AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (10) TMI 1261
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....of the India-South Africa Tax Treaty. 2. It is prayed that the Learned AO be directed to hold that payments are neither taxable under Article 12 of the India- South Africa Tax Treaty nor under Section 9 of the Income Tax Act, 1961. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing." 2. Briefly stated, the assessee which is a company incorporated in and is a tax resident of South Africa is engaged in the business of developing and producing entertainment serials for audio-visual platform. The assessee had filed its return of income for A.Y 2012-13 on 28.03.2014, declaring total income of Rs. Nil. Subsequently, the case of the assessee was selected for scrutiny assessment and its total income was assessed at Rs. 9,60,23,838/-, vide a draft assessment order, dated 27.03.2015 passed under Sec. 144C(1) r.w.s. 143(3) of the Act. The assessee filed its objections before the Dispute Resolution Panel-1, Mumbai (for short 'DRP'). 3. The assessee in its objections assailed the proposal of the A.O to subject the inc....
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....td. In order to fortify his aforesaid view the A.O took support of the fact that the assessee and Endemol India Pvt. Ltd. only after understanding the exigibility of the receipts to tax India, had consciously withheld tax according to the requirements of the Indian tax authorities. On the basis of his aforesaid observations, the A.O concluded that the revenue earned by the assessee from Endemol India Pvt. Ltd. was taxable in India as "royalty" and "FTS" at the rate of 10%, as per Article 12 of the India-South Africa tax treaty. 5. The assessee company aggrieved with the aforesaid observations of the A.O which had led to a consequential taxing of the receipts in India, filed objections with the DRP. During the course of the proceedings before the DRP, it was submitted by the assessee company that it had during the year under consideration viz. A.Y: 2012-13 received an amount of Rs. 9,60,23,838/- from Endemol India Pvt. Ltd. for providing line production services in South Africa. It was submitted by the assessee, that as the aforesaid payment was received outside India, hence, tax was deducted at source on the same by Endemol India Pvt. Ltd. Further, it was the contention of the ass....
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....trative services to Endemol India Private Ltd., but had provided a vast range of technical and managerial services could safely be gathered from a perusal of Article 10.1 of the agreement, which revealed that the assessee had rendered technical services to Endemol India Pvt. Ltd by producing visual-sound recordings. On the basis of his aforesaid observations, the DRP concluded that the amount of Rs. 9,60,23,838/- received by the assessee from Endemol India Pvt. Ltd. would fall within the realm of "FTS" and thus, would be taxable in India. 7. Still further, the DRP observed that Article 10.1 of the agreement provided that the copyright in the format, recorded footage, scripts, visuals etc. produced by the assessee for Endemol India Pvt. Ltd shall vest exclusively with the latter viz. Endemol India Pvt. Ltd. In the backdrop of his aforesaid observations, the DRP was of the view that it could safely be concluded that the assessee was not merely providing administrative services to Endemol India Pvt. Ltd, but was providing both managerial and technical services to it. In order to fortify its aforesaid conviction, the DRP observed that as per Article 10.2 of the agreement the assessee ....
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.... the republic of South Africa and is a tax resident of the said country was carrying on the business of developing and producing entertainment serials for Audio-visuals platforms. It was submitted by the assessee that Endemol India Pvt. Ltd., which is a company incorporated in India, was commissioned to produce a television series viz. 'Fear Factor', based on the US version/format of the said series, for broadcast in India on the "Colors channel". The ld. A.R submitted that Endemol India Pvt. Ltd in terms of an agreement entered on 19th April, 2011, had engaged the assessee to carry out line production services in South Africa, on a work-for-hire basis. It was the contention of the ld. A.R, that as the facilitation/production fees which was received by the assessee outside India for rendering the Line Production Services was not in the nature of "royalty" or "FTS" and accordingly, not taxable in India, hence, the assessee had filed its "return of income" declaring Nil income. It was submitted by the ld. A.R that the lower authorities being of the view that the assessee had provided managerial and technical services to Endemol India Pvt. Ltd., had thus held the same as being in the ....
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....n order to support her aforesaid contention also placed reliance on the decision of the ITAT, Mumbai, in the case of Yashraj Films Pvt. Ltd. Vs. ITO (IT) [2012) 23 ITR (T) 125] (Mum). It was averred by the ld. A.R, that in the aforementioned case, it was held by the Tribunal that as the services rendered by the non-resident service providers for making logistic arrangements were in the nature of commercial services, thus, the same could not be treated as managerial, technical or consultancy services within the meaning of Explanation 2 to Sec. 9(1)(vii) of the Act. Further, it was averred by the ld. A.R that the amount received by the assessee could also not be regarded as "royalty" within the meaning of Article 12 of the India- South Africa tax treaty. It was the contention of the ld. A.R, that the A.O/DRP misconstruing Clause 10 of the agreement had wrongly concluded that the amount received by the assessee qualified as "royalty" under the India-South Africa tax treaty. In support of her aforesaid contention, the ld. A.R averred that the lower authorities had lost sight of the fact that the agreement between the assessee and Endemol India Pvt. Ltd was for providing of line product....
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....y. In order to drive home her aforesaid contention, it was submitted by the ld. A.R, that as the definition of "royalty" in Article 12 took within its sweep the consideration received by an assessee for "the use of, or the right to use, any copyright", thus, the consideration assumed by the A.O/DRP to have been received by the assessee for 'transfer' of its copyrights to Endemol India Pvt. Ltd., would even on the said count not fall within the realm of the definition of "royalty", as per the India-South Africa tax treaty. On the basis of her aforesaid contentions, the ld. A.R averred that as the A.O/DRP had wrongly characterised the amount of Rs. 9,60,23,838/- received by the assessee for providing Line production services as "royalty" and "FTS", therefore, assessment framed by the A.O, wherein the aforesaid amount was brought to tax at the rate of 10% under Article 12 of the India-South Africa tax treaty could not be sustained and was liable to be vacated.. 11. Per contra, the ld. Departmental Representative (for short D.R) relied on the orders of the lower authorities. It was submitted by the ld. D.R, that as the assessee had provided managerial and technical services, along wit....
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....onsideration in the backdrop of the contentions advanced by the authorized representatives of both the parties. We find, that from a perusal of the various clauses of the agreement dated 19.04.2011, it can safely be gathered that the same is a contract for providing services, and not for granting a right in any copyright. We shall now deliberate on the observations of the lower authorities that the assessee had traversed beyond the terms of the aforesaid agreement dated 18.04.2011, and had rendered managerial/technical services to Endemol India Pvt. Ltd. We find, that the A.O/DRP had brought the amount of Rs. 9,60,23,838/- to tax by concluding that the said sum received by the assessee was taxable as "FTS" as also "royalty", both under the Act and the India-South Africa tax treaty. In the backdrop of the aforesaid observations of the lower authorities, we shall now look into the aspect as to whether the nature of services rendered by the assessee would bring them within the sweep of "FTS" and "royalty", or not. 14. We shall first look into the characterisation of the fees received by the assessee, as FTS by the A.O/DRP. We find that in terms of Explanation 2 to Section 9(1)(vii) of....
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....e oxford dictionary, the term managerial services means rendering of services which involves controlling, directing, managing or administering a business or part of a business or any other thing. However, the services provided by the assessee are clearly found to be in the nature of administrative services (such as making logistic arrangements etc.). Accordingly, the services rendered by the assessee would not tantamount to providing of any managerial or management functional services to Endemol India Pvt. Ltd. Thus, as the services rendered by the assessee in no way involves controlling, directing, managing or administering the business or part of a business of Endemol India Pvt. Ltd, therefore, it can safely be concluded that the same does not fall within the realm of the term 'managerial services'. (II) Technical Services:- The term 'technical services' takes within its sweep services which would require the expertise in technology or special skill or knowledge relating to the field of technology. As per the concise oxford dictionary, the term technical services means belonging or relating to art, science, profession or occupation involving mechanical arts and applied science....
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....t be treated as managerial, technical or consultancy services within the meaning given in Explanation 2 to Sec. 9(1)(vii) of the Act. In the aforementioned case, the assessee had made payments to various overseas services providers belonging to U.K, Poland, Brazil, Canada & Australia for services availed in connection with the shooting of different films. The services rendered by the aforementioned non-resident service providers included arranging for extras, arranging for the security, arranging for locations, arranging for the accommodations for the cast and crew, arranging for necessary permissions from local authorities, arranging for makeup of the stars, arranging for insurance cover etc. The Tribunal after deliberating on the nature of the aforementioned services concluded, that as the same were purely commercial services falling in the category of logistic arrangement services, thus, the consideration received as regards rendering of such services would constitute business profits of the said overseas service providers. It was further observed, that as the said service providers had no Permanent Establishment (P.E) in India during the year under consideration, hence the busi....
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.... involved in the case of the assessee. We have deliberated at length on the aforesaid observations of the lower authorities and are unable to persuade ourselves to accept the same. We find that though it is an admitted fact that an 'advance rulings' having been rendered on the basis of the facts of a particular case, thus, would only be binding on the applicant, and that too in respect of the transactions in relation to which the same was obtained, however, such ruling would still have a persuasive value in respect of other parties as well and accordingly, may be relied upon by the authority itself or by the applicant/department. We find that our aforesaid view is fortified by the judgment of the Hon'ble Supreme Court in the case of Columbia Sportswear Company Vs. DIT, Bangalore (2012) 346 ITR 161 (SC). We are further of the considered view, that though the lower authorities had declined to take cognizance of the observations of the Hon'ble AAR on the ground that the 'tax treaties' involved in the said case were different as against that involved in the present case, however, there is no mention of any such material fact which could persuade us to conclude that the definition of "F....
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....mme; (iv) that assuming (without admitting) that there was also a grant of copyright, then in the absence of any mention of consideration under the agreement which clearly states that the entire consideration is only for services rendered by the assessee, no part of such consideration could be related to royalty for copyright; (v) that by assuming that the payment received by the assessee was for 'transfer' of rights in the programme, the same would tantamount to re-writing of the contract; (vi) that as per Sec. 17 of the Indian Copyright Act, 1957 and South Africa Copyright Act No. 98 of 1978, where the work is specifically commissioned under the contract of service at the instance of a person, such person shall be the first owner of the copyright, thus, now when the work viz. the television series 'Fear Factor' is commissioned by Endemol India Pvt. Ltd. under the contract of service, therefore, it would always be the first owner of the work produced by the assessee and the owner of the copyright and the question of assigning any copyright under the copyright law would not arise; and (vii) that as the term "royalty" defined in Article 12 of the India-South Africa Tax Treaty includ....
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....irst owner of the copyright. Further, as per the South Africa Copyright Act No. 98 of 1978, the person who commissioned the making of a cinematograph film shall be the owner of the copyright subsisting in the work made in pursuance of that commission. In the backdrop of the aforesaid mandate of law, we are of the considered view that since the work (that is the television series) was commissioned by Endemol India Pvt. Ltd. under the contract of service thus, as averred by the ld. A.R, Endemol India Pvt. Ltd. shall be the first owner of the work produced by the assessee, and the owner of the copyright. We find substantial force in the aforesaid contention of the assessee, that now when as per the mandate of law the ownership of the copyright remains vested with Endemol India Pvt. Ltd, hence the question of assigning of the same by the assessee in favour of Endemol India Pvt. Ltd would not arise at all. We thus, are of the considered view that now when in terms of our aforesaid observations, it can safely be concluded that there would be no occasion for assigning of any copyright by the assessee to Endemol India Pvt. Ltd. (i.e the first owner of the copyright), therefore, no payment ....