Payments made to the Non-Resident Service Providers on Account of Ad Film Production Line Services are not FTS, not Taxable: ITAT [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) recently held that payments made to the non-resident services providers on account of ad film production line services are not Fee for Technical Service (FTS) hence not taxable.

The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals).

Assessee Red Ice Production Pvt. Ltd is a company engaged in the business of making ad films.

Assessee received services from non-resident service providers on account of ad film production line services like arranging for shooting locations; obtaining necessary permits for the appellant; arranging shipping & custom clearances; arranging for extras, shooting equipment, meals, transport etc.; rendering help in obtaining visas; arranging for the makeup of casts; coordinating necessary licenses which are required to the shooting of ad films in their respective countries.

The services are rendered and utilised outside India and the payments for these services are also received outside India.

The payments made by the assessee to the foreign service providers are thus not in the nature of FTS within the meaning of explanation 2 to section 9(1)(i) of the Income Tax Act and not chargeable to tax in India.

But the AO without considering the explanation of the assessee disallowed the payment made to non-resident service providers.

Aggrieved by the order, the assessee filed an appeal before the CIT(A). The CIT(A) allowed the appeal filed by the assessee.

The CIT(A) observed that “services provided by the non-resident service providers are not in the nature of managerial technical or consultancy services within the meaning of Explanation 2 to Section 9(1)(vii) of the Income Tax Act. These are to be characterised as contract work under Section 194C of the Income Tax Act and thus partakes the nature of business income which is not taxable in India in the absence of a business connection or PE of the non-resident service provider in India.”

Sanjay Gupta, counsel for the assessee submitted that Services rendered outside India by the overseas service providers in connection with making logistic arrangements are in the nature of commercial Services and the amount received by them from the assessee for such Services constitutes their business profit which is not chargeable to tax in India in the absence of any Permanent Establishment in India of the said service providers.

Thus the services were purely of commercial nature and could not be termed as Technical Services, he further argued.

Sanjay Kumar counsel, for the revenue, supported the decision of the assessing officer and confirmed the disallowance.

After considering the submissions of both parties the two-member bench of the tribunal G S Pannu, (President) and Astha Chandra, (Judicial Member) dismissed the appeal filed by the revenue and held that “ payments made to the non-resident service providers by the assessee are not chargeable to tax in India and thus no disallowance under Section 40(a)(ia) of the Income Tax Act is called for on account of non-deduction of tax at source.”

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates