NEXT GEN FILMS P.LTD, MUMBAI V. ITO (IT) TDS (4), MUMBAI

ITA 3782/MUM/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 9202 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 02-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V VINOD KUMARLD DRS
• Assessee Lawyers: H S RAHEJA; MANI JAINLD ARS
• Keywords: Transfer pricing; Double taxation relief; Permanent establishment; Advance ruling; Non-deduction of tax; TDS
• Section: 143(3); 201(1); 195; 201; 13; 22; 2

Judgement Text

ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI . . , , BEFORE HONBLE SHRI C.N. PRASAD, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.3782/MUM/2016 ( / ASSESSMENT YEAR:2011-12) & ./ I.T.A. NO.3783/MUM/2016 ( / ASSESSMENT YEAR:2012-13) NEXT GEN FILMS PRIVATE L TD . 501/502, OM SHANAAZ APARTMENT JUHU VERSOVA LINK ROAD SEVEN BUNGLOWS, ANDHERI (WEST) MUMBAI-400 061. / VS. ITO (I N T. TAX .) TDS (4) MUMBAI. ! ./ ./PAN/GIR NO. AACCN-8156-F ( !# /APPELLANT ) : ( $!# / RESPONDENT ) ASSESSEE BY : S/SHRI H.S. RAHEJA & MANI JAIN-LD. ARS REVENUE BY : SHRI AVNEESH TIWARI & SHRI V.VINOD KUMAR-LD. DRS DATE OF FINAL HEARING : 31/07/2020 DATE OF PRONOUNCEMENT : 11 /08/2020 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1.1 AFORESAID APPEALS BY ASSESSEE FOR ASSESSMENT YE ARS [IN SHORT REFERRED TO AS AY] 2011-12 AND 2012-13 CONTEST SE PARATE ORDERS OF LEARNED FIRST APPELLATE AUTHORITY WHICH HAS DISPOSE D-OFF APPEAL AGAINST COMMON ORDER DATED 29/03/2014 PASSED BY LD.AO U/S 2 01(1) & 201(IA) ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 2 R.W.S. 195 OF THE INCOME TAX ACT, 1961. SINCE COMMO N ISSUES ARE INVOLVED, THE APPEALS WERE HEARD TOGETHER AND ARE N OW BEING DISPOSED- OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CON VENIENCE AND BREVITY. IT IS ADMITTED POSITION THAT ADJUDICATION IN ANY ON E YEAR WOULD EQUALLY APPLY TO THE OTHER YEAR ALSO. 1.2 WE HAVE CAREFULLY HEARD ARGUMENTS ADVANCED BY B OTH THE REPRESENTATIVES DURING THE COURSE OF HEARING AS WEL L AS DURING CLARIFICATION AND PERUSED RELEVANT MATERIAL ON RECO RD INCLUDING DOCUMENTS PLACED IN THE PAPER-BOOK. THE JUDICIAL PR ONOUNCEMENTS AS CITED DURING THE COURSE OF HEARING HAS BEEN DELIBER ATED UPON. OUR ADJUDICATION TO THE APPEALS WOULD BE AS GIVEN IN SU CCEEDING PARAGRAPHS. FIRST, WE TAKE UP APPEAL FOR AY 2011-12. ITA NO. 3782/MUM/2016, AY 2011-12 2.1 BRIEFLY STATED THE ASSESSEE IS A RESIDENT CORPO RATE ENTITY. IT ENTERED INTO A COMMISSIONING AGREEMENT (IN SHORT AGREEMENT ) WITH ANOTHER UK BASED NON-RESIDENT CORPORATE ENTITY NAMELY M/S DESI BOYZ PRODUCTION LTD. (IN SHORT DBPL) ON 01/09/2010 TO PRODUCE, CO MPLETE AND DELIVER A FEATURE FILM NAMELY DESI BOYZ (IN SHORT FILM) AS PER THE TERMS AND CONDITIONS AGREED THEREIN. THE COPY OF THE AGREEMEN T HAS BEEN PLACED ON RECORD. AS PER THE TERMS OF THE AGREEMENT, THE A SSESSEE AS A COMMISSIONING PARTY ENGAGED M/S DBPL TO PRODUCE AND DELIVER A FULLY COMPLETE FEATURE FILM PROVISIONALLY NAMED DESI BOYZ BASED ON CERTAIN STORYLINE. TO RESOLVE THE SUBJECT MATTER OF APPEAL, THE CORRECT APPRECIATION OF TERMS OF THE AGREEMENT WOULD BE CRI TICAL AND THEREFORE, AT THE OUTSET, WE SET OUT THE IMPORTANT TERMS OF THE A GREEMENT. ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 3 2.2 THE RECITALS OF THE AGREEMENT STATE THAT M/S DB PL HAS BEEN GRANTED AN ASSIGNMENT OF ALL RIGHTS, TITLES AND INT EREST IN AND TO THE STORYLINE FOR A FEATURE FILM PROVISIONALLY NAMED DESI BOYZ AND THE ASSESSEE, AS A COMMISSIONING PARTY, DESIRE TO ENGAG E M/S DBPL TO PRODUCE AND DELIVER A FULLY COMPLETE FEATURE FILM P ROVISIONALLY NAMED DESI BOYZ BASED ON CERTAIN STORYLINE. AS PER MATERIAL TERMS, M/S DBPL UNDERTOOK TO PRODUCE, COMPLETE AND DELIVER THE FILM IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT AND WAS OBLIGED TO RENDE R ALL SERVICES CUSTOMARILY RENDERED BY PRODUCTION COMPANIES IN CON NECTION WITH THE PRE-PRODUCTION, PRODUCTION, POST-PRODUCTION AND DEL IVERY OF A FEATURE FILM. THE SAID SERVICES WOULD INCLUDE PROVISIONING OF SER VICES OF VARIED NATURE WHICH HAS BEEN ENUMERATED IN CLAUSES 1.1.1 TO 1.1.1 0 OF THE AGREEMENT. M/S DBPL WAS TO, INTER-ALIA, PROVIDE ASSISTANCE IN CONNECTION WITH THE FURTHER DEVELOPMENT OF THE STORYLINE AND WRITING AN D DEVELOPMENT OF SCREENPLAY TO BE BASED ON THE STORYLINE, CASTING, P REPARATION OF STORYBOARDS AND SELECTION OF LOCATION, PRODUCTION A ND POST-PRODUCTION FACILITIES AND THIRD PARTY SPECIAL AND VISUAL EFFEC TS SERVICES. M/S DBPL WAS TO UNDERTAKE FILMING PRIMARILY IN THE UK AND AL SO IN INDIA AND PROCURE THE SERVICES OF ALL NECESSARY CREATIVE AND TECHNICAL SERVICE PROVIDERS AND ENGAGE ALL PERSONNEL FOR SHOOTING OF THE FILM. M/S DBPL WAS TO MAKE ARRANGEMENTS FOR LOCATIONS AND ENTER IN TO LOCATION AGREEMENTS. M/S DBPL WAS TO PROCURE PRODUCTION EQUI PMENT INCLUDING CAMERAS, GRIP AND LIGHTING EQUIPMENT, SOUND EQUIPME NT, PROP, WARD ROBE, MAKE-UP ETC. WITH A VIEW TO COMPLETE THE FILM AND DELIVERY OF THE FILM TO THE ASSESSEE IN A FIRST-CLASS MANNER. M/S D BPL WAS TO ARRANGE FOR ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 4 COMPREHENSIVE EDITING SERVICES. IT WAS ALSO REQUIRE D TO PROCURE ALL NECESSARY CONSENTS AND PERMISSIONS REQUIRED FOR THE PRE-PRODUCTION, PRINCIPAL PHOTOGRAPHY, POST-PRODUCTION AND EXPLOITA TION OF THE FILM. IT WAS ALSO TO ENSURE PROMPT PAYMENT ALL TAXES, DUTIES AND OTHER LEVIES TO THE CONCERNED STATUTORY AUTHORITIES. M/S DBPL WAS REQUI RED TO DELIVER THE FILM AS PER SPECIFICATIONS WHICH WAS TO BE FULLY SY NCHRONIZED AS TO DIALOGUE, MUSIC AND EFFECTS. M/S DBPL WAS TO COMPLE TE PRE-PRODUCTION, PRODUCTION AND POST-PRODUCTION OF THE FILM IN A FIR ST-CLASS MANNER AND OF A TECHNICALLY ACCEPTABLE QUALITY AND READY FOR COMM ERCIAL EXPLOITATION AND SUITABLE TO ENABLE THE COMMISSIONING PARTY TO C OMMERCIALLY EXPLOIT THE FILM WITHOUT FURTHER PROCESSES OR EXPENDITURE. 2.3 AS PER THE TERMS OF THE AGREEMENT, THE PRODUCTI ON OF THE FILM WAS PRIMARILY TO TAKE PLACE IN THE UNITED KINGDOM AND A LSO IN INDIA IN ACCORDANCE WITH THE PRODUCTION SCHEDULE. IT WAS AGR EED AND UNDERSTOOD THAT IN NO EVENT SHALL THE PERIOD OF PRINCIPAL PHOT OGRAPHY OF THE FILM IN UK WAS TO EXCEED 90 DAYS. 2.4 FURTHER M/S DBPL WAS TO ENSURE THAT THE FILM WO ULD SATISFY ALL REQUIREMENTS FOR QUALIFYING AS A BRITISH FILM FOR T HE PURPOSES OF THE FILMS ACT, 1985 AND IT WAS REQUIRED TO CARRY OUT ALL NECE SSARY PROCEDURES AND COMPLIANCES, IN THIS REGARD. THE ASSESSEE WAS REQUI RED TO RENDER REQUIRED ASSISTANCE FOR THIS PURPOSE, AT THE COST O F M/S DBPL. 2.5 TO ENSURE THAT THE FILM WAS PRODUCED AND DELIVE RED IN ACCORDANCE WITH MATERIAL REQUIREMENT, M/S DBPL WAS TO CONSULT AND TAKE CONSENT OF THE ASSESSEE OVER IMPORTANT ASPECTS LIKE IDENTITY O F ALL KEY CAST, BUDGET, PRODUCTION SCHEDULE, DELIVERY MATERIALS, CASH FLOW, SCREENPLAY, ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 5 PRODUCTION SERVICES COMPANIES TO BE ENGAGED ETC. TH E ASSESSEE WAS TO EXERCISE APPROVALS, ACCESS, ATTENDANCE AND CONSULTA TION RIGHTS IN A TIMELY AND REASONABLE MANNER WITHOUT DELAY. M/S DBP L WAS TO KEEP ASSESSEE INFORMED ABOUT ANY KEY DEVIATIONS IN THE P RODUCTION SCHEDULE. EVERY AGREEMENT ENTERED INTO BY M/S DBPL WITH ANY P RINCIPAL CONTRIBUTOR OR OTHER CAST AND CREW WOULD REQUIRE APPROVAL OF TH E ASSESSEE BUT THE SAME WAS TO BE ENTERED INTO BY M/S DBPL IN HIS OWN NAME. M/S DBPL WAS TO SECURE ALL COPYRIGHTS IN AND TO THE PRODUCTI ON OF THE CONTRIBUTORS SERVICES IN ITS OWN NAME FOR THE FULL TERM OF PROTE CTION. M/S DBPL WAS TO SECURE SIMILAR OTHER RIGHTS, IN ITS OWN, NAME. ALL THESE RIGHTS WERE AGREED TO BE FREELY ASSIGNABLE BY M/S DBPL. 2.6 M/S DBPL WAS RESPONSIBLE FOR ITS OBLIGATIONS UN DER THE AGREEMENTS ENTERED INTO BY IT WITH ANY CONTRIBUTORS AND THE AS SESSEE WAS UNDER NO OBLIGATION TO HONOR SUCH OBLIGATIONS. M/S DBPL HAD ALL THE RESPONSIBILITY FOR ALL CREATIVE DECISIONS RELATING TO THE CONTROL AND MANAGEMENT OF THE PRODUCTION OF THE FILM. 2.7 AS PER THE TERMS OF THE AGREEMENT, IN CONSIDERA TION OF M/S DBPL PRODUCING, COMPLETING AND DELIVERING THE FILM IN AC CORDANCE WITH THE AGREEMENT, M/S DBPL WAS ENTITLED FOR 100% OF THE BU DGET LESS AN AMOUNT EQUAL TO THE UK TAX CREDIT ADVANCE, ANY UNDE R-SPEND, INTEREST ACCRUED ON MONIES HELD IN PRODUCTION ACCOUNT AND AN Y REALIZABLE VALUE WHICH M/S DBPL MAY GENERATE ON EQUIPMENT / MATERIAL S SALE AT THE END OF PRODUCTION OF THE FILM. THE SAID CONSIDERATION W AS DEEMED TO BE FULL AND SUFFICIENT CONSIDERATION FOR ALL SERVICES RENDE RED AND ALL RIGHTS GRANTED AND ASSIGNED BY M/S DBPL TO ASSESSEE. THE S AID NET ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 6 CONSIDERATION (BUDGET AS REDUCED BY UK TAX CREDIT) WAS PAYABLE IN ADVANCE IN CERTAIN PRESCRIBED MANNER AS PER CASHFLO W SCHEDULE. IN THE EVENT M/S DBPL REQUEST ASSESSEE TO PAY A THIRD PART Y DIRECTLY, THEN THOSE INSTRUCTIONS WOULD REPLACE THE REQUIREMENT FO R FUNDING TO THAT EXTENT. THE BUDGETED COST AS PER SCHEDULE-2 WAS NOT TO EXCEED 12.8 MILLION POUNDS. 2.8 AS PER CLAUSE-12, THE OWNERSHIP OF THE FILM WAS OWNED SOLELY AND EXCLUSIVELY BY THE ASSESSEE. ALL THE RIGHTS, TITLE AND INTEREST IN AND TO THE FILM, ALL UNDERLYING LITERARY MATERIAL RELATING THE RETO, ALL ORIGINAL MUSIC, LYRICS, PHYSICAL MATERIAL OF ANY KIND ETC. WOULD BE OWNED AND SOLELY AND EXCLUSIVELY BY THE ASSESSEE AND WOULD VEST IN THE A SSESSEE. THESE RIGHTS WOULD INCLUDE SOLE AND EXCLUSIVE RIGHT TO EX HIBIT, BROADCAST, DISTRIBUTE, PUBLICIZE AND EXPLOIT THE FILM BY EVERY MEANS AND RIGHTS INCLUDING BENEFITS OF ALL AGREEMENTS ENTERED INTO B Y M/S DBPL WITH THIRD PARTIES. 2.9 M/S DBPL HAD SOLE RESPONSIBILITY OF ANY OVERSPE ND EXCEPT WHERE CHANGES WERE REQUIRED BY ASSESSEE. M/S DBPL WAS REQ UIRED TO DELIVER THE DELIVERY MATERIAL AT ITS OWN COST TO THE ASSESS EE AS PER SPECIFIED DELIVERY DATE. THE OTHER TERMS OF THE AGREEMENT PRO VIDE FOR WARRANTIES, EVENTS OF DEFAULT, TERMINATION, CONFIDENTIALITY, FO RCE MAJEURE ETC. WHICH ARE GENERAL IN NATURE. 2.10 THE SCHEDULE-1 OF THE AGREEMENT CONTAIN FILM S PECIFICATION. SCHEDULE-2 CONTAIN BUDGET. SCHEDULE-3 CONTAIN PRODU CTION SCHEDULE. AS PER THE SAID SCHEDULE, THE SHOOT WAS TO TAKE PLACE IN INDIA FOR 23 DAYS WHEREAS THE PERIOD OF SHOOT IN UK WAS 55 DAYS. DEVE LOPMENT & PRE- ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 7 PRODUCTION WAS TO TAKE PLACE FROM APRIL TO OCTOBER, 2010 WHEREAS FINAL DELIVERY DATE WAS ESTIMATED TO BE 3 RD QUARTER OF 2011. 2.11 THE RECITALS OF THE AGREEMENT TAKE NOTE OF THE FACT THAT M/S DBPL HAD AN AGREEMENT WITH ANOTHER ENTITY NAMELY EROS IN TERNATIONAL LIMITED (EIL) TO AVAIL THE SERVICES OF JYOTI DESHPANDE. M/S DBPL WAS GRANTED AN ASSIGNMENT OF ALL RIGHTS, TITLE AND INTEREST IN AND TO THE STORYLINE OF SAID FEATURE FILM PROVISIONALLY NAMED DESI BOYZ. 2.12 UPON PERUSAL OF THE TERMS OF THE CONTRACT BETW EEN ASSESSEE AND M/S DBPL, IT COULD BE CONCLUDED THAT THE CONTRACT B ETWEEN THE TWO ENTITIES WAS PRIMARILY ON PRINCIPAL-TO-PRINCIPAL BA SIS. THE ENTIRE RESPONSIBILITY TO PRODUCE THE FILM WAS ON M/S DBPL AGAINST LUMP-SUM CONSIDERATION. M/S DBPL WAS REQUIRED TO PRODUCE THE FILM AND ENSURE THE DELIVERY OF THE FILM AS PER SPECIFICATIONS. THE FILM WAS TO BE FULLY SYNCHRONIZED AS TO DIALOGUE, MUSIC AND EFFECTS AND M/S DBPL WAS TO COMPLETE PRE-PRODUCTION, PRODUCTION AND POST-PRODUC TION OF THE FILM IN A FIRST-CLASS MANNER AND OF A TECHNICALLY ACCEPTABLE QUALITY WHICH WAS READY FOR COMMERCIAL EXPLOITATION AND SUITABLE TO E NABLE THE ASSESSEE TO COMMERCIALLY EXPLOIT THE FILM WITHOUT FURTHER PROCE SSES OR EXPENDITURE. FOR THE SAME, M/S DBPL COULD ENTER INTO INDEPENDENT CONTRACTS. ALL THE ACTIVITIES OF M/S DBPL WERE TO BE CARRIED OUT WITH ASSESSEES CONSULTATION WITH A VIEW TO ENSURE THAT THE FILM WA S PRODUCED EXACTLY AS PER THE SPECIFICATION AND IN LINE WITH STORYLINE. PRODUCTION SERVICES AGREEMENT 3.1 M/S DBPL ENTERED INTO ONE PRODUCTION SERVICES A GREEMENT ON SAME DATE I.E. 01/09/2010 WITH ANOTHER RESIDENT ENT ITY NAMELY EROS ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 8 INTERNATIONAL FILMS PRIVATE LIMITED (EIFPL / SERVIC E COMPANY). M/S DBPL, AS A PRODUCER OF THE PROPOSED FILM, WITH A VI EW TO AVAIL CERTAIN SPECIFIC AND LIMITED PRODUCTION SERVICES FROM M/S E IFPL, ENTERED INTO THIS CONTRACT. THESE SERVICES WERE SUBJECT TO THE DIRECT ION AND CONTROL OF THE PRODUCER. THE SERVICE FEE WAS SETTLED AS RS.300 LAC S. AS PER THE TERM, M/S DBPL ENGAGED M/S EIFPL TO AVAIL CERTAIN PRODUCT ION SERVICES FOR THE FILM. THE NATURE OF PROPOSED SERVICES TO BE AVA ILED HAVE BEEN ENUMERATED IN SCHEDULE-1 OF THE AGREEMENT. 3.2 M/S EIFPL WAS TO PROVIDE PRODUCTION SERVICES, W HICH WOULD, INTER- ALIA, INCLUDE IDENTIFYING & NEGOTIATING WITH APPROPRIATE LEAD CAST, APPOINTMENT OF CONTRIBUTORS (CREW MEMBERS) FOR SHOO TING OF THE FILM IN UK, TRAVEL ARRANGEMENT FOR CONTRIBUTORS, COMPLETE C OORDINATION AND ARRANGEMENT FOR PRODUCERS INDIA SHOOT, MAKING PAYM ENTS FOR INDIA SHOOT, PRODUCTION CO-ORDINATION, INSURANCE FOR CAST & CREW, EQUIPMENT, CAMERAS, COSTUMES ETC., FREIGHT & TRANSPORTATION OF CAMERA, LIGHTING EQUIPMENT, PROPS, COSTUMES FOR USE ON THE SHOOT, EN SURE ACCOUNTING, PAYMENT & RECONCILIATION OF TAXES, OBTAINING INVOIC ES/CONTRACTS FROM THE CONTRIBUTORS IN INDIA ETC. 3.3 AS PER CLAUSE 2.5 OF THIS AGREEMENT, THE PRODUC ER WAS TO HAVE THE DAY-TO-DAY ADMINISTRATION AND CONTROL OF THE FILM A ND WOULD HAVE CREATIVE, BUSINESS AND FINANCIAL CONTROL WITH RESPE CT TO THE PRODUCTION OF THE FILM. THE SERVICE COMPANY WAS REQUIRED TO PROCU RE THE SERVICES OF ALL PERSONS REQUIRED BY THE PRODUCER TO BE ENGAGED BY T HE SERVICE COMPANY IN THE PROVISION OF THE PRODUCTION SERVICES IN INDI A AND UK. ALL THE SUPPLIERS AND PERSONNEL ENGAGED OR CONTRACTED BY TH E SERVICE COMPANY ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 9 WERE REFERRED TO AS THE CONTRIBUTORS. THE CONTRIBUT ORS WERE TO ENTER INTO CONTRACTS WITH SERVICE COMPANY DIRECTLY. THE SERVIC E COMPANY WAS RESPONSIBLE FOR MAKING DIRECT PAYMENTS TO THE CONTR IBUTORS. 3.4 AS PER CLAUSE 5.1, THE PRODUCER LICENSED THE SE RVICE COMPANY SUCH NECESSARY RIGHTS TO ENABLE THE SERVICE COMPANY TO C ARRY OUT ON BEHALF OF AND AS AN AGENT FOR THE PRODUCER, THE PRODUCTION SE RVICES. HOWEVER, THE PRODUCER WOULD REMAIN THE MAKER AND OWNER OF ALL RI GHTS IN THE FILM. 3.5 THE PRODUCER AGREED TO PAY TO SERVICE COMPANY A SUM EQUAL TO INDIAN PRODUCTION SERVICES BUDGET WHICH WOULD INCLU DE SERVICE FEE OF RS.300 LACS. THE INDIAN PRODUCTION SERVICES BUDGET, AS PER SCHEDULE-3 WAS ESTIMATED AT RS.1066.18 LACS INCLUDING SERVICE FEE OF RS.300 LACS. AS PER SCHEDULE-2, THE INDIAN PRODUCTION SCHEDULE W OULD INCLUDE SHOOTING FOR 23 DAYS IN INDIA AS AGAINST 55 DAYS IN UK WHICH IS THE SAME AS MENTIONED IN THE COMMISSIONING AGREEMENT. 3.6 UPON PERUSAL OF THE TERMS OF THE CONTRACT, IT C OULD BE CONCLUDED THAT THE CONTRACT BETWEEN THE TWO ENTITIES WAS PRIM ARILY THAT OF A PRINCIPAL AND AN AGENT. THE SERVICE COMPANY, ACTING ON BEHALF OF PRODUCER, WAS REQUIRED TO PROVIDE LIMITED PRODUCTION SERVICES OF CERTAIN NATURE AGAINST PAYMENT OF LUMP SUM FEE OF RS.300 LACS. THE SAID SE RVICES WERE TO BE RENDERED UNDER DIRECT CONTROL, SUPERVISION AS WELL AS 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 BUDGET ED COST OF 12.8 MILLION POUNDS, WOULD BE LESS THAN 10% OF TOTAL BUDGETED CO ST. ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 10 PROCEEDINGS BEFORE LD. AO 4.1 IN THE ABOVE BACKGROUND, AN ORDER U/S 201(1) & 201(1A) R.W.S 195 OF THE ACT WAS PASSED BY LEARNED ASSESSING OFFICER (AO) ON 29/03/2014. IT TRANSPIRED THAT THE ASSESSEE REMITTED AN AGGREGA TE AMOUNT OF RS.5716.65 LACS DURING FINANCIAL YEARS 2010-11 & 20 11-12 TO M/S DBPL WITHOUT DEDUCTING ANY TAX AT SOURCE (TDS). THE DETA ILS OF THE PAYMENT SO MADE ALONG WITH REASON FOR REMITTANCES HAVE BEEN TA BULATED BY THE ASSESSEE IN ITS REPLY WHICH HAS BEEN EXTRACTED ON P AGE-2 OF THE QUANTUM ORDER. THE ASSESSEE DEFENDED THE NON-DEDUCT ION OF TAX AT SOURCE BY SUBMITTING THAT THE RECIPIENT DID NOT HAV E ANY PERMANENT ESTABLISHMENT (PE) IN INDIA, PURCHASES / SERVICES W ERE RENDERED BY M/S DBPL OUTSIDE INDIA AND THE PAYMENT WERE TOWARDS PUR CHASE OF GOODS/ SERVICES RECEIVED ABROAD. THE COPIES OF RELEVANT AG REEMENTS WERE PLACED ON RECORD ALONG WITH UNAUDITED FINANCIAL STA TEMENTS OF M/S. DBPL TO SUPPORT THE SAID SUBMISSIONS. IN NUTSHELL, IT WA S SUBMITTED THAT THIS WAS TRANSACTION OF BUYING AND SELLING OF A FEATURE FILM BETWEEN TWO INDEPENDENT PARTIES AND THEREFORE, TDS PROVISIONS A S CONTAINED IN SEC.195 WERE NOT APPLICABLE AND THE ASSESSEE COULD NOT BE HELD TO BE ASSESSEE-IN-DEFAULT FOR NON-DEDUCTION OF TAX AT SOU RCE. 4.2 HOWEVER, A SHOW-CAUSE NOTICE WAS ISSUED TO THE ASSESSEE ON 17/02/2014 WHEREIN IT WAS STATED THAT AS PER THE TE RMS OF COMMISSIONING AGREEMENT, THE ASSESSEE PARTICIPATED DIRECTLY OR IN DIRECTLY IN THE MANAGEMENT AND CONTROL OR BUDGETING OF THE COMPANY M/S DBPL. ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 11 4.3 REFERRING TO AGREEMENT BETWEEN M/S DBPL AND M/S EIFPL, IT WAS ALLEGED THAT THE ENTIRE FILM PRODUCTION OF FILM DESI BOYZ WAS BEING MANAGED AND CARRIED ON BY M/S EIFPL. IN THE NOTICE, ATTENTION WAS DRAWN TO THE FACT THAT ANOTHER INDIAN ENTITY NAMELY EROS INTERNATIONAL MEDIA LTD. (EIML) WAS CO-PRODUCER OF THE FILM IN AS SOCIATION WITH THE ASSESSEE. M/S EIFPL & M/S EIML WERE SUBSIDIARIES OF M/S EROS INTERNATIONAL PLC AND HENCE, SISTER CONCERNS. 4.4 IN THE SAID BACKGROUND, IT WAS OPINED THAT ENTI RE FILM PRODUCTION ACTIVITIES AND BUDGETING OF THE FILM WAS CARRIED OU T BY THE ASSESSEE, M/S EIML AND M/S EIFPL. THEREFORE, ALL THESE THREE ENTI TIES AS WELL AS M/S DBPL WOULD BE ASSOCIATED ENTERPRISES (AE) WITHIN TH E MEANING OF ARTICLE-10 OF INDIA-UK DOUBLE TAXATION AVOIDANCE AG REEMENT (DTAA / TREATY). SINCE M/S EIFPL WAS CARRYING ON THE ENTIRE FILM PRODUCTION ACTIVITIES OF THE FILM IN INDIA AND UK LOCATIONS, M /S EIFPL WOULD BE PERMANENT ESTABLISHMENT (PE) OF M/S DBPL IN INDIA. FURTHER SINCE, THE ASSESSEE HAS CONTROL OVER THE MANAGEMENT AND BUDGET ING OF THE FILM PRODUCTION ACTIVITIES OF M/S DBPL AND BEING ITS AE, ASSESSEE BECOMES PE OF M/S DBPL IN INDIA. THEREFORE, THE INCOME OF M /S DBPL WOULD BE LIABLE TO BE TAXED IN INDIA AND HENCE, THE AFORESAI D PAYMENT WOULD REQUIRE TAX DEDUCTION AT SOURCE IN TERMS OF SEC. 19 5 OF THE ACT. THEREFORE, THE ASSESSEES PLEA WAS TO BE REJECTED A ND THE ASSESSEE WAS TO BE TREATED AS ASSESSEE-IN-DEFAULT AS PER THE PROVISIONS OF SEC. 201 OF THE ACT. 4.5 IN THE ABSENCE OF ANY SATISFACTORY REPLY FROM T HE ASSESSEE, A CONCLUSION WAS DRAWN THAT THE ASSESSEE AND M/S EIML WERE THE CO- ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 12 PRODUCER OF THE FILM. M/S EIFPL AND M/S EIML WERE G ROUP COMPANIES OF EROS INTERNATIONAL, LLC AND THEREFORE, ASSOCIATED C ONCERNS. THE FACT THAT M/S EIML WAS CO-PRODUCER OF THE FILM WAS GATHE RED FROM THE WEBSITE OF THAT ENTITY. IT WAS ALSO NOTED THAT M/S DBPL WAS AN ENTITY CREATED IN UK AND IT HAD ONE SHAREHOLDER WHICH HELD ONE SHARE OF 1. THE DIRECTORS OF THAT ENTITY WERE STATED TO BE MR. ASHOK GROVER AND MRS. SUKESHI DOSHI . MR. GROVER SIGNED THE COMMISSIONING AGREEMENT AND WAS STATED TO BE BASED IN MUMBAI. THEREFORE, A CONC LUSION WAS ALSO DRAWN THAT PRODUCTION WORK WAS CARRIED OUT BY THE P ERSONS RESIDENT IN INDIA. 4.6 THEREAFTER, THE VARIOUS CLAUSES OF THE COMMISSI ONING AGREEMENT BETWEEN THE ASSESSEE AND M/S DBPL AS WELL AS SERVIC E AGREEMENT BETWEEN M/S DBPL AND M/S EIFPL WERE ANALYZED AND TA BULATED ON PAGE NOS. 12 TO 16 OF THE ORDER. ON THE BASIS OF TH E SAME, IT WAS CONCLUDED BY LD. AO THAT THE ASSESSEE OWNED ALL THE RIGHTS, TITLE AND COPYRIGHT OF THE PROPERTY IN THE SAID FILM. THE ASS ESSEE WAS INVOLVED IN ALL STAGES OF FILM PRODUCTION AS ITS RECOMMENDATION S AND APPROVALS WERE NECESSARY FOR MAKING CHANGES IN LEAD ACTORS, CAST, STORY, SCREENPLAY, CHANGES IN BUDGETS, TAX CREDIT / BENEFITS IN UK, IT EMS OF DELIVERY AND THEREFORE, IT HAD DIRECT ROLE AND CONTROL ON ALL TH E ACTIVITIES IN PRODUCTION OF THE FILM. 4.7 ANOTHER OBSERVATION WAS THAT M/S EIFPL CARRIED OUT ALL THE ACTIVITIES OF FILM PRODUCTION IN INDIA AND UK SINCE IT WAS TO NEGOTIATE WITH ALL THE CONTRIBUTORS, CASTS AND CREW. THEREFORE, IT WAS MANAGING AND CONTROLLING ALL THE ACTIVITIES OF THE FILM PRODUCTI ON. THE ROLE OF M/S DBPL ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 13 WAS ONLY THAT OF FACILITATOR AND IT HAD NO EXPERTIS E OR EXPERIENCE IN FILM PRODUCTION. IN THE AFORESAID FACTS, THE CLAIM THAT IT WAS TRANSACTION OF BUYING AND SELLING OF FILM WAS REJECTED. FROM THE P ERUSAL OF PRODUCTION SCHEDULE, IT WAS NOTED THAT PRODUCTION ACTIVITIES R ELATING TO SHOOTING IN UK WERE FOR 55 DAYS WHEREAS ALL THE OTHER ACTIVITIE S FROM THE STAGES OF PRE-PRODUCTION TO POST-PRODUCTION WERE CARRIED OUT IN INDIA WHICH WAS FOR A GREATER PERIOD OF AROUND 374 DAYS. 4.8 REFERRING TO THE TERM ASSOCIATED ENTERPRISES AS GIVEN IN ARTICLE 10 OF TREATY, THE FACTS DEDUCED WERE THAT ENTIRE DECIS ION MAKING WAS WITH THE ASSESSEE AND ASSESSEE WAS TO DICTATE THE TERMS AND SPECIFICATIONS ON THE BASIS OF WHICH FILM WAS TO BE MADE. IT RESER VED ALL RIGHTS AND AUTHORITIES FOR APPROVING ANY CHANGES TO THE FILM S TORY / CAST & CREW / LOCATIONS / BUDGET ETC. THEREFORE, THE ASSESSEE DIR ECTLY OR INDIRECTLY CONTROLLED THE PROJECT ACTIVITIES IN MAKING OF THE FILM. THE ENTIRE CAPITAL FOR THE PROJECT WAS RECEIVED BY M/S DBPL FROM THE ASSES SEE. ANY CHANGE IN CONSIDERATION WOULD REQUIRE APPROVAL OF THE ASSESSE E. THE ASSESSEE DIRECTLY OR INDIRECTLY PARTICIPATED IN AND HAD CONT ROL OVER THE CAPITAL OF THE M/S DBPL FOR FILM PRODUCTION ACTIVITIES. SIMILARLY, M/S EIFPL DIRECTLY OR INDIRECTLY PARTICIPATE IN MAKING AND MANAGEMENT OF ENTIRE PRODUCTION OF THE FILM. THE THREE CONCERNS WERE NOT INDEPENDENT P ARTIES. FOR THE PURPOSES OF ACQUIRING THE FILM, PRODUCTION ACTIVITI ES AND ENTIRE FINANCES, M/S DBPL WAS ENTIRELY DEPENDENT ON ASSESSEE WHO, IN TURN, WAS DEPENDENT ON M/S EIFPL FOR ENTIRE PRODUCTION ACTIVI TIES OF THE FILM. THE ASSESSEE AND M/S EMIL WERE THE CO PRODUCERS OF THE FILM. M/S EMIL AND M/S EFIPL WERE SUBSIDIARIES OF THE SAME EROS GROUP AND THUS THE ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 14 ASSESSEE AND M/S EIFPL WERE RELATED PARTIES IN THE BUSINESS PROJECT OF THIS FILM. 4.9 REFERRING TO ARTICLE 5 OF THE TREATY WHICH DEFI NE THE TERM PERMANENT ESTABLISHMENT (PE) , IT WAS STATED THAT M/S EIFPL CARRIED ON ENTIRE MANAGEMENT, CONDUCT AND EXECUTION OF THE FIL M PRODUCTION ACTIVITIES IN INDIA AS WELL AS IN UK FOR AND ON BEH ALF OF M/S DBPL. THEREFORE, M/S EIFPL WOULD BE PLACE OF MANAGEMENT O F M/S DBPL IN INDIA. M/S EFIPL CARRIED ON ENTIRE FILM PRODUCTION ACTIVITIES AND IT WOULD BE EQUIVALENT TO FACTORY AND A WORKSHOP FOR PRODUCT ION OF FILM FOR AND ON BEHALF OF M/S DBPL IN INDIA. SINCE THE ASSESSEE AND M/S EIFPL WERE ASSOCIATED ENTERPRISES OF M/S DBPL AS PER ARTICLE 1 0 OF INDIA-UK DTAA, THE ARTICLE 5(2)(K) SUB-CLAUSE (I) & (II) WOULD APP LY. M/S EIFPL WAS FURNISHING MANAGERIAL SERVICES FOR AND ON BEHALF OF M/S DBPL IN INDIA AS WELL AS IN UK FOR A PERIOD AGGREGATING TO MORE THAN 90 DAYS IN A PERIOD OF TWELVE MONTHS. FURTHER, IN TERMS OF PARAGRAPH-1 OF ARTICLE 10, THE SERVICES WERE PERFORMED FOR THE PERIOD OR PERIODS A GGERATING TO MORE THAN 30 DAYS WITHIN ANY TWELVE-MONTH PERIOD. 4.10 BASED ON THE CONCLUSION THAT M/S EIFPL IS THE PE OF M/S DBPL IN INDIA, THE INCOME OF M/S DPBL AS ATTRIBUTABLE TO IT S PE WOULD BE TAXABLE IN INDIA. THEREFORE, THE PROVISIONS OF SECTION 195 WOULD APPLY AND THE ASSESSEE WAS LIABLE TO WITHHOLD TAX WHILE MAKING RE MITTANCES TO M/S DBPL. IN THE ABSENCE OF SUCH DEDUCTION, THE ASSESSE E WAS TO BE TREATED AS ASSESSEE-IN-DEFAULT U/S 201(1) OF THE ACT. THE I NCOME OF M/S DBPL WAS TO BE ASSESSED ON NET BASIS. THE PLEA THAT M/S DBPL INCURRED LOSSES AND THEREFORE NO INCOME COULD BE BROUGHT TO TAX WAS REJECTED IN ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 15 THE LIGHT OF UNAUDITED FINANCIAL STATEMENTS OF M/S DBPL. FINALLY, LD. AO ESTIMATED PROFIT RATIO OF 25% AGAINST REMITTANCES S O MADE BY THE ASSESSEE. SINCE M/S EIFPL WAS CARRYING OUT ALL THE CORE FUNCTIONS OF PRODUCTION OF FILM, THE RATE OF PROFIT ATTRIBUTION TOWARDS PE WAS ESTIMATED TO BE 80%. IN OTHER WORDS, THE EFFECTIVE PROFIT RAT E THAT WOULD ACCRUE TO M/S DBPL WOULD BE 25% OF 80% I.E. NET 20%. CONSIDER ING THE APPLICABLE TAX RATE OF 40%, THE EFFECTIVE RATE OF T AX WOULD BE 8% (20% OF 40%) WHICH WAS TO BE FURTHER INCREASED BY SURCHARGE AND EDUCATION- CESS. THE NET EFFECTIVE RATE THUS WORKED OUT TO BE 8.4872% WHICH WAS APPLIED TO THE REMITTANCES MADE BY THE ASSESSEE TO M/S DBPL DURING THE YEAR, TO WORK OUT THE TDS DEFAULT. CONSEQUENTLY , THE ASSESSEE WOULD BE LIABLE FOR INTEREST COMPONENT U/S 201(1A) FOR NO N-DEDUCTION OF TAX. FINALLY, A DEMAND WAS RAISED AGAINST THE ASSESSEE U /S 201(1) & 201(IA) FOR AYS 2011-12 & 2012-13, IN THE FOLLOWING MANNER: - APPELLATE PROCEEDINGS BEFORE LD. CIT(A) 5.1 AGGRIEVED AS AFORESAID, THE ASSESSEE ASSAILED T HE DEMAND BY WAY OF WRITTEN SUBMISSIONS WHICH HAVE BEEN EXTRACTED AT PARA 3.3. OF THE IMPUGNED ORDER. THE ASSESSEE REITERATED THAT IT WAS IN THE BUSINESS OF PRODUCING FEATURE FILMS. KEEPING IN VIEW THE STORYL INE OF FILM, IT APPROACHED A UK-BASED ENTITY TO UNDERTAKE THE PRODU CTION OF THE FILM AND ACCORDINGLY ENTERED INTO A COMMISSIONING AGREEM ENT WITH M/S DBPL WHEREIN M/S DBPL WAS OBLIGED TO PRODUCE AND DELIVER A FULLY COMPLETE NO. AY TAX LIABI LITY U/S 201 I NTEREST U/S 201( 1A) TOTAL DEMAND 1. 2011-12 2,66,63,812/- 1,05,46,085/- 3,72,09,897/ - 2. 2012-13 2,18,63,092/- 72,95,010/- 2,91,58,102/- TOTAL 4,85,26,904 / - 1,78 ,41,095/ - 6,63,67, 999/ - ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 16 FEATURE FILM. THE ENTIRE SERVICES IN RELATION TO PR E-PRODUCTION, POST PRODUCTION AND DELIVERY OF FILM WAS TO BE PROVIDED BY M/S DBPL. M/S DBPP WAS TO ARRANGE FOR FILMING IN INDIA AND UK AND FOR THE SAID PURPOSE, IT COULD APPOINT A PRODUCTION SERVICES COM PANY. THE ASSESSEE WAS TO PAY AN AMOUNT EQUAL TO THE PRODUCTION BUDGET LESS AN AMOUNT EQUAL TO UK TAX CREDIT, ANY UNDER-SPEND, INTEREST E TC. NO SEPARATE PAYMENT WAS TO BE MADE TO M/S DBPL FOR THE SERVICES . THE SAID CONSIDERATION WAS FULL AND SUFFICIENT CONSIDERATION FOR ALL THE SERVICES RENDERED INCLUDING ALL RIGHTS / ASSIGNMENT GRANTED THEREIN. THE PAYMENT WAS REIMBURSEMENT OF BUDGETED COST TO M/S DBPL. IN ORDER TO ENSURE THAT THE FILM WAS TO BE PRODUCED AND DELIVERED IN A CCORDANCE WITH THE MATERIAL REQUIREMENTS, THE AGREEMENT REQUIRED M/S D BPL TO CONSULT WITH THE ASSESSEE TO MAKE OUT ANY ADJUSTMENT WITH THE ST IPULATED REQUIREMENTS. THE SAID REQUIREMENT WAS FOR THE SOLE PURPOSE TO PREVENT ANY MODIFICATION TO SCREENPLAY OR OTHER MATERIAL RE QUIREMENT AS THE FEATURE FILM NEEDED TO BE VERY ACCURATE WITH ITS ST ORYLINE AND SCREENPLAY. SINCE, M/S DBPL WAS UK-BASED ENTITY HAVING NO PE IN INDIA, NO INCOME WOULD ACCRUE TO IT UNDER THE TERMS OF THE AGREEMENT . THE CONSIDERATION PAID BY THE ASSESSEE WAS TOWARDS PURCHASE OF THE FE ATURE FILM. 5.2 IT WAS FURTHER SUBMITTED THAT M/S DBPL, IN ORDE R TO EXECUTE THE AFORESAID PROJECT, ENTERED IN TO ANOTHER CONTRACT W ITH M/S EIFPL TO CARRY OUT CERTAIN ACTIVITIES IN RELATION TO THE PRODUCTIO N AND POST-PRODUCTION. THE SAID AGREEMENT WAS MERELY TO ASSIST THE PRODUCT ION OF THE FILM AND TO PROVIDE REQUISITE SERVICES IN RELATION TO DELIVE RY OF A FEATURE FILM. M/S EIFPL WAS ENTRUSTED WITH THE RESPONSIBILITY OF ARRA NGING THE CREW AND ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 17 THE REQUISITE EQUIPMENT WHICH WERE TO BE PROCURED F ROM 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 INDEPENDENT ACTIVITY AND THE RELATIONSHIP OF M/S EIFPL & M/S DBPL WAS ON PRINCIPAL-TO-PRINCIPAL BASI S. THE ACTIVITIES OF M/S EIFPL COULD NOT BE INFLUENCED OR CHANGED BY M/S DBPL. THE ACTIVITIES CARRIED OUT BY M/S EIFPL WERE PERFORMED BY THEIR OWN PERSONNEL. RELIANCE WAS PLACED ON THE DECISION OF A UTHORITY FOR ADVANCE RULING IN THE CASE OF PINTSCH BAMAG (226 CTR AAR 1 ) RENDERED UNDER SIMILAR CIRCUMSTANCES WHEREIN IT AS HELD THAT SINCE AGENT APPOINTED BY FOREIGN ENTITY CONTINUE TO CARRY ITS INDEPENDENT ST ATUS, THE SAME COULD NOT BE TERMED AS THE PE OF FOREIGN ENTITY. ON THE S TRENGTH OF THE FACTUAL MATRIX, IT WAS SUBMITTED THAT M/S EFIPL WAS AN INDE PENDENT AGENT AND THEREFORE, COULD NOT BE TREATED AS PE OF FOREIGN EN TITY AS PER ARTICLE-5 OF THE TREATY. M/S EIFPL COULD NOT BE TREATED AS PLACE OF MANAGEMENT IN INDIA FOR M/S DBPL OR A FACTORY OR A WORKSHOP FOR P RODUCTION OF FILM IN TERMS OF ARTICLE-5. FURTHER, M/S EFIPL DID NOT PROV IDE ANY MANAGERIAL SERVICES TO M/S DBPL. THEREFORE, THE QUESTION OF TA XING INCOME OF M/S DBPL IN INDIA WOULD NOT ARISE. 5.3 A PLEA WAS ALSO RAISED THAT AS PER THE TERMS OF THE COMMISSIONING AGREEMENT, M/S DBPL WAS TO BE REIMBURSED WITH ENTIR E PRODUCTION COST AND THEREFORE, THE SAID REMITTANCES WERE NOT LIABLE FOR TDS PROVISIONS AS PER THE DECISION OF MUMBAI TRIBUNAL RENDERED IN M/S WIZCRAFT INTERNATIONAL ENTERTAINMENT LTD. (ITA NO. 3208/MUM/ 2003). ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 18 5.4 ASSAILING THE ISSUE OF ASSOCIATED ENTERPRISES A S PER ARTICLE-10, IT WAS SUBMITTED THAT WORK PERFORMED BY M/S DBPL WAS I NDEPENDENT AND WITHOUT ANY INTERFERENCE BY THE ASSESSEE. M/S DBPL WAS INDEPENDENT SERVICE PROVIDER AND PERFORMED THE FILM PRODUCTION ACTIVITY AS PER ITS OWN DECISIONS. THE VARIOUS CONDITIONS / STIPULATIONS RE QUIRING PRIOR CONSULTATION OF THE ASSESSEE WAS PURELY WITH THE MO TIVE OF PASSIVE MONITORING OF THE FILM PRODUCTION ACTIVITY SINCE TH E SAME WAS VERY TECHNICAL IN NATURE. EVEN IF THE PARTIES WERE TO BE TREATED AS AES, NO SHORT ACCRUAL OF BUSINESS PROFITS HAS BEEN BOOKED B Y THE ASSESSEE. 5.5 HOWEVER, THE AFORESAID SUBMISSIONS / ARGUMENTS COULD NOT FIND FAVOR WITH LD.CIT(A), WHO UPHELD THE STAND OF LD.AO . CONSEQUENTLY, THE ASSESSEE IS UNDER FURTHER APPEAL BEFORE US WITH FOL LOWING GROUNDS OF APPEAL: - THE FOLLOWING ARE THE GROUNDS OF APPEAL, WHICH ARE WITHOUT PREJUDICE TO ONE ANOTHER. 1) ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT' S CASE AND IN LAW, LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ACTION OF THE ASSESSING OFFICER TO HOLD THAT THE PROVISIONS OF SE CTION 195 OF THE ACT ARE APPLICABLE TO FOREIGN REMITTANCES MADE BY THE APPELLANT. 2) ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT' S CASE AND IN LAW, LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ACTION OF THE ASSESSING OFFICER TO HOLD THAT THE ASSESSEE IS IN D EFAULT IN RESPECT OF NON DEDUCTION OF TAX AND THEREBY RAISING DEMAND OF RS. 2,66,63,81 2/- U/S. 201(1) R.W.S.195. 3) ON THE FACTS AND CIRCUMSTANCES OF THE APPELLANT' S CASE AND IN LAW, LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE ACTION OF THE ASSESSING OFFICER IN CHARGING INTEREST U/S. 201(1A) AMOUNTING TO RS.1,05,46,085/- ON ALLEGED DEFAULT U/S. 201(1) R.W.S. 195. RIVAL SUBMISSIONS 6.1 THE ARGUMENTS OF LD. AR ARE MULTI FOLDS. DRAWI NG ATTENTION TO THE PRODUCTION SERVICE AGREEMENT, LD. AR SUBMITTED THAT SCOPE OF WORK TO BE CARRIED OUT BY M/S EIFPL WAS LIMITED TO APPOINTING AND NEGOTIATING WITH CERTAIN CAST AND CREW MEMBERS SINCE THEY WERE LOCAT ED IN INDIA. M/S ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 19 EIFPL WAS REQUIRED TO MAKE TRAVEL ARRANGEMENTS FOR CREW MEMBERS, ARRANGING FOR COSTUMES AND EQUIPMENT AND GETTING TH E SAME TRANSPORTED TO UK. THE PAYMENT TO LEAD CAST AND ALL THE OTHER M AJOR EXPENSES WERE TO BE BORNE BY M/S DBPL ONLY. THE SAME WOULD BE EVI DENT FROM THE FACT THAT FACT THAT OUT OF TOTAL PRODUCTION BUDGET OF RS .90 CRORES AS GIVEN TO M/S DBPL, THE WORK ONLY TO THE EXTENT OF RS.7 CRORE S WAS ASSIGNED TO M/S EIFPL. 6.2 IT HAS FURTHER BEEN SUBMITTED THAT THE PERIOD O F FILM PRODUCTION WAS 452 DAYS AS PER THE PRODUCTION SCHEDULE OF THE COMM ISSIONING AGREEMENT WHICH INCLUDED ONLY 23 DAYS OF FILM PRODU CTION IN INDIA AND REMAINING 429 DAYS WAS TO BE PERFORMED IN UK ITSELF . THE PERIOD OF SHOOTING AS PER PRODUCTION SERVICES AGREEMENT WAS F OR 78 DAYS OUT OF WHICH ONLY 23 DAYS OF FILM WERE TO BE PERFORMED IN INDIA. THE PERIOD OF ACTIVITIES IN INDIA FOR 374 DAYS, AS CONCLUDED BY L D. AO, WAS FACTUALLY INCORRECT AND DO NOT EMANATE FROM THE TERMS OF THE CONTRACT. ANOTHER PERTINENT FACT PUT FORWARD IS THE FACT THAT ONLY WH EN MOST OF THE FILM WAS SHOT IN UK ONLY THEN IT COULD BE CONSIDERED AS BRIT ISH FILM. 6.3 CONTROVERTING THE FINDINGS OF LD. AO THAT M/S E IFPL WAS AGENT OF M/S DBPL IN TERMS OF ARTICLE-5, OUR ATTENTION HAS B EEN DRAWN TO THE FACT THAT M/S EIFPL HAS GROSS RECEIPTS OF RS.133.55 CROR ES & RS.76.27 CRORES FOR AYS 2011-12 & 2012-13 RESPECTIVELY AS AG AINST TOTAL FEES OF RS.3 CRORES RECEIVED FROM M/S DBPL AND THEREFORE, T HE FEES WOULD BE VERY MINISCULE KEEPING IN VIEW THE TOTAL REVENUE OF M/S EIFPL. THEREFORE, M/S EIFPL WOULD BE AN INDEPENDENT ENTITY CARRYING ON ITS OWN BUSINESS AND COULD NOT BE TREATED AS DEPENDENT AGEN T OF M/S DBPL. ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 20 HENCE, IT COULD NOT BE TERMED AS PE OF M/S DBPL WIT HIN THE MEANING OF ARTICLE-5 OF THE TREATY. THE ATTENTION HAS FURTHER BEEN DRAWN TO THE FACT THAT M/S DBPL WAS NOT DEPENDENT UPON ASSESSEE FOR F INANCES SINCE IT INDEPENDENTLY TOOK BANK LOAN FOR PRODUCTION OF THE FILM. 6.4 AU CONTRAIRE, LD. DR REFERRING TO THE ORDER OF LOWER AUTHORITIES, SUPPORTED THE CONCLUSIONS DRAWN THEREIN AND ASSAILE D THE ARGUMENTS PUT FORTH BY LD. AR. OUR FINDINGS AND CONCLUSION 7.1 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSI ONS AND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING THE TWO AGREE MENTS UNDER QUESTION. THE MATERIAL TERMS OF BOTH THE AGREEMENTS HAVE ALREADY BEEN APPRECIATED BY US IN PRECEDING PARAGRAPHS 2.2 TO 3. 6. 7.2 REGARDING COMMISSIONING AGREEMENT ENTERED INTO BY THE ASSESSEE WITH M/S DBPL, AT PARA 2.12, WE REACHED A CONCLUSIO N THAT THE CONTRACT BETWEEN THE ASSESSEE AND M/S DBPL WAS PRIMARILY ON PRINCIPAL-TO- PRINCIPAL BASIS. THE ENTIRE RESPONSIBILITY TO PRODU CE THE FILM WAS ON M/S DBPL AGAINST CERTAIN LUMP-SUM CONSIDERATION. M/S DB PL WAS REQUIRED TO PRODUCE THE FILM AND ENSURE THE DELIVERY OF THE FILM AS PER GIVEN SPECIFICATIONS. THE FILM WAS TO BE FULLY SYNCHRONIZ ED AS TO DIALOGUE, MUSIC AND EFFECTS AND COMPLETE PRE-PRODUCTION, PROD UCTION AND POST- PRODUCTION OF THE FILM IN A FIRST-CLASS MANNER AND OF A TECHNICALLY ACCEPTABLE QUALITY AND READY FOR COMMERCIAL EXPLOIT ATION AND SUITABLE TO ENABLE THE ASSESSEE TO COMMERCIALLY EXPLOIT THE FIL M WITHOUT FURTHER PROCESSES OR EXPENDITURE. FOR THE SAME, M/S DBPL CO ULD ENTER INTO INDEPENDENT CONTRACTS. ALL THE ACTIVITIES OF M/S DB PL WERE TO BE CARRIED ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 21 OUT WITH ASSESSEES CONSULTATION WITH A VIEW TO ENS URE THAT THE FILM WAS PRODUCED EXACTLY AS PER THE SPECIFICATION AND IN LI NE WITH STORYLINE. THE SAID STIPULATIONS WERE TO ENSURE THAT THE FILM WAS PRODUCED AND DELIVERED IN ACCORDANCE WITH THE MATERIAL REQUIREMENTS AND WI TH A VIEW TO PREVENT ANY MODIFICATION TO THE SCREENPLAY OR OTHER MATERIA L REQUIREMENT AS THE FEATURE FILM NEEDED TO BE VERY ACCURATE WITH ITS ST ORYLINE AND SCREENPLAY. NEVERTHELESS, M/S DBPL ACTED AS INDEPENDENT SERVICE PROVIDER HAVING ENTIRE RESPONSIBILITY TO PRODUCE THE FILM. IT WAS F REE TO TAKE OWN DECISIONS FOR THE SAME AND COULD ENTER INTO INDEPENDENT CONTR ACTS. FOR ALL THESE SERVICES, IT WAS TO BE REIMBURSED WITH LUMP SUM BUD GETED COST AFTER ADJUSTMENT OF CERTAIN ITEMS AS MENTIONED IN THE AGR EEMENT WHICH HAS ALREADY BEEN ELABORATED BY US. ANY OVER-SPEND WAS T O BE BORNE BY M/S DBPL. UPON PERUSAL OF VARIOUS TERMS AND CONDITIONS OF THE CONTRACT, IT COULD BE SAID THAT THE VARIOUS CONDITIONS / STIPULA TIONS REQUIRING PRIOR CONSULTATION OF THE ASSESSEE WAS PURELY WITH THE MO TIVE OF PASSIVE MONITORING OF THE FILM PRODUCTION ACTIVITY SINCE TH E 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 POUN DS FROM COUTTS & CO. WHICH WAS SECURED AGAINST UK TAX CREDIT. THEREFORE, M/S DBPL COULD NOT SAID TO BE SOLELY DEPENDENT UPON THE ASSE SSEE FOR FINANCE REQUIREMENTS. IN FINANCIAL YEAR 2011-12, THE REVENU E 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 L OSS OF 1.67 MILLION POUNDS AS LOSS ON ORDINARY ACTIVITIES BEFORE TAXATI ON. THIS IS SOLE ACTIVITY ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 22 BEING CARRIED OUT BY M/S DBPL. THEREFORE, THE PROVI SION 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 ASSES SEE 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 R ETURNED INCOME WAS DULY ACCEPTED BY THE REVENUE AND THERE WAS NO A LLEGATION 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 ART ICLE-10 OF THE TREATY. HENCE, THE CONCLUSION DRAWN BY LD. AO, IN THIS REGA RD, COULD NOT BE SUSTAINED AS PER THE TREATY TERMS. IN OUR CONSIDERE D OPINION, M/S DBPL WAS ACTING AS AN INDEPENDENT ENTITY WHICH WAS REQUI RED TO CARRY OUT THE ASSIGNED WORK INDEPENDENTLY AND THE ASSESSEE COULD NOT SAID TO BE PE OF THAT ENTITY IN INDIA. 8. SO FAR AS THE TERMS OF SERVICE AGREEMENT BETWEEN M/S DBPL AND M/S EIFPL ARE CONCERNED, AT PARA 3.6, WE HAVE CONCL UDED THAT THE CONTRACT BETWEEN THE TWO ENTITIES WAS PRIMARILY THA T 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, SU PERVISION AS WELL AS THE DIRECTION OF THE PRODUCER. THE SERVICE COMPANY WAS TO BE REIMBURSED WITH INDIAN BUDGET OF RS.1066.18 LACS IN CLUDING ITS SERVICE FEE OF RS.300 LACS. THE TOTAL INDIAN BUDGET, IN TER MS OF TOTAL APPROXIMATE BUDGETED COST OF 12.8 MILLION POUNDS, WAS LESS THAN 10% OF TOTAL BUDGETED COST. IT IS ALSO EVIDENT FROM FINANCIAL ST ATEMENTS OF M/S EIFPL ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 23 THAT IT HAS GROSS RECEIPTS OF RS.133.55 CRORES & RS .76.27 CRORES FOR AYS 2011-12 & 2012-13 RESPECTIVELY AS AGAINST TOTAL FEE S OF RS.3 CRORES RECEIVED BY IT FROM M/S DBPL AND THEREFORE, THE PRO PORTION OF FEES VIS-- 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. ARS SUBMISSIONS THAT THE SAID AGRE EMENT WAS MERELY TO ASSIST THE PRODUCTION OF THE FILM AND TO PROVIDE LI MITED SERVICES IN RELATION TO DELIVERY OF A FEATURE FILM. M/S EIFPL WAS ENTRUS TED WITH THE RESPONSIBILITY OF ARRANGING THE CREW AND THE REQUIS ITE EQUIPMENT WHICH WERE TO BE PROCURED FROM INDIA. THE SAID CONTRACT W AS GIVEN TO THE INDIAN ENTITY IN ORDER TO PERFORM THE INDIAN PART O F THE PRODUCTION SERVICES AND M/S DBPL WAS TO PAY THE REQUISITE FEES. M/S EIF PL CARRIED OUT ITS ACTIVITIES AS AN INDEPENDENT AGENT. THEREFORE, IT C OULD NOT BE TERMED AS PERMANENT ESTABLISHMENT FOR M/S DBPL IN TERMS OF AR TICLE-5 OF THE TREATY. THIS VIEW, AS TAKEN BY LOWER AUTHORITIES, C OULD NOT BE CONCURRED WITH. 9. THEREFORE, ON THE FACTS AND CIRCUMSTANCES, WE HO LD THAT THE ASSESSEE AND M/S DBPL COULD NOT BE HELD TO BE ASSOC IATED 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--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 COU LD BE SAID TO HAVE ACCRUED TO M/S DBPL IN INDIA AS ALLEGED BY THE REVE NUE. AS A LOGICAL CONSEQUENCE, THE ASSESSEE COULD NOT BE TREATED AS A SSESSEE-IN-DEFAULT ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 24 IN TERMS OF SEC.201(1) & 201(1A) OF THE ACT. THEREF ORE, BY DELETING THE IMPUGNED DEMAND, WE ALLOW THE APPEAL. ITA NO. 3783/MUM/2016, AY 2012-13 10. FACTS ARE PARI-MATERIA THE SAME IN THIS YEAR. I N FACT, THE QUANTUM ASSESSMENT ORDER IS COMMON ORDER FOR BOTH THE YEARS . THE APPELLATE ORDER HAS CONFIRMED THE STAND OF LD. AO, AGAINST WH ICH THE ASSESSEE IS UNDER FURTHER APPEAL BEFORE US WITH SIMILAR GROUNDS OF APPEAL. FACTS BEING IDENTICAL, OUR ADJUDICATION AS FOR AY 2011-12 SHALL MUTATIS- MUTANDIS APPLY TO THIS YEAR ALSO. RESULTANTLY, THE APPEAL ST ANDS ALLOWED, IN SIMILAR MANNER. CONCLUSION 11. BOTH THE APPEAL STANDS ALLOWED IN TERMS OF OUR ABOVE ORDER. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH AUGUST, 2020. SD/- SD/- (C.N. PRASAD) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 11/08/2020 SR.PS, JAISY VARGHESE 23456736 / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $!# / THE RESPONDENT ITA NO.3782-83/MUM/2016 M/S NEXT GEN FILMS PRIVATE LIMITED ASSESSMENT YEARS :2011-12 & 2012-13 25 3. J ( ) / THE CIT(A) 4. J / CIT CONCERNED 5. KL M N , N , / DR, ITAT, MUMBAI 6. LPQR / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.