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Income Tax Appellate Tribunal, “I”BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR & SHRI SAKTIJIT DEY
PER SAKTIJIT DEY. J.M.
The captioned appeals have been filed by the assessee challenging the final assessment orders passed by the Assessing Officer under section 143(3) r/w section 144C(13) of the Income Tax
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Act, 1961 (for short "the Act") for the assessment years 2014–15 and 2015–16, in pursuance to the directions of the Dispute Resolution Panel (DRP).
The Registry has pointed out a delay of 390 days in filing the present appeals. The assessee has filed applications seeking condonation of delay supported by Affidavit. It is the contention of the learned Counsel for the assessee that due to internal management changes and change in the name of the company, there was delay in taking procedural steps which resulted in delayed filing of the appeals.
The learned Departmental Representative objecting to the condonation of delay submitted that the delay being inordinate, the assessee has failed to satisfactorily explain the cause for each day’s delay.
Having considered rival submissions, we are of the view that the assessee has satisfactorily explained the cause of delay in filing the appeals. Law is fairly well settled that in the matter of condonation of delay, the Courts should avoid a pedantic approach and every endeavour should be made to decide the issue on merits rather than dismissing the appeal in limine on technical ground. In the facts of the present appeals, the assessee has made out a strong case for
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condonation of delay. Therefore, condoning the delay in filing the appeals, we admit them for hearing and adjudication on merits.
The solitary common issue in dispute arising in these appeals relate to the nature of income received by the assessee from Endemol India Pvt. Ltd., towards line production services, whether is in the nature of fee for technical service, hence, exhigible to tax @ 10% as per Article–12 of India–South Africa Tax Treaty as well as section 9 of the Act.
Brief facts are, the assessee, earlier known as Endemol South Africa (Proprietary) Ltd. is a tax resident of South Africa and is engaged in the business of developing and producing entertainment programme for audio-visual platforms. During the assessment years 2014–15 and 2015–16, the assessee received` 13,53,97,594 and ` 14,85,09,614, from Endemol India Pvt. Ltd. after deduction of TDS @ 10%. During the assessment proceedings, the Assessing Officer on the basis of information collected under section 133(6) of the Act found that the assessee rendered services to Endemol India Pvt. Ltd. for filming the episodes of a serial called “Fear Factor” on various locations in South Africa. The Assessing Officer observed that no function, asset, risk analysis of the transaction was made available by the assessee to decide the entire nature of service rendered. He observed, the
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agreement clearly envisages provision of technical services. Thus, ultimately, the Assessing Officer concluded that in absence of contrary facts or submissions brought on record by the assessee, the services rendered to the Indian company is clearly in the nature of technical service/royalty as per Article–12 of India–South Africa Tax Treaty. Accordingly, he held that the amount received by the assessee is taxable @ 10% as per the tax treaty. Though, the assessee contested the aforesaid decision of the Assessing Officer by filing objections before learned DRP. However, agreeing with the Assessing Officer, learned DRP held that the nature of service provided involves various technical and managerial services. Hence, the amount received by the assessee towards such services is in the nature of fees for technical services, hence, taxable both under the provisions of the Act as well as under Article–12 of the India–South Africa Tax Treaty. In pursuance to the directions of learned DRP, the Assessing Officer has passed the impugned assessment order.
Shri Abhishek Tilak, the learned Counsel for the assessee 7. submitted that while deciding identical issue in assessee’s own case for the assessment year 2012–13, the Tribunal in ITA no.1732/Mum./ 2016, dated 3rd October 2018, has clearly and categorically held that the amount received by the assessee for providing line production
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service can neither be characterised as royalty nor as fees for technical service. Hence, in the absence of any permanent establishment (PE) in India, would not be taxable. He submitted, facts being identical in the impugned assessment year, the aforesaid decision of the Tribunal would squarely apply and the issue raised in the present appeal would be covered by the aforesaid decision of the Tribunal.
Shri Sanjay Singh, the learned Departmental Representative fairly agreed that the issue raised in the present appeals was also subject matter of dispute in the assessment year 2012–13 and the Tribunal has decided the issue in favour of the assessee. Nevertheless, he submitted, the amount received by the assessee is in the nature of fees for technical services, hence, taxable. The learned Departmental Representative submitted, while deciding the issue in the assessment year 2012–13, the Tribunal has not appreciated the facts and law in the right perspective. Therefore, the taxability of the amount received by the assessee should be upheld deviating from the earlier decision of the Tribunal. Alternatively, the learned Departmental Representative submitted, the issue raised in the present appeals may be referred to a Special Bench. The learned Departmental Representative has elaborately made submissions on all these aspects in a written submission filed before us, which are reproduced herein below:–
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“3. On merits, for the appeals for A.Y. 2014-15 & 2015-16, my short submissions are as follows M/s. Endemol India Pvt. Ltd., resident of India, and part of "Endemol Group", is in the business of producing and distributing television programs since 2006. "Endemol" has a global network of operations in several countries with business of development, production, marketing, distribution of scripted and non-scripted genres. Endemol India Pvt. Ltd. entered into Agreements with Endemol South Africa (Prop) Ltd. (now "Pomegranate") for "Fear Factor India Seasons 5 - South Africa" for "Fear Factor India Season 5 opening section- South Africa", for "Fear Factor India Season 5 Promos - South Africa" all dated 03.02.2014, and for "Fear Factor India Season-7 - South Africa" dated 14.11.2014. Endemol India Ltd. was commissioned by Colour TV channel to produce television series "Fear Factor" for broadcast in India. The episodes were filmed at various locations of Cape Town, South Africa. The agreements of Endemol India with the appellant Endemol South Africa (Endemol SA )shows that the Endemol SA was engaged as "Line Producer". Line Producer is a key. member of the film production team. It possesses in depth knowledge of scheduling and budgeting and all physical and technical process of film making. Line producer functions like the CEO and is responsible from pre-production to final production and is a skilled job. The Assessing Officer and the DRP have held that the payments received by the appellant fall within the scope of fees for technical services and royalty both under Article 12 of India - South Africa DTAA and Explanation 2 to section 9(1)(vii) of the IT Act, 1961. The appellant has relied upon the decision of the Hon'ble ITAT Mumbai in the case of Yashraj Films Pvt. Ltd. and AAR Ruling dated 13.12.2013 & 19.02.2014 in respect of application made by Endemol India for its proposed payments to Endemol Argentina. It has also relied on the decision of the Hon'ble ITAT in its own case in ITA No. 1732/M/16 forA.Y. 2012-13. It is submitted that the facts in the case of Yashraj Films Pvt. Ltd. are entirely different from this case. In Yashraj Films the Indian Production team went abroad to various locations and engaged various service providers as required such as for transport,
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security, permissions, etc. which were mainly logistic services. In the case of Endemol, the agreement is for "line producer" which involves rendering of composite and elaborate service which is "managerial" and "technical" in nature. The decision of the AAR relied upon by the appellant held that fees paid for line production falls under definition of "work" as per section 194C and not FTS as per section 194 J and the same interpretation must be followed while determining whether it is FTS as per section 9(l)(vii). It is pointed out that the relevant agreement before the AAR is not filed so the scope cannot be compared with facts here. Further, it was a case of Argentina with which no DTAA was applicable. Further, such Ruling has limited operations as to only the parties concerned, the transactions and on the specific facts involved. The Hon‟ble ITAT in the appellant's case for A.Y. 2012-13 have relied on both the decisions in the case of Yashraj Films as well as the AAR Ruling. The Hon'ble ITAT have held that The contract is for providing services and not for granting a i) right in any copyright. The services rendered by assessee in no way involves ii) controlling, directing, managing or administering the business or part of business of Endemol India and therefore is not "managerial services". The services rendered by assessee does not involve any iii) technical skill or technical knowledge or technical expertise and, therefore, is not "technical services". The services rendered by assessee do not involve any advice iv) or consultancy and, therefore, is not "consultancy services". Hence, the services are not FTS within the meaning of Explanation 2 to section 9(1)(vii). Further, payments received by assessee cannot be considered as Royalty since: Consideration was paid for production cost and not licensing (i) rights in any program. When work is commissioned under contract of service at the (ii) instance of a person, under the Indian Copyright Act, 1957 such
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person is the first owner of Copyright. Hence, ownership of copy right remains with Endemol India Ltd. and therefore question of assignment of the same to Endemol India Ltd. by appellant does not arise. Article 12 of the DTAA covers only use or right to use any copyright and does not cover transfer of copyright. It is humbly submitted that - (i) Sections 194C and 194J are with reference to and for the purpose of deduction of tax at source and the applicable rate for TDS. Explanation to section 194C states "work" shall include (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting. Explanation to section 194J states (b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9. When it comes to question of TDS in respect of payments for a contract for broadcasting and telecasting including production of programmes for such broadcasting or telecasting, applicable TDS rate would be 2% as per section 194C and not 10% as per section 194J. However, the issue here is payment to a foreign company to which section 195 applies and not 194C or 194J. Further, there is no carving out of payments for services of broadcasting or telecasting from the definition of FTS read with Explanation in section 9 which deals with income deemed to accrue or arise in India to nonresidents. If the interpretation suggested by AAR and ITAT was correct, section 9(1)(vii) read with Explanation would have explicitly excluded such services. Hence, it is not correct to restrict the meaning of FTS u/s 9 by relying on TDS provisions applicable to payments to residents which is with the purpose of rates of TDS. Lastly, the contract of Endemol India with appellant is not for production of program but one of rendering "managerial" and "technical" service for production of program, a distinction not appreciated by the Hon'ble ITAT. (ii) Whether the contract for producing television series is liable for TDS u/s 194C or 194J would be relevant for contract of Endemol India Ltd. and Colours channel and not the contract of appellant with Endemol India Ltd. who is engaged for services as "line producer". (iii) Appellant Endemol SA renders technical service (Refer clause 4 on Technical Quality in the agreement). It provides a Technical Director. It provides production facility and location
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filming services. The filming is as per the format of US series Fear Factor. Technical crew is provided for this purpose. This clearly shows the "technical service". (iv) The work has to be managed within the agreed time period and budget which clearly indicates "managerial service". The nature of services provided by appellant are therefore falling within the scope of FTS both as per Explanation 2 to Section 9(1)(vii) as well as Article 12 of DTAA with South Africa which is "para materia". Reliance is placed on the following decisions - Hical Infra Projects Ltd. T.S.252-ITAT-2019 (Bang) - Commission paid to nonresidents for procuring orders for assessee, coordination and checking quality of goods - indicates some technical expertise and was FTS u/s 9(l)(vii). Shri Jogendra L Bhati 183-TS-2019 (Ahd) - Payments to foreign agents for customs clearances, logistics, warehousing, delivery is FTS, Andaman Sea Food P. Ltd. TS-30-SC--2016 - Receipt of consultancy fees was claimed as business income. It was held that services were consumed in India and amount received was FTS. Gungzhou Usha International Ltd. TS - 580-AAR-2015 - Services rendered in connection with procurement of goods was not commercial in nature but FTS. Vodafone Cellular Ltd. TS-577-ITAT 2015 (CHNY) -Support services like vendor payment queries, field verification and customer support services are FTS as it involves technical enterprise. CBDT Notification No.88/2008/F.No. 275/43/2008 - Payments to event manager is FTS covered by 194J. On merits it is therefore submitted that the decision by the Hon'ble ITAT has not appreciated the facts and the law in the right perspective and that the appeal may be dismissed on merits. However, considering that an earlier decision of the Hon'ble ITAT is in favour of appellant, it is requested that a reference be made to President for constitution of Special Bench. On query by the Hon'ble Bench, it is noted that department has filed appeal before the Hon'ble Bombay High Court for AY 2012- 13 and which is pending for admission. However, I wish to mention that such reference can be made, even whether
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substantial question of law raised against earlier order of the ITAT has been admitted by the High Court. Reliance is placed on the decision in the case of DCIT vs Summit Securities Ltd. (2011) 12 taxmann.com 372 (Mumbai) (SB) where this issue was considered and it was held that such a reference to Special Bench can be made.”
We have considered rival submissions and perused the material on record. Undisputedly, the contract between Endemol India Pvt. Ltd. and the assessee for 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
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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. 14. We shall first look into the characterisation of the fees received by the assessee, as FTS by the A.O/DRP. We find that in terms of Explanation 2 to Section 9(1)(vii) of the Act, the term “FTS” means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel), but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head “Salaries”. Further, in similar terms, as per Article 12 of the India-South Africa Tax Treaty, the FTS is defined to mean payments of any kind received as a consideration for the services of a managerial, technical or consultancy nature, including the provision of services by technical or consultancy personnel. Thus, on a perusal of the definition of FTS, it emerges that the same encompasses consideration which is received for rendering of services of a managerial, technical or consultancy nature. We may herein
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observe, that the assessee as a “Line Producer” had on a principal to principal basis rendered various coordination/facilitation services to Endemol India Pvt. Ltd., in producing the television series viz. “Fear Factor‟, viz. arranging all production facilities and location filming services; providing a line producer, production staff, local crew for providing stunt services, transport necessary for stunts for production of the show; providing and arranging for a director, staff, art department and production staff to set up and film the series; providing for all required paper work and declaration regarding fair treatment meted out to animals, insects etc. during the production of the show etc; providing Film Producer‟s indemnity insurance for all resources including the filming of the stunts; and providing for an appropriate storage space for Endemol India Pvt. ltd to 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
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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 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
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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,
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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 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.
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We shall now advert to the observations of the A.O/DRP that the sum received by the assessee company was also in the nature of “royalty”, both under the Act and the India-South Africa tax treaty. We find that the A.O has stated in his order that the consideration received by the assessee was towards “royalty” for copyright. On the other hand, it is contended by the assessee that the consideration received from Endemol India Pvt. Ltd., cannot be construed as “royalty” within the meaning of Article 12 of the India-South Africa tax treaty. We find that the assessee has assailed the treating of the consideration received by the assessee as “royalty” by the lower authorities on various grounds viz. (i) the agreement in lieu whereof consideration was received by the assessee was a contract for providing services and not for granting of any rights in a programme; (ii) it is in consideration for such services rendered that it was agreed by the parties that the assessee will be remunerated by way of production fee/production cost; (iii) that as per the terms agreed between the parties in the agreement the entire payment was towards production cost/production fees, and not for licensing of rights in any programme; (iv) that assuming (without admitting) that there was also a grant of copyright, then in the absence of any mention of consideration under the agreement which clearly states that the entire consideration is only for services rendered by the assessee, no part of such consideration could be related to royalty for copyright; (v) that by assuming that the payment received by the assessee was for „transfer‟ of rights in the programme, the same would tantamount to re-writing of the contract; (vi) that as per Sec. 17 of the Indian Copyright Act, 1957 and South Africa Copyright Act No. 98 of 1978, where the work is specifically commissioned under the contract of service at the instance of a person, such person shall be the first owner of the copyright, thus, now when the work viz. the television series „Fear Factor‟ is commissioned by Endemol India Pvt. Ltd. under the contract of service, therefore, it would always be the first owner of the work produced by the assessee and the owner of the copyright and the question of assigning any copyright under the copyright law would not arise; and (vii) that as the term “royalty” defined in Article 12 of the India-South Africa Tax Treaty includes only payment for use and right to use any copyright, thus, the claim of the A.O/DRP that the consideration received by the assessee was for “transfer” of the copyrights by the assessee to Endemol India Pvt. Ltd. would not fall within the realm of the definition of “royalty” in the tax treaty. 19. We have given a thoughtful consideration to the issue before us, in the backdrop of the contentions raised by the authorized representatives of both the parties and the material available on
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record. We find, that the term royalty as defined in Article 12 of the India-South Africa tax treaty, reads as under:- “3. The term “royalties” as used in this Article means payments of any kind received as a consideration for the use of or the right to use, any copyright of literary, artistic or 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
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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. 20. We further find that the A.O/DRP had brought the consideration received by the assessee within the sweep of the term of royalty, on the ground that the assessee had transferred the copyright in the program viz. „Fear Factor‟ to Endemol India Pvt. Ltd. The assessee has vehemently assailed the said observations of the lower authorities. It is the contention of the assessee, that as the amount received from Endemol India Pvt. Ltd. was in lieu of line production services rendered, and not for licensing of rights in any programme, thus, the consideration received by the assessee was wrongly assumed by the A.O/DRP to have been received in respect of transfer of copyright. Be that as it may, we are of the considered view that as the term royalty under Article 12 of the India-Sought Africa Tax Treaty, takes within its sweep only consideration received for the use or right to use, any copyright, thus, the observations of the lower authorities that the consideration received by the assessee was for „transfer‟ of the copyright to Endemol India Pvt. Ltd., in any way, would on the said count also fall beyond the sweep of the term “royalty” as defined in Article 12 of the India South Africa tax treaty. We thus, after deliberating on the contentions advanced by the assessee to buttress its claim that the lower authorities had wrongly characterised the amount received from Endemol India Pvt. Ltd. as „royalty”, are inclined to accept the same. 21. In terms of our aforesaid observations, we are of the considered view that the lower authorities had erred in characterising the consideration received by the assessee for 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.”
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
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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.
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
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of a Special Bench to decide the appeals. With the aforesaid observations, the grounds raised are allowed.
In the result, both the appeals are allowed.
Before we part, it is necessary for us to deal with a procedural issue relating to pronouncement of the order. The hearing of this appeal was concluded on 21.02.2020. As per rule 34(5) of the Income Tax (Appellate Tribunal) Rules,1963, ordinarily the appeal order has to be pronounced before expiry of ninety (90) days from the date of conclusion of hearing of appeal. However, on 24.03.2020 a nationwide lockdown was enforced by the Government of India in view of COVID– 19 pandemic. Due to the unprecedented situation arising out of such lockdown all activities ceased and no normal official work could be done. For this reason only the appeal order could not be pronounced within the period of 90 days. Being faced with a similar situation the Tribunal in case of DCIT V/s JSW Limited, ITA Nos.6264 & 6103/Mum/2018, dated 14th May 2020, after interpreting rule 34(5) of the Income Tax (Appellate Tribunal) Rules, 1963 as well as various decisions of the Hon’ble Supreme Court as well as the Hon’ble Jurisdictional High Court held that due to the extraordinary situation prevailing due to the pandemic, the lockdown period has to be excluded for the purpose of limitation in respect of pronouncement of
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order as per rule 34(5). The relevant observation of the Bench in this regard is reproduced hereunder for better clarity:–
“7. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 7th January 2020, this order thereon is being pronounced today on 14th day of May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows: (5) The pronouncement may be in any of the following manners: (a) The Bench may pronounce the order immediately upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement. (c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily (emphasis supplied by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board. 8. Quite clearly, “ordinarily” the order on an appeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression “ordinarily” has been used in the said rule itself. This rule was inserted as a result of directions of Hon‟ble jurisdictional High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein Their Lordships had, inter alia, directed that “We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable
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time and followed strictly by all the Benches of the Tribunal. In the meanwhile (emphasis, by underlining, supplied by us now), all the revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment”. In the ruled so framed, as a result of these directions, the expression “ordinarily” has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any “extraordinary” circumstances. 9. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon‟ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent the spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon‟ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that “In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15 days after the lifting of lockdown”. Hon‟ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, “It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”, and also observed that “arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020”. It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the coronavirus “should be considered a case of natural calamity and
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FMC (i.e. force majeure clause) maybe invoked, wherever considered appropriate, following the due procedure…”. The term „force majeure‟ has been defined in Black‟s Law Dictionary, as „an event or effect that can be neither anticipated nor controlled‟ When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an “ordinary” period. 10. In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon‟ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon‟ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for disposal of matters made timebound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by Hon‟ble jurisdictional High Court and Hon‟ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot
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be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case.‟‟
Following the aforesaid decision of the Coordinate Bench, we proceed to pronounce the order today the 30th day of June, 2020 through circulation in notice board in terms of rule 34 of the Income Tax (Appellate tribunal) Rule, 1963.
Sd/- Sd/- PRAMOD KUMAR SAKTIJIT DEY VICE PRESIDENT JUDICIAL MEMBER
MUMBAI, DATED: 30.06.2020 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary
Assistant Registrar ITAT, Mumbai