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सुनवाई क� तार�ख / Date of Hearing : 04-01-2017 घोषणा क� तार�ख / Date of Pronouncement : 04 -01-2017 आयकर अ�ध�नयम, 1961 क� धारा 254(1) के अ�तग�त आदेश Order u/s.254(1)of the Income-tax Act,1961(Act) Per Pawan Singh, J.M. �या�यक सद�य iou iou iou �संह के अनुसार: iou
The present appeal filed by Revenue u/s 253 of the Income-tax Act against the order of ld. Commissioner of Income-tax (Appeals)-14, Mumbai (for short the CIT(A) dated 11.08.2014 for Assessment Year(AY) 2011-12. The Revenue has raised the following grounds of appeal:
1. The ld CIT(A) erred in not appreciating that production charges was in the nature of royalty which is covered under explanation 2 to clause(vi) of Sec 9 and falling within the ambit of Section 194J for TDS.
2. The ld CIT(A) erred in holding that assessee has rightly deducted TDS u/s 194C on dubbing expenses/ print processing fees on contract, without appreciating that this work involves technical expertise which can only be exhibited by competent and highly skilled persons irrespective fills thereby attracting the provision of section 194J of the Act.
2. The brief facts of the case are that assessee is a company and engaged in the business of production of Cinematographic Motion Pictures and small scale programs through assigned producers. The survey action under section 133A was carried out in case of assessee on 28 January 2011. In the survey it was found that the assessee has debited production expenses and the expenses /print processing fees and production expenses were ITA 6542/M/2014 Sahara One Media & Entertainment in the nature of fees for ‘technical services’ and royalty and hence the tax should have been deducted under section 194J of the Act @ 10% instead of @ 2% deducted by the assessee under section 194C with respect to the payments made during the year. The show cause notice was given to the assessee. And after considering the reply of the assessee the AO passed the order under section 201 1) (1A) on 22nd of March 2013. The AO raised the demand of Rs. 4,56,19,4741/- under section 201(1) and Rs. 1,38,12,649/- under section 201(1A). On appeal before Commissioner (Appeals) the demand of tax was quashed. Aggrieved by the order of Commissioner (Appeals) the revenue has filed the present appeal before us.
At the outset of the hearing the ld. Authorized Representative (AR) of assessee argued that the grounds of appeal
raised in the present appeal are squarely covered by the decision of Tribunal in assessee’s own cases for AY 2008-09 to 2010-11 in to 4550/Mum/2012. The ld. Departmental Representative (DR) for Revenue not disputed the factual and legal position.
4. We have considered the contention of the parties and gone through the order of co- ordinate bench of this Tribunal in assessee group cases in ITA No. 4548 to 4550/Mum/2012, wherein the co-ordinate bench of this Tribunal made the following order: “11. We have gone through the various clauses of the sample agreement placed in file before us and a harmonious reading of the whole agreement reveals that the said agreement is essentially an agreement to produce teleserials and not for transfer of copy rights etc. of a already produced prograame of another producer. The clause (II)b of the agreement which has been considered by AO when read with other clauses of the agreement clearly reveals that the purpose & object of the said clause in the agreement is to recognize the vesting of all the right in the producer (assessee)relating to the programme to be produced by the assigned producer which can be said to be a contract for the purpose of section 194C. Some of the relevant extract from the clauses of the agreement, for the sake of convenience, are reproduced below: “II REPRESENTATIONS AND DECLARATIONS BY THE ASSIGNED PRODUCER:
1. The ASSIGNED PRODUCER’ hereby expressly represents and warrants to ‘The PRODUCER’: a) That it is producing and/or proposes to produce ‘the said PROGRAMME’ solely for “The PRODUCER’ strictly in accordance with the concept/theme, creatives, format, process flow and management, synopsis, screenplay-script with dialogues, story, legendary material, cast, crew, treatment, songs, shooting-schedule in the given medium, delivery dates and production-values etc., as duly approved by ‘The PRODUCER’. Any alteration in the approved details, therefore, has to be with prior written consent of ‘The PRODUCER’ only. b) That it owns the exclusive, unencumbered, unrestricted and effective rights of 2 ITA 6542/M/2014 Sahara One Media & Entertainment copyright in perpetuity of ‘the said PROGRAMME’ and all its elements like concept/theme, creatives, format, process flow and management, script-screenplay with dialogues, literary content, characters, visuals, audio, songs and musical works and performance etc. and has obtained the required lawful authority, from PPL/ IPRS/TPPL/ perspective Producers or Right Holders, if required, to use the material owned by others, as part of ‘the said PROGRAMME’ (Subject to however, the approval of ‘The PRODUCER’) and absolutely grant it to ‘The PRODUCER’ and that neither prior to signing this Agreement, it has granted, transferred and/or assigned ‘the said RIGHTS’ of ‘The said PROGRAMME’ or parts thereof to any other Person, Party, Company or Organization whatsoever, nor would grant, transfer, assign, use and exploit the same in anyway ever, except this first and conclusive assignment to ‘The PRODUCER’ herein.” …… “(i) That ‘The PRODUCER’ shall be entitled to have a nominee present during any stage of progress, be it pre-production, main-production or postproduction process of ‘the said PROGRAMME’ for the consultations and advice, as may be considered necessary by ‘The PRODUCER’ from time to time. ‘ The PRODUCER’ also reserves the right to effectively advise, be it creative, commercial and otherwise, to ‘The ASSIGNED PRODUCER’ in writing on all pre-production main-production and post-production matters of ‘the said PROGRAMME’ and constituents therein, in the course of this Agreement and the same shall be binding on ‘The ASSIGNED PRODUCER’ for required modifications, incorporations, insertions and compliances whatsoever. However, ‘The ASSIGNED PRODUCER’ shall alone be responsible for any consequences arriving out of any omission and /or commission with regard to the making of ‘the said PROGRAMME’ and/or its exploitations by ‘The PRODUCER’ and/or its Assignees.” …………… …………………… ……………… …………… ……. “n) That ‘The PRODUCER’ shall be entitled to market, sell, telecast, assign and exploit ‘the said PROGRAMME’ and parts thereof globally in any way by any means in whichever way, to be decided exclusively by ‘The PRODUCER’ being the ABSOLUTE OWNER and PERPETUAL COPYRIGHT HOLDER of the ‘the said PROGRAMME’ in which ‘The ASSIGNED PRODUCER’ shall have no rights/interests and/or claims whatsoever. o) That ‘The ASSIGNED PRODUCER’ shall provide the respective synopsis, creative’s, format, its process flow and management, scriptsscreenplay with dialogues and the details of set, production- design and schedule, cast, crew, performers and contributors etc. to ‘The PRODUCER’ in advance for necessary appraisal, value additions and approvals. Any suggestions and/or value additions advised by ‘The PRODUCER’ in the same shall have to be incorporated by ‘The ASSIGNED PRODUCER’. ‘The ASSIGNED PRODUCER’ shall, in no event, deviate from the approved format, process flow and management and script-screenplay with dialogues and other constituents of ‘the said PROGRAMME’ and if it is noticed by ‘The PRODUCER’ in its reasonable opinion as a deviation, compromise and/or any poor adverse impression of the treatment, content and quality etc., ‘The ASSIGNED PRODUCER’ shall be asked to immediately address the concern and if required to re-shoot ‘the said PROGRAMME’ either in totality or the affected part alone, as the case may be , at ‘The ASSIGNED PRODUCER’s cost alone and in the event of its failure to promptly do son or willful avoidance/inability thereof, ‘The PRODUCER’ shall be entitled to proportionately forfeit the concerned prospective payments and if already paid, to claim forthwith refund and claim for damages from ‘The ASSIGNED PRODUCER’ for any loss/damages/inconvenience whatsoever.” ………… …………… ……… ………. 3 ITA 6542/M/2014 Sahara One Media & Entertainment
“r) That ‘The PRODUCER’ shall be entitled to examine, verify and audit the project specific books and accounts as well as the production progress of ‘The ASSIGNED PRODUCER’ for ‘the said PROGRAMME’ from time to time, which shall be without prejudice to any of the rights and remedies arising under this Agreement and shall not in any way restrain/prohibit ‘The PRODUCER’ from questioning/disputing the accuracy of any transaction, payment and action/inaction for the project at a later date. If any such audit authentically reveals that ‘The ASSIGNED PRODUCER’ has compromised in the production values or avoided certain obligations/compliances or any other omission/commission etc., ‘The PRODUCER’ shall be entitled, decides other remedies, to appropriately valuate and fix/revise a lower Gross Consideration for affected proportion and recover/adjust for such compromise, omission and/or commission etc. whatsoever, as the case may be.” …… ……… …. “IV.b) The abovestated GROSS CONSIDERATION per episode includes any and all costs, investments and expenses, in the complete conduct of process flow and management, production, delivery of the excellent quality finished (broadcastable) ‘said PROGRAMME’ and assignment of perpetual and universal copyrights thereof, including relating to the following- (i) Recce, (ii) Pre-production(story, script-screenplay with dialogues, creatives, format, process flow, participants, relates, including sets and properties etc.) (iii) Main-production (including raw-stock, studios, properties, costumes, song- dance recordings-picturizations, equipment and locations), (iv) Post-production(including graphical and special effects and presentations), (v) All statutory and otherwise obligations and expenses, costs, levies, insurance premia and taxes etc. (vi) (vi) Authority to use the film songs/other clippings in ‘the said PROGAMME’ whether directly or indirectly related to the appearing Guest, if any, to be obtained by PPL/IPRS/TPPL/respective Right Holders, as the case may be, (vii) Remunerations and expenses of overall cast and crew such as Writer, Director, Cameraman, Sound Recordist, Lyricist, Music Director, Singers, Choreographers, Dancers, Artistes, Performers, Suppliers, Participants, Presenters, Hosts/ Anchors/Comperes, Audience, Contributors etc. and the expenses related to the travel, boarding, lodging etc. of the entire units and all concerned, (viii) Per episode, all rushes on Digi-Bata, Audio Tracks/Spools of Music and Songs, 02(two) Digi-Beta Broadcastable Masters with mixed sound in Hindi language, 01(one) Digi- Beta unmixed Master and 02(two) VHS and/or VCD/DVD of each episode, with one TCR, 03(three) still Negative Rolls (per episode) with positive (5”X 7”) (of desired number) copies of each snap, as desired by ‘The PRODUCER; a 10(ten) minutes showreel, log sheets and all the production properties etc., which are procured out of the Gross Consideration (All to be delivered to ‘The PRODUCER’ being the property of ‘The PRODUCER’), (ix) Making the cast and crew available for the desired promo-publicity of ‘the said PROGRAMME’ and also the making of ‘the said PROGRAMME’ and its telecast, as desired by ‘The PRODUCER’ for necessary promotions of ‘the said PROGRAMME’, (x) (x) Costs regarding the Show Packaging, including remunerations of professionals hired for the same(It is expressly mutually agreed that PRODUCER’ shall deduct a sum of Rs.4,00,000/-(Rupees Four Lacs) only, 4 ITA 6542/M/2014 Sahara One Media & Entertainment per 52 (Fifty two) episodes or as may be mutually agreed, for creating the desired packaging of ‘the said PROGRAMME’, from the payables of first lot of Episodes); and (xi) Any other direct and indirect expenses, including but not limited to ‘The ASSIGNED PRODUCER’s remuneration etc., whatsoever.”
A perusal of clause II(a) of the agreement shows that transaction as in relation to production of the programme by the assigned producer solely for the producer and strictly according to the requirements and specifications of the producer or as approved by the producer. As per clause II (1) (i), the producer shall be entitled to have a nominee present during any stage of progress of production and reserves the right to effectively advise regarding the different components and the stages of the production of the programme, as mentioned there in, and such advice shall be binding on assigned producer. As per clause(n) the producer will be the absolute owner and perpetual copyright holder of the said programme in which the assigned producer shall have no rights/interests and/or claims whatsoever. As per clause (o) any suggestions and/or value additions advised by the producer in the programme shall have to be incorporated by the assigned producer and he shall, in no event, deviate from the approved format, process flow and management and script- screenplay etc. of the programme. Further as per clause (r), ‘the producer’ shall be entitled to examine, verify and audit the project specific books and accounts as well as the production progress of the assigned producer for the said programme from time to time and the assigned producer shall not in any way restrain/prohibit ‘the producer’ the producer’ from questioning/disputing the accuracy of any transaction, payment and action/inaction for the project at a later date. The gross consideration clause clearly reveals that the ‘consideration’ payable by the producer to the assigned producer is relating to different constituents of the ‘to be produced programme’ as mentioned under clause IV(b), but does not include any separate consideration for transfer or assignment of copyrights etc. of the programme. The clause II(b) relied upon by the AO , as reproduced above, when read with the other clauses of the agreement some of which have been discussed above, clearly reveals that the agreement in question is an agreement to produce the programme and not for transfer of copyrights etc. Hence clause (II)b of the article cannot be interpreted in a manner to give a different meaning to the agreement in question The assignment or vesting of copy rights etc. in the programme are incidental to the main object of the agreement or transactions in question. When a contactor produces a programme on behalf of other, it is obvious that all the rights including copy rights etc. will vest in the producer and the assigned producer/contractor will not be left with any control or right over the programme and such rights of the producer have been recognized with the said assignment clause, which is incidental to the main object of the contract. The observation of the AO that assigned producer has an absolute contract over the rights of the programme is falsified from the perusal of the different clauses of the agreement. In view of our above discussion of the matter, it is held that the agreement in question was an agreement to produce the programme by the assigned producer i.e., contractor on behalf of the producer i.e., assessee.
Now coming to the legal aspect of the case, The relevant extract of the operative provisions of section 194C and Explanation III is reproduced below: “194C(1) Any person responsible for paying any sum to any resident (hereinafter in this section referred to as the contractor) for carrying out any work(including supply of labour for carrying out any work) in pursuance of a contract between the contractor and- …… …….. 5 ITA 6542/M/2014 Sahara One Media & Entertainment
Explanation III.- For the purposes of this section, the expression “work” shall also include- (a) Advertising; (b) Broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods and passengers by any mode of transport other than by railways; (d) catering ………………..” “194J. Fees for professional or technical services.- (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of— (a) fees for professional services, or (b) fees for technical services, or (c) royalty, or (d) any sum referred to in clause (va) of section 28, shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to ten per cent of such sum as income-tax on income comprised therein : ………..”
perusal of the above extract of the provisions of section 194C, reveals that clause (b) to Explanation III to section 194C specifically covers the activity of production of programmes, hence, the payment made to the contractor i.e. Assigned Producer for production of programme specifically falls within the ambit of clause(b) to Explanation III to section 194C, whereas the provisions of section 194J are general in nature. It is settled law that when an activity or transaction is covered by the specific provisions of the act, then resort must be have to that specific provision and not to the general provisions especially when general provisions are contrary, departing from, giving a different intention, interpretation or meaning in any manner as compared to the said specific provisions. It is thus clear that the provisions of section 194C would prevail over section 194J of the Act.
In this case section 194C clearly states that payment for production of programmes constitutes payments for ‘work’ under section 194C, hence, the assessee rightly deducted TDS u/s 194C at the rate of 2% on payments made to the contractor (Assigned Producer). When faced with somewhat similar issue, the Hon’ble Delhi High Court in the case of ‘CIT vs. PrasarBharti Broadcasting Corpn. Of India’(supra) has observed as under: “… We are unable to agree with this submission. We observe that Explanation III, which was introduced simultaneously with section 194J, is very specific in its application to not only broadcasting and telecasting but also include ‘production of programmes for such broadcasting and telecasting. If on the same date, two provisions are introduced in the Act, one specific to the activity sought to be taxed and the other in more general terms, resort must be had to the specific provision which manifests the intention of the Legislature. It is not, therefore, possible to accept the contention of the Revenue that programmes produced for television, including ‘commissioned programmes; will fall outside the realm of section 194C Explanation III of the Act. We find no infirmity in the view taken by the ITAT which we hereby affirm…..” 16. The ld. CIT(A) has rightly observed that the above decision of the Hon’ble Delhi High Court squarely covers the case of the assessee. In view of the above stated settled legal position, the assessee rightly deducted the TDS for production expenses in the nature of contract payment at 2% in accordance with the provisions of Section 194C. We do not find any infirmity in the order of the CIT(A) on this issue and the same is upheld. This issue is accordingly decided against the revenue (misprint as 6 ITA 6542/M/2014 Sahara One Media & Entertainment
assessee) .
Ground No.1(ii)(iii)&(iv): Dubbing Expenses/Print Processing Fees:
The AO held that the payments in respect of “Dubbing Expenses/Print Processing Fees” are in the nature of ‘fees for technical/professional service. Therefore, the tax should have been deducted under section 194J of the Act instead of section 194C. He observed that the work of processing of film is creative working which is performed by skilled and technically competent persons. It is a technical work performed by technically competent person with expertise in the field and therefore, any payment for this expenditure was liable for TDS u/s 194J. The ld. CIT(A) however observed that the dubbing and processing of films are processes in the production activity undertaken by the assessee. The service of dubbing thus was in the nature of ‘work’ and would fall under section 194C of the Act. He further observed that the service rendered in regard to payment of Print Processing Fees was also in the nature of ‘work’ and would fall under section 194C of the Act in view of similar processes involved. He therefore deleted the demand of tax of Rs.27,09,159/- under section 201(1) made by the AO under this head.
Before us the ld. AR has submitted that both dubbing and processing are part of production activity of the film/serial undertaken by the assessee. The dubbing is nothing but an ancillary activity to the production of serial/films . It is done to make sure that the serial communicates with the targeted audience and to make it ready for telecast. He has further submitted that Print processing fees is paid for processing of raw films and making extra copies of the same. At the time of shooting of the serial/film, the serial is shot using raw images/films. Such raw films are not in editable or printable format. Further, serials are required to be telecast in digital formats. Conversion of such raw films is necessary to make the film editable and suitable for telecast. Accordingly, processing fees are paid wholly and solely for the purpose of making the film ready for editing and ready for other processes of production. Thus, it is a part of production process of a serial. On the other hand the ld. DR has relied upon the AO. 19. A perusal of the section 194C reveals that the activities under this section include broadcasting and telecasting including production of programmes for such broadcasting or telecasting. Hence all the activities from the production of the programme up to its telecast are included under this section. The ld. CIT(A) has rightly observed that production of programmes is nothing but combination of processes right from planning Schedule to post production processes enabling the serial to be ready for telecast. He rightly held that the dubbing charges and processing fees being a part of production of television serials and programmes are squarely covered under the ambit of specific provisions of section 194C of the Act and liable to TDS at the rate of 2%. The general provisions of section 194J as observed above, are not attracted in this case. The findings of the ld. CIT (A) on this issue are hereby upheld. So far the ground of appeal relating to wrong application of law by the CIT(A) is concerned, we may observe that, in view of the above discussion, the issues involved under these heads have been decided in favour of the assessee independently, on merits, even without considering the application or non application of any such case law. Thus we do not find any force in the contention of the revenue in this respect. The issues involved in Ground No. 1(ii)(iii)&(iv) are accordingly decided against the revenue. 7 ITA 6542/M/2014 Sahara One Media & Entertainment