TaxTMI 
TaxTMI 
2017 (3) TMI 333
X X X X Extracts X X X X
X X X X Extracts X X X X
....prejudice to any other ground of appeal, the Learned CIT (A) erred in upholding that the Six professionals namely Mr.Sanjiv Chawla, Ms. Shushma Chitnis, Mr. Blesson Oommen, Mr. Amitabh Shukla, Mr. Vishal Panjabi and Mr. Rajesh Wanmali had an employeremployee relationship with the appellant company. 3. Alternatively and without prejudice to any other ground of appeal, the learned CIT (A) has erred in not appreciating that the demand of Rs. 3,73,166/- for alleged short deduction of tax (being the difference of tax deducted as between provisions of Sec 194,1 and 192 of the Act) as made by the Assessing officer is erroneous and bad in law. 4. Without prejudice to any other ground of appeal as taken by appellant, the Learned CIT (A) erred in upholding that in this particular circumstance where the six professionals have paid their due taxes, interest u/s 201(A) wi l l remain chargeable ti l l date of f i l ing of return by the payee and in directing-the assessing officer to recompute the same. 5. Alternatively and without prejudice to any other ground of appeal, the Learned CIT(A) erred in upholding that the payments made to manager for the benefit of co-owners towards the use of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....natively and without prejudice to any other ground of appeal the learned CIT (A) has erred in upholding the demand of Rs. 28,431/- on account of payment made to empire Audio Centre Pvt Ltd. towards digital mixing work due to the difference being due to the tax deducted u/s 194C as contract for work visa-a-vis technical services as u/s 194J." 3. Grounds 1 to 4: These grounds involve identical issue wherein assessee has contested the action of the lower authorities in holding that remuneration paid to six professionals engaged by the company was liable for deduction of tax at source u/s 192 as the same was in the nature of salary as against the claim of the assessee to deduct tax u/s 194J on these payments on the ground that these persons were acting in the capacity of independent professionals and not as employee of the company. 4. The brief background is that during the year assessee was engaged in the business of film production. A survey u/s 133A of the Income-tax Act, 1961 was conducted on 23-11-2006 on the assessee's business premises. It was inter-alia noted by the AO that during the F.Y. 2004-05, the assessee company had paid remuneration to various persons in pursuance to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....njabi 1,50,000 Direction Services Rajesh Wanmali 1,20,000 Production Management Services These persons were not employees of the company and they were free to give their services to any other party. The company found it desirable to keep them on contract till such time the business of the company stabilized. Therefore they were not taken on employment but there services were contracted. While they were under the contract as professionals and not employed by the company, the company deducted tax @ 5% plus applicable surcharge and cess from the fees paid to them u/s 1941 as these persons were professionals. However, assessing officer claimed that these persons were in employment of appellant company and therefore, he raised a demand of Rs. 3,70,1661- as shortfall in deduction of tax. It may be appreciated that the relation between these respective parties and the company were contractual relations and they were not that of employment. So much so that the appellant company did not deduct any professional tax of these parties from the payments made to them and they were liable to pay their own professional tax. These parties were not entitled for any gratuity or any other....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cutors and there was a large degree of professional discretion and that their tasks required technical or professional skills or experiences. The fact that they were given designations does not by itself show that an employer employee relationship exists but merely spoke to the scope of the type of assignments that were given to them. 3. The covenants in contracts by themselves were wide in nature and afforded a large degree of flexibility for the retainers. There were no restrictive covenants on timings to come to office or leave, or any exclusivity bar. They were not subject to the general rules and regulations. They were not authorized to act as agents by entering into any commitments with third parties on behalf of the Assessee without express authorization. Though the number of days of leave were contractually fixed, there were no covenants binding the said professionals to the company rules and regulations as applicable to employees on the pay roll of the company. The mere isolated mention of the word 'employment' or 'termination' would not ipso facto make the said relationship a employer - employee relationship. The word termination is used nonexclusively....
X X X X Extracts X X X X
X X X X Extracts X X X X
....T This service agreement is made on this 1st December, 2003 between, RED CHILLIES ENTERTAINMENTS PRIVATE LTD Mannat, B.J. Road, Bandstand, Bandra West, Mumbai 400 050 (Hereinafter referred to as "RC") And SANMJIV CHAWLA, 153, Oxford Towers Andheri West, Mumbai 400 058 (Hereinafter referred to as "SANJIV") Whereas RC is desirous of appointing SANJIV on contractual basis for the purpose of performing certain duties, which may be assigned by RC from time to time and SANJIV has consented to being appointed on following terms and conditions: DUTIES: You shall be designated as "PRODUCTION MANAGER and perform all such duties as may be assigned from time to time. COMPENSATION AND BENEFITS: RC shall pay SANJIV a total remuneration of Rs. 60,000/- per month, subject to tax deduction at source, at applicable rate of tax. In addition, you will be provided with a company car. The company will also provide you with a cell phone for local and official use. LEAVES: You shall report to office on daily basis to perform the duties assigned to you from time to time. However you shall not remain absent from work for more than 30 days in a calendar year. DATE OF COMMENCEM....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce. Only designation can be given and functional profile can be assigned in advance and that is what has been done. 10. Further, the remuneration has been fixed @ Rs. 60,000/- per month. There is no variation clause or escalation clause indicating that remuneration shall be increased or decreased depending upon the quantum of work. Thus, it indicates that the remuneration has been fixed keeping in view the relationship of an employee and employer. It is also worthwhile to note here that Shri Chawla has been provided with a company car along with a mobile phone. These perks have been provided as are generally provided in the case of an employee. These perks also indicate that Shri Chawla has been engaged on full time basis and that is why the assessee company was pleased to provide these facilities to Shri Chawla. 11. It has also been noted that it has been stipulated in the agreement that Shri Chawla shall attend office on daily basis to perform the duties as may be assigned to him from time to time by the assessee company. He has also been provided with leaves of around 30 days in a year. Thus, impliedly, for the remaining days he shall be attending the office. These types of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arly establish that there existed an employer-employee relationship between these persons and the assessee and thus, the assessee was liable to deduct TDS u/s 192 because the remuneration paid to them constituted 'salary'. The judgments relied upon by the Ld. Counsel are not applicable on the facts of the case before us. These judgments were delivered on the basis of peculiar facts of those cases and were based upon the contracts entered in those cases. Therefore, keeping in view totality of facts and circumstances of this case as discussed above, these grounds are rejected. 15. Grounds 5 & 6 were not pressed, therefore these are dismissed as such. 16. Grounds 7 to 10 and ground 11 & 12 involve a common issue that on the various expenses incurred by the assessee which were part of post production activities, the assessee deducted tax at source u/s 194C treating them as contractual work whereas the AO was of the opinion that services rendered to the assessee by the payees were professional services, therefore, assessee ought to have deducted tax at source u/s 194J. Ld. CIT(A) confirmed the order of the AO on this issue. 17. We have gone through the orders passed by the lower auth....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ees are in the nature of a part of production of programmes and are covered u/s 194C ACIT v. Zee Entertainment Enterprises Ltd. [2014] 51 Taxmann.com 231 (Mumbai - Trib) -Equipment, labour and operators hired for production purposes. CIT(A) also examined the issue of hiring of equipment u/s 1941 of the Act and found in favour of the Assessee. The Hon'ble ITAT rendered a considered opinion that there was no error in the CIT(A) order." 19. We have gone through these judgments and find that case of the assessee is squarely covered in its favour. The impugned expenses incurred by the assessee are in the nature of post production activities. Therefore, the assessee was obliged to deduct TDS u/s 194C only and not u/s 194J. As a result, these grounds are allowed. 20. In the result, appeal of the assessee is partly allowed. 21. Now we shall take up appeal filed by the assessee in ITA No.92/Mum/2015 for A.Y. 2005-06 against the order of the CIT(A) dated 01-10- 2014 passed against the order u/s 201(1) / 201(1A) r.w.s. 263 of the Act dated 30th January, 2014 for A.Y. 2005-06 on the following grounds:- "1. The learned CIT (A) has erred in upholding that the payment of Rs. 8,46,838/-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the fact"that a part of the amount was paid for food. 9. The learned CIT (A) has erred in concluding that the payment of Rs. 3,12,933/- made to Alfa Properties & Investment Pvt. Ltd. was liable to deduction of tax U/S 1941 amounting to Rs. 70,223/-; ignoring the submissions made by the appellant company including the fact that a part of the amount was paid for food. 10.The learned CIT (A) has erred in concluding that the payment of Rs. 6,19,000/- made to Cross Country Hotel was liable to deduction of tax U/S 1941 amounting to Rs. 1,38,904/- ; ignoring the submissions made by the appellant company including the fact that *a part of the amount was paid for food." 22. Grounds 1 & 2: The brief background of the issue is that during the F.Y. 2004-05, the assessee paid a sum of Rs. 8,46,838/- to M/s VHQ Singapore without deducting tax on the same. The AO was of the opinion that this amount was in the nature of professional fee and, therefore, assessee was required to deduct tax at source on the applicable rates. The assessee submitted before the AO that the recipient company was located in Singapore and it did not have a Permanent Establishment (PE) in India. The said company had r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 9(1) wherein it was provided that situs of rendering services was not relevant in determining the taxability of the income of the payee u/s 9 of the Act as far as payment on account of FTS was concerned. It was held that services rendered in Singapore for production of advertisement film was used in India, therefore, the same was taxable in India and accordingly the order of the AO was upheld. 24. During the course of hearing before us, Ld. Counsel of the assessee vehemently contested this issue. The arguments made by him are summarized as under:- 1. "'VHQ.' merely carried out post production activity. In the process no technical knowledge, experience, skill, know-how or process as envisaged by Article 12 of the India Singapore DTAA was made available to the Appellant. Hence, the transaction cannot be held to be a fee for technical services as envisaged by Article 12 (4)(a) of the said DTAA. (Pg. 60 - 61 - Case Law PB 3) 2. Hence, as per the India Singapore DTAA, the fees paid to 'VHQ' were business profits as per Article 7 of the India Singapore DTAA and could be taxed only in the Singapore as 'VHQ' did not carry out any business via any permanent esta....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that it had no PE in India. This amount could be brought to tax in India only subject to the provisions of Double Taxation Avoidance Agreement between India and Singapore. Since this activity was not carried out through any PE in India, it cannot be taxed as business profit of VHQ under Article 7 of India Singapore DTAA. Therefore, we have to examine its taxability under Article 12 of India Singapore DTAA which provides for taxability of Fee for Technical Services. It has been stipulated in Article 12(4)(b) of India Singapore DTAA that 'Fees for Technical Services' means payment to any person in consideration for services of managerial, technical or consultancy nature fee, if such services make available technical knowledge, experience, skill, know-how or process which enables the person availing the services to apply the technology contained therein. In the facts of the case before us, VHQ has carried out post production job. In this process, no technology or skill has been made available to the assessee. In case assessee would need similar job again, then he will have to go back to VHQ to get this job done. No replication or repetition is possible at the end of the assessee at ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....regate amount of Rs. 1,20,000/- as prescribed u/s 194I. Therefore, he provided relief to the assessee. However, for all those hotels, where the stay expenses after deduction of the food expenses was more than Rs. 1,20,000, it was held by him that TDS was required to be deducted u/s 194I on the whole of such amount. 31. During the course of hearing before us, Ld. Counsel of the assessee relied upon the CBDT circular No.5 of 2002 dated 30-07-2002 wherein it was clarified that where earmarked rooms are let out for specified rate and specified period, only then, they will be construed to be accommodation made available on regular basis whereas the facts of the assessee's case are that there was no prior contract with the hotels. The rooms were hired on as and when available basis, corresponding to the date of shooting. There was no contract for any specific rates or period and thus TDS was not required to be made u/s 194I. 32. We have gone though the orders passed by the lower authorities and facts brought before us on the basis of bills of hotels and other evidences. It is noted that nothing has been brought before us to show that assessee had entered into any prior contract with th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... opposed to contracts liable for deduction u/s 194C as actually deducted by the Appellant. 6. Alternatively and without prejudice to any other ground of appeal, the Learned CIT(A) failed to appreciate that the various activities of Post production work (Annex-A) are merely work contracts which do not require any professional or specialized technical knowledge and hence are liable for deduction u/s 194C. 7. Without prejudice to any other ground of appeal taken by appellant, the Learned CIT(A) erred in upholding that in this particular circumstance where the various entities which took part in the post production process have been assessed to and paid their due taxes, interest u/s 201(A) will remain chargeable till date of filing of return by the respective payees and in directing the assessing officer to recomputed the same." 34. Grounds 1 to 4 : These grounds pertain to deduction of tax at source on the amount paid to professionals engaged by the assessee where tax was deducted u/s 194J whereas the AO was of the opinion that these persons were employees of the assessee and therefore, TDS should have been deducted u/s 192 of the Act. During the course of hearing, it was jointl....