S/s. 9(1)(vii), 195 and 201 – Payments made abroad for services in respect of arrangement of logistics for shooting of films outside India does not amount to fees for technical services.

Yash Raj Films (taxpayer) is engaged in the business of production of films, the shooting of which is often done outside India. During the relevant previous year, the taxpayer made payments to overseas service providers (OSPs) for the services availed in connection with the shooting of different films which mainly included arranging for extras, security, locations, accommodation of cast and crew, necessary permissions from local authorities, makeup of the stars, insurance cover, shipping and custom clearances, obtaining visas. The tax authority considered the payments for obtaining the above services to be in the nature of fees for technical services (FTS) and considered the taxpayer as an assessee-in-default for not withholding taxes.

Held:

Considering the nature of the services rendered by OSPs to the taxpayer as spelt out in the relevant agreements, the said services cannot be treated as technical services within the meaning given in Explanation 2 to section 9(1)(vii).
The said services rendered outside India by the OSPs in connection with making logistic arrangement are in the nature of ‘commercial services’ and the amount received by them from the taxpayer for such services constitutes their business profit which is not chargeable to tax in India in the absence of any Permanent Establishment (PE) in India of the said service providers. The taxpayer, therefore, is not liable to withhold taxes on the payments made.