Payments made by 'Yash Raj Films' for making copies of film negative weren't technical services

Facts:

a) Assessee-company (i.e. Yash Raj Films) made payments to Adlab for making copies of prints for the films.

b) Assessing Officer (AO) noticed that the assessee had not made deducted TDS as per the provision of section 194J in respect of payments made to Adlabs Ltd.

c) Assessee's stand was that the work performed by Ablab did not involve any technical or professional services, therefore payments were covered under section 194C.

d) On appeal, CIT(A) granted relief to the assessee. Aggrieved by the order of CIT, revenue filed appeal before Tribunal.

Tribunal held in favour of assessee as under:

1) The contract was made for taking out multiple prints of the final negative which was given to Adlab. Such jobs or work contracts of making several prints of the same final negative did not involve any technical or professional services.

2) In view of above facts, CIT (A) was justified in holding that assessee has rightly deducted TDS on the payments made to Adlabs, for supplying copies of final negative as per the provisions of section 194C. - [2016] 73 taxmann.com 73 (Mumbai - Trib.)

'Loan processing fee' paid to bank would be treated as interest; not liable to sec. 194A TDS

Facts:

a) The assessee-company was engaged in providing outdoor media advertising services to leading Indian and multinational brands. During the course of assessment, the AO observed that assessee had debited certain processing fees without deducting tax at source. The AO rejected the claim of the assessee as he was of the view that such payment was made for rendering managerial services and liable to TDS under Section 194J.

b) The assessee submitted that no tax was deductible under Section 194J on processing fee as it would fall within the exclusion provided in section 194A(3). The Commissioner (Appeals) decided the appeal in favour of the assessee. The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1) The definition of interest will include any service fee or any other charge in respect of money borrowed. Here, processing fee definitely falls within such definition and, therefore, it could not be reckoned as payment for rendering of any managerial services by the bank.

2) Despite such a payment to the Nationalized Bank falls within the ambit of 'interest' under section 2(28A), the TDS provisions under section 194A would not be applicable, because it falls within the exclusionary provisions as laid down in sub-section (3) of section 194A. Thus assessee was not required to deduct tax at source on such processing fee paid. – DY. CIT (TDS) v. Laqshya Media (P.) Ltd. [2016] 72 taxmann.com 119 (Mumbai - Trib.)

Perpetual transfer of satellite rights of a film for 99 years is a sale; excluded from definition of ‘royalty’

Transfer of satellite right to assessee under an agreement for a period of 99 years is a sale and, therefore, excluded from definition of 'royalty' under clause (5) of Explanation 2 to section 9(1)(vi).

Facts:

a) The assessee was dealings in film satellite rights by taking them on assignment basis and reassigning to channels.

b) He did not deduct tax at source on purchase of copyright of film as he was of the view that such purchase was neither covered under section 194J nor under section 194C. However, the Assessing Officer held that the payments debited as purchase warranted TDS under section 194J and worked out disallowance under section 40(a)(ia).

c) The CIT(A) allowed the appeal of assessee by holding that the consideration paid did not attract section 194J.

d) On appeal, the Tribunal held that the payments made would fall within the definition of 'royalty' and as the assessee had failed to deduct tax under Section 194J rigour of section 40(a)(i) stood attracted. The aggrieved assessee filed the instant appeal.

The High Court held in favour of assessee as under:

1) Perusal of the facts and circumstances of the instant case and case of Mrs. K. Bhagyalakshmi v Dy.CIT [2013] 40 taxmann.com 350 (Madras) would show that the substantial question of law raised were the one and same in both the cases.

2) The earlier division bench of this court in case of Mrs. K. Bhagyalakshmi (supra) after considering the perpetual transfer of rights for a period of 99 years [in terms of Section 26 of Copy Right Act and also the definition under clause (5) to Explanation 2 to section 9(1)] held that it was a sale and, therefore, excludible from definition of royalty.

3) Following the decision rendered in the case of Mrs. K. Bagyalakshmi (supra) it was to be held that transfer of satellite right to assessee under an agreement for a period of 99 years would be a sale and excludible from definition of 'royalty'. Therefore, the Tribunal had erred in concluding that the payment made by the assessee was royalty and not sale. - S.P.Alaguvel v. DY. CIT [2014] 52 taxmann.com 231 (Madras)

Sums paid by TPA to hospitals for settlement of mediclaim won’t attract rigours of sec. 194J TDS

Where assessee-third party administrator, settled mediclaim of insured and arranged said amount from insurance company, it was not liable to deduct tax against said payment and, therefore, no disallowance under section 40(a)(ia) could be made.

Facts:

a)The assessee was carrying on business of Third Party Administrator (TPA). During the assessment proceedings, the Assessing Officer (‘AO) noted that the assessee had paid certain amounts to hospitals for settlement of claim of insurance for rendering medical services.

b)The AO was of the view that the assessee was bound to deduct tax at source under Section 194J on such payments. Accordingly, the AO disallowed impugned payments under section 40(a)(ia) for non-deduction of tax.

c)On appeal, the CIT(A) granted part relief to the assessee by holding that section 40(a)(ia) is applicable to the amount payable by the assessee to the hospital and not to the amount already paid by the assessee to the hospital.

The Tribunal held in favour of assessee as under:

1)Though the assessee was under the obligation to deduct tax under section 194J, yet the disallowance under section 40(a)(ia) could not be triggered when the assessee had not claimed the impugned payment as deductible expenditure.

2)The assessee had shown the income relating to only the service charges receivable from insurance companies for rendering services as TPA. The assessee was not getting any margin or profit element in the payment received from the insurers for the purpose of remitting it to the hospitals to settle medical claim.

3)Therefore, when the said payment had not been claimed as expenditure then the provisions of section 40(a)(ia) were not attracted for non-deduction of tax at source.- PARAMOUNT HEALTH SERVICES (TPA) (P.) LTD. V. ITO [2014] 49 taxmann.com 97 (Mumbai - Trib.)

Fees paid to consultant-doctors under contract for service would attract sec. 194J TDS and not sec. 192 TDS

Facts:

a)The assessee-company was engaged in the business of running a super specialty hospital. A survey was carried out to ascertain the deduction of tax at source on the amounts paid to doctors engaged as consultants.

b)The assessee-company had been deducting tax at source under section 194J on payment made to doctors by treating them as professionals. The AO applied the provisions of section 192 on payments made to doctors, and raised a demand for an amount under section 201(1) and interest under section 201(1A).

c)On appeal, the CIT(A) set aside the order passed by the AO. The aggrieved revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)In the instant case, the terms of appointment of doctors clearly indicated the appointment of professionals for providing consulting services and not their appointment as an employees. The doctors were not precluded from pursuing the professional pursuits elsewhere as long as there was no conflict of interest;

2)Once the doctors achieved some seniority and standing, their remuneration was a percentage of fees collected from patients consulting them. These terms clearly indicated a contract for service and not contract of service.

3)Normally the services rendered by a doctor should be considered as a professional service unless the contracts of service categorically states and the conditions are clearly and indubitably that of employment.

4)The doctors or professional consultants working under contract for rendering professional services and the payments made by the assessee-company to the professional doctors does not constitute salary and, hence, the assessee would not be responsible for deducting tax at source on the said payments treating them as (salaries) in terms of section 192(1).

5)Thus, on perusal of the terms of contract for services entered into with the Doctors, it was to be opined that the services rendered by the them were classifiable as professional services and, therefore, assessee had correctly deducted tax at source from payment to Doctors under section 194J. – DY. CIT V. QUALITY CARE INDIA LTD [2014] 48 taxmann.com 88 (Hyderabad - Trib.)