From: CA. Rahul Bajaj <ca.rahulbajaj@gmail.com>
Payment of TDS - Substance over form
The assessee engaged in the business of production of films, availed services from various service providers outside India in connection with shooting of films outside India. The services availed included arranging for extras, security, locations the accommodation of cast and crew, necessary permissions from local authorities, makeup of the stars, insurance cover etc. The Assessing Officer held that payments were in the nature of fees for technical services within the meaning of Explanation 2 to section 9(1)(vii) and such amounts were taxable in India in the hands of overseas service providers. Since assessee failed to withhold tax under section 195, he was treated as assessee in default and charged with interest. CIT (A) decided the matter in favour of assessee. Revenue went in for further appeal to Tribunal.
The Mumbai Bench of Tribunal held that merely because some managerial skill is required to render services, it does not render the service to be managerial in nature to be covered by section 9(1)(vii). Similarly, the requirement of knowledge of local laws on the part of the service providers to render the services such as obtaining the permissions for shooting from the local authorities or for arranging insurance of the crew members and shooting equipment would not change the basic nature of the services which otherwise are commercial services. The payment received by service providers constitutes income in the nature of business profits for the recipient. Such income is not chargeable to tax in India in the absence of PE in India. Accordingly, the assessee was not liable to deduct at source from such payments. Therefore, assessee could not be treated as assessee in default. [Yash Raj Films (P.) Ltd. v/s. Income-tax Officer (28 taxmann.com 247)].
The assessee engaged in the business of production of films, availed services from various service providers outside India in connection with shooting of films outside India. The services availed included arranging for extras, security, locations the accommodation of cast and crew, necessary permissions from local authorities, makeup of the stars, insurance cover etc. The Assessing Officer held that payments were in the nature of fees for technical services within the meaning of Explanation 2 to section 9(1)(vii) and such amounts were taxable in India in the hands of overseas service providers. Since assessee failed to withhold tax under section 195, he was treated as assessee in default and charged with interest. CIT (A) decided the matter in favour of assessee. Revenue went in for further appeal to Tribunal.
The Mumbai Bench of Tribunal held that merely because some managerial skill is required to render services, it does not render the service to be managerial in nature to be covered by section 9(1)(vii). Similarly, the requirement of knowledge of local laws on the part of the service providers to render the services such as obtaining the permissions for shooting from the local authorities or for arranging insurance of the crew members and shooting equipment would not change the basic nature of the services which otherwise are commercial services. The payment received by service providers constitutes income in the nature of business profits for the recipient. Such income is not chargeable to tax in India in the absence of PE in India. Accordingly, the assessee was not liable to deduct at source from such payments. Therefore, assessee could not be treated as assessee in default. [Yash Raj Films (P.) Ltd. v/s. Income-tax Officer (28 taxmann.com 247)].
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warm regards,
CA. Rahul Bajaj
warm regards,
CA. Rahul Bajaj
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