2013 (12) TMI 1117 - AAR - Income Tax

Line production payments not 'Fees for Technical Services' under Income-tax Act.

The Authority determined that payments made for line production services did not qualify as 'Fees for Technical Services' under the Income-tax Act. As the ... Taxability of payments made towards line production services - shooting outside India for the show 'Wipe Out' - Nature of payment - Fee for Fees for Technical services ('FTS') or Royalty - withholding tax u/s 195 - non-fiction format show Bigg Boss (Big Brother) and has also other reality shows in India such as Fear Factor - Khatron Ke Khiladi etc. - Held that:- The payments made by the applicant towards line production services provided by Endemol ARG in accordance with the agreement entered into by the applicant with Endemol ARG is not 'fees for technical services' as the services falls under 'work contract' as defined in Explanation to Section 194C of the IT Act. - The payments made by the applicant to Endemol ARG for availing the line production services under the agreement is not chargeable to tax as per the provision of section 9(1)(i) of the IT Act. - No TDS liability u/s 195 - Decided in favor of assessee. Issues Involved:1. Nature of payments made by the Applicant to Endemol ARG: Whether they qualify as Fees for Technical Services (FTS) under Explanation 2 to clause (vii) of section 9(1) of the Income-tax Act.2. Classification of payments as 'Royalty' under Explanation 2 to clause (vi) of section 9(1) of the Act.3. Taxability of payments under section 9(1)(i) of the Act if they do not qualify as FTS or Royalty.4. Applicability of withholding tax under section 195 of the Act on payments made to Endemol ARG.Issue-wise Detailed Analysis:1. Nature of Payments as Fees for Technical Services (FTS):The applicant contended that payments made to Endemol ARG for line production services do not fall under the purview of 'Fees for Technical Services' (FTS) as per Explanation 2 to section 9(1)(vii) of the Act. They argued that the services provided were administrative and logistical, involving no professional or technical input. The Revenue, however, argued that the services were consulting and managerial, involving technical personnel and thus should be classified as FTS. The Authority concluded that the services provided by Endemol ARG were composite, involving technical crew and equipment, and thus did not solely constitute FTS under the Act.2. Classification as 'Royalty':This issue was not addressed separately because the Authority's conclusion on the first issue rendered it unnecessary.3. Taxability under Section 9(1)(i):The Authority examined whether the payments could be taxed under section 9(1)(i) of the Act if they did not qualify as FTS or Royalty. It was determined that the payments for production services, classified as 'work' under section 194C, are not chargeable to tax under section 9(1)(i) because the services were rendered and utilized outside India, with no business connection in India.4. Withholding Tax under Section 195:Given that the payments were not taxable under section 9(1)(i) or classified as FTS, the Authority ruled that the receipts by Endemol ARG would not suffer withholding tax under section 195 of the Act.Conclusion:1. Payments made by the applicant for line production services are not 'fees for technical services' but fall under 'work contract' as per Explanation to Section 194C.2. The question of classification as 'Royalty' was not dealt with due to the conclusion on the first issue.3. Payments are not chargeable to tax under section 9(1)(i).4. Receipts by Endemol ARG will not suffer withholding tax under section 195 as the income is not taxable in India.