HIGHLIGHT PICTURES (I) P.LTD, MUMBAI V. ITO 11(1)(2), MUMBAI

ITA 5184/MUM/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5860 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 11-03-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 06-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: F V IRANI
• Keywords: Double taxation relief; Permanent establishment
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L , BENCH MUMBAI , BEFORE SHRI R.C.SHARMA , A M & SHRI AMIT SHUKLA , J M ITA NO. 2447 & 5184 / MUM/20 1 1 ( ASSESSMENT YEAR : 200 7 - 0 8 ) M/S HIGHLIGHT PICTURES(INDIA) PVT. LTD. MAHALAXMI SILK MILLS PREMISES, M ATHURDAS MILL COMPOUND, N.M.JOSHI MARG, LOWER PAREL, MUMBAI - 400013 VS. ITO , 11(1)(2), MUMBAI PAN/GIR NO. : A A A C B 6674 L ( APPELLANT ) .. ( RESPONDENT ) /ASSESSEE BY : SHRI F.V. IRANI & SHRI APURVA SHAH /REVENUE BY : SMT. NEERAJA PRADHAN DATE O F HEARING : 1 9 TH FEBRUARY , 201 4 DATE OF PRONOUNCEMENT : 28 TH MARCH , 201 4 O R D E R PER R.C.SHARMA ( A .M.) : ITA NO. 2447/MUM/2011 THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), DATED 21 - 1 - 20 10 FOR THE ASSESSMENT YEAR 200 6 - 0 7 , IN THE MATTER OF ORDER PASSED UNDER SECTION 143(3) OF THE I.T. ACT , WHEREIN FOLLOWING GROUNDS HAVE BEEN TAKEN : - THE COMMISSIONER OF INCOME TAX (APPEALS) - 3, MUMBAI ERRED: 1. IN CONFIRMING A DISALLOWANCE OF 5% OF PRODUCTI ON EXPENSES ON AN ESTIMATED AD HOC BASIS. WITHOUT PREJUDICE, THE SAID DISALLOWANCE WAS EXTREMELY EXCESSIVE AND NEEDED TO BE FURTHER SUBSTANTIALLY REDUCED. ITA NO S . 2447 & 5184 /20 1 1 2 2.1 IN HOLDING THAT THE SUMS PAID TO FAST TIME LTD., BANGKOK WERE SUBJECT TO A TDS U/S 195 AND HENCE IS DIRECTING THE MAKING A DISALLOWANCE U/S 40A(I). 2.2 IN APPLYING ARTICLE 22 OF THE DTM BETWEEN INDIA AND THAILAND IN THE APPELLANTS CASE INSTEAD OF ARTICLE 7 AS WAS APPLICABLE. 2.3 WITHOUT PREJUDICE, IN HOLDING THAT TDS WAS TO BE DONE EVEN IN RESPECT OF REIMBURSEMENT OF EXPENSES SUCH EXPENSES BEING QUANTIFIED IN THE INVOICE ITSELF WHICH WAS FURNISHED DURING THE PROCEEDINGS. 3.1 IN HOLDING THAT THE SUMS PAID TO INDIVIDUAL MODELS WHO WERE RESIDENTS OF UNITED KINGDOM WERE SUBJECT TO A TDS U/S 195 AND HENCE IS DIRECTING THE MAKING A DISALLOWANCE U/S 40A(I). 3.2 IN NOT APPRECIATING THAT THE RECIPIENTS WERE INDIVIDUALS AND THE AMOUNTS PAID TO THEM WERE LOWER THAN THE MAXIMUM AMOUNT WHICH WAS NOT CHARGEABLE TO TAX IN INDIA AND THAT HENCE NO TDS WAS REQUIR ED TO BE DONE IN THE PRESENT CASES. 2 . RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. FACTS IN BRIEF ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PRODUCTION OF ADVERTISEMENT FILMS & PROGRAMS. DURING THE COURSE OF SCRUTINY ASSESSMEN T, THE A O FOUND THAT THE ASSESSEE HAS DEBITED PRODUCTION EXPENDITURE OF RS.3.23 CRORES, WHICH CONSTITUTED 82% IN THE REALIZATION WHICH IS CONSIDERED TO BE EXCESSIVE, HENCE, 10% OF PRODUCTION E XPENSES AGGREGATING TO RS.32,31 ,404/ - WAS DISALLOWED AND ADDED T O THE TOTAL INCOME. SIMILARLY OUT OF ADMINISTRATIVE EXPENSES, THE AO DISALLOWED 20% FOR WANT OF FULL VERIFICATION. 3. BY THE IMPUGNED ORDER, THE CIT(A) PARTLY CONFIRMED THE ACTION OF THE AO SO AS TO DELETE THE DISALLOWANCE OF PRODUCTION EXPENSES TO THE EX TENT OF 5% AFTER HAVING FOLLOWING OBSERVATION : - 5.2.10 IN SO FAR AS THE DISALLOWANCE AT 10% OF THE PRODUCTION EXPENSE IS CONSIDERED, THE ASSESSING OFFICER HAS NOT CITED A SINGLE INSTANCE OF NON VERIFIABLE EXPENDITURE OR WHERE THE SELF - MADE VOUCHER EXIST ED BUT WHOSE GENUINENESS WAS DOUBTED BY THE AO. IN THE FACTS AND CIRCUMSTANCES OF ( THE CASE AND THE NATURE OF PRODUCTION OF F ILMS BEING SUCH, IT WOULD BE REASONABLE TO HOLD THAT ITA NO S . 2447 & 5184 /20 1 1 3 SOME OF THE EXPENSE INCURRED UNDER PRODUCTION COSTS WOULD NOT BE FULLY VERIFIA BLE MORE SO BEING INCURRED IN CASH. IT IS HELD THAT IT WOULD MEET THE ENDS OF JUSTICE TO RESTRICT THE DISALLOWANCE AT 5% OF PRODUCTION EXPENSES. AO IS DIRECTED TO RECALCULATE THE DISALLOWANCE ACCORDINGLY WHILE GIVING EFFECT TO THIS ORDER . 4 . WE HAVE CON SIDERED RIVAL CONTENTIONS AND FOUND THAT EXPENDITURES WERE INCURRED ON PRODUCTION OF FILMS. THE GENUINENESS OF EXPENDITURE WAS NOT DOUBTED. THE CIT(A) ALSO OBSERVED THAT AO HAS NOT CITED A SINGLE INSTANCE OF NON - VARIABLE EXPENDITURE WHERE SELFMADE VOUCHERS EXISTED. WITHOUT GIVING ANY COGENT REASON HE HAS RESTRICTED THE DISALLOWANCE TO 50% OF WHAT THE AO HAS MADE. SINCE THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF BUSINESS, CONSIDERING THE SIMILAR ISSUE DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE IN EA RLIER AND KEEPING IN VIEW THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DIRECT THE AO TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 5% OF ONLY THOSE EXPENDITURE WHICH HAVE BEEN INCURRED IN CASH AS HELD BY ITAT IN ASSESSEES OWN CASE IN ITA NO . 5826/M/20111 , A.Y. 2008 - 09, VIDE ORDER DATED 30 - 8 - 2013. WE DIRECT ACCORDINGLY. 5 . DURING APPELLATE PROCEEDINGS THE CIT(A) HAS MADE DISALLOWANCE UNDER SECTION 40A(I) IN RESPECT OF PAYMENTS MADE TO FAST TIME LIMITED, BANGKOK TOWARDS SHOOT OF A FILM OVERSEAS INCLUDING TOWARDS PRODUCTION FEES AS WELL AS TOWARDS REIMBURSEMENT OF EXPENSES. THE CONTENTION OF THE AR WAS THAT THE SAID PAYMENT WAS NOT CHARGEABLE TO TAX IN INDIA AS PER THE DTAA BETWEEN INDIA AND THAILAND AND AS SUCH ITA NO S . 2447 & 5184 /20 1 1 4 THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE, CONSEQUENTLY THERE CAN BE NO QUESTION OF A DISALLOWANCE U/S.40A(I) . IT WAS FURTHER CONTENDED THAT THE CIT(A) HAS WRONGLY APPLIED ARTICLE 22 OF DTAA WHICH CAN BE APPLIED FOR TAXING AN INCOME THAT .. IS NOT EXPRESSLY DEALT WITH IN THE FOREGOING ARTIC LES.. OF THE DTAA AND, HENCE, THIS ARTICLE CANNOT BE APPLIED IN THE PRESENT CASE WHICH IS COVERED BY THE ARTICLE 14 OR ARTICLE 7 OF THE DTAA. FOR THIS PURPOSE RELIANCE WAS PLACED ON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF CHANNEL GUIDE INDIA LTD . VS. ACIT, 139 ITD 49 . 6 . WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND FOUND FROM RECORD THAT PAYMENT WAS FOR SHOOT CARRIED ON ABROAD IN COURSE OF FAST TIMES BUSINESS AND FAST TIME HAS NO PERMANENT ESTABLISHMENT (PE) IN INDIA, HENCE, ITS PROFIT IS TAXAB LE ONLY IN THAILAND AS PER ARTICLE 7 OF DTAA BETWEEN INDIA AND THAILAND. THERE IS NO DISPUTE TO THE FACT THAT THE SHOOTS WERE HELD ABROAD AND THAT FAST TIME LTD. DID NOT HAVE ANY PE IN INDIA. ALTERNATIVELY, THE PAYMENTS MADE FOR SHOOTING, HENCE, THE SAME W AS IN RESPECT OF PROFESSIONAL SERVICES RENDERED IN ABROAD. HENCE, ARTICLE 14 OF DTAA WILL BE APPLICABLE. THUS, CONSIDERING THE ARTICLE 14 AND 7 OF DTAA, WE DO NOT FIND ANY MERIT IN THE DISALLOWANCE SO MADE BY THE CIT(A). 7 . THE ASSESSEE IS ALSO AGGRIEVED FOR D ISALLOWANCE MADE BY THE CIT(A) IN RESPECT OF PAYMENT TO INDIVIDUAL MODELS, WHO ARE RESIDENT IN UNITED KINGDOM BY INVOKING PROVISIONS OF SECTION 40(A)(I) . WE FOUND ITA NO S . 2447 & 5184 /20 1 1 5 THAT PAYMENTS WERE MADE TO INDIVIDUAL MODELS FOR A SHOOT CARRIED OUT IN NEPAL. THE SAID PAYME NTS WERE NOT CHARGEABLE TO TAX IN INDIA AS PER THE DTAA BETWEEN INDIA AND UK AND THERE IS NO TAX AT SOURCE. THUS, THE PROVISIONS OF SECTION 40(A)(I) WERE NOT APPLICABLE. SINCE THESE PAYMENTS FOR PROFESSIONAL SERVICES OF ARTISTS, THEREFORE, COVERED BY THE ARTICLE 15 OF THE DTAA BETWEEN INDIA AND UK. THE CIT(A) HAS WRONGLY APPLIED ARTICLE 23, WHICH CAN BE APPLIED ONLY FOR TAXING AN INCOME I.E. NOT DEALT WITH THE OTHER ARTICLES SPECIFICALLY. SIMILAR PROPOSITION HAS BEEN LAID DOWN BY THE ITAT MUMBAI BENCH IN T HE CASE OF CHANNEL GUIDE INDIA (SUPRA) . WE FOUND THAT IN RESPECT OF SIMILAR PAYMENTS MADE TO MODELS FROM GERMANY, THE CIT(A) HAS ACCEPTED THE ARGUMENT THAT NO TDS WAS TO BE DONE ON THOSE PAYMENTS. ACCORDINGLY, WE DO NOT FIND ANY MERIT I N THE DISALLOWANCE M ADE BY THE CIT(A) UNDER SECTION 40(A)(I). 8. ITA NO. 5184/MUM/2011 RELATES TO PENALTY ORDER PASSED UNDER SECTION 271(1)(C) OF THE ACT IN RESPECT OF QUANTUM ADDITION UPHELD BY THE CIT(A) . 9. AS WE HAVE ALREADY DECIDED THE QUANTUM APPEAL, THEREFORE, THE AO I S DIRECTED TO REWORK OUT THE AMOUNT OF PENALTY AFTER GIVING APPEAL EFFECT TO THE ORDER PASSED HEREINABOVE IN QUANTUM APPEAL IN ITA NO. 2447/MUM/2011 . ITA NO S . 2447 & 5184 /20 1 1 6 10 . IN THE RESULT, APPEAL S FILED BY THE ASSESSEE ARE ALLOWED IN PART IN TERMS INDICATED HEREINABOVE . ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28 TH MARCH . 201 4 . 28 TH MAR ,2014 SD/ - SD/ - ( ) ( AMIT SHUKLA ) ( ) ( R.C.SHARMA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI ; DATED 28 / 0 3 /2014 /PKM , PS COPY OF THE ORDER FORWAR DED TO : / BY ORDER, ( ASSTT. REGISTRAR) / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A), MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//