2019 (11) TMI 336 - AT - Income Tax

Tribunal Rules on Withholding Tax: Modeling vs. Professional Services

The Tribunal ruled in favor of the assessee on the requirement of withholding tax under section 194J for payments made to Matrix India on behalf of Ms. ... TDS u/s 194J - payment made to Matrix India on behalf of Ms. R.K. Kaif - HELD THAT:- Admittedly, the services rendered have nothing to do with the production of a cinematographic film. Further, before parting with the order, it is pertinent to mention that a person can have many skills i.e acting skills in Films, modeling skills for display of merchandise, singing skills etc. and such person can make earning out of such skills. It is not that total earning of that person in lieu of services rendered must attract the provisions of section 194J The expressions ‘services rendered’ used in the said Explanation assume significance and therefore, the taxable receipts u/s 194J of the Act are services-specific and not person specific. In the instant case, the payments are payable for the 'services of' modeling .and it is unconnected .with the production of cinematographic film. While 'modeling' is aimed at display of merchandise, the 'acting' is defined as ‘to act in play or film’ www.freedictionaty.com) i.e. to portray a role authored by a story-writer with different purposes and objects and certainly not to displace the merchandize to boost the sales of a manufacturer or a trader of the product or services. Therefore, the impugned payments made by the assessee to Matrix India on behalf of Ms Katrina Kaif do not attract the provisions of section 194J TDS not deductible from payments made to custom house agents on account of reimbursement of clearing and forwarding - CIT (Appeals) giving relief to the assessee by holding that TDS is not deductible on supply of Cameras manufactured by Hical Magnetic Private Limited by treating the same as contract for sale - HELD THAT:- As decided in own case [ 2013 (5) TMI 154 - ITAT MUMBAI] the procurement of the raw material is also arranged by the assessee as per the tripartite agreement Thus, it is nothing but a job work contract under these two agreements. Further the assessee is paying the entire cost in advance being working capital and compensation with the margin on cost of raw material and labor at the rate of ₹ 8.04 per Camera to Hical which is nothing hut the job work charges. The price arrangement as agreed between the parties clearly shows that it is a job work of assembling of cameras by Hical Magnetic Pvt. Ltd The Hical Magnetic Pvt. Ltd. in fact, receiving only the Iabor charges and mark up of ₹ 8.04 per camera which is subjected to TDS being job work charges paid by assesses. Therefore, it is not the entire payment to the Hical Magnetic Pvt. Ltd. but only the labor charges of ₹ 20.84 and margin of ₹ 5.04 total amounting to ₹ 20.8H per camera towards the assembling job is subjected to TDS. Accordingly, we set aside the impugned order of CIT[A) on this issue and restore the order of Assessing Officer to the extent of applicability of section 194C only on the payment of ₹ 2Q.88 per camera. TDS deductible on supply of batteries manufactured by power cell batteries India Ltd. by treating the same as contract for sale - HELD THAT:- It transpires that this issue stands covered in favour of the assessee by the aforesaid Tribunal order for Assessment Year 2009–10, wherein the Tribunal has decided the issue in favour of the assessee by dealing with the same at paragraphs 7 and 8 of the said order. The Tribunal agreed with the learned CIT(A) that the agreement in this regard was not job work agreement but it was simply an agreement for purchase of a specific battery with the name of the assessee printed on the cell. The Tribunal had followed the decision of Hon’ble jurisdictional High Court in the case of CIT vs. Glenmark Pharmaceuticals Ltd. [2010 (3) TMI 289 - BOMBAY HIGH COURT] . Respectfully following the precedent as above, we uphold the order of learned Commissioner of Income Tax (Appeals) in this regard and decide the issue against the Revenue. Issues Involved:1. Requirement of withholding tax under section 194J for payments made to Matrix India on behalf of Ms. R.K. Kaif.2. TDS deduction on payments made to Custom House Agents (CHAs) for clearing charges and reimbursement of expenses.3. TDS deduction on supply of cameras by Hical Magnetic Private Limited, treated as a works contract.4. TDS deduction on supply of batteries by Power Cell Batteries India Ltd.Issue-wise Detailed Analysis:1. Requirement of withholding tax under section 194J for payments made to Matrix India on behalf of Ms. R.K. Kaif:The Tribunal found that the issue was already settled in favor of the assessee in the assessee's own case for Assessment Year 2009–10, where it was concluded that the TDS officer was incorrect in holding that tax was required to be deducted at 11.33%. The Tribunal determined that the payments made to Matrix India on behalf of Ms. Katrina Kaif did not attract the provisions of section 194J. It was clarified that modeling services provided by Ms. Kaif were not connected with the production of a cinematographic film, and hence, did not qualify as professional services under section 194J. The Tribunal emphasized that the nature of services rendered (modeling) did not fall under the specified professions requiring TDS under section 194J.2. TDS deduction on payments made to Custom House Agents (CHAs) for clearing charges and reimbursement of expenses:The appellant made two types of payments to CHAs: clearing charges and reimbursement of expenses. The appellant deducted tax under section 194H for clearing charges but did not deduct tax for reimbursements. The AO held that tax should have been deducted under section 194C for reimbursements as well. The CIT(A) ruled that no TDS was required for reimbursements, but upheld the AO's decision regarding short deduction for clearing charges. The Tribunal referred to its previous decision for Assessment Year 2009–10, which stated that payments made through an agent to third parties for services provided to the assessee should attract TDS. The Tribunal directed the AO to verify if the clearing house agents had filed returns and paid taxes, and to decide accordingly.3. TDS deduction on supply of cameras by Hical Magnetic Private Limited, treated as a works contract:The Tribunal noted that the issue was previously decided against the assessee for Assessment Year 2009–10. The tripartite agreement indicated that the assessee supplied tools and moulds to the supplier for job work, and Hical Magnetic Pvt. Ltd. assembled the cameras using these parts. The arrangement was deemed a job work contract, with Hical receiving labor charges and a margin per camera. The Tribunal upheld that TDS under section 194C applied to the labor charges and margin paid to Hical.4. TDS deduction on supply of batteries by Power Cell Batteries India Ltd.:The Tribunal found that this issue was resolved in favor of the assessee in the previous order for Assessment Year 2009–10. The agreement for the supply of batteries was considered a contract for sale, not a job work agreement. The Tribunal followed the jurisdictional High Court's decision in CIT vs. Glenmark Pharmaceuticals Ltd., which supported that TDS was not applicable to such contracts for sale.Conclusion:The Tribunal's order addressed each issue based on precedent and detailed analysis. The appeals were partly allowed, with specific directions for factual verification and adherence to previous rulings. The order was pronounced in open court on 04/11/2019.