Authority For Advance Rulings (Income Tax), New Delhi
Endemol India (P.) Ltd., In Re
Section : 9
Justice Dr. Arijit Pasayat, ChairmanÂ And T.B.C. Rozara, Member
A.A.R. No. 1076 Of 2011
December Â 6, 2013
T.B.C. Rozara, Member – The applicant M/s Endemol India Private Limited (EIPL) is a resident company incorporated under the Companies Act, 1956. It is engaged in the business of producing and distributing television programmes. It mainly produces reality shows and has also ventured into soap operas. The applicant started its operation in 2006 with the non-fiction format show Big Boss (Big Brother) and has produced also 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. India’s version of Fear Factor (‘the show’), which was aired on Colors Channel. As per the format of the show, the shooting was to take place outside India (primarily Brazil). For the purpose of shooting the show outside India, the Applicant engaged Noise Associates to procure the services of Ms. Chantal Prud’ Homme as an executive producer for the show.
2. An agreement was signed between M/s. Noise Associates Private Limited (hereinafter referred to as ‘NAPL’), a company incorporated under the laws of Singapore and having its registered office at 350, Orchard Road, Park Ave Suites #11-26/27, Shaw House, Singapore 238868 and the applicant, Endemol India Private Limited (Endemol) on 1st June 2010. NAPL is a tax resident of Singapore. As per the terms of the agreement, NAPL is responsible for the overall production and also for handling business issues. The agreement also provides that NAPL will provide specialized services to Endemol to aid in the production of Endemol Show programmes for which NAPL agreed to commission its representative to Ms. Chantal Prud’ Homme who is an executive producer for the Endemol India Private Limited shows/programmes). As per the agreement the applicant was to pay a total consideration of US Dollar 49,000 to NAPL for their services for the show titled “Fear Factor – Khatron Ke Khiladi level 3.”
3. Presenting the facts and circumstances of the case, the applicant seeks ruling from the Authority for Advance Ruling on the following questions:â
(1) Whether the payments made by the applicant to Noise Associates, for services rendered as detailed in the Agreement are chargeable to tax in India as “fees for technical services” which is expressed under Article 12 of the Agreement for avoidance of double taxation between Government of the Republic of India and the Government of the Republic of Singapore (‘India-Singapore Tax Treaty’) ?
(2) If the answer to the Question above is in negative, will such payment be treated as Business Income, and in view of the facts as stated in Annexure III, and also in light of the declaration provided by Noise Associates, since it does not have a Permanent Establishment (‘PE’) in India in terms of the India-Singapore Tax Treaty, whether the payments made by the Applicant to Noise Associates would be chargeable to tax in India?
(3) If the answer to Question 1 and 2 are in negative, would the payments made by the Applicant to Noise Associates suffer withholding tax under section 195 of the Act, and at what rate?
4. The main contention of the applicant is that the payment is not ‘fees for technical services’ as defined in the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with Singapore (hereinafter referred to as India-Singapore Tax Treaty) and therefore, not taxable in India. It was stated by the learned Authorised Representative (hereinafter referred to as AR) of the applicant that during the financial year 2010-11, the applicant was engaged in producing the programme Khatron Ke Khiladi – series 3 i.e. India’s version of Fear Factor, which was aired by Viacom 18 Media Private Limited (Viacom) on its channel ‘Colors’ and for the programme ‘Wipe Out’ which was aired on NDTV Imagine (the programmme). The applicant had offered the entire revenue received from Viacom to tax in India in its return of income and therefore, the same is not a subject matter of the application. As per the terms of the agreement, NAPL was responsible for the supervision of the overall production of the programme and for that purpose the services of Ms Chantal Prud’ Homme was commissioned. Ms. Chantal Prud’ Homme was to supervise and to ensure that the programme being produced by the applicant was commenced and completed on time as per the agreed proposal. She was not involved in the technical aspects of production of the programme. She prepared production schedule and ensured that the same was followed and she was a point of contact between talent and the production unit.
5. According to the learned AR of the applicant, the services obtained by the applicant from NAPL were merely support services and routine in nature in relation to the show/programme and did not involve any professional or technical experts. The NAPL also did not perform any function on behalf of the applicant and therefore, the payment for the services is not covered under FTS definition. The learned AR submitted that the NAPL being a resident company of Singapore, the payment is covered by the India Singapore Tax Treaty. Definition of the term ‘Fees for Technical Service’ on the said treaty being narrower than the provision of the Income Tax Act, 1961 and more beneficial to the applicant, the Act gives an option to the applicant to apply the provisions of the Treaty. In support of this, the learned AR relied on the decision of the Andhra Pradesh High Court in the case of CIT v. Visakhapatnam Port Trust  144 ITR 146/15 Taxman 72 and also on the circular No. 333 dated 2nd April, 1982 of CBDT.
6. The Revenue strongly contested the submissions made by the AR of the applicant. It was submitted that the NAPL provided specialized services to Endemol (the Applicant) in the production of its shows/programmes. The service was provided through the representative, Ms. Chantal Prud’ Homme, who is a technical expert and her role was in the nature of providing consultancy services. She was hired for a particular shooting held for specified period because of her skill, technical competence and knowledge of the production activity. She is an industry expert in the area of production. Her assignment is in line with the practice of hiring skilled consultant for a particular project. The services rendered by her as executive producer are not general services which can be seen from the confidentiality clause in the agreement which states that the information provided by NAPL would be kept confidential by the applicant. It was argued that had it been general services, the confidentially clause would not have been needed. It was further submitted that the fact that the applicant had obtained line production services, for instance, as well as production from another concern in Brazil namely M/s Utopia Films implies that the specialized services provided by Ms. Chantal Prud’ Homme were not available in Brazil which had to be obtained from NAPL Singapore. The object of the executive producer was to maintain the continuity and consistency in the production process which involves both managerial and technical skill, knowledge and know-how. The services rendered by NAPL to the applicant through Ms. Chantal Prud’ Homme are very specialized services in the nature of managerial, consultancy and technical services that are clearly covered by the definition of Fees for Technical Services.
7. We have considered submissions and arguments of the applicant and the Revenue. One of the submissions of the Revenue Department is that the applicant did not give documentary evidences indicating the exact nature of services provided and failed to satisfactorily substantiate the specific nature of services provided by NAPL. The invoice copies provided by the applicant do not fully illustrate the nature of the services rendered. In the course of the hearing, the learned AR of the applicant simply stated that the relevant evidences were already submitted before the Assessing Officer. In his final submission dated 27th September, 2013 the learned AR stated that detailed submission have been filed on 15 July, 21 August and 27 August, 2013. We do not find any material evidences to show the specific services rendered by NAPL apart from the submission made by the learned AR. We have noted that the agreement dated 1.6.2010 between NAPL and the applicant clearly states that NAPL will provide specialized services to Endemol to aid in the production of Endemol’s shows/ programmes for which NAPL has agreed to commission its representative Ms. Chantal Prud’ Homme as an executive producer of Endemol India Private Limited’s shows/programmes.” The services may be in the nature of supervision as contended by the AR of the applicant but when the supervisory role requires special skill, knowledge or expertise, then it will become managerial. A person cannot do the job of supervision of the shows and programmes undertaken by the applicant without having technical knowledge or expertise. The nature of the role played by Ms. Chantal Prud’ Homme also fits in with consultancy services as submitted by the Revenue. The services provided by the NAPL through Ms. Chantal Prud’ Homme, therefore, is covered by the definition of technical services as per article 12 and 12.4 of the India – Singapore Tax Treaty which says “the terms ‘Fee for Technical Services’ as used in this article means payment of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel); the definition is however, subject to fulfillment of the following conditions:
(a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or
(b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or
(c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein.
8. The learned AR of the applicant argued that the make available clause of the Treaty mentioned above is not applicable in this case. There is no submission in this aspect from the Revenue. The services were rendered outside India and the non-resident company namely NAPL does not have any presence in India. There is no material to support that the technical knowledge, expertise, skill/ know-how or process is made available to the applicant by enabling it to apply the technology independently. We find that none of the conditions in (a) (b) (c) of the Article 12.4 of the Treaty is fulfilled. In such situation, we have to hold that the consideration paid for services rendered by NAPL to the applicant is not covered by Fees for Technical Services in terms of Article 12.4 of the India – Singapore Tax Treaty.
9. Another submission of the applicant is that the NAPL does not have permanent establishment (PE) in India. It was stated that NAPL does not have any office in India and none of its employees visited India for providing the services. It was submitted that in the absence of PE of NAPL in India, the payments made to NAPL are not taxable under Article 7 of the India-Singapore Tax Treaty. The AR cited following judicial precedents in support of the submissions:
1.1 Dun & Bradstreet Espana, S.A., In re  272 ITR 99/142 Taxman 284 (AAR – New Delhi)
1.2 Fidelity Advisor Series, VIII, In re  271 ITR 1/ 142 Taxman 111 (AAR – New Delhi)
1.3 Morgan Stanley & Co. International Ltd., In re  272 ITR 416/142 Taxman 630 (AAR- New Delhi)
10. The Department simply stated that the payment made to NAPL for procuring services under the terms of the agreement is squarely covered under the definition of FTS as per India-Singapore Tax Treaty and there is no requirement of having PE for this purpose.
11. Article 7 of the India-Singapore Tax Treaty states: “The profits of an enterprise of a Contacting State shall be taxable only in the State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as it directly or indirectly attributable to that permanent establishment.”
12. NAPL is a resident company of Singapore. The applicant is an Indian enterprise and for its business activities outside India the services of NAPL were utilized and payment for the services were also received outside India. There is nothing on record to show that NAPL has PE in India. In the absence of any PE in India, we agree with the learned counsel for the applicant that profits arising out of the transactions for services rendered by NAPL are not taxable in India.
13. The questions raised by the applicant are answered as follows:
(1) The payments made by the applicant to Noise Associates Private Limited for availing services under the terms of the agreement is not in the nature of ‘Fees for Technical Services’ under Article 12 of India-Singapore Tax Treaty as the services rendered by the non-resident company do not meet the requirement of make available under the Treaty.
(2) The payment will not be treated as business income taxable in India in terms of India-Singapore Tax treaty because the non-resident company does not have PE in India.
(3) Because of our answer to question 1&2 and following ratio of the decision of the Supreme Court in the case of Transmission Corporation of AP Appeal Ltd. v. CIT  239 ITR 587 the transaction will not be subjected to withholding of tax under Section 195 of IT Act.
14. Regarding the issue as to whether the transaction is the arrangement for the purpose of avoidance of tax, we do not find sufficient material on facts and circumstances made available to us which suggest that the transaction is an arrangement solely for the purpose of avoidance of tax. The Department also did not press the issue at the time of hearing.
[Citation :Â 361 ITR 353]