TaxTMI 
TaxTMI 
2020 (8) TMI 318
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....evant material on record including documents placed in the paper-book. The judicial pronouncements as cited during the course of hearing has been deliberated upon. Our adjudication to the appeals would be as given in succeeding paragraphs. First, we take up appeal for AY 2011-12. ITA No. 3782/Mum/2016, AY 2011-12 2.1 Briefly stated the assessee is a resident corporate entity. It entered into a commissioning agreement (in short 'agreement') with another UK based non-resident corporate entity namely M/s Desi Boyz Production Ltd. (in short 'DBPL') on 01/09/2010 to produce, complete and deliver a feature film namely Desi Boyz (in short 'film') as per the terms and conditions agreed therein. The copy of the agreement has been placed on record. As per the terms of the agreement, the assessee as a commissioning party engaged M/s DBPL to produce and deliver a fully complete feature film provisionally named Desi Boyz based on certain storyline. To resolve the subject matter of appeal, the correct appreciation of terms of the agreement would be critical and therefore, at the outset, we set out the important terms of the agreement. 2.2 The recitals of the agreement state that M/s DBPL has....
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....ther processes or expenditure. 2.3 As per the terms of the agreement, the production of the film was primarily to take place in the United Kingdom and also in India in accordance with the production schedule. It was agreed and understood that in no event shall the period of principal photography of the film in UK was to exceed 90 days. 2.4 Further M/s DBPL was to ensure that the film would satisfy all requirements for qualifying as a British Film for the purposes of the Films Act, 1985 and it was required to carry out all necessary procedures and compliances, in this regard. The assessee was required to render required assistance for this purpose, at the cost of M/s DBPL. 2.5 To ensure that the film was produced and delivered in accordance with material requirement, M/s DBPL was to consult and take consent of the assessee over important aspects like identity of all key cast, budget, production schedule, delivery materials, cash flow, screenplay, production services companies to be engaged etc. The assessee was to exercise approvals, access, attendance and consultation rights in a timely and reasonable manner without delay. M/s DBPL was to keep assessee informed about any key dev....
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....sibility of any overspend except where changes were required by assessee. M/s DBPL was required to deliver the delivery material at its own cost to the assessee as per specified delivery date. The other terms of the agreement provide for warranties, events of default, termination, confidentiality, force majeure etc. which are general in nature. 2.10 The Schedule-1 of the agreement contain film specification. Schedule-2 contain Budget. Schedule-3 contain production schedule. As per the said Schedule, the shoot was to take place in India for 23 days whereas the period of shoot in UK was 55 days. Development & preITA production was to take place from April to October, 2010 whereas final delivery date was estimated to be 3rd Quarter of 2011. 2.11 The recitals of the agreement take note of the fact that M/s DBPL had an agreement with another entity namely Eros International Limited (EIL) to avail the services of Jyoti Deshpande. M/s DBPL was granted an assignment of all rights, title and interest in and to the storyline of said feature film provisionally named Desi Boyz. 2.12 Upon perusal of the terms of the contract between assessee and M/s DBPL, it could be concluded that the cont....
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.... business and financial control with respect to the production of the film. The service company was required to procure the services of all persons required by the producer to be engaged by the service company in the provision of the production services in India and UK. All the suppliers and personnel engaged or contracted by the service company were referred to as the contributors. The contributors were to enter into contracts with service company directly. The service company was responsible for making direct payments to the contributors. 3.4 As per clause 5.1, the producer licensed the service company such necessary rights to enable the service company to carry out on behalf of and as an agent for the producer, the production services. However, the producer would remain the maker and owner of all rights in the film. 3.5 The producer agreed to pay to service company a sum equal to Indian Production Services budget which would include service fee of Rs. 300 Lacs. The Indian Production services budget, as per Schedule-3 was estimated at Rs. 1066.18 Lacs including service fee of Rs. 300 Lacs. As per Schedule-2, the Indian production schedule would include shooting for 23 days in ....
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....lm production of film Desi Boyz was being managed and carried on by M/s EIFPL. In the notice, attention was drawn to the fact that another Indian entity namely Eros International Media Ltd. (EIML) was co-producer of the film in association with the assessee. M/s EIFPL & M/s EIML were subsidiaries of M/s Eros International PLC and hence, sister concerns. 4.4 In the said background, it was opined that entire film production activities and budgeting of the film was carried out by the assessee, M/s EIML and M/s EIFPL. Therefore, all these three entities as well as M/s DBPL would be Associated Enterprises (AE) within the meaning of Article-10 of India-UK Double Taxation Avoidance Agreement (DTAA / Treaty). Since M/s EIFPL was carrying on the entire film production activities of the film in India and UK locations, M/s EIFPL would be Permanent Establishment (PE) of M/s DBPL in India. Further since, the assessee has control over the management and budgeting of the film production activities of M/s DBPL and being its AE, assessee becomes PE of M/s DBPL in India. Therefore, the income of M/s DBPL would be liable to be taxed in India and hence, the aforesaid payment would require tax deducti....
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....ter period of around 374 days. 4.8 Referring to the term Associated Enterprises as given in Article 10 of Treaty, the facts deduced were that entire decision making was with the assessee and assessee was to dictate the terms and specifications on the basis of which film was to be made. It reserved all rights and authorities for approving any changes to the film story / cast & crew / locations / budget etc. Therefore, the assessee directly or indirectly controlled the project activities in making of the film. The entire capital for the project was received by M/s DBPL from the assessee. Any change in consideration would require approval of the assessee. The assessee directly or indirectly participated in and had control over the capital of the M/s DBPL for film production activities. Similarly, M/s EIFPL directly or indirectly participate in making and management of entire production of the film. The three concerns were not independent parties. For the purposes of acquiring the film, production activities and entire finances, M/s DBPL was entirely dependent on assessee who, in turn, was dependent on M/s EIFPL for entire production activities of the film. The assessee and M/s EMIL w....
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.... to the remittances made by the assessee to M/s DBPL during the year, to work out the TDS default. Consequently, the assessee would be liable for interest component u/s 201(1A) for non-deduction of tax. Finally, a demand was raised against the assessee u/s 201(1) & 201(IA) for AYs 2011-12 & 2012-13, in the following manner: - No. AY Tax Liability u/s 201 Interest u/s 201(1A) Total Demand 1. 2011-12 2,66,63,812/- 1,05,46,085/- 3,72,09,897/- 2. 2012-13 2,18,63,092/- 72,95,010/- 2,91,58,102/- Total 4,85,26,904/- 1,78,41,095/- 6,63,67,999/- Appellate Proceedings before Ld. CIT(A) 5.1 Aggrieved as aforesaid, the assessee assailed the demand by way of written submissions which have been extracted at para 3.3. of the impugned order. The assessee reiterated that it was in the business of producing feature films. Keeping in view the storyline of film, it approached a UK-based entity to undertake the production of the film and accordingly entered into a commissioning agreement with M/s DBPL wherein M/s DBPL was obliged to produce and deliver a fully complete feature film. The entire services in relation to pre-production, post production and delivery of f....
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....e could not be termed as the PE of foreign entity. On the strength of the factual matrix, it was submitted that M/s EFIPL was an independent agent and therefore, could not be treated as PE of foreign entity as per Article-5 of the Treaty. M/s EIFPL could not be treated as place of management in India for M/s DBPL or a factory or a workshop for production of film in terms of Article-5. Further, M/s EFIPL did not provide any managerial services to M/s DBPL. Therefore, the question of taxing income of M/s DBPL in India would not arise. 5.3 A plea was also raised that as per the terms of the commissioning agreement, M/s DBPL was to be reimbursed with entire production cost and therefore, the said remittances were not liable for TDS provisions as per the decision of Mumbai Tribunal rendered in M/s Wizcraft International Entertainment Ltd. (ITA No. 3208/Mum/2003). 5.4 Assailing the issue of Associated Enterprises as per Article-10, it was submitted that work performed by M/s DBPL was independent and without any interference by the assessee. M/s DBPL was independent service provider and performed the film production activity as per its own decisions. The various conditions / stipulation....
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....of film production in India and remaining 429 days was to be performed in UK itself. The period of shooting as per production services agreement was for 78 days out of which only 23 days of film were to be performed in India. The period of activities in India for 374 days, as concluded by Ld. AO, was factually incorrect and do not emanate from the terms of the contract. Another pertinent fact put forward is the fact that only when most of the film was shot in UK only then it could be considered as British Film. 6.3 Controverting the findings of Ld. AO that M/s EIFPL was agent of M/s DBPL in terms of Article-5, our attention has been drawn to the fact that M/s EIFPL has gross receipts of Rs. 133.55 Crores & Rs. 76.27 Crores for AYs 2011-12 & 2012-13 respectively as against total fees of Rs. 3 Crores received from M/s DBPL and therefore, the fees would be very miniscule keeping in view the total revenue of M/s EIFPL. Therefore, M/s EIFPL would be an independent entity carrying on its own business and could not be treated as dependent agent of M/s DBPL. Hence, it could not be termed as PE of M/s DBPL within the meaning of Article-5 of the Treaty. The attention has further been draw....
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....ontract, it could be said that the various conditions / stipulations requiring prior consultation of the assessee was purely with the motive of passive monitoring of the film production activity since the same was very technical in nature. The fact that M/s DBPL worked as an independent entity is further fortified by the fact that as on 31/03/2011, M/s DBPL had obtained independent bank loan of 2.18 Million Pounds from Coutts & Co. which was secured against UK Tax credit. Therefore, M/s DBPL could not said to be solely dependent upon the assessee for finance requirements. In financial year 2011-12, the revenue earned by M/s DBPL from the assessee on account of commissioning of film has been reflected as its turnover. M/s DBPL has reflected loss of 1.67 million pounds as loss on ordinary activities before taxation. This is sole activity being carried out by M/s DBPL. Therefore, the provision of Article-10 of the treaty, in our considered opinion, could not be applied in such a situation since it could not be said that the assessee participated directly or indirectly in management, control or capital of M/s DBPL. Further, M/s DBPL was a loss-making entity coupled with the fact that t....