Case Law Details
Next Gen Films Private Ltd. Vs ITO (Int. Tax-TDS) (ITAT Mumbai)
Regarding commissioning agreement entered into by the assessee (Next Gen Films Private Ltd.) with M/s DBPL, at para 2.12, we reached a conclusion that the contract between the assessee and M/s DBPL (M/s Desi Boyz Production Ltd. ) was primarily on principal-to- principal basis. The entire responsibility to produce the film was on M/s DBPL against certain lump-sum consideration. M/s DBPL was required to produce the film and ensure the delivery of the film as per given specifications. The film was to be fully synchronized as to dialogue, music and effects and complete pre-production, production and post- production of the film in a first-class manner and of a technically acceptable quality and ready for commercial exploitation and suitable to enable the assessee to commercially exploit the film without further processes or expenditure. For the same, M/s DBPL could enter into independent All the activities of M/s DBPL were to be carried out with assessee’s consultation with a view to ensure that the film was produced exactly as per the specification and in line with storyline. The said stipulations were to ensure that the film was produced and delivered in accordance with the material requirements and with a view to prevent any modification to the screenplay or other material requirement as the feature film needed to be very accurate with its storyline and screenplay. Nevertheless, M/s DBPL acted as independent service provider having entire responsibility to produce the film. It was free to take own decisions for the same and could enter into independent contracts. For all these services, it was to be reimbursed with lump sum budgeted cost after adjustment of certain items as mentioned in the agreement which has already been elaborated by us. Any over-spend was to be borne by M/s DBPL. Upon perusal of various terms and conditions of the contract, it could be said that the various conditions / stipulations requiring prior consultation of the assessee was purely with the motive of passive monitoring of the film production activity since the same was very technical in nature. The fact that M/s DBPL worked as an independent entity is further fortified by the fact that as on 31/03/2011, M/s DBPL had obtained independent bank loan of 2.18 Million Pounds from Coutts & Co. which was secured against UK Tax credit. Therefore, M/s DBPL could not said to be solely dependent upon the assessee for finance requirements. In financial year 2011-12, the revenue earned by M/s DBPL from the assessee on account of commissioning of film has been reflected as its turnover. M/s DBPL has reflected loss of 1.67 million pounds as loss on ordinary activities before taxation. This is sole activity being carried out by M/s DBPL. Therefore, the provision of Article-10 of the treaty, in our considered opinion, could not be applied in such a situation since it could not be said that the assessee participated directly or indirectly in management, control or capital of M/s DBPL. Further, M/s DBPL was a loss-making entity coupled with the fact that the assessee was assessed u/s 143(3) on 27/01/2014 wherein its returned income was duly accepted by the revenue and there was no allegation of over / under payment to M/s DBPL. Therefore, the assessee could not be said to be Associated Entity of M/s DBPL in terms of Article-10 of the Treaty. Hence, the conclusion drawn by Ld. AO, in this regard, could not be sustained as per the Treaty terms. In our considered opinion, M/s DBPL was acting as an independent entity which was required to carry out the assigned work independently and the assessee could not said to be PE of that entity in India.
So far as the terms of service agreement between M/s DBPL and M/s EIFPL are concerned, at para 3.6, we have concluded that the contract between the two entities was primarily that of a principal and agent. M/s EIFPL, acting on behalf of producer, was required to provide limited production services against lump sum fee of Rs.300 Lacs. The said services were to be provided under control, supervision as well as the direction of the producer. The service company was to be reimbursed with Indian budget of Rs.1066.18 Lacs including its service fee of Rs.300 Lacs. The total Indian budget, in terms of total approximate budgeted cost of 12.8 Million Pounds, was less than 10% of total budgeted It is also evident from financial statements of M/s EIFPL that it has gross receipts of Rs.133.55 Crores & Rs.76.27 Crores for AYs 2011-12 & 2012-13 respectively as against total fees of Rs.3 Crores received by it from M/s DBPL and therefore, the proportion of fees vis-à- vis total turnover would be very miniscule. On the basis of the same, it could be said that the status of M/s EIFPL would be that of independent agent and not a dependent agent as alleged by Ld.AO. Further, we concur with Ld. AR’s submissions that the said agreement was merely to assist the production of the film and to provide limited services in relation to delivery of a feature film. M/s EIFPL was entrusted with the responsibility of arranging the crew and the requisite equipment which were to be procured from India. The said contract was given to the Indian entity in order to perform the Indian part of the production services and M/s DBPL was to pay the requisite fees. M/s EIFPL carried out its activities as an independent agent. Therefore, it could not be termed as Permanent Establishment for M/s DBPL in terms of Article-5 of the Treaty. This view, as taken by lower authorities, could not be concurred with.
Therefore, on the facts and circumstances, we hold that the assessee and M/s DBPL could not be held to be Associated Enterprises in terms of Article-10 of the Treaty. The assessee could not be treated as PE of M/s DBPL in India. Further, the status of M/s EIFPL vis-à-vis M/s DBPL would be that of an independent agent and M/s EIFPL could not said to be PE of M/s DBPL. Therefore, no profit could be said to have accrued to M/s DBPL in India as alleged by the revenue. As a logical consequence, the assessee could not be treated as assessee-in-default in terms of Sec.201(1) & 201(1A) of the Act. Therefore, by deleting the impugned demand, we allow the appeal.
FULL TEXT OF THE ITAT JUDGEMENT
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