ACIT 16(1), MUMBAI V. HIGHTLIGHT FILMS P.LTD, MUMBAI

ITA 5600/MUM/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9129 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 15-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: APURVA R SHAH
• Keywords: Business income; Double taxation relief; Services rendered outside India; Retrospective amendment; Permanent establishment
• Section: 143(3); 40(a)(ia); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI SAKTIJIT DEY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 5600/MUM/2016 ASSESSMENT YEAR: 2010 - 11 & ITA NO. 5598/MUM/2016 ASSESSMENT YEAR: 2011 - 12 ACIT - 16(1), ROOM NO. 439, AAYAKARBHAVAN, M.K. MARG, MUMBAI - 400020. VS. M/S HIGHLIGHT FILMS PVT. LTD. 1 ST FLOOR, TRADE GARDEN, MAHALAXMI SILK MILLS PREMISES, MATHURADAS MILLS COMPOUND, 126, NM JOSHI MARG, LOWER PAREL (W), MUMBAI - 400013. PAN NO. AAACH2477F APPELLANT RESPONDENT REVENUE BY : MR. LOVISH KUMAR, DR ASSESSEE BY : MR. APURVA R. SHAH, AR DATE OF HEARING : 19/09/2018 DATE OF PRONOUNCEMENT: 14/12/2018 ORDER PER N.K. PRADHAN, AM THE CAPTIONED APPEALS FILED BY THE R EVENUE ARE DIRECTED AGAINST THE ORDER OF THE COMMIS SIONER OF INCOME TAX (APPEALS) - 4 , MUMBAI [IN SHORT CIT(A) ] AND ARISE OUT OF THE ASSESSMENT ORDER U/S 143(3) OF THE INCOME TAX ACT 1961 (THE ACT). AS COMMON ISSUES ARE INVOLVED, WE ARE PROCEEDING TO DISPOSE THEM OFF THROUGH A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. M/S HIGHLIGHTS FILMS PVT. LTD. ITA NOS. 5600 & 5598/MUM/2016 2 2. WE BEGIN WITH THE ASSESSMENT YEAR (AY) 2010 - 11. THE GROUNDS OF APPEAL READ AS UNDER: 1. WHETHER ON THE FACTS, IN THE CIR CUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING TO DELETE THE DISALLOWANCE U/S. 40(A)(IA) OF THE I.T. ACT WITHOUT APPRECIATING THAT THE PAYMENTS HAVE BEEN MADE BY THE ASSESSEE TO FOREIGN PARTIES FOR HIGHLY TECHNICAL SERVICES AN D AS SUCH THE PAYMENTS NEED TO BE CATEGORIZED AS 'FEES FOR TECHNICAL SERVICES' UNDER INCOME - TAX ACT AS WELL AS UNDER THE DTAA BETWEEN INDIA AND RESPECTIVE COUNTRIES WHERE THE PAYMENT HAS BEEN MADE. 2. WHETHER ON THE FACTS, IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING TO DELETE THE DISALLOWANCE U/S. 40(A)(IA) OF THE I.T. ACT WITHOUT APPRECIATING THAT IN A.Y. 2008 - 09 THE SAME ISSUE WAS DECIDED AGAINST THE ASSESSEE ON SIMILAR FACTS. 3. WHETHER ON THE FACTS, IN THE CIRCUMSTAN CES OF THE CASE AND AS PER LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING TO DELETE THE DISALLOWANCE U/S. 40(A)(IA) OF THE I.T. ACT IN RESPECT OF PAYMENT MADE TO M/S. ORIENTAL POST CO. LTD. WITHOUT REALIZING THAT THE PAYMENTS TO THIS COMPANY, WHICH IS RESIDENT IN THAILAND WOU LD BE CATEGORIZED AS 'FEES FOR T ECHNICAL SERVICES' UNDER SECTION 9(1)(VII) OF THE I.T. ACT, 1961 AND NO RELIEF WOULD ACCRUE TO IT UNDER DTAA BETWE EN INDIA AND THAILAND AS THERE IS NO SPECIFIC CLAUSE OF 'FEES FOR TECHNICAL SERVICES' IN THE RESPECTIVE DTAA. 4. WHETHER ON THE FACTS, IN THE CIRCUMSTANCES OF THE CASE AND AS PER LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING TO DELETE THE DISALLOWANCE U/S. 40(A) (IA) OF THE I.T. ACT IN RESPECT OF PAYMENT MADE TO M/S. BISCUIT FILMS SDN BHD WITHOUT REALIZING THAT THE PAYMENTS TO THIS COMPANY, WHICH IS RESIDENT IN MALAYSIA WOU LD BE CATEGORIZED AS 'FEES FOR T ECHNICAL SERVICES' UNDER SECTION 9(1)(VII) OF THE I.T. ACT, 1961 AS THE OUTCOME OF THIS PRODUCTION WORK HAS BEEN UTILIZED IN INDIA AND INCOME HAS ACCRUED TO THE ASSESSEE ON THIS PRODUCTION WORK IN INDIA. M/S HIGHLIGHTS FILMS PVT. LTD. ITA NOS. 5600 & 5598/MUM/2016 3 3. IN A NUTSHELL THE FACTS ARE THAT THE ASSESSEE - COMPANY HAD PAID RS.1,33,57,282/ - FOR FOREIGN PRODUCTION COST. IN RESPONSE TO A QUERY RAISED BY THE AO, THE ASSESSEE FILED A REPLY DATED 08.01.2013 WHICH IS AS UNDER: THE DETAILS OF FOREIGN PRODUCTION WITH NAME, ADDRESS, AMOUNT ARE ENCLOSED HEREWITH. THE TDS IS NOT APPLICABLE SINCE THE PARTIES HAVE NO PERMANENT EST ABLISHMENT IN INDIA AND THE PAYMENTS ARE MADE ABROAD AND COST IS INCURRED OUTSIDE INDIA. NO SERVICES ARE RENDERED IN INDIA. THEREFORE, AS PER DTAA, TDS IS NOT APPLICABLE AND THE ASSESSEE - COMPANY HAS TAKEN CERTIFICATES FROM CHARTERED ACCOUNTANTS WHILE MAKIN G PAYMENTS. A COPY OF THE CERTIFICATE IS ENCLOSED HEREWITH. HOWEVER, THE AO WAS NOT CONVINCED WITH THE ABOVE EXPLANATION OF THE ASSESSEE FOR THE REASON THAT IN THE AY 2008 - 09 IN ASSESSEES OWN CASE, THE LD. CIT(A) HAS UPHELD THE ORDER OF THE AO CONFIRMI NG SIMILAR DISALLOWANCE. THEREFORE, THE AO DISALLOWED THE FOREIGN PRODUCTION COST OF RS.1,33,57,282/ - U/S 40(A)(IA) OF THE ACT. 4 . AGGRIEVED BY THE ORDER OF THE AO , THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) OBSERVED THAT THE TOTA L PAYMENT OF RS.1,33,57,282/ - COMPRISED OF PAYMENT OF RS.45,85,481/ - FOR POST PRODUCTION WORK ON LUX - PAYMENT HAS BEEN MADE TO M/S ORIENTAL POST COMPANY LTD., THAILAND AND RS.87,71,801/ - FOR PRODUCTION OF TV COMMERCIAL LUX MATISSE SHOT AT VARIOUS LOCATIONS IN SOUTH EAST ASIA - THIS PAYMENT HAS BEEN MADE TO B ISCUIT FILMS SDN BHD, MALAYSIA. THE LD. CIT(A) HELD AS UNDER: M/S HIGHLIGHTS FILMS PVT. LTD. ITA NOS. 5600 & 5598/MUM/2016 4 IT IS VERY IMPORTANT TO NOTE THAT THE LD. ASSESSING OFFICER HAS ADMITTED THE FACT THAT ASSESSEE HAS REMITTED AN AMOUNT OF RS.45,85,481/ - TO A THAILAND PARTY AND THERE IS NO PROVISION IN DTAA FEES FOR TECHNICAL SERVICES AND FURTHERMORE, THERE IS NO PERMANENT ESTABLISHMENT OF M/S ORIENTAL POST COMPANY LTD. OF THAILAND, IN INDIA HENCE, THERE IS NO LEGAL REQUIREMENT OF TDS ON SUCH REMITTANCES. THE LD. ASSESSING OFFICER HAS ADMITTED IN REMAND REPORT DATED 31.08.2015 THAT THERE IS NO SEPARATE ARTICLES IN DTAA GOVERNING FEE FOR TECHNICAL SERVICES, THEREFORE, THE CO NTENTION OF THE APPELLANT HAS TO BE ACCEPTED. SIMILARLY, REMITTANCE OF RS.87,71,801/ - TO BISCUIT FILMS SDN BHD, MALAYSIA IS NO T FOR ANY TECHNICAL SERVICES BUT FOR PRODUCTION OF T.V. COMMERCIAL KNOWN AS LUX MATISSE. THE ASSESSING OFFICER HAS NOT DISPUTED THE FACTS. THEREFORE, THE ARTILCE - 13 OF DTAA WITH MALAYSIA DOES NOT APPLY. THE LD. ASSESSING OFFICER HAS NOT EXPLAINED AS TO HOW SUCH REMITTANCE FOR PRODUCTION OF T.V. COMMERCIAL IS NOT FOR PRODUCTION BUT FEES FOR TECHNICAL SERVICES. WHEN NO OTHER FACT IS THERE ON RECORD, THE CLAIM OF THE APPELLANT THAT SUCH REMITTANCE OF RS.87,71,801/ - WAS MADE FOR PRODUCTION OF T.V. COMMERCIAL CANNOT BE IGNORED. SINCE, IN REMAND REPORT PROCEEDING ALSO, THE ASSESSING OFFICER HAS NOT FOUND ANY CONTRARY FACT THAT SUCH PAYMEN T WAS MADE AS A FEES FOR TECHNICAL SERVICES, THERE IS NOTHING TO PRESUME AGAINST THE EXPLANATION OF THE ASSESSEE. THEREFORE, IN THE FACTS & CIRCUMSTANCES OF THE CASE, IT IS HELD THAT AN AMOUNT OF RS.87,71,801/ - HAS BEEN PAID FOR PRODUCTION OF T.V. COMMERCI AL. AS SUCH, NONE OF THE EXPENDITURE CAN BE DISALLOWED U/S 40(A)(IA) OF THE INCOME - TAX ACT, 1961. THEREFORE, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE OF EXPENDITURE OF RS.1,33,57,282/ - . 5 . BEFORE US, THE LD. DR SUBMITS THAT THE PLACE OF RENDERING OF SERVICES IS COMPLETELY IRRELEVANT AS PER THE SCHEME OF THE ACT AND THE RELEVANT CRITERIA IS THE PLACE WHERE THE BUSINESS IS CARRIED ON WHEREIN THE SUBJECT SERVICES ARE UTILIZED. HE REFERS TO SECTION 9(1)(VII)(B) AND ALSO EXPLANATION TO SECT ION 9 INSERTED WITH RETROSPECTIVE EFFECT FROM M/S HIGHLIGHTS FILMS PVT. LTD. ITA NOS. 5600 & 5598/MUM/2016 5 01.06.1976 AND SUBMITS THAT IT MAKES CLEAR THAT INCOME IN THE PRESENT CASE IS DEEMED TO ACCRUED OR ARISE IN INDIA. ALSO REFERENCE IS MADE BY HIM TO EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT WHICH DEFINES TH E TERM F EES FOR T ECHNICAL S ERVICES (FTS) . THE LD. DR THUS SUBMITS THAT THE SER VICES RENDERED BY ORIENTAL POST PRODUCTION CO. LTD. INVOLVES INVOLVEMENT OF HIGH TECHNICAL EQUIPMENT AND SKILLED MANPOWER. THE SERVICES ARE SPECIFIC TO THE REQUIREMENTS OF THE ASSESSEE. AT THE SAME TIME, THERE IS DIRECT INVOLVEMENT OF HUMANS WHO HAVE PROVIDED THESE SERVICES. THE SERVICES CANNOT BE CONSIDERED AN AUTO MATIC FACILITY. IT IS STATED THAT THE ASSESSEE HAS CHOSEN TO AVAIL THE POST PRODUCTION SERVICES FROM OUTSIDE INDIA ITSELF SIGNIFY THE HIGHLY TECHNICAL NATURE OF THE SERVICES. THE LD. DR SUBMITS THAT THE DTAA BETWEEN INDIA AND THAILAND DOES NOT PROVIDE A CLAUSE FOR FTS. THUS ANY INCOME WHICH IS TAXABLE AS FTS AS PER THE ACT AND THERE IS NO CORRESPONDING CLAUSE IN THE DTAA, THE SAME WOULD BE GOVERNED ONLY BY THE DTAA AS IT HAS TO BE PRESUMED THAT THE SPECIAL BENEFIT OF CHOICE OF BENEFICIAL BETWEEN THE TWO - D TAA AND THE ACT - HAS NOT BEEN PROVIDED TO THE ASSESSEE. IN THIS REGARD, RELIANCE IS PLACED BY HIM TO THE ORDER OF THE ITAT IN THE CASE OF DCIT V. TVS ELECTRONICS LTD. IN ITA NO. 811/CHNY/2010. THE LD. DR SUBMITS THAT IN THE ORDER DATED 28.03.2014 BY THE T RIBUNAL IN THE CASE OF ANOTHER LEGAL ENTITY I.E. M/S HIGHLIGHT PICTURES (INDIA) PVT. LTD. V. ITO 11(1)(2) MUMBAI IN ITA NO. 2447 & 5184/MUM/2011, THE ABOVE REFERRED ORDER DATED 25.05.2012 OF THE CHENNAI BENCH OF THE TRIBUNAL WAS NOT BROUGHT TO THE NOTICE O F THE M/S HIGHLIGHTS FILMS PVT. LTD. ITA NOS. 5600 & 5598/MUM/2016 6 BENCH AS THE SAME IS NOT CONSIDERED IN THE ORDER. IT IS STATED BY HIM THAT IN SUCH A SCENARIO, SINCE THE ORDER OF THE CHENNAI BENCH IS PRIOR IN TIME, THAT WILL HOLD PRIMACY OVER THE SUBSEQUENT JUDGMENT PASSED. THUS IT IS STATED BY HIM THAT THE PAYMEN TS TO THE FOREIGN COMPANY M/S ORIENTAL POST PRODUCTION CO. LTD., THAILAND WILL BE GOVERNED BY THE INCOME TAX ACT AND THUS TAXABLE AS FTS AS PER SECTION 9 OF THE ACT AND LIABLE FOR TDS. 5 .1 THE LD. DR FURTHER SUBMITS THAT THE SERVICES RENDERED BY BISCUIT FILM SDN BHD (MALAYSIA) INVOLVES INVOLVEMENT OF HIGH TECHNICAL EQUIPMENT AND SKILLED MANPOWER. THE SERVICES ARE SPECIFIC TO THE REQUIREMENTS OF THE ASSESSEE. IT INVOLVES MANAGEMENT OF THE ENTIRE WORK, SCHEDULE, EQUIPMENTS, RISK, ARRANGING THE STAFF, TECHNI CAL CREW, ARTISTS ETC. AT THE SAME TIME THERE IS DIRECT INVOLVEMENT OF HUMANS WHO HAVE PROVIDED THE SERVICES. RELIANCE IS PLACED BY HIM ON THE ORDER DATED 27.09.2013 OF THE ITAT COCHIN BENCH IN THE CASE OF US TECHNOLOGY RESOURCES P. LTD. V. ACIT, TRIVA NDRU M IN ITA NO. 222/COCH/2013, WHICH HAS BEEN AFFIRMED BY THE ITAT COCHIN BENCH IN ORDER DATED 29.01.2018 IN ITA NO. 99 - 104/COCH/2017. IT IS STATED BY THE LD. DR THAT THE ABOVE ORDER IS WITH REFERENCE TO INDIA - USA DTAA, WHEREIN THE DEFINITION OF FEES FOR INC LUDED SERVICES INCLUDES THE MAKE AVAILABLE CLAUSE AND THE TRIBUNAL HELD THAT THE PAYMENT FOR SERVICES WAS TAXABLE IN INDIA AS FEES FOR INCLUDED SERVICES. FURTHER, THE LD. DR SUBMITS THAT WHETHER ANY TECHNOLOGY OR KNOWHOW WAS MADE AVAILABLE TO THE ASS ESSEE IS NOT RELEVANT IN THIS CASE AS MAKE AVAILABLE CLAUSE WITH REFERENCE TO FTS IS NOT PRESENT IN THE INDIA - MALAYSIA DTAA. M/S HIGHLIGHTS FILMS PVT. LTD. ITA NOS. 5600 & 5598/MUM/2016 7 FINALLY, THE LD. DR SUBMITS THAT THE TRIBUNAL IN ITA NO.5821/MUM/2011 VIDE ORDER DATED 25.07.2014 IN ASSESSEES OWN CASE HAS RE MITTED GROUND NO. 4 OF THE APPEAL BACK TO THE CIT(A) FOR DECIDING THE ISSUE AFRESH. THE SAID GROUND NO. 4 IS AS UNDER: IN CONFIRMING A DISALLOWANCE U/S 40A(I) IN RESPECT OF PAYMENTS MADE IN FOREIGN CURRENCY TO VARIOUS PERSONS FOR SERVICES RENDERED ABROA D WITHOUT CONSIDERING THE APPLICABILITY OF THE DTAA APPLICABLE IN THOSE CASES. THE LD. DR FILES A COPY OF THE ORDER DATED 25.05.2012 OF THE ITAT B BENCH CHENNAI IN THE CASE OF DCIT V. M/S TVS ELECTRONICS LTD . (ITA NO. 811/MDS/2010 FOR AY 2005 - 06). 6 . ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSESSEE RELIES ON THE ORDER DATED 25.07.2014 OF THE ITAT L BENCH, MUMBAI IN THE CASE OF HIGHLIGHT FILMS PVT. LTD. V. ACIT (ITA NO. 5827/MUM/2011 FOR AY 2008 - 09) & ORDER DATED 28.03.2014 OF ITAT L BENCH, MUMBAI IN THE CASE OF M/S HIGHLIGHT PICTURES (INDIA) PVT. LTD. V. ITO 11(1)(2) . ALSO RELIANCE IS PLACED BY HIM ON THE DECISION IN YASH RAJ FILMS PVT. LTD. V. ITO (INTERNATIONAL TAXATION) (2013) 140 ITD 625. RELYING ON THE ABOVE DECISIONS, THE LD. COUNSEL SUBMI TS THAT THE ISSUE IN THE INSTANT CASE IS COVERED IN FAVOUR OF THE ASSESSEE. 7 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISION ARE GIVEN BELOW. IN THE DECISION IN THE CASE OF M/S TVS ELECTRO NICS LTD . ( SUPRA), RELIED ON BY THE LD. DR, THE ASSESSEE HA D MADE PAYMENT TOTALING TO M/S HIGHLIGHTS FILMS PVT. LTD. ITA NOS. 5600 & 5598/MUM/2016 8 RS.1,04,50,458/ - TO M/S ROSEWELL GROUP SERVICES LTD. BASED IN MAURITIUS, FOR A MARKET SURVEY CONDUCTED BY THEM FOR PREPARATION OF PROJECT REPORT CALLED OPPORTUNITIES IN ASIA FOR ELECTRONICS. THE AO NOTED THAT NO TAX WAS DEDUCTED AT SOURCE, WHILE MAKING PAYMENT TO THE CONCERNED PARTY. ACCORDING TO HIM, THE ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT. THE COMPANY BEING A NON - RESIDENT, AS PER THE AO, THE PAYMENTS MADE FELL WITHIN THE AMBIT OF CLAUSE (VII) OF SECTION 9(1) OF THE ACT. AS PER THE AO, IT WAS NOTHING BUT FTS AND FOR REACHING THIS CONCLUSION, THE AO RELIED ON EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. THEREFORE, THE AO HELD THAT THE ASSESSE E HA D FAILED TO DEDUCT TAX SOURCE WHICH IT WAS OBLIGED TO DO. RELYING ON THE DECISION IN THE CASE OF TRANSMISSION CORPORATION OF AP LTD. V. CIT 239 ITR 587, THE AO HELD THAT THE ASSESSEE HA D VIOLATED SECTION 195 OF THE ACT AND THEREFORE, MADE A DISALLOWANC E OF RS.1,04,50,458/ - U/S 40(A)(I) OF THE ACT. IN APPEAL, T HE TRIBUNAL HELD : WHEN TECHNICAL SERVICE IS NOT MENTIONED IN DTAA BETWEEN INDIA AND MAURITIUS, WHETHER FEE RECEIVED FOR SUCH SERVICES COULD BE CONSIDERED AS BUSINESS EARNING IN THE HANDS OF RECI PIENT HAS NOT BEEN ANALYSED BY ANY OF THE AUTHORITIES BELOW. ADMITTEDLY, CHAPTER III OF DTAA BETWEEN INDIA AND MAURITIUS DID NOT PROVIDE FOR TAXING ANY FEES PAID FOR TECHNICAL SERVICES. ONLY FOR A REASON THAT DTAA IS SILENT ON A PARTICULAR TYPE OF INCOME, WE CANNOT SAY THAT SUCH INCOME WILL AUTOMATICALLY BECOME BUSINESS INCOME OF THE RECIPIENT. IN OUR OPINION, WHEN DTAA IS SILENT ON AN ASPECT, THE PROVISIONS OF THE ACT HAS TO BE CONSIDERED AND APPLIED. THIS ASPECT HAS NOT BEEN DEALT WITH BY THE AUTHORITIES BELOW. WE ARE, THEREFORE, OF THE OPINION THAT THIS ISSUE REQUIRES A FRESH LOOK BY THE A.O. ORDERS OF LOWER AUTHORITIES ON PAYMENTS MADE FOR M/S HIGHLIGHTS FILMS PVT. LTD. ITA NOS. 5600 & 5598/MUM/2016 9 MARKET SURVEY, ARE SET ASIDE AND REMITTED BACK TO A.O. FOR CONSIDERATION AFRESH IN ACCORDANCE WITH LAW. 7 .1 IN THE CASE OF HIGHLIGHT FILMS P. LTD . (SUPRA), RELIED ON BY THE LD. DR, IT WAS CONTENDED BY THE LD. COUNSEL OF THE ASSESSEE BEFORE THE TRIBUNAL THAT THE CIT(A) HAS NOT EXAMINED THE CONTENTION OF THE ASSESSEE ON MERIT, WHILE CONFIRMING THE DISALLOWANCE MADE BY THE AO U/S 40A(I) OF THE ORDER. THE TRIBUNAL, AFTER EXAMINING THE FACTS SET ASIDE THE ORDER OF THE CIT(A) AND REMITTED THE MATTER BACK TO HIM FOR DECIDING THE SAME AFRESH, AFTER EXAMINING THE STAND OF THE ASSESSEE THAT THE AMOUNTS IN QUESTION ARE NOT TAXABLE IN INDIA IN THE HANDS OF THE RECIPIENT AS PER RELEVANT DTAAS. 7 .2 IN THE CASE OF M/S HIGHLIGHT PICTURES (INDIA) PVT. LTD. (SUPRA) RELIED ON BY THE LD. COUNSEL, THE ASSESSEE - COMPANY IS ENGAGED IN THE BUSINESS OF PRODUCTION OF ADVERTISEMENT FILMS AND PROGRAMS. DURING THE APPELLATE PR OCEEDINGS, THE CIT(A) MADE DISALLOWANCE U/S 40A(I) IN RESPECT OF PAYMENTS MADE TO FAST TIME LTD., BANGKOK TOWARDS SHOOTING OF A FILM OVERSEAS WHICH ALSO INCLUDED PRODUCTION FEES AS WELL AS REIMBURSEMENT OF EXPENSES. THE CONTENTION OF THE AR WAS THAT THE SA ID PAYMENT WAS NOT CHARGEABLE TO TAX IN INDIA AS PER DTAA BETWEEN INDIA AND THAILAND AND AS SUCH THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE, CONSEQUENTLY, THERE CAN BE NO QUESTION OF A DISALLOWANCE U/S 40A(I) OF THE ACT. 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 ARTICLES OF THE DTAA AND HENCE, THIS ARTICLE CANNOT BE APPLIED IN THE PRESENT CASE WHICH IS COVERED BY ARTICLE 14 OR ARTICLE 7 OF THE DTAA. FOR THIS PURPOSE, M/S HIGHLIGHTS FILMS PVT. LTD. ITA NOS. 5600 & 5598/MUM/2016 10 RELIANCE WAS PLACED ON THE DECISION OF THE ITAT, MUMBAI BENCH IN THE CASE OF CHANNEL GUIDE INDIA LTD. V. ACIT 139 ITD 49. IN APPEAL , THE TRIBUNAL HELD AT PARA 6 THE FOLLOWING : 6. WE HAVE CONSIDERED THE RIV AL 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 TAXABLE ONLY IN THAILAND AS PER ARTICLE 7 OF DTAA BETWEEN I NDIA 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 WAS IN RESPECT OF PROFESSIONAL SERVICES RENDERED IN ABR OAD. 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 .3 IN THE CASE OF YASH RAJ FILMS PVT. LTD . (SUPRA), RELIED ON BY THE LD. COUNSEL THE ASSESSEE 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 SERVICE PROVIDERS. DURING THE YEA R 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. THE AO CAME TO A FINDING THAT THE TOTAL PAYMENTS AMOUNTING TO RS.18,77,84,736/ - MADE BY THE ASSESSEE WERE IN THE NATURE OF FTS AS PER THE PROVISIONS OF SECTION 9(1)(VII) R.W. EXPLANATION 2 THERETO. THE AO HELD THAT THE ASSESSEE THUS WAS LIABLE TO DEDUCT TAX AT SOURCE FROM THE SAID PAYMENTS AS PER THE PROVISIONS OF SECTION 195 AND THE ASSESSEE M/S HIGHLIGHTS FILMS PVT. LTD. ITA NOS. 5600 & 5598/MUM/2016 11 HAVING FAILED TO MAKE SUCH DEDUCTION, THE AO TREATED IT AS THE ASSESSEE IN DEFAULT IN RESPECT OF TAX OF RS.5,26,73,614/ - , SO DEDUCTABLE AS PER THE PROVISIONS OF SECTION 201 OF THE ACT . THE AO ALSO HELD THE ASSESSEE AS LIABLE TO PAY INTEREST @ 12% PER ANNUM IN RESPECT OF THE SAID TAX PAYMENT AS PER THE PROVISIONS OF SECTION 201(1A) BY AN ORDER PASSED U/S 201 AND 201(1A) OF THE ACT. IN APPEAL, THE TRIBUNAL HELD AT PARA 18 AND 19 AS UNDER: 18. IN THE CASE OF UPS SCS (ASIA LTD.) (2012) 18 TAXMANN .COM 302 (MUM.), SERVICES RENDERED AS PER THE TERMS OF THE RELEVANT AGREEMENT WERE IN THE NATURE OF FREIGHT AND LOGISTIC SERVICES SUCH AS, TR ANSPORT, PROCUREMENT, CUSTOM CLEARANCE, SORTING, DELIVERY, WAREHOUSING AND PICKING UP SERVICES OUTSIDE INDIA IN RESPECT OF EXPORT CONSIGNMENT OF M AND THE FEES PAID BY M OF SUCH SERVICES WAS HELD TO BE TAXABLE IN INDIA BY THE REVENUE AUTHORITIES AS 'FEES F OR TECHNICAL SERVICES' U/S 9(1)(VII) BEING IN THE NATURE OF MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. THE TRIBUNAL, HOWEVER, HELD THAT IT WAS TOO MUCH TO CATEGORIZE SUCH RESTRICTED SERVICES AS MANAGERIAL SERVICES. IT WAS ALSO HELD BY THE TRIBUNAL THAT THERE WAS NOTHING LIKE GIVING ANY CONSULTANCY WORTH THE NAME AND, THEREFORE, PAYMENT IN LIEU OF FREIGHT AND LOGISTIC SERVICES COULD NOT BE RANKED AS CONSULTANCY SERVICES. IN THE CASE OF PARASRAMPURIA SYNTHETICS LTD. 20 SOT 248 CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE ASSESSEE HAD MADE CERTAIN PAYMENT TO CONTRACTOR IN RESPECT OF INSPECTION AND MAINTENANCE SUPPORT, FABRICATION OF WATER LINE, THERMAL INSULATION/ERECTION ETC. AND IT WAS HELD BY THE TRIBUNAL THAT SUCH PAYMENT COULD NOT BE TREATED AS F EES FOR TECHNICAL SERVICES MERELY BECAUSE THE SERVICES WERE RENDERED BY USING TECHNICAL KNOWLEDGE WHEN TECHNOLOGY OR TECHNICAL KNOWLEDGE OF THE PERSON RENDERING THE SERVICES WAS NOT MADE AVAILABLE TO THE ASSESSEE. IN THE CASE OF TATA IRON AND STEEL CO. LT. 34 SOT 83 (MUM.), IT WAS HELD BY THE TRIBUNAL THAT THE MANAGEMENT COMMISSION, SELLING COMMISSION, UNDERWRITING M/S HIGHLIGHTS FILMS PVT. LTD. ITA NOS. 5600 & 5598/MUM/2016 12 COMMISSION ETC. IN RESPECT OF GDR ISSUE WAS NOT INCOME BY WAY OF FEES FOR TECHNICAL SERVICES BECAUSE ALTHOUGH THE LEAD MANAGERS HAD RENDERED TEC HNICAL, MANAGERIAL OR CONSULTANCY SERVICES FOR BRINGING OUT THE GDR ISSUE, SUCH SERVICES ARE NOT MADE AVAILABLE TO THE ASSESSEE IN AS MUCH AS IT ONLY DERIVED THE BENEFIT OF THE TECHNICAL SERVICES PROVIDED BY THE LEAD MANAGERS WITHOUT GETTING ANY TECHNICAL KNOWLEDGE, EXPERIENCE OR SKILL IN ITS POSSESSION FOR USE AS ITS OWN. IT WAS HELD THAT SUCH COMMISSION IN RESPECT OF GDR ISSUE PAID TO THE LEAD MANAGERS, THEREFORE, WAS IN THE NATURE OF BUSINESS PROFIT AND SINCE THE NON - RESIDENT LEAD MANAGER WAS HAVING NO P E IN INDIA, THE SAME WAS OUTSIDE THE AMBIT OF TAX IN INDIA AS PER ARTICLE 7 OF DTAA. 19. KEEPING IN VIEW THE RATIO OF THE VARIOUS DECISIONS OF THE COORDINATE BENCHES OF THIS TRIBUNAL DISCUSSED ABOVE AND HAVING REGARD TO THE NATURE OF THE SERVICES RENDERED BY THE OVERSEAS SERVICE PROVIDERS TO THE ASSESSEE AS SPELT OUT IN THE RELEVANT AGREEMENTS, WE ARE OF THE VIEW THAT THE SAID SERVICES CANNOT BE TREATED AS TECHNICAL SERVICES WITHIN THE MEANING GIVEN IN EX PLANATION 2 TO SECTION 9(1)(VII) . WE ARE IN AGREEMENT WITH THE LEARNED CIT(APPEALS) THAT THE SAID SERVICES RENDERED OUTSIDE INDIA BY THE OVERSEAS SERVICE PROVIDERS IN CONNECTION WITH MAKING LOGISTIC ARRA NGEMENT ARE IN THE NATURE OF COMMERCIAL SERVICES AND THE AMOUNT RECEIVED BY THEM FROM THE ASSESSEE FOR SUCH SERVICES CONSTITUTES THEIR BUSINESS PROFIT WHICH IS NOT CHARGEABLE TO TAX IN INDIA IN THE ABSENCE OF ANY PE IN INDIA OF THE SAID SERVICE PROVIDERS. THE ASSESSEE, THEREFORE, WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE SAID PAYMENTS AND THE AO WAS NOT JUSTIFIED IN TREATING THE ASSESSEE AS IN DEFAULT U/S 201. GROUND NO. 3 TO 6 OF THE REVENUE'S APPEAL ARE ACCORDINGLY DISMISSED. 7 .4 IN THE CASE OF M/S TVS ELECTRONICS LTD . (SUPRA) , AS MENTIONED EARLIER AT PARA 6, THE ASSESSEE HAD MADE PAYMENT TO M/S ROSEWELL GROUP SERVICES LTD. BASED IN MAURITIUS, FOR A MARKET SURVEY CONDUCTED BY THEM M/S HIGHLIGHTS FILMS PVT. LTD. ITA NOS. 5600 & 5598/MUM/2016 13 FOR PREPARATION OF PROJECT REPORT CALLED OPPORTUNITIES IN ASIA FOR E LECTRONICS. IN THE INSTANT CASE, THE ASSESSEE MADE A PAYMENT OF RS.45,85,481/ - TO ORIENTAL POST CO. LTD., THAILAND FOR POST PRODUCTION WORK ON LUX AND RS.87,71,801/ - TO M/S. BISCUIT FILMS SDN BHD, MALAYSIA FOR PRODUCTION OF TV COMMERCIAL LUX MATISSE, SHOT AT LOCALES IN SOUTH EAST ASIA. IN THE CASE OF HIGHLIGHT FILMS P. LTD . (SUPRA) RELIED ON BY THE LD. DR, THE TRIBUNAL, BEING CONVINCED THAT THE CIT(A) HAS NOT EXAMINED THE CONTENTION OF THE ASSESSEE ON MERIT WHILE CONFIRMING THE DISALLOWANCE MADE BY T HE AO U/S 40A(I) OF THE ACT, REMITTED THE MATTER BACK TO HIM FOR FRESH ADJUDICATION. IN CONTRAST, IN THE INSTANT CASE, THE LD. CIT(A) HAS EXAMINED THE CONTENTION OF THE ASSESSEE ON MERIT. WE ARE OF THE CONSIDERED VIEW THAT THE DECISIONS IN M/S HIGHLIGHT PICTURES (INDIA) PVT. LTD . (SUPRA) AND YASH RAJ FILMS PVT. LTD . (SUPRA), RELIED ON BY THE LD. COUNSEL ARE RELEVANT AND THUS APPLICABLE IN THE INSTANT CASE. IN M/S HIGHLIGHT PICTURES (INDIA) PVT. LTD. (SUPRA), THE ISSUE WAS DISALLOWANCE U/S 40A(I) IN RESPEC T OF PAYMENTS MADE TO FAST TIME LTD., BANGKOK TOWARDS SHOOTING OF A FILM OVERSEAS INCLUDING EXPENDITURE TOWARDS PRODUCTION FEES AS WELL AS REIMBURSEMENT OF EXPENSES. IN YASH RAJ FILMS PVT. LTD . (SUPRA), THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PRODUCTION OF FILMS. THE SHOOTING OF FILMS WERE OFTEN HELD OUTSIDE INDIA FOR WHICH PAYMENTS WERE MADE IN FOREIGN EXCHANGE TO VARIOUS OVERSEAS SERVICE PROVIDERS. M/S HIGHLIGHTS FILMS PVT. LTD. ITA NOS. 5600 & 5598/MUM/2016 14 THUS FACTS BEING SIMILAR, WE FOLLOW THE RATIO LAID DOWN BY THE CO - ORDINATE BENCH IN M/S HIGHLIGHT PICTU RES (INDIA) PVT. LTD . (SUPRA), YASH RAJ FILMS PVT. LTD. (SUPRA) AND UPHOLD THE ORDER OF THE LD. CIT(A). FACTS BEING IDENTICAL, OUR DECISION FOR THE AY 2010 - 11 APPLIES MUTATIS MUTANDIS TO THE AY 2011 - 12. 8. IN THE RESULT, THE APPEAL S ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/12/2018. SD/ - SD/ - ( SAKTIJIT DEY ) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED: 14/12/2018 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// ( SR. PRIVATE SECRETARY ) ITAT, MUMBAI