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Tax Publishers Next Gen Films (P) Ltd. v. ITO [ITA No. 3782/Mum/2016, dt. 11-8-2020] : 2020 TaxPub(DT) 3126 (Mum.-Trib.) Existence of PE -- Movie production -- Alleged of default in TDS *Facts:* Assessee an Indian resident had contracted with a UK resident DBPL for complete turnkey production of an English movie called Desi Boyz for which the UK resident DBPL was to be paid an agreed production fixed contract price of GBP 12.8 million pounds. Assessee would get the entire movie copy and its rights post-production. The movie was supposed to be shot partly in India and in UK. The UK resident in turn had contracted the Indian leg of the shooting to Eros International Films Private Limited (EIFPL) for a fixed fee of Rs. 300 lakhs besides certain outlays. The agreement between DBPL and EIFPL mentioned that EIFPL was to handle the contracts with artists and technicians and other contributors for the shooting of the Indian leg in return for the outlays plus service fee Rs. 300 lakhs. Subsequently EIFPL undertook the shooting responsibility with another group company Eros International Media Ltd. (EIML) as a co-producer. It was factual that EIFPL and EIML were subsidiaries of Eros International PLC. Amounts were paid by the assessee to DBPL without effecting TDS for producing the movie. DBPL was read to have a Permanent Establishment in India by virtue of it assigning movie making rights to EIFPL and thus EIFPL was held to constitute a PE for DBPL by the assessing officer. The whole structure was to combat PE taxation is what the revenue alleged. Assessee was held to be in default for non-deduction of TDS under section 195 against the amount attributable to the PE. Notice was served under section 201/201(1A) on assessee accordingly. This was upheld by the lower authorities. On higher appeal - Held in favour of the assessee that there was no PE which constituted for the UK resident DBPL by virtue of EIFPL in India. In the absence of a PE under Indo-UK DTAA no income could be attributed for the UK resident in India. Thus, no TDS obligations arose in the hands of the assessee. It was also held that the assessee's contract was DBPL was independent on a principal to principal basis and that of DBPL with EIFPL was supposedly to be a principal to an independent agent basis from the rights/responsibilities out of their contractual obligation. It was also factual that the income of EIFPL was not exclusively from DBPL and the sum of Rs. 300 lakhs were miniscule compared to the overall revenue of EIFPL. This worked to the advantage of EIFPL to be read as an agent of independent status to DBPL and obviated the PE reading as well. *Applied:* Pintsch Bamag (2009) 226 CTR (AAR) 1 : 2009 TaxPub(DT) 2046 (AAR) M/s. Wizcraft International Entertainment Ltd. (ITA No. 3208/Mum/2003) Mumbai ITAT : 2011 TaxPub(DT) 0639 (Mum-Trib) *Editorial Note:* The income which attributable in the hands of the PE was held by the assessing officer thus -- Entire production was read in the hands of EIFPL thus 80 out of every 100 was held as total Indian income. 25% profit element on the remittances of assessee to DBPL was held as attributable income which arose from India. So 25% on 80 = 20 was the profit element on which TDS @ 40% would be 8 plus surcharges would make the TDS obligation in default @ 8.4872. The structuring adopted makes it a worthwhile reading.

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Next Gen Films (P) Ltd. v. ITO [ITA No. 3782/Mum/2016, dt. 11-8-2020] : 2020 TaxPub(DT) 3126 (Mum.-Trib.)

Existence of PE -- Movie production -- Alleged of default in TDS

Facts:

Assessee an Indian resident had contracted with a UK resident DBPL for complete turnkey production of an English movie called Desi Boyz for which the UK resident DBPL was to be paid an agreed production fixed contract price of GBP 12.8 million pounds. Assessee would get the entire movie copy and its rights post-production. The movie was supposed to be shot partly in India and in UK. The UK resident in turn had contracted the Indian leg of the shooting to Eros International Films Private Limited (EIFPL) for a fixed fee of Rs. 300 lakhs besides certain outlays. The agreement between DBPL and EIFPL mentioned that EIFPL was to handle the contracts with artists and technicians and other contributors for the shooting of the Indian leg in return for the outlays plus service fee Rs. 300 lakhs. Subsequently EIFPL undertook the shooting responsibility with another group company Eros International Media Ltd. (EIML) as a co-producer. It was factual that EIFPL and EIML were subsidiaries of Eros International PLC. Amounts were paid by the assessee to DBPL without effecting TDS for producing the movie. DBPL was read to have a Permanent Establishment in India by virtue of it assigning movie making rights to EIFPL and thus EIFPL was held to constitute a PE for DBPL by the assessing officer. The whole structure was to combat PE taxation is what the revenue alleged. Assessee was held to be in default for non-deduction of TDS under section 195 against the amount attributable to the PE. Notice was served under section 201/201(1A) on assessee accordingly. This was upheld by the lower authorities. On higher appeal -

Held in favour of the assessee that there was no PE which constituted for the UK resident DBPL by virtue of EIFPL in India. In the absence of a PE under Indo-UK DTAA no income could be attributed for the UK resident in India. Thus, no TDS obligations arose in the hands of the assessee.

It was also held that the assessee's contract was DBPL was independent on a principal to principal basis and that of DBPL with EIFPL was supposedly to be a principal to an independent agent basis from the rights/responsibilities out of their contractual obligation. It was also factual that the income of EIFPL was not exclusively from DBPL and the sum of Rs. 300 lakhs were miniscule compared to the overall revenue of EIFPL. This worked to the advantage of EIFPL to be read as an agent of independent status to DBPL and obviated the PE reading as well.

Applied:

Pintsch Bamag (2009) 226 CTR (AAR) 1 : 2009 TaxPub(DT) 2046 (AAR)

M/s. Wizcraft International Entertainment Ltd. (ITA No. 3208/Mum/2003) Mumbai ITAT : 2011 TaxPub(DT) 0639 (Mum-Trib)

Editorial Note: The income which attributable in the hands of the PE was held by the assessing officer thus --

Entire production was read in the hands of EIFPL thus 80 out of every 100 was held as total Indian income. 25% profit element on the remittances of assessee to DBPL was held as attributable income which arose from India. So 25% on 80 = 20 was the profit element on which TDS @ 40% would be 8 plus surcharges would make the TDS obligation in default @ 8.4872.

The structuring adopted makes it a worthwhile reading.