BEFORE THE AUTHORITY FOR ADVANCE RULINGS

(INCOME TAX)

Wednesday, 19th February, 2014

PRESENT

Justice Dr.Arijit Pasayat (Chairman)

Mr. T.B.C. Rozara (Member)

A.A.R. Nos. 1081 &1082 of 2011

Name & address of the applicant : Endemol India Private Limited

Mumbai

Commissioner Concerned : Commissioner of Income-tax-XI,

Mumbai

Present for the applicant : Mr. Rajan Vora, CA,SRBC & Asso.
Mr.Ashish Gupta, Endemol India, Mumbai
Mr. Sachin Shah, CA, SRBC & Asso.
Mr. Aditya Modani, CA
Ms. Priyanka Minawala

Present for the Department : Mr. RS Rawal, CIT-DR (AAR), New Delhi
Mr. Raj Kumar, ACIT-II(I), Mumbai

RULING

Both the above two applications M/s Endemol India Private Limited

(EIPL) are in relation to payment made to the same company incorporated and

a tax resident of Brazil namely Utopia Films. The facts and questions raised in

both the applications are also similar except in the case of application No.1082

the services are line production services and in application No.1081 the

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payments are for line production services for stunts. In both the applications

the disputes are under convention between the Government of Republic of

India and the Government of Federative Republic of Brazil for the avoidance of

Double Taxation and the prevention of fiscal evasion with respect to taxes on

income and capital gains (hereinafter referred to as India-Brazil Tax Treaty).

The applications are disposed of by a common order for the sake of

convenience.

2. The Endemol India Pvt. Limited (the Applicant) is a resident company

incorporated under the Companies Act, 1956. It is engaged in the business

of producing and distributing television programs. It mainly produces reality

shows and has also ventured lately into soap operas. The applicant started

stunt operations in 2006 with the non-fiction format show Bigg Boss (Big

Brother) and also has other reality shows in India such as Fear Factor

Khatron Ke Khiladi etc. During the financial year 2010-11 the Applicant had

produced the reality show Khatron Ke Khiladi Series-3 i.e. Indias

version of Fear Factor which was aired on Colors channel. As per the

format of the program/show, the shooting took place outside (primarily in

Brazil). For the purpose of shooting the program/show, outside India, the

applicant engaged Utopia Films which is a company incorporated in Brazil

and is a tax resident of Brazil, for providing line production services and for

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providing line producer, local crew for providing stunt services, transport

necessary for stunts for production of the show in Brazil. The contract

agreement dated 3.8.2010 was signed between the applicant and the

Utopia Films for the purpose.

3. As per the aforesaid agreement the following services are provided

by Utopia Films to the applicant for the program/show:

(a) Arranging for crew and support personnel as may be requisitioned;

(b) Arranging for props and other set production materials
(c) Arranging for safety, security and transportation;
(d) Arranging for filming and other equipments as may be requisitioned.

4. The anchor and the participants of the show are engaged and paid

separately by the broadcaster and is not the responsibility of Utopia Films.

Accordingly, there is no payment made by Utopia Films in this regard.

5. Utopia Films would provide the entire scope of services to the

Applicant outside India. Utopia Films has been engaged for a particular

season of a reality TV series and there is no continuity of relationship.

6. As per the agreement, the Applicant has paid towards the line

production services provided by Utopia Films. Further, the taxes (if any)

applicable in respect of the payments to be made to Utopia Films were to

be borne by the Applicant.

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7. Presenting the above facts, the applicant seeks ruling from the

Authority on the following questions:-

1) Whether the payments made by the applicant to Utopia Films

for availing the line production services under the terms of the
agreement would be in the nature of Independent Personal
Services (IPS) within the meaning of the term in Article 14 of
Convention between the Government of Republic of India and
the Government of the Federative Republic of Brazil for the
avoidance of double taxation and the prevention of fiscal
evasion with respect to taxes on income and capital gains
(India-Brazil Tax Treaty)?

2) On the facts and circumstances of the case, given that the

India-Brazil Tax treaty does not contain a specific Article for the
taxation of Fees for Technical Services (FTS), would the
liability to tax, if any, of the consideration paid to Utopia Films
in respect of the line production services under the agreement
be governed by Article 7 of the Indi-Brazil Tax Treaty, which
deals with taxation of business profits?

3) Whether the payments made by the Applicant to Utopia Films

in respect of provision of equipment and services by Utopia
films in Brazil would be in the nature of Royalty within the
meaning of the term as per Article 12 of the India-Brazil Tax
Treaty?

4) Whether the payments made by the Applicant to Utopia Films

for availing the line production services under the terms of the
agreement would be in the nature of Other Income within the
meaning of the term in Article 21 of the India-Brazil Tax
Treaty?

5) Based on answer to the Question (1) to (4) above, and in view

of the facts as stated in Annexure III, whether it can be said
that Utopia Films has a Permanent Establishment (PE) in
India in terms of the India-Brazil Tax Treaty and whether the
payments received by Utopia Films would be chargeable to tax
in India in absence of a PE?
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 6) Whether the payments made by the Applicant to Utopia Films
in respect of provision of equipment and services is in the
nature of Royalty within the meaning of the term in
Explanation 2 clause (vi) of section 9(1) of the Act?

7) Whether the payments made by the Applicant towards the line

production services provided by Utopia films in accordance
with the agreement entered into with the Applicant is in the
nature of FTS within the meaning of term in Explanation 2 to
clause (vii) of section 9(1) of the Act?

8) If the answer to Question (6) or (7) is in not in the affirmative,

whether the payments made by the Applicant to Utopia Films
for availing the line production services under the terms of the
agreement would be charged to tax as per the provisions of
section 9(1)(i) of the Act?

9) Based on the above, would the receipts by Utopia Films from

the Applicant suffer withholding tax under section 195 of the
Act, and at what rate?

8. The application was admitted under section 245R(2) of the Income-

tax Act, 1961 (the Act) and while admitting the application this Authority

reserved for consideration the question whether the transaction is

designed for avoidance of tax in India. The applicant was also directed to

take out notice of the application alongwith the copy of the admission order

on Utopia Films and file an affidavit affirming service of such notice on

Utopia Films. No Objection Certificate from Utopia Films was accordingly

filed.

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9. According to the applicant the payment made to Utopia Films outside

India for line production services and line production services for stunts as

per the agreement do not fall within the purview of Fees for Technical

Services (FTS) as per Explanation 2(2) section 9(1)(vii) of the IT Act or

Royalty as per Explanation 2 of 9(1)(vi) of the Income-tax Act. It was also

submitted that the payments are not taxable under the India-Brazil Tax

Treaty as Royalty and Independent Personal Services (IPS) as defined in

the Treaty. Reliance was placed in the decision of the ITAT Mumbai in the

case of Yashraj Films Pvt.Ltd. ITA No.4856 of 2008 wherein the ITAT held

that services rendered similar to that of the applicant were logistic services

and they are not technical in nature within the meaning of Explanation 2 to

9(1)(vii) of the IT Act and the payments for the services were not subject to

withholding tax in India. The Revenue on the other hand submitted that the

services rendered by Utopia Films to the applicant are composite services

that include materials and equipment alongwith requisite qualified

technical personnel to operate the equipments and its the responsibility of

Utopia Films to ensure that right people and right equipment are in place

for performing those complicated stunts. It is not just coordination services

or logistic services as claimed by the applicant. It was stated that the

services rendered are highly complex and skill based requiring specialized

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professional training, knowledge and experience. They are professional

services and the payment is covered under Fees for Technical Services.

10. Having heard the arguments of the learned counsel for the applicant

and the Revenue, we are of the view that the services provided by the

non-resident companies to the applicant company are line production

services. In the applicants case in AAR No.1083 we have already held

that the payments of similar nature are specifically characterized as work

for the purpose of section 194C by Explanation to that section. Following

our ruling in the applicants own case in AAR 1083 of 2011 dated 13th

December, 2013, we hold that the payments made by the applicant to the

non-resident company specifically falls under the definition of work under

section 194C of the IT Act and they will not be taxable without Permanent

Establishment in India. Consequently, the payment will not suffer

withholding of tax under section 195 of the Income-tax Act, 1961.

The ruling is given and pronounced accordingly on this 19th day of

February, 2014.

(Arijit Pasayat) (T.B.C.Rozara)

Chairman Member