ITAT, MUMBAI BENCH `E’, MUMBAI ,
Entertainment One India Ltd. Vs. ITO (TDS),
APPEAL NO: ITA NOS. 1095 to 1098/Mum/2007,
DECIDED ON JUNE 15, 2009
ORDER
In this bunch of four appeals, the assessee has challenged the impugned common order of the Learned CIT(A) for the A.Y. 2003-04 to 2006-07 dated 24.11.2006 and all these four appeals are arising out of the orders passed by the I.T.O.(TDS) – 3(1), Mumbai (in short the A.O.) treating the assessee in deemed default for not deducting the tax at source u/s. 194C and 194J of the Act.
2. The issue arising in all the appeals are common, save the quantum of demand in respect of the payments made by the assessee company to the producers and directors of the films. The assessee has taken the multiple grounds which are identical in all the Assessment Years and hence, the grounds are summarised as under :
Grounds for A.Y. 2003-04
“1) Whether the Ld. CIT(A), Mumbai has erred in confirming the order of the I.T.O (TDS) U/S. 201(1) and 2O1(1A) of the I.T. Act dated 8.2.2006 by holding that the assessee is liable to deduct tax u/s. 194C of the Act in respect of the payments made to the producers for financing the productions of films –
a) Vishesh Entertainment Ltd – Film ‘Inteha’
b) Prakash jha – Film ‘Gangaajal’
2) Whether the CIT(A) erred in upholding the order passed by the A.O U/s. 201(1) of the Act raising the demand against the assessee ?
3) Whether the Ld. CIT(A) erred in upholding the levy of interest u/s.201(1A) of the Act?
Grounds for the A.Y. 2004-05
“1) Whether the Ld. CIT(A), Mumbai has erred in confirming the order of the I.T.O (TDS) U/S. 201(1) and 2O1(1A) of the I.T. Act dated 8.2.2006 by holding that the assessee is liable to deduct tax u/s. 194C of the Act in respect of the payments made to the producers for financing the productions of films –
a) Prakash Jha – Film Gangaajal’
b) Vishesh Entertainment Ltd – Film ‘Inteha’
c) Romesh Film – Film ‘Dil Jo Bhi Kahey’
d) Prakash Jha Production – Film ‘Apaharan’
2) Whether the CIT(A) erred in upholding the order passed by the A.O U/s. 201(1) of the Act raising the demand against the assessee ?
3) Whether the Ld. CIT(A) erred in upholding the levy of interest u/s.201(1A) of the Act ?
Grounds for the A.Y. 2005- 06
“1) Whether the Ld. CIT(A), Mumbai has erred in confirming the order of the I.T.O (TDS) U/S. 201(1) and 201(1A) of the I.T. Act dated 8.2.2006 by holding that the assessee is liable to deduct tax u/s. 194C of the Act in respect of the payments made to the producers for financing the productions of films –
a) Prakash Jha – Film ‘ Gangaajal’
b) Romesh Film – Film ‘Dil Jo Bhi Kahey’
c) Prakash Jha Production – Film ‘Apaharan
d) R.S. Entertainment Pvt. Ltd., – Film ‘Bluff Master’
e) R.G.V. Film Co. Pvt. Ltd., – Film ‘Lets Kill Veerappan’
Grounds for the A.Y. 2006- 07
“1) Whether the Ld. CIT(A), Mumbai has erred in confirming the order of the I.T.O (TDS) U/S. 201(1) and 201(1A) of the I.T. Act dated 8.2.2006 by holding that the assessee is liable to deduct tax u/s. 194C of the Act in respect of the payments made to the producers for financing the productions of films –
a) Romesh Films – Film “Dil Jo Bhi Kahey”
b) Prakash Jha Production – Film “Apaharan”
c) R.S. Entertainment Pvt. Ltd – Film “Bluff Master”
d) RGV Film Company Pvt. Ltd. – Film “Darwaja Band Rakho”
e) RGV Film Company Pvt. Ltd. – RGV 12 films
f) Block Buster Movie Entertainers
g) Eagle Films Pvt. Ltd.
h) Face Entertainment Pvt. Ltd.
i) Bheeshma International
j) Vinay Dhumale
2) Whether the CIT(A) erred in upholding the order passed by the A.O U/s. 201(1) of the Act raising the demand against the assessee ?
3) Whether the Ld. CIT(A) erred in upholding the levy of interest u/s.201(1A) of the Act ?
3. The facts pertaining to the controversy which reveal from the record are as under. The assessee company is originally incorporated in the year 1996 with the name ‘Adlab Films Laboratories Pvt. Ltd. The present name of the assessee was changed on 23rd July 2003. As per Memorandum of the Association, the objects of the assessee company are mentioned as, to carry on the business of Film Laboratory, Printing, Developing, Processing, Aiding and Growing Up Cinematographic Films and to carry on the business of, Producers, Exporters, Importers, Hirers, Dealers, Distributors and Exhibition of raw films etc. Also, in the objects the assessee Company’s business is mentioned as production of the Feature films, T.V. Serials, Video Films and Films on Documentary Films etc., etc. There was a survey action u/s. 133A of the Act against the assessee on 16.1.2006. During the course of the survey action, the statement of the Accountant of the assessee company namely Shri Amol Gorey was recorded. It was noticed by the A.O that the assessee company had made payments to the various film and T. V. serial Producers and Directors under the different agreements which included some famous film personalities, who were the producers and directors in the Film Industry. The agreements entered into between the assessee and different producers and directors of the films were examined and it was noticed that the assessee has incurred an expenditure for production of the films as a whole and after the film is produced, it acquires the entire right of the film concerned, including the intellectual property right as well as complete ownership of rights in respect of the distribution and exhibition of the films and serials. It was seen that as per the terms of the agreement, the assessee make the advances to the producers and directors for the production of films as per the payment schedules i.e. in instalments. The A.O was of the opinion that the advances made by the assessee company to the producers and directors are covered under the provisions of Section 194C and 194J of the I.T. Act. It was noticed that except in one or two cases, no TDS was made by the assessee company from the payments made to the producers of the different films or T.V. serials and hence, the A.O issued the notice u/s. 201 of the Act treating assessee as an assessee in default.
4. (a) The assessee resisted the action of the A.O. by taking the stand that in respect of the advances made to the producers and directors of the films under the agreements are not liable for the TDS u/s. 194 C and 194J of the I.T. Act. It was stated before the A.O. that the producers and directors of the film with whom the assessee has entered into the agreements and to whom the advances are given in terms of the agreement are not the contractors or sub-contractors and hence, the provisions of Section 194C are not attracted. It was further explained to the A.O that though the object of the assessee company is of production of the films, but the assessee company has not produced any feature film nor it has got any film produced from others and the assessee made advances to the different producers for making the film in the capacity of financier and accordingly, entered into the agreement. The assessee also explained that the stories and scripts of the films are finalised by the producers and directors and they only signed the suitable lead artists for the film. Moreover, the entire project of a film is finalised by the producer of the film and the producers of the film approach the assessee company for financial assistance and if the assessee company considers it fit to finance, after considering the risk factor, it is agreed to finance a film which the producers propose to make. It was further contended that in some cases, entire finance is not given but the partial finance is given and in some cases, full finance is given for the making of the films. In certain cases, where a producer is undertaking optional function such as writing, directions etc., then, certain amount is agreed in the budget of the film for the said functions, but the Company does not pay the said amount attributable to the functions of the producers and directors but the producer himself appropriate such agreed amounts of the object of the film. Hence, there is no substance to say that the assessee company has made the payments of the provisional fees per se to the producers.
(b) It was further stated that the producer cannot be considered as contractor or sub-contractor of the company as regards the film making. He is actually the author of the film who is fully in command of making the film. The Assessee company has not hired his services for making the film and he is in process of making the film on his own. When Assessee company smells the business opportunity of giving financial assistance to such reputed producer, agreement for financial assistance is made with him. The Assessee company generally takes control of the negative rights of the completed film as assurance of realisation of the money from the producer. The Assessee also take control of the distribution of the film, on behalf of the producer so that best price available can be recovered from the distribution of the film. Generally, the distribution money is directly recovered by the company from the distributors and appropriated as per the agreement with the producer. The agreements with the distributors are made by Assessee company with consent of the producers only as security for money advanced. The company has only given an assistance to produce films and it has not given any contracts for production of films. The company has only assisted the producers to produce of the films by giving finance to the extent of actual cost of the films subject to agreed amount. The money is utilised by the producer as per his wish for production of the film and is subject to appropriation by the producer towards his services if agreed. The amount of appropriation is specified in the agreements, wherever applicable, for the purpose of working the surplus of the film.
(c) In short the Assessee has only acquired rights in the film for which it has given financial assistance. It is a negative rights holder as per the agreements with the respective producers, which secures its money advanced for the film as well as its income model from the film. All the distribution agreements contracted by the company were on behalf of the respective producers of the films and therefore the cost as well as realisation from any film is not accounted by the company in its profit and loss account. The company is entitled to is part of the share of revenue as per the agreement, which could be considered as its revenue stream. It was further stated that as per an agreement with the producers or directors the Assessee is entitled to recover the money advanced by it from the distribution of the film and such could not have been the case if the company was hiring the services of the producer or director as a contractor for making the film.”
(d) The sum and substance of the contention of the assessee was that even as per the terms of the agreement entered into with different producers and directors of the films as well as T.V. Serials, the assessee’s roll is as financier to finance the project for making all the films and T.V. Serials. The assessee has put his lien on the negatives of the films and to get the better return with the risk of losses in case the film fails, by sharing the surplus with the producers on the screening of the film. There is no relationship of a Principal and a Contractor between the assessee company and the film producers & directors and at the most, it is a contract between the principal to principal or a contract as a sale and purchase.
5. The A.O was not satisfied with the explanation of the assessee. The A.O treated the assessee as an assessee in default within the meaning of Section 201(1) of the IT. Act and held that the assessee company has committed the default by not deducting the tax at source u/s. 194C and 194J of the Act in respect of the advances and payments made to the different producers and directors for making the films. The A.O., therefore, raised the following demands against the assessee by passing the orders u/s. 201(1) and 201(1)(1A) of the IT. Act :
