Income Tax Act, 1961, Section 194C

Income Tax Act, 1961, Section 194J

Tax deduction at source--Under section 194C or 194J--Payments to artists participating as guests or judges in reality shows hosted by assessee

Conclusion: Payment to artists was not covered under section 194J as payment was not related to production of cinematograph film. Assessee engaged in production of reality show could not be equated with a person engaged in production of cinematograph film. Further, services rendered by the artists were not covered by professional services as defined under section 194J. Therefore, no TDS under section 194J was required and assessee had rightly deducted tax under section 194C.

Assessee made payments net of TDS under section 194C to various artists like singers, musicians, etc. who participated as guests or judges, in reality shows telecast by the assessee. AO held said payments to be falling within the ambit of section 194J. Held: Payment to artists was not covered under section 194J as payment was not related to production of cinematograph film. Assessee engaged in production of reality show could not be equated with a person engaged in production of cinematograph film. Further, services rendered by the artists were not covered by professional services as defined under section 194J. Therefore, no TDS under section 194J was required and assessee had rightly deducted tax under section 194C.

Decision: In assessee’s favour.

Relied: Asstt. CIT v. Sahara One Media and Entertainment Ltd. (2014) 41 taxmann.com 488 (Mum-Trib.), Kodak India (P.) Ltd. v. Dy. CIT (2013) 58 SOT 251 (Mum-Trib.) : 2013 TaxPub(DT) 0830 (Mum-Trib) and Jasminder Singh v. Addl. CIT (2017) 83 taxman.com 239 (Luck-Trib.) : 2016 TaxPub(DT) 4197.

 

IN THE ITAT, COCHIN BENCH

CHANDRA POOJARI, A.M. & GEORGE GEORGE K., J.M.

Malayalam Communications Ltd. v. ITO

IT Appeal No. 403 (Coch.) of 2018

A.Y. 2010-11

8 February, 2019

Appellant by: Banusekhar, CA

Respondent by: Alok Nath Mitra, CIT(DR)

ORDER

Chandra Poojari, A.M.

This appeal filed by the assessee is directed against the order of the Commissioner (Appeals), Trivandrum dated and pertains to the assessment year 2010-11.

2. The only issue in this appeal is with regard to determination of short deduction of Rs. 8,25,310 under section 201(1) of the Act and the payments made in the instant case do not fall within the ambit of section 194J of the Act, instead section 194C of the Act would be attracted.

2.1 The assessee has filed the following additional ground :--

"For that the assessee cannot be treated as an assessee in default where the payees have admitted the income and paid the tax due in their return of income."

The assessee submitted that failure to raise the additional ground was due to inadvertence and is not intentional. Therefore, he prayed to admit the above additional ground.

2.2 We have heard both the parties. We find that the assessee has sufficient and reasonable cause for failure to raise the additional ground before the Tribunal. Hence, we admit the additional ground.

3. The facts of the case are that a survey was carried out in the business premises of the assessee on 20-7-2010 to verify whether tax had been deducted at source against the payments made to various artists who participated in the reality shows telecast by the assessee. It was found during the course of survey that the assessee had deducted tax at source from the payments made to various artists like singers, musicians etc. who participated in the reality shows as guests or judges, at 1% as per the provisions of section 194C of the Act on the ground that these payments were made as per the agreement entered into with the artists for production of the programmes meant for telecast by the assessee. The case of assessee was that its case falls under section 194C and since it has rightly deducted the tax at 1%, no further action whatsoever can be taken against them. However, the details furnished by the assessee in this regard were scrutinized and further seen that the assessee had made the payments to the artists directly. Finding that no written agreement for executing the contract work to produce a programme for telecast had ever been signed by the parties concerned, the assessing authority came to the conclusion that the payments made cannot be said to be for the work of telecasting or producing a programme for telecasting by the assessee as contemplated under the provisions of section 194C Thus, the assessing authority observed that the payments have been made as remuneration for the service rendered by the artists and therefore could well be defined as payments for providing service which qualify for deduction of tax at source at 10% as per section 194J of the Act.

4. On appeal, the Commissioner (Appeals) observed that section 194C requires a person responsible for paying any sum to any resident for carrying out any work in pursuance of a contract between the contractor and a specified person to deduct tax at one per cent when the payment is made to an individual or HUF and two percent in all other cases. In terms of clause (iv)(b) of Explanation to section 194C, payment made towards a contract concerning broadcasting and telecasting including production of programmes for such broadcasting or telecasting would be covered by section 194C. Section 194J of the Act provides for deduction of tax at source from fees for professional or technical services. As ruled by the Hon'ble Delhi High Court in the case of CIT v. Delhi Transco Ltd. (2015) 380 ITR 398 (Delhi) : 2015 TaxPub(DT) 3046 (Del-HC), professional and technical services consist of services of technical nature when special skills or knowledge relating to technical field are required for their provision, managerial services are rendered for performing management functions and consultancy services relate to provision of advice by someone having special qualification that allow him to do so. What constitutes technical services cannot be understood in a rigid formulaic manner. It will vary from industry to industry. There will have to be a specific line of enquiry for determining what in a particular industry would constitute rendering of a technical service.

4.1 Section 194C provides for deduction of tax at source at 1% or 2% on payments in pursuance of a contract concerning broadcasting and telecasting including production of programmes for such broadcasting or telecasting whereas as per section 194J, tax is to be deducted is at 10% but on fees paid for professional and technical services. Here is the case, the assessee claimed to have paid a sum of Rs. 1,03,01,669 to celebrities who attended various cultural, political and social events as guests or judges and deducted under section 194C tax of Rs. 1,31,191 which is at 1.27% on the said payment. But, the assessing officer considered the case of the assessee as a case falling under section 194J casting thereby the responsibility to deduct tax at 10% on the said amount of Rs. 1,03,01,669. Finding that no such tax at 10% was deducted, the assessing officer treated the assessee as assessee in default for the short deduction and charged interest of Rs. 8,25,310 under section 201(1) as well.

4.2 The Commissioner (Appeals) observed from the above that payment made towards broadcasting and telecasting would be covered by section 194C only when the payment is made in pursuance of a contract signed between the parties concerned for the works relates to broadcasting and telecasting. The Commissioner (Appeals) observed that broadcasting and telecasting including production of programmes for such broadcasting and telecasting in the instant case of assessee can be understood with reference to payments made to certain outside producers for programmes, film producers, advertising companies etc. This apart, the Commissioner (Appeals) observed that CBDT's Circular No. 681 of 1994, dt. 8-3-1994 also has made out very clearly that the provisions of section 194C would apply to payments made to persons who arrange advertisement, broadcasting, telecasting etc. According to the Commissioner (Appeals) though the provisions are wide enough to cover not only written contracts but also oral contracts, the moot question to be answered is whether the celebrities who attended the various cultural, political and social television programmes as guests or judges can be treated as persons who arrange advertisement, broadcasting, telecasting etc. The answer would definitely be no and because of this, the Commissioner (Appeals) was of the opinion that the provisions of section 194C was not applicable to the case of assessee. It was further seen from the details the assessee has filed, the payments were made to some film personalities for their presence in the show and they were just part of a television programme. But, still they were invited to be the guest or judge of a particular programme because of the talent they have had in a particular field and identified as famous actors, musicians, orators, singers etc. But for the talent they have had, ordinarily they would not have been invited to be part of a television programme and because of this specific identity, they can be treated as individuals who offered professional and technical services to the assessee's television channel. This apart, it is not the case of assessee that the deductees have already brought to tax the amount which they have received from them, paid tax and filed return as well. It is also not the case of assessee that the individuals to whom payments were made have actually worked towards arranging advertisement, getting sponsors, telecasting etc. As long as the above two are responded positively, the assessee cannot have case to argue that the provisions of section 194J won't apply to them and necessity to deduct tax at 10% also won't arise.

4.3 Section 194J read with Explanation 2 to section 9(1)(vii) of the Act provides that the predominant purpose to fall in technical services should be the consideration for the rendering of any managerial, technical or consultancy services which is exactly the case of the assessing officer and accordingly said that the actors, musicians, orators, singers etc have rendered technical services being guests or judges of a particular programme. Section 44AA of the Act also provides for film artists to be identified for the sake of technical services. As ruled in the Hon'ble Delhi High Court decision in the case of Delhi Transco Ltd. (supra) technical services consist of services of technical nature when special skills or knowledge relating to technical field are required. In the circumstances, the payment made to the guests and judges of television programmes cannot be said as paid for the work of broadcasting and telecasting including production of programmes for such broadcasting and telecasting so as to bring the same as paid under section 194C. It should necessarily be brought into the ambit of section 194J since the actors, musicians, orators, singers etc are invited to the programmes not as an individual but a persons of specialized skills. What they have done to the assessee when they perform as guests or judges for a television programme cannot be nothing but professional or technical services which in turn could very well be brought under the ambit of section 194J. In the backdrop of the decisions of the Hon'ble Delhi High Court and Hon'ble Tribunals relied on by the assessee are totally misplaced since in the case CIT v. Prasar Bharti (2007) 292 ITR 580 (Delhi) : 2007 TaxPub(DT) 1619 (Del-HC), payments were made to outside producers for programmes. In the Tribunals decisions also payments were made as technical fee to the managing director of the assessee company, channel placement charges to cable operators and for purchase of programme to a production house. Even, the CBDT's Circular No. 4/2016, dt. 29-2-2016 is also totally misplaced since the same is on TDS to be made on payments to production houses and not to the individuals as in the case of assessee. Taking into account all the above, the Commissioner (Appeals) was of the considered opinion that the provisions of section 194J alone are applicable to the assessee and thereby, the assessee ought to have deducted the tax at 10% instead of 1.27% deducted under section 194C. As a result, the Commissioner (Appeals) held that the decision the assessing authority has taken to declare the assessee as assessee in default and then to charge interest of Rs. 8,25,310 under section 201(1) doesn't require further interference.

5. Against this, the assessee is in appeal before us.

6. We have heard both the parties and perused the record. Section 194C(1) requires a person responsible for paying any sum to any resident for carrying out any work (including supply of labour for carrying out any work) in pursuance of a contract between the contractor and any corporation established by or under a Central Act (which would include the assessee herein) to deduct tax at source in the equivalent of one percent of such payment in case of advertising and two per cent in all other cases. Explanation III to section 194C was inserted by Finance Act, 1995, with effect from 1-7-1995 which reads as under :--

"Explanation III.--For the purposes of this section, the expression 'work' shall also include --

(a) advertising;

(b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting;

(c) carriage of goods and passengers by any mode of transport other than by railways;

(d) catering"

Therefore, in terms of clause (b), of Explanation III to section 194C, payment made towards a contract concerning "broadcasting and telecasting" the production of programmes for such "broadcasting or telecasting" is to be covered by section 194C.

Even while the Finance Act, 1995, introduced the aforesaid Explanation to section 194C, it simultaneously inserted section 194J in the Act which entitled for deduction of tax at source at the time of payment of a fee "for professional or technical service". The operative portion of section 194J for the present purposes read as under :--

"Section 194J. Fees for professional or technical services.--(1) Any person not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of --

(a) fees for technical services, or

(b) fees for technical services.

shall, at the time of credit of such sum to the account of the payee and at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum a income-tax on income comprised therein."

Explanation to section 194J, relevant for the present purpose, reads as under :--

"Explanation.--For the purpose of this section --

(a) 'professional services' means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession notified by, the Board for the purposes of section 44AA."

6.1 The question before us is whether on the facts and circumstances of the present case, section 194C or 194J would be attracted. The contention of learned AR is that there is difference between artist and film artist. An artist can be called a film artist, if he/she renders his or her services pursuant to production of film. However, an artist will not be a film artist if he/she entertains people not involved in production of film. For this purpose, he relied on the decision of ITAT, Lucknow in the case of Jasminder Singh v. Addl. CIT (2017) 83 taxman.com 239 (Luck-Trib.) : 2016 TaxPub(DT) 4197 (Luck-Trib). The contention of the learned DR is that the assessee made payment in relation to various artists in reality show conducted by the assessee and TDS is to be paid under section 194J of the Act. The case of the Revenue is that making of the programmes in television involves utilization of professional services and that there are several technical aspects of producing such programmes. Therefore, the view expressed by the Commissioner (Appeals) should be accepted and it is to be upheld. In our opinion, the assessee paid remuneration to various persons in connection with reality shows telecasted by the assessee and it was not involved in production of any films and recipients of payments were not engaged by the assessee in any of the activities as enumerated under section 194J of the Act. For this purpose, it is pertinent to refer to Explanation 1 of section 194J which reads as follows :--

"Section 194J. Fees for professional or technical services.--(1) Any person not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of --

(a) fees for technical services, or

(b) fees for technical services.

shall, at the time of credit of such sum to the account of the payee and at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum a income-tax on income comprised therein."

Explanation to section 194J, relevant for the present purpose, reads as under :--

"Explanation.--For the purpose of this section --

(a) 'professional services' means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession notified by the Board for the purposes of section 44AA."

6.2 Correspondingly, there was a CBDT Notification No. S.O. 17(E), dt. 12-1-1977. Specification of professions for purposes of sub-section (1) of section 44AA which reads as under :--

In exercise of the powers conferred by sub-section (1) of section 44AA of the Income Tax Act, 1961 (43 of 1961), the CBDT, hereby notifies for the purposes of the said sub-section the following professions, namely :--

(a) the profession of authorised representative; and

(b) the profession of film artist

Explanation.--In this notification,--

(a) "authorised representative" means a person, who represents any other person, on payment of any fee or remuneration, before any Tribunal or authority constituted or appointed by or under any law for the time being in force, but does not include an employee of the person so represented or a person carrying on legal profession or a person carrying on the profession of accountancy;

(b) "firm artist" means any person engaged in his professional capacity in the production of a cinematograph film, whether produced by him or by any other person, as --

(i) an actor;

(ii) a cameraman;

(iii) a director, including an assistant director;

(iv) a music director, including an assistant music director;

(v) an art director, including an assistant art director;

(vi) a dance director, including an assistant dance director;

(vii) an editor;

(viii) a singer;

(ix) a lyricist;

(x) a story writer;

(xi) a screen play writer;

(xii) a dialogue writer

(xiii) a dress designer.

6.3 Hence, the payment to the artists is not covered by 194J of the Act as the payment is not related to production of cinematograph film. The services rendered by the artists are not covered by professional services as defined under section 194J of the Act. As seen from the Explanation, services rendered by a person in connection with production of cinematograph film should be liable to deduct TDS under section 194J of the Act. A person who is engaged in production of reality show cannot be equated with a person engaged in the production of cinematograph film. Therefore, the persons who are engaged in production of film falls under the realm of said Explanation to section 194J of the Act and to that effect, the following decisions relied on by the assessee will come to the help of the assessee :--

(1) Asstt. CIT v. Sahara One Media and Entertainment Ltd. (2014) 41 taxmann.com 488 (Mum-Trib.) wherein it was held as under :--

'Deduction of TDS under section 194J or under section 194C--Nature of agreement--AO was of the view that the "dubbing expenses/print processing fees" and "production expenses" were in the nature of 'fees for technical services' and 'royalty' respectively, and hence the tax should have been deducted under section 194J of the Act @ 10%, instead of @ 2% deducted by the assessee under section 194C--Held that: The assignment or vesting of copy rights etc. in the programme are incidental to the main object of the agreement or transactions in question. When a contactor produces a programme on behalf of other, it is obvious that all the rights including copy rights etc. will vest in the producer and the assigned producer/contractor will not be left with any control or right over the programme and such rights of the producer have been recognized with the said assignment clause, which is incidental to the main object of the contract. The observation of the assessing officer that assigned producer has an absolute contract over the rights of the programme is falsified from the perusal of the different clauses of the agreement--Agreement in question was an agreement to produce the programme by the assigned producer i.e., contractor on behalf of the producer i.e., assessee.

"Clause (b) to Explanation III to section 194C specifically covers activity of production of programmes whereas provisions of section 194J are general in nature--Provisions of section 194C would prevail over section 194J of Act--Section 194C clearly states that payment for production of programmes constitutes payments for 'work' under section 194C--Assessee rightly deducted TDS under section 194C at rate of 2% on payments made to contractor--Commissioner (Appeals) has rightly observed that production of programmes is nothing but combination of processes right from planning--He rightly held that dubbing charges and processing fees being a part of production of television serials and programmes, are squarely covered under ambit of specific provisions of section 194C of Act and liable to TDS at rate of 2%--General provisions of section 194J are not attracted in this case--Findings of learned Commissioner (Appeals) upheld--Decided against Revenue." '

(2) Kodak India (P.) Ltd. v. Dy. CIT (2013) 58 SOT 251 (Mum.-Trib.) : 2013 TaxPub(DT) 0830 (Mum-Trib) wherein it was held as under :--

 'Deduction of tax at source--Fees for technical or professional services--Payment for modelling--Assessee a subsidiary company of Kodak USA, was engaged in manufacturing cameras, trading in cameras and dealing in photographic films in and out of India--Pursuant to survey under section 133A--Assessing officer noticed that assessee had entered into an agreement with Actor K to act as model for all promotional materials created by Kodak including posing for photographs or promotion of product of Kodak and had deducted TDS under section 194C--Assessing officer held that payment made by assessee to K falls within purview of Explanation (a) to section 194J and there was short deduction of tax--Commissioner (Appeals) affirmed findings of assessing officer--Held, provisions of Explanation (a) to section 1943 and Notifications issued by Board suggest that services rendered by other notified professions for purpose of section 44AA which includes film artist as listed in rule 6F, who are engaged in production of cinematographic film, constitute "fees for professional service" for purposes of section 194J--List of film artist cannot be extended to include other category of stunt actors, although they are engaged in the production of cinematographic film--It is not that total earning of that person in lieu of services rendered which must attract provisions of section 194J--Expressions "services rendered" used in said Explanation assume significance--Taxable receipts under section 194J are services-specific and not person specific-In instant case payments were payable for services of modelling, which is unconnected with production of cinematographic film--Impugned payments made by the assessee to K would not attract provisions of section 194]--Assessee's appeal allowed.

Held:

The provisions of Explanation (a) to section 194J of the Act and Notifications issued by the Board suggest that the services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or notified sports professionals or other notified professions for the purpose of section 44AA of the Act which includes the film artist as listed in the rules, who are engaged in production of cinematographic film, constitute "fees for professional service" (FPS) for the purposes of section 194J of the Act The list of film artist cannot be extended to include other category of stunt actors, although they are engaged in the production of cinematographic film. It is also the decision of the Tribunal in other case that the photographer-cameraman, who of course figure in the list of film artist, cannot be covered by the above list when such cameraman is not engaged in skills, i.e., acting skill in films, mode/ling skills for display of merchandise, singing skills, etc., and such person can make earning out of such skills. It is not that the total earning of that person in lieu of services rendered which must attract the provisions of section 194B of the Act. The expressions "services rendered" used in the said Explanation assume significance and therefore, the taxable receipts under section 194J of the Act are services-specific and not person specific. In the instant case, the payments are payable for the services of modelling and it is unconnected with the production of cinematographic film. While "modelling" is aimed at display of merchandise, the "acting" is defined as "to act in play or film" (www.freedictionary.com), i.e., to portray a role authored by a story-writer with different purposes and objects and certainly not to displace merchandise to boost the sales of a manufacturer or a trader of the product or services. Therefore, the impugned payments made by the assessee to Matrix India on behalf of Ms. Katrina Kaif did not attract the provisions of section 194J of the Act. Accordingly, the grounds raised are allowed." EMC v. ITO (2010) 37 SOT 31 (Mum.) : 2010 TaxPub(DT) 1354 (Mum-Trib), CIT v. Movies Stunt Artists Association (2006) 6 SOT 204 (Mum.) : 2006 TaxPub(DT) 1036 (Mum-Trib), relied on.'

(3) Jasminder Singh (supra) wherein it was held as under :--

'There is a difference between an "artist/entertainer" and a "film artist". An artist/entertainer can be called a film artist, if he renders his/her services pursuant to production of film. However, an artist/entertainer will not be film artist if he entertains people not involved in production of film. The case of the revenue is not that Jasbir Jassi, Kunal Ganjawala have performed an activity while film production was going on and the assessee had made the payment, for the said activity performed by these persons. There is no doubt that Jasbir Jassi. Kunal Ganjawala and others are artists and if they perform in film as an actor or director or music director or assistant director or art director or singer or editor or lyricist or story writer or dialogue writer or as a dress designer could have attracted section 194J of the Act. It is not the case of the revenue that the assessee was producing a film and the artists were engaged in any of these activities which has been stated before. Therefore, the payment made to the artist does not fall in the ken of section 194J of the Act and so no TDS need to be deducted on this as per section 194J of the Act. It has been pointed out by the learned authorised representative that the payments made to Sonlibre International and Rhythm is not as per any contract and it was only for managing and arranging the artist for carrying out the performance. The payments has been made event wise on different dates by means of different cheques. Thus, we find that each payment made to them is an independent contract so the provisions of TDS are not attracted in the facts and circumstances of this case--Decided in favour of assessee.'

6.4 Hence, it is not possible to accept the contention of the Revenue that payments made to artists who participated in reality shows produced for television will fall outside the realm of section 194C read with Explanation III of the Act. In our opinion, it would fall under section 194C of the Act and not under section 194J of the Act. Since the assessee deducted TDS under section 194C of the Act, there is no infirmity in the action of the assessee. Being so, we are inclined to decide the issue in favour of the assessee and against the Department.

7. In the result, the appeal of the assessee is allowed.