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Income Tax Appellate Tribunal, MUMBAI BENCH “H”, MUMBAI
Before: SHRI D.T. GARASIA & SHRI ASHWANI TANEJA
Date of hearing : 16-02-2017 Date of order : 28-02-2017 O R D E R Per Ashwani Taneja, AM:- These appeals pertain to same assessee involving identical issues, therefore, these were heard together and are being disposed of by this common order. 2. First, we shall take up appeal for A.Y. 2005-06 in 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:-
2 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 “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 employer- employee 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 Rs. 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 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 the payments made to manager for the benefit of co-owners towards the use of premises at Mukesh Mills compound shall be liable for deduction of Tax u/s 1941 of the act though the payments of the hire charges in the hands of the respective recipients were below the threshold limit specified u/s 1941.
6. Alternatively and without prejudice to any other ground of appeal, the learned CIT (A) has erred in upholding that the demand
3 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 of Rs. 57,961/- on account of payments made to the manager of Mukesh Mills Compound on behalf of the co-owners of the property. 7. Alternatively and without prejudice to any other ground of appeal
, the learned CIT (A) has erred in upholding that the processing charges debited by Adlabs Films Pvt. Ltd. (for Ad films) amounting to Rs. 1,41,776/- were liable for deduction of tax u/s 194J.
8. Alternatively and without prejudice to any other ground of appeal the learned CIT (A) has erred in upholding that the processing charges debited by Adlabs films Pvt. Ltd. (for film Main Hoon Na) amounting to Rs. 34,93,624/- were liable for deduction of tax u/s 194J though the amount was charged for the prints processed and printed by Adlabs Films Pvt. Ltd.
9. Alternatively and without prejudice to any other ground of appeal, the learned CIT (A) has erred in not appreciating the fact that Adlabs films Pvt. Ltd. had during the course of business given a discount of Rs. 47,20,138/- to the appellant company, which was more that the amount charged by it to the appellant company (Rs. 36,35,400/-). Hence, the Appellant company was not liable to deduct TDS on the printing and the processing charges merely debited by Adlabs Films Pvt. Ltd. of Rs. 36,35,400/-.
10. Alternatively and without prejudice to any other ground of appeal, the learned CIT (A) has fail to appreciate the circumstances as envisaged by the grounds of appeal No 7,8 & 10 and hence has erred in 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 Rs.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 Rs. 28,431/- on account of payment made to empire Audio Centre Pvt 4 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 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 in the nature of salary as against the claim of the assessee to deduct tax u/s 194J on these payments on the ground that these persons were acting in the capacity of independent professionals and not as employee of the company. The brief background is that during the year assessee was engaged in 4. the business of film production. A survey u/s 133A of the Income-tax Act, 1961 was conducted on 23-11-2006 on the assessee’s business premises. It was inter-alia noted by the AO that during the F.Y. 2004-05, the assessee company had paid remuneration to various persons in pursuance to the service contract agreement entered with these persons and the compensation paid to these persons was termed as ‘retainership fee’ and assessee deducted tax u/s 194J on these payments on the ground that these persons were independent professionals and amount paid to them was in the nature of ‘fee’. The AO went through the contract entered with these persons and he was of the opinion that there existed employer-employee relationship between the assessee and these persons and, therefore, assessee was required to deduct tax u/s 192. Accordingly, he worked out the amount of shortfall in TDS u/s 192 of the Act in the case of following persons:- Name of the Gross Effective TDS TDS effected Shortfall employee payments u/s 192 Sanjeev Chawla 660000 175440 33700 141740 Sushma Chitnis 660000 170340 33700 136640
5 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 Blesson Oomen 302500 66045 15750 50295 Amitabh Shukla 203500 35750 10450 25301 Vishal Punjabi 150000 19380 7100 12280 Rajesh Wanmali 120000 13260 6350 6910 Total default 373166
Being aggrieved, assessee filed appeal before Ld. CIT(A) wherein following submissions were made:- “The business of the appellant company is laden with risks. The appellant company, being a film production company, is into an uncertain business. The activities of the company peak out when there is film under production and the activity level tapers off, when there are no films under production. Most of the people whose services are taken for film production are not employed on monthly basis but their services are used on a contractual basis so that in case of lull in business activities their contract can be terminated to save the cost. Such persons are hired or eased out based on the business needs of the company and therefore, they are not given employment with the 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 Gross fees Services rendered professional Sanjeev Chowla 6,60,000 Production Management Services Sushma Chiitnis 6,60,000 Executive Services Blesson Oomen 3,02,500 Account Finance Services
6 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 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 claimed that these persons were in employment of appellant company and therefore, he raised a demand of Rs.3,70,1661- as shortfall in deduction of tax. It may be appreciated that the relation between these respective parties and the company were contractual relations and they were not that of employment. So much so that the appellant company did not deduct any professional tax of these parties from the payments made to them and they were liable to pay their own professional tax. These parties were not entitled for any gratuity or any other facility available to the employees. They had no fix hours of duty and there was no exclusivity. The parties as well as the company had a clear understanding that the relation was of taking professional services and not of employment. Under the circumstances, it was incorrect on the part of the assessing officer to assume that these professionals were under employment of the appellant company and demanding additional tax as TDS though the appellant company had lawfully deducted the applicable tax under 194]. For ready reference of your Honour the copies of the contracts as well as the ledger accounts of these parties are enclosed herewith. In 7 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 light of the above submissions and the fact that the employee- employer relation is an understanding between an organization and an employee and not just a matter of inference, we request Your Honour to delete the demand raised by the assessing officer treating these contractual professionals as the employees of the company.”
During the course of hearing before us, the submissions made before the lower authorities were reiterated. It was vehemently argued by the Ld. Counsel that contract with these persons may have been termed as employment contract, but actually, these persons were acting as independent professionals. The arguments made by him have been summarized by way of a note and relevant part of the same is reproduced hereunder:-
“1. The contract between the Assessee and the professionals did not constitute an employer employee relationship as the intent of the Assessee and the professionals was not to enter into an employer employee relationship If the company and the employee had understood the agreement in a certain way and had acted upon that agreement, it is not open to the ITO to give another interpretation.
The Professionals engaged were not for regular 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.
8 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 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 authorized to act as agents by entering into any commitments with third parties on behalf of the Assessee without express authorization. Though the number of days of leave were contractually fixed, there were no covenants binding the said professionals to the company rules and regulations as applicable to employees on the pay roll of the company. The mere isolated mention of the word 'employment' or 'termination' would not ipso facto make the said relationship a employer - employee relationship. The word termination is used non- exclusively in the Indian Contracts Act, 1872 in multiple sections such as Sec. 201, 202, 153 etc. even for contracts of agency and bailment. The use of the word 'employee' in isolation in a heading of one of the clauses of the contract by itself would not result in an employer employee relationship. A contract has to be read as a whole and in light of the intentions of the contracting parties and one word in isolation in the title of a clause cannot lend colour to the entire contract especially when the operative part of the same clause says otherwise. 5.The said professionals were not provided any benefits of employment like PF, ESIC, gratuity, bonus etc. that form a part and parcel of employment. Even the option of exercising any such facility in the long run was not contractually provided to them.”
In support of its claim, the Ld. Counsel placed reliance upon the following judgments:- 1. CIT vs Yashodha Super Speciality Hospital [2011] 365 ITR 256 (Anbdhra Pradesh HC) 2. ACIT vs Grant Medical Foundation [21015] 375 ITR 49 (Bom)(HC) 3. ITO VS Entertainment Network td dated 11/1/2017 8. P 9 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 er contra, the Ld. DR appearing on behalf of the Revenue vehemently supported the orders of the lower authorities. It was argued by him that it is a clear cut case of employment of these persons. The perusal of the contract entered with these persons shows that they were hired as employees of the assessee company. It was submitted that the terms of the contract shows that requisite ingredients of employer-employee relationship exist in this case. Therefore, lower authorities have rightly held it to be a case of deduction of tax u/s 192. He placed reliance upon the decision referred to by Ld. CIT(A) in his order in the case of DCIT vs Wokhardt Hospitals Ltd 139 ITD 161 (Hyd). It was lastly argued by him 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.
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 10 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 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 duties as may be assigned from time to time.
COMPENSATION AND BENEFITS: RC shall pay SANJIV a total remuneration of Rs.60,000/- per month, subject to tax deduction at source, at applicable rate of tax. In addition, you will be provided with a company car. The company will also provide you with a cell phone for local and official use.
LEAVES: You shall report to office on daily basis to perform the duties assigned to you from time to time. However you shall not remain absent from work for more than 30 days in a calendar year.
DATE OF COMMENCEMENT: Your contract will take effect from 1st December, 2003.
TERMINATION OF EMPLOYMENT: Either party will be entitled to terminate this contract at any time after giving ONE Month notice in writing. It may however be open for the company to waive the notice period or part thereof in the event of your resignation. In the case of termination by the company it will be the company's option to pay your remuneration in lieu of notice period. OTHER TERMS AND CONDITIONS:
1. 1. Confidentiality: During the tenure of your service or later you will not divulge to any person whomsoever any trade secrets or process or any information regarding the business or finance of the company or any dealings, transactions or affairs which may come to your knowledge during the course of your employment and you shall exercise your best endeavor to prevent the publication or disclosure thereof.
2. Commitments and Dealings: You will not enter into any commitments or dealings on behalf of the company for which you have no express authority nor alter or be a party to any alteration of any principle or policy of the Company or exceed the authority or discretion vested in you without the previous 11 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 sanction of the Company or those in authority over you.
3. Notices: All notices and other communications which are required to be or may be given will be in writing and will be given in person or will be mailed to you at your office e-mail address or to such other address as mutually decided. In acceptance of the above terms and conditions, please sign the duplicate copy of this letter. Yours Faithfully, For RED CHILLIES ENTERTAINMENTS PRIVATE LTD Sd/- Director I agree to accept the above terms and conditions Sd/- (SANJIV CHAWLA)”
Perusal of the aforesaid contract shows that Shri Sanjiv Chawla has been appointed 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.
Further, the remuneration has been fixed @ Rs.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.
12 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 These perks have been provided as are generally provided in the case of an employee. These perks also indicate that Shri Chawla has been engaged on full time basis and that is why the assessee company was pleased to provide these facilities to Shri Chawla.
It has also been noted that it has been stipulated in the agreement that Shri Chawla shall attend office on daily basis to perform the duties as may be assigned to him from time to time by the assessee company. He has also been provided with leaves of around 30 days in a year. Thus, impliedly, for the remaining days he shall be attending the office. These types of terms are kept in the case of employees only and not in the case of independent professionals.
A condition has been stipulated for ‘termination of employment’. That itself shows that this contract has been drafted keeping in view the relationship of employer-employee. Thus, the totality of terms and conditions of this agreement clearly indicates that there existed an employer-employee relationship between Shri Chawla and the assessee company and he was hired as an employee by the assessee company and not in the capacity of an independent professional.
It has been argued by Ld. Counsel that there was no payment of PF, ESI, gratuity, bonus, etc. In our opinion, payment of these incentives is one of the indicators of existence of employer-employee relationship but not the conclusive or the only ingredient. It depends upon the overall financial terms entered into between the employer and employee. In the case before us, the overall remuneration of Rs.60,000/- per month has been fixed keeping in view this factor that these incentives shall not be paid by the assessee to Shri Chawla.
Further, despite our specific queries, Ld. Counsel was not able to show 13 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 anything contrary to the natural inference that can be drawn from the perusal of the agreement. Nothing has been shown to prove that Shri Chawla was not engaged on full time basis or he was working on part time basis with the company as an independent professional and he was free to take up other assignments. No cogent reason could be given before us as to why the designation of Production Manager was assigned if he was acting simply as an independent professional. Thus, in our considered opinion, the facts and the evidences brought before us duly establish that there existed an ‘employer- employee’ relationship between the assessee company and 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.
Grounds 5 & 6 were not pressed, therefore these are dismissed as such.
Grounds 7 to 10 and ground 11 & 12 involve a common issue that on the 14 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 various expenses incurred by the assessee which were part of post production activities, the assessee deducted tax at source u/s 194C treating them as contractual work whereas the AO was of the opinion that services rendered to the assessee by the payees were professional services, therefore, assessee ought to have deducted tax at source u/s 194J. Ld. CIT(A) confirmed the order of the AO on this issue.
We have gone through the orders passed by the lower authorities and also gone through the submissions made by the Ld. Counsel in this regard. The assessee has paid processing charges by Adlabs Films Pvt Ltd amounting to Rs.34,93,624 which included a sum of Rs.23,79,972 towards print and processing charges for which credit was given to the said party. It has been submitted that taking out of the final negative of the films does not involve rendering of any technical or professional services. Therefore, TDS is required to be deducted u/s 194C. In any case, ‘printing and processing of film’ is a part of post production activity. Thus, TDS should be deducted u/s 194C. Similarly, the assessee has paid amount for digital mixing, which is also part of post production activities.
Our attention was brought on the decision of Mumbai bench of the Tribunal in the case of DCIT vs Yashraj Films Pvt Ltd 160 ITD 626 (Mum) wherein it was held that taking out a final negative of film does not involve any technical or professional service, therefore, TDS should be deducted u/s 194C. Our attention has also been brought on the following judgments wherein all post production activities have been held covered within the definition of work as provided u/s 194C:- “ CIT v. Prasar Bharati [2007] 292 ITR 580 (Delhi HC) - The Hon'ble Delhi High Court held that Explanation (iii) to Sec. 194C which was introduced along with Sec. 194J is very specific in its application to 15 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 not only broadcasting and telecasting but also includes production of programmes for such broadcasting and telecasting. The High Court held that when there are two provisions one general and one specific, the specific one manifests the intention of the legislature and should be followed.
Nitin M Panchamiya v. ACIT [2012] 50 sot 468 (Mumbal) as affirmed by CIT v. Nitin M Panchamiya [2015] 228 Taxman 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.”
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 post production activities. Therefore, the assessee was obliged to deduct TDS u/s 194C only and not u/s 194J. As a result, these grounds are allowed.
In the result, appeal of the assessee is partly allowed. 21. Now we shall take up appeal filed by the assessee in A.Y. 2005-06 against the order of the CIT(A) dated 01-10- 16 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 2014 passed against the order u/s 201(1) / 201(1A) r.w.s. 263 of the Act dated 30th January, 2014 for A.Y. 2005-06 on the following grounds:- “
1. The learned CIT (A) has erred in upholding that the payment of Rs. 8,46,838/- made to VHQ SPTE Ltd. was liable to deduction of tax U/S 194J amounting to Rs. 1,90,053/-, ignoring both the submissions made by the appellant company and also the fact that the recipient was a non resident to whom the provisions of Section 194J do not apply.
2. Without prejudice to the ground of appeal no 1 as stated above, the learned CIT(A) has erred in not appreciating the fact that as per the provision of section 194J, the tax was deductible at the rate of 5% plus applicable surcharge and cess and therefore, the tax deductible, if any, u/s 194J amounted to Rs.47,508/- and not Rs.1,90,053/- as incorrectly assessed by the assessing officer. 3.The learned CIT (A) has erred in upholding that the payment of Rs. 14,59,514/- made to KBW Ltd. was liable deduction of tax U/S 194J amounting to Rs.81,874/-; ignoring both the submissions made by the appellant company and the fact that the recipient was a.non resident to whom the provisions of Section 194J do not apply.
The learned CIT (A) has erred in concluding that the payment of Rs.2,80,000/- made to Jai Mahal Palace Hotel was liable to deduction of tax U/S 1941 amounting to Rs.61,832/-; ignoring the submissions made by the appellant company including the fact that a part of the amount was paid for food.
5. The learned CIT (A) has erred in concluding that the payment of Rs.1,69,146/- made to Hotel Teej was liable to deduction of tax u/s 194I amounting to Rs.37,956/-; ignoring the submissions made by the appellant company including the fact that a part of the amount was paid for food. 6.The learned CIT (A) has erred in concluding that the payment of Rs.5,24,873/- made to Holiday Inn Hotel was liable to deduction of tax U/s 1941 amounting to Rs. 1,17,815/-: ignoring the submissions made by the appellant company including the fact that a 17 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 part of the amount was paid for food. 7.The learned CIT (A) has erred in concluding that the payment of Rs.3,68,557/- made to Roop Niwas Palace Hotel was liable to deduction of tax u/s 194I amounting to Rs.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 Rs. 1,76,727/- made to Grand Hotel was liable to deduction of tax U/S 1941 amounting to Rs.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 Rs.3,12,933/- made to Alfa Properties & Investment Pvt. Ltd. was liable to deduction of tax U/S 1941 amounting to Rs.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 Rs.6,19,000/- made to Cross Country Hotel was liable to deduction of tax U/S 1941 amounting to Rs.1,38,904/-; ignoring the submissions made by the appellant company including the fact that •a part of the amount was paid for food.”
Grounds 1 & 2: The brief background of the issue is that during the 22. F.Y. 2004-05, the assessee paid a sum of Rs.8,46,838/- to M/s VHQ Singapore without deducting tax on the same. The AO was of the opinion that this amount was in the nature of professional fee and, therefore, assessee was required to deduct tax at source on the applicable rates. The assessee submitted before the AO that the recipient company was located in Singapore and it did not have a Permanent Establishment (PE) in India. The said company had rendered post production services in Singapore for the purpose of an advertisement film and the work was executed wholly outside India and, 18 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 therefore, the assessee company was not liable to deduct TDS on the same. However, AO was not satisfied with the reply of the assessee and was of the opinion that since payment was made for processing of a film, assessee was liable to deduct tax u/s 194J and accordingly, he held the assessee in default u/s 201 / 201(1A) of the Act. During the course of appeal before CIT(A), the assessee submitted as under:- “ A payment of Rs.8,45,838/- was made to VHQ SPTE Ltd., which was a company located in Singapore. The said company had no permanent establishment in India. The amount was paid towards studio hire charges in Singapore for post product/on work for an advertisement film produced by the appellant company. As per the provisions of DTAA between India and Singapore,, the appellant company did not deduct any tax on the payments made to the VHQ SPTE Ltd. as it had no permanent establishment in India. In the original assessment, the assessing officer did not raise any demand on account of TDS for this payment as he was convinced from the verification of bills/ vouchers, that no tax was deductible on account of these payments. However, while completing the assessment u/s 201(1)1 201(1 A) r.w.s 263 of the Income Tax Act, 1961, the then assessing officer considered the payment to the party liable for deduction of tax u/s 194I. He mentioned that as the payment is made for processing of the film, it was liable for deduction u/s 194J attracted for such payments. Further, as per the DTAA between India and UK, as the party did not have any permanent establishment in India, 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 Rs.81,878/- made on ac of the payment to KBW Ltd. by the assessing officer and oblige.”
However, Ld. CIT(A) did not accept the submissions of the assessee. It 19 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 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.
During the course of hearing before us, Ld. Counsel of the assessee vehemently contested this issue. The arguments made by him are summarized as under:-
“'VHQ.' merely carried out post production activity. In the process no technical knowledge, experience, skill, know-how or process as envisaged by Article 12 of the India Singapore DTAA was made available to the Appellant. Hence, the transaction cannot be held to be a fee for technical services as envisaged by Article 12 (4)(a) of the said DTAA. (Pg. 60 - 61 - Case Law PB 3) Hence, as per the India Singapore DTAA, the fees paid to 2. 'VHQ' were business profits as per Article 7 of the India Singapore DTAA and could be taxed only in the Singapore as 'VHQ' did not carry out any business via any permanent establishment in India. (Pg. 62 - Case Law PB 3) 3. It is a settled position of law that in case of an International transaction governed by a DTAA, the specific provisions of the DTAA shall override the general provisions of the act. This is amply demonstrated by Circular No. 333 [F No. 506/42/81-FTD] dated 2-4- 1982 that states that "where a double taxation avoidance agreement provides for a particular mode of computation of income, the some should be followed, irrespective of the provisions in the Income-tax Act. Where there is no specific provision in the agreement, it is basic law, i.e., the Income-tax Act, that will govern the taxation of income." The circulars of the CBDT are binding upon the Department. Reliance placed upon CIT v. Hero Cycles Pvt. Ltd. [228 ITR 463 (SC), 20 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 K.P. Varghese v. ITO 131 ITR 597 (SC) and UOl v. Azadi Bachao Andolan 263 ITR 706 (SC). Hon'ble Jurisdictional High Court in the case of CIT v. Siemens 4. Aktiongesellschaft [20091 310 ITR 320 (Born) held that where the provisions of the DTAA are more beneficial than provisions of the Act, the provisions of the DTAA would prevail. For Article 12 of Singapore - India DTAA to apply, technical 5. knowledge, experience, skill, know-how or process needs to be 'made available'. Generally speaking, technology would be considered 'made available' when the person acquiring the service is enabled to apply the technology as was also held in: • Mc. Kinsey & Co., Inc. (Philippines) v. ADIT 99 ITD 549 (Mumbai) • ICICI Bank Ltd. v. DIT 20 SOT 453 (Mumbai) • Anapharm Inc., In re 305 ITR 394 (AAR) As the payment made to 'VHQ' is not taxable in India, assessee cannot be held to be an Assessee in default.
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.
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 21 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 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 Article 12(4)(b) of India Singapore DTAA that ‘Fees for Technical Services’ means payment to any person in consideration for services of managerial, technical or consultancy nature fee, if such services make available technical knowledge, experience, skill, know-how or process which enables the person availing the services to apply the technology contained therein. 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 possible at the end of the assessee at its own. Thus, the requisite mandatory condition of ‘make available’ of technical knowledge or know-how or skill is missing in this case. Therefore, in our considered opinion, this amount cannot e brought to tax as FTS under India-Singapore DTAA. The judgments relied upon by the Ld. Counsel in his submissions have taken similar view. It is also noted that as per provisions of section 90(2) of the Act, most beneficial provision shall be available to the assessee between provisions of the Act and the provisions of the DTAA. Therefore, we find that this amount was not taxable in the hands of VHQ in India. Therefore, assessee was not obliged to deduct tax at source on the payment made to VHQ. As a result, these grounds are allowed. 27. Ground 3: In this ground, it was held by the AO that amount paid by the assessee to M/s KWB, UK for providing dancers, who had rendered services in India for advertisement films used in India was taxable in India and, therefore, assessee was liable to deduct TDS u/s 194J for professional or 22 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 technical services. Limited prayer of the Ld. Counsel before us is that since the payment was made for production of the programme for broadcast, therefore, TDS should have been deducted u/s 194C and not u/s 194J.
Per contra, Ld. DR did not make any objection to this.
We have gone through the orders passed by the lower authorities and find that the contention of the Ld. Counsel that amount was paid for production of a programme for broadcast is factually correct. Therefore, TDS was required to be deducted u/s 194C in view of the specific provision contained in section 194C in this regard. Therefore, it is held that TDS should have been deducted u/s 194C and not u/s 194J. Accordingly, this ground is partly allowed.
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 Rs.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 Rs.1,20,000, it was held by him that TDS was required to be deducted u/s 194I on the whole of such amount. During the course of hearing before us, Ld. Counsel of the assessee relied 31. upon the CBDT circular No.5 of 2002 dated 30-07-2002 wherein it was clarified 23 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 that where earmarked rooms are let out for specified rate and specified period, only then, they will be construed to be accommodation made available on regular basis whereas the facts of the assessee’s case are that there was no prior contract with the hotels. The rooms were hired on as and when available basis, corresponding to the date of shooting. There was no contract for any specific rates or period and thus TDS was not required to be made u/s 194I.
We have gone though the orders passed by the lower authorities and facts brought before us on the basis of bills of hotels and other evidences. It is noted that nothing has been brought before us to show that assessee had entered into any prior contract with the hotels for any specific room or rooms for any specific rates or rooms for any specific period. The rooms were hired on as and when available basis at the regular tariff rates subject to the discounts as agreed at the time of booking of rooms. Under these circumstances, the assessee deserves to be given the benefit of the circular issued by the Board providing that under these circumstances, TDS will not be required to be made u/s 194I. Therefore, it is held that no TDS was required to be made in this case. As a result, these grounds are allowed and this appeal is partly allowed.
Now, we shall take up appeal filed by the assessee in for A.Y.2006-07 against the order of CIT(A) dated 14-08- 2014 passed against the order u/s 201(1) of the Act dated 24-03-2011 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.
24 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 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 Oornrnen, Mr. Amitabh Shukia, Mr. Vishal Panjabi and Mr. Rajesh Wanmali had an employer- employee relationship with the appellant company.
3. Alternatively and without prejudice to any other ground of appeal, the learned CIT (A) erred in not appreciating that the demand of Rs. 7,33,978/- for alleged short deduction of tax (being the difference of tax deducted as between provisions of Sec 194J and 192 of the 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 Rs. 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, the Learned CIT(A) erred in upholding that in this particular circumstance where the various entities which took part in the post production process have been assessed to and paid their due taxes, interest u/s 201(A) will remain chargeable till date of filing of return by the respective payees and in directing the assessing officer to recomputed the same.”
34. Grounds 1 to 4 : These grounds pertain to deduction of tax at source on the 25 ITA 6655-6657/Mum/2014 ITA 92 & 93/Mum/23015 amount paid to professionals engaged by the assessee where tax was deducted u/s 194J whereas the AO was of the opinion that these persons were employees of the assessee and therefore, TDS should have been deducted u/s 192 of the Act. During the course of hearing, it was jointly stated that these grounds are identical to grounds 1 to 4 of ITA No.6655/Mum/2014. Facts and legal position remain the same. Therefore, following our order in appeal in these grounds are decided against the assessee.
35. Grounds 5 to 7: These grounds deal with the issue of requirement of deduction of tax u/s 194C vs 194J on behalf of production expenses. It has already been held in ITA No. 6655/Mum/2014 that TDS is required to be deducted on these expenses u/s 194C and not u/s 194J. Therefore, following our order, these grounds are allowed in favour of the assessee.
36. As a result, this appeal is partly allowed. Appeals in ITA No.93/Mum/2015 for A.Y. 2006-07 and ITA
37. No.6657/Mum/2014 for A.Y. 2007-08 involve identical grounds which have already been decided in aforesaid appeals. The AO is directed to follow our order of aforesaid appeals which shall apply mutatis mutandis on the grounds raised in this appeal also.
38. In the result, all the appeals are partly allowed in terms of our directions contained in the orders passed in the aforesaid appeals.
Order pronounced in the court on this 28th day of February, 2017.