No withholding tax liability in case of payment made to producers, directors, and actors for financing film production under sections 194C and 194J of

In a recent decision, in the case of Entertainment One India Ltd. Vs. ITO [2010-TIOL-210-ITAT-MUM] (“the assessee”), the Income-tax Appellate Tribunal, Mumbai (“the Tribunal”) has held that there is no liability to withhold tax under sections 194C and 194J of the Income Tax Act, 1961 (“the Act”) on payments made to producers, directors and actors for financing film production.

Facts

• The assessee made payments to various film and T.V. serial producers and directors under different agreements for production of films. Further, it acquired the entire rights of the film concerned, including the intellectual property rights as well as complete ownership of rights in respect of distribution and exhibition of films and serials.

• The assessing officer (“the AO”) considered the assessee to be an assessee- in- default within the meaning of section 201(1) of the Act and held that it had committed a default by not withhold tax under sections 194C and 194J of the Act in respect of advances and payments made to different producers and directors for making films.

• The assessee challenged the order of the AO before the Commissioner of Income-tax (Appeals) (“CIT(A)”) who decided partly in favor of the assessee, holding that in respect of some of the agreements, the payments made by the assessee to the film producers / directors was not in the nature of principal to contractor but was in the nature of merely providing finance to film. In respect of other agreements, the CIT(A) approved the action of the AO. The CIT(A) held further, that two sections, namely sections 194C and 194J of the Act cannot be applied for the same payment.

Please become a Premium member. If you are already a Premium member, login here to access the full content.