DCIT (TDS) 2(3), MUMBAI vs. YASH RAJ FILMS P.LTD, MUMBAI

आदेश / O R D E R Per Joginder Singh (Judicial Member) Both these appeals are by the Revenue, aggrieved by the impugned orders both dated 23/02/2015 for Assessment year

2 ITA Nos.2720 & 2021/Mum/2015 M/s. Yash Raj Films P. Ltd.

2009-10 and 2010-11 of Ld. Commissioner of Income Tax, Mumbai. The Revenue has elaborated the grounds but the same pertains to considering the payment made for processing charges to Adlab for supplying copies of final negative as per the provisions of section 194C of the Income Tax Act, 1961 (hereinafter the Act) as against the provisions of section 194J of the Act without appreciating that the print processing charges includes professional work such as printing, processing, processing of colour negative, analyser of rush print, fog test etc. which are in the nature of professional services are specialized in nature which requires professional technical knowhow and thus erred in not confirming the order passed under section 201(1)/201(1a) of the Act in respect of short deduction of tax at lower rate under section 194C instead of section 194J of the Act. 2. During hearing the learned D.R., Shri Rajesh Ojha advanced arguments which are identical to the ground raised. On the other hand, Shri Vishal Shah, learned counsel for the assessee, defended the conclusion arrived at in the impugned order. 3. We have considered the rival submissions and perused the material available on record. The facts in brief are that the assessee is engaged in the business of film production/ distribution. A survey action under section 133A was carried out on 28.02.2006, at the premises of the assessee to ascertain whether the assessee is complying with the provisions of Chapter XVII-B of the Act. The stand of the Assessing Officer is that the assessee did not deduct tax as per the provisions of

3 ITA Nos.2720 & 2021/Mum/2015 M/s. Yash Raj Films P. Ltd.

section 194J of the Act with respect to payments made to M/s. Adlab Ltd. which had made copies of films/prints of the films produced by the assessee. The learned Assessing Officer issued show cause notice under section 201(1)/201(1a) of the Act. The stand of the assessee was that such payments are covered under section 194C and not under section 194J of the Act. The explanation of the assessee was rejected by the Assessing Officer and held the assessee in default for short deduction of TDS of Rs.39,49,629/- (A.Y. 2009-10) and Rs.28,11,345/- (A.Y. 2010-11). 4. The assessee felt aggrieved and preferred appeal before the learned CIT(A) wherein it was held that the assessee has rightly deducted TDS on the payments made to Adlabs, for supplying copies of final negative, as required under section 194C of the Act. The Revenue is in appeal before the Tribunal. 4.1 If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, before adverting further I reproducing hereunder the relevant provisions of section 194C and 194J of the Act for ready reference and analysis. “194C. (1) Any person responsible for paying any sum to any resident (hereafter 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 a specified person shall, at the time of credit of such sum to the account of the contractor or at the time of payment thereof in cash or by issue of a cheque or draft or by any

4 ITA Nos.2720 & 2021/Mum/2015 M/s. Yash Raj Films P. Ltd.

other mode, whichever is earlier, deduct an amount equal to— (i) one per cent where the payment is being made or credit is being given to an individual or a Hindu undivided family; (ii) two per cent where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein. (2) Where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (3) Where any sum is paid or credited for carrying out any work mentioned in sub-clause (e) of clause (iv) of the Explanation, tax shall be deducted at source— (i) on the invoice value excluding the value of material, if such value is mentioned separately in the invoice; or (ii) on the whole of the invoice value, if the value of material is not mentioned separately in the invoice. (4) No individual or Hindu undivided family shall be liable to deduct income-tax on the sum credited or paid to the account of the contractor where such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (5) No deduction shall be made from the amount of any sum credited or paid or likely to be credited or paid to the account of, or to, the contractor, if such sum does not exceed thirty thousand rupees : Provided that where the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year exceeds [one lakh] rupees, the person responsible for paying such sums referred to

5 ITA Nos.2720 & 2021/Mum/2015 M/s. Yash Raj Films P. Ltd.

in sub-section (1) shall be liable to deduct income-tax under this section. (6) No deduction shall be made from any sum credited or paid or likely to be credited or paid during the previous year to the account of a contractor during the course of business of plying, hiring or leasing goods carriages, 6[where such contractor owns ten or less goods carriages at any time during the previous year and furnishes a declaration to that effect along with] his Permanent Account Number, to the person paying or crediting such sum. (7) The person responsible for paying or crediting any sum to the person referred to in sub-section (6) shall furnish, to the prescribed income-tax authority or the person authorised by it, such particulars, in such form and within such time as may be prescribed. Explanation.—For the purposes of this section,— (i) "specified person" shall mean,— (a) the Central Government or any State Government; or (b) any local authority; or (c) any corporation established by or under a Central, State or Provincial Act; or (d) any company; or (e) any co-operative society; or (f) any authority, constituted in India by or under any law, engaged either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns and villages, or for both; or (g) any society registered under the Societies Registration Act, 1860 (21 of 1860) or under any law corresponding to that Act in force in any part of India; or (h) any trust; or (i) any university established or incorporated by or under a Central, State or Provincial Act and an institution declared to be a university under section 3 of the University Grants Commission Act, 1956 (3 of 1956); or

6 ITA Nos.2720 & 2021/Mum/2015 M/s. Yash Raj Films P. Ltd.

(j) any Government of a foreign State or a foreign enterprise or any association or body established outside India; or (k) any firm; or (l) any person, being an individual or a Hindu undivided family or an association of persons or a body of individuals, if such person,— (A) does not fall under any of the preceding sub-clauses; and (B) is liable to audit of accounts under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum is credited or paid to the account of the contractor; (ii) "goods carriage" shall have the meaning assigned to it in the Explanation to sub-section (7) of section 44AE; (iii) "contract" shall include sub-contract; (iv) "work" shall include— (a) advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) catering; (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer.” Section 194J of the Act reads as under: - “194J. (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

7 ITA Nos.2720 & 2021/Mum/2015 M/s. Yash Raj Films P. Ltd.

(ba) any remuneration or fees or commission by whatever name called, other than those on which tax is deductible under section 192, to a director of a company, 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 : Provided that no deduction shall be made under this section— (A) from any sums as aforesaid credited or paid before the 1st day of July, 1995; or (B) where the amount of such sum or, as the case may be, the aggregate of the amounts of such sums credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed— (i) thirty thousand rupees, in the case of fees for professional services referred to in clause (a), or (ii) thirty thousand rupees, in the case of fees for technical services referred to in clause (b), or (iii) thirty thousand rupees, in the case of royalty referred to in clause (c), or (iv) thirty thousand rupees, in the case of sum referred to in clause (d) : Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services is credited or paid, shall be liable to deduct income-tax under this section :

8 ITA Nos.2720 & 2021/Mum/2015 M/s. Yash Raj Films P. Ltd.

Provided also that no individual or a Hindu undivided family referred to in the second proviso shall be liable to deduct income-tax on the sum by way of fees for professional services in case such sum is credited or paid exclusively for personal purposes of such individual or any member of Hindu undivided family. (2) [***] (3) [***] Explanation.—For the purposes of this section,— (a) "professional services" means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section; (b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (ba) "royalty" shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (c) where any sum referred to in sub-section (1) is credited to any account, whether called "suspense account" or by any other name, in the books of account of the person liable to pay such sum, such crediting shall be deemed to be credit of such sum to the account of the payee and the provisions of this section shall apply accordingly.”

If the aforesaid provisions of the Act are analysed with facts of the present appeals the whole case of the Revenue is that for obtaining copies of the film prints, the TDS in respect of payments made by the assessee to M/s. Adlabs should have been as per the provisions of section 194J of the Act. There is no dispute to the fact that the TDS was deducted by the assessee on the negative processing charges as the processing

9 ITA Nos.2720 & 2021/Mum/2015 M/s. Yash Raj Films P. Ltd.

involves specific task of editing which enhances the quality of film. The assessee had been consistently deducting TDS on payments for taking prints of negative and earlier the claimed deduction was accepted by the Department in subsequent years also. The learned CIT(A) has also considered the letters dated 30.11.2009 and 17.01.2011 (para 15 of the impugned order) as per which the payments made to Adlab Films Ltd. was covered under section 194C of the Act and in the certificate name of the assessee is clearly mentioned. The decision in Distributors Pvt. Ltd. (ITAT Kolkata), Associated Cements Ltd. vs. CIT, Jalan Distributors Pvt. Ltd. vs. ITO (order dated 13.04.2011) clearly comes to rescue of the assessee wherein it was held that payments for making prints of film are covered under section 194C of the Act. The stand of the Revenue is that print processing charges includes the professional work such as print processing, print processing trailer, processing of colour negative, analyser of rush print, fog test, ultra cleaning, sound processing, photo guard coating, editing table and sub- titling services requires tax deduction at source under section 194J. We have perused the record, factual finding recorded by the learned CIT(A) and found that there are two types of processing charges, one being negative processing and other being positive processing. Negative processing requires professional skill for which the assessee deducted tax at source as required under section 194J of the Act. Whereas positive processing means number of copies required of prints from one original which does not require any professional or technical skill but just a machine. It is also noted that the assessee

10 ITA Nos.2720 & 2021/Mum/2015 M/s. Yash Raj Films P. Ltd.

operated two ledger accounts in the Tally software, one for negative processing and other being print processing. As per section 194J the concerned company has to provide some technical input, as stated by Assessing Officer himself in the assessment order, that print processing charges included professional work such as processing of colour negative, etc., which is not the case in such process. The system is that one master print, number of prints are taken and send to the various distributors for exhibition. Thus printing of various prints from the master piece is known as print processing. However, as per section 194C, sub-clause 7(iv)(e) the work shall include manufacturing and supplying a product according to the requirement or specification of a customer by using material purchased from a person other than such customer. It is noted that while completing the assessment under section 143(3), the learned Assessing Officer while dealing with identical issue for Assessment year 2007-08 himself mentions that TDS needs to be deducted under section 194C. Identical view was taken by the learned CIT(A) for Assessment year 2007-08 and the addition made by the Assessing Officer under section 40(a)(ia) was deleted saying that TDS has been deducted at appropriate rate. The certificate issued under section 197 by the Department to Adlabs itself mentions that TDS has to be deducted under section 194C and the annexures also mentions the name of the present assessee. Thus we find no force in the conclusion of the Assessing Officer. 4.2 So far as the allegation of the Assessing Officer that all work is done when processing of negative is done. It is noted

11 ITA Nos.2720 & 2021/Mum/2015 M/s. Yash Raj Films P. Ltd.

that the initial master piece wherein shoots take place, is sent to the approval of the sensor Board and this masterpiece was got done/processes from Kodak Ltd. on which TDS was deducted @10%. Whereas the q question before us is positive print processing charge which is a copying work so does not require the skill which is required for the master print. The Assessing Officer has not brought on record any documentary evidence to prove that the assessee has utilized the services which are required for master print from Adlabs. The Assessing Officer has also not proved that the assessee utilized all the features, available with the Adlabs, while processing positive print, which are required for negative processing. The assessee has also not utilized the services, as has been observed by the learned Assessing Officer in the assessment order from Reliance or the extra services from Adlabs and wherever the TDS was to be deducted @10% under section 194J has been deducted and wherever it was not required it has been deducted as per section 194C @2%. This factum is further verifiable from certificate issued under section 197 to Adlabs. The definition of work under section 194C has been clearly defined which includes (a) advertising, (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting, (iii) carriage of goods or passengers by any mode of transport other than by railways, (d) catering, (e) manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from such customer but does not include manufacturing or supplying a product according to the

12 ITA Nos.2720 & 2021/Mum/2015 M/s. Yash Raj Films P. Ltd.

requirement or specification of a customer by using material purchased from a person other than such customer. No contrary decision or facts were brought to our notice by the Revenue. The CBDT Circular No. 619 dated 04.12.1991 also clarifies that the commission retained will be subjected to TDS as per the provisions of section 194H of the Act. Therefore, I find no infirmity in the conclusion drawn by the learned CIT(A). Both the appeals of the Revenue are therefore dismissed. 5. Even on the issue of tax effect the learned counsel produced copies of the demand notice under section 156 of the Act wherein it has been mentioned that there is nil demand for both the assessment years. Thus in view of latest CBDT instruction No.21 of 2015, dated 10/12/2015 (F No.279/ Misc./142/2007-IT(PT), applicable with retrospective effect, wherein, the Department was advised/directed by the Board not to file appeal in the cases where the tax effect does not exceed the monetary limit, both these appeals of the Revenue do not survive. Finally the appeals of the Revenue are dismissed. This order was pronounced in the open court in the presence of Ld. D.R. at the conclusion of the hearing on 13/07/2016. Sd/- (Joginder Singh) �या�यक सद�य /JUDICIAL MEMBER मुंबई Mumbai; �दनांक Dated : 13/07/2016 ÇAÑA? P.S //.�न.स.

13 ITA Nos.2720 & 2021/Mum/2015 M/s. Yash Raj Films P. Ltd.

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant (Respective assessee) 2. ��यथ� / The Respondent. 3. आयकर आयु�त(अपील) / The CIT (TDS), Mumbai. 4. आयकर आयु�त / CIT(A)-52, Mumbai, 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, मुंबई / DR, SMC Bench, ITAT, Mumbai 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy//

उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील�य अ�धकरण, मुंबई / ITAT, Mumbai