The Income Tax Appellate Tribunal (ITAT), Mumbai Bench held that the Assessee, Next Gen Films Pvt. Ltd. is not the Permanent Establishment (PE) of a UK based non-resident corporate entity and so no demand of interest can be made for delay in payment of TDS/TCS under Section 201(1) and 201(1A) of the Income Tax Act arises.
The assessee, M/s Next Gen Films Pvt. Ltd. is a resident corporate entity. It entered into a commissioning agreement with another UK based non-resident corporate entity namely M/s Desi Boyz Production Ltd. (DBPL) to produce, complete, and deliver a feature film namely Desi Boyz as per the terms and conditions agreed therein.
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 a certain storyline.
The contract between the two entities was primarily that of a principal and an agent. The service company, acting on behalf of the producer, was required to provide limited production services of certain nature against payment of a lump-sum fee of Rs.300 Lakhs The said services were to be rendered under direct control, supervision as well as direction of the producer. The service company was to be reimbursed with an Indian budget of Rs.1066.18 Lakhs including its service fee of Rs.300 Lakhs The total Indian budget, in terms of the total approximate budgeted cost of 12.8 Million Pounds, would be less than 10% of the total budgeted cost.
The AO issued the show-cause notice wherein it was stated that as per the terms of commissioning agreement, the assessee participated directly or indirectly in the management and control or budgeting of the company M/s DBPL.
The net effective rate was worked out by the AO which was applied 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 the interest component under Section 201(1A) for the non-deduction of tax. The CIT(A) upheld the order passed by the AO.
The tribunal consists of the Judicial Member C.N. Prasad and Accountant Member Manoj Kumar Aggarwal noted that the assessee and M/s DBPL could not be held to be Associated Enterprises in terms of Article-10 of the Treaty. The assessee could not be treated as PE of M/s DBPL in India. Further, the status of M/s EIFPL in relation to M/s DBPL would be that of an independent agent, and M/s EIFPL could not be said to be PE of M/s DBPL.
Therefore the tribunal while setting aside the impugned order of the AO held that no profit could be said to have accrued to M/s DBPL in India as alleged by the revenue. As a logical consequence, the assessee could not be treated as assessee-in-default in terms of Section 201(1) and 201(1A) of the Act.
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