INCOME TAX ACT, 1961

Section 195 Section 201(1)

Tax deduction at source - Under section 195 - Assessee-Indian company entered into a commissioning agreement with UK based non-resident corporate entity - Contract for production a feature film in India, whether on principal-to-principal basis

Assessee was a resident corporate entity. It entered into a commissioning agreement with another UK based non-resident corporate entity (DBPL) to produce, complete and deliver a feature film (desi boyz). As per terms of agreement, assessee as a commissioning party engaged DBPL to produce and deliver a fully complete feature film. Assessee was aggrieved by allegation of revenue that provisions of section 195 were applicable to foreign remittances made by assessee. According to assessee, it was invalidly held assessee-in-default in respect of non deduction of tax under section 201(1) read with section 195 (3). Held: Contract between assessee and DBPL was primarily on principal-to-principal basis. The entire responsibility to produce the film was on DBPL against certain lump-sum consideration. DBPL was required to produce the film and ensure the delivery of the film as per given specifications. The film was to be fully synchronized as to dialogue, music and effects and complete pre-production, production and post-production of the film in a first-class manner and of a technically acceptable quality and ready for commercial exploitation and suitable to enable assessee to commercially exploit the film without further processes or expenditure. Therefore, assessee and DBPL could not be held to be AE in terms of Article-10 of the Treaty. Assessee could not be treated as PE of DBPL in India. Therefore, no profit could be said to have accrued to DBPL in India as alleged by revenue. As a logical consequence, assessee could not be treated as assessee-in-default in terms of section 201(1) and 201(1A).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12 & 2012-13

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