for constitution of a Special Bench to decide the appeals. With the aforesaid observations, the grounds raised are allowed.

12. In the result, both the appeals are allowed.”

As the facts and the issue involved in the present appeal remains the same as were inter-alia there before the Tribunal in its aforementioned case for A.Y. 2014- 15 and A.Y. 2015-16, therefore, finding no reason to take a different view, we respectfully follow the same. Accordingly, on the same terms we herein conclude that the amount of Rs.1,57,31,566/- received by the assessee from M/s Endemol India Pvt. Ltd. could not be held to be FTS in the hands of the assessee. The Ground of appeal No. 4 is allowed in terms of our aforesaid observations.

Nos. 1 to 3 are disposed off in terms of our aforesaid observations. &6659/Mum/2019 A.Ys. 2011-12 & 2016-17

11. Pomegranate Media (Pty) Ltd. Vs. Assistant Commissioner of Income Tax, IT-3(3)(2)

10. The appeal of the assessee is accordingly allowed in terms of our aforesaid observations. (Assessment Year: 2016-17) 11. We shall now take up the appeal of the assessee for A.Y 2016-17. The assessee has assailed the impugned order on the following grounds before us:

“1. On the facts and circumstances of the case and in law, the learned Assessing Officer („AO‟) has erred in proposing and the Hon'ble Dispute Resolution Panel (“DRP”) further erred in confirming that the income received by the Appellant for Line Production Services from Endemol India Private Limited of Rs.3,89,27,405/- should be taxed at 10% under Article 12 of the India - South Africa Tax Treat. It is prayed that the Learned AO be directed to hold that payments are neither taxable under Article 12 of the India- South Africa Tax Treaty nor under Section 9 of the Income Tax Act, 1961. The Appellant craves leave to add, after, amend or withdraw all or any of the Grounds of Appeal herein and lo submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing,”

14. Aggrieved, the assessee filed objections before the DRP, which vide its order passed u/s 144C(5), dated 25.06.2019 after dealing them on merits rejected the same.

India Pvt. Ltd. as FTS and subjected the same to tax @ 10% as per the India- South Africa Tax Treaty.

18. Resultantly, both the appeals of the assessee for A.Y. 2011-12 and A.Y. 2016-17 i.e & 6659/Mum/2019 are allowed.

Order pronounced in the open court on 26.07.2021