IN THE ITAT MUMBAI BENCH ‘L’
Yash Raj Films (P.) Ltd.
Versus
Income-tax Officer (International Taxation)
IT APPEAL NOs. 4856 & 4882 (MUM.) OF 2008 and 2113 (mum.) of 2009
[ASSESSMENT YEARs 2005-06 & 2006-07]
DECEMBER 20, 2012
ORDER
P.M. Jagtap, Accountant Member
Out of these three appeals, two appeals being ITA No. 4856/Mum/2006 and 4882/Mum/2008 are cross appeals for assessment years 2006-07 whereas the third appeal is the appeal filed by the Revenue for assessment year 2005-06. Since some common and interlinked issues are involved in these appeals, they have been heard together and are being disposed of by this single composite order.
2. First we shall take up the cross appeals for assessment year 2007-08 which are directed against the order of learned CIT(Appeals)-31, Mumbai dated 29-05-2008.
3. The relevant facts of the case giving rise to these appeals are that the assessee is a Company incorporated in India. It is engaged in the business of production of films. The shooting of films are often held outside India for which payments are made in foreign exchange to various overseas services providers. During the year under consideration, such payments were made to five parties aggregating to Rs. 18,77,84,736/-. On verification, the AO noticed that the tax at source was not deducted by the assessee from the said payments as required by the provisions of section 195 of the Act. He, therefore, required the assessee to offer its explanation in the matter. In reply, it was submitted by the assessee that the said payments were made on account of shooting expenses which involved arrangement for transport, getting permission for shooting, hotel accommodation etc. It was contended that the said payments constituted business profits of the overseas companies and since they had no permanent establishment in India during the year under consideration, no tax was required to be deducted at source from the said payments as the business profits of the non resident companies was not chargeable to tax in India as per Article 7 of the relevant DTAAs. It was also contended on behalf of the assessee that in the services availed from the overseas companies, no element of technical services was involved. It was also contended that the amounts in question paid by the assessee to the overseas companies not being chargeable to tax in India, there was no requirement of making any application u/s 195(2) to the AO for availing any benefit or concession in the tax to be deducted at source.
4. The above submissions made on behalf of the assessee were not found acceptable by the AO. According to him, the assessee was liable to deduct tax at source from the impugned payments made to non residents as per the provisions of section 195(1) and if it wanted to come out of the said law on the ground that the said payments were chargeable to tax in India, the assessee ought to have made an application to the AO u/s 195(2). He held that it was thus not open to the assessee to make payments to the non residents by taking an unilateral decision that the said payments are not sums chargeable to tax in India without taking the concurrence of the AO as provided in section 195(2). The AO then proceeded to examine as to whether the said payments made by the assessee to the non residents were in the nature of fees for technical services as defined in Explanation 2 to section 9(1)(vii) and on such examination, he recorded the following findings in the assessment order :
“(i) Payments made to Hybrid Enterprises:
The assessee has made total payment of GBP 26,912 equivalent of Rs.17,67,927/- to the said non resident for shooting of their The film titled ‘Dhoom-2’. The copies of invoices raised by the remittee shows that the payment is for the life casting, make up and prosthetic design and creation for the film ‘Dhoom-2’ with Hritic Roshan and Aishwarya Rai which includes three prosthetic design and 10 toned down characters with wigs and teeth work. Thus, the services provided by Hybrid Enterprises are clearly in the nature of payments for ‘fees for technical services as envisaged in Section 9(1)(vii) r.w. Explanation-2.
(ii) Payments made to Grupa Filmova Sp. Zoo of Poland :
The assessee has made total payments as under:
