ADIT vs. Wizcraft International Entertainment (ITAT Mumbai)

Though foreign artistes are chargeable to tax in India, their agents are not in the absence of a PE

The assessee, an event organizer, entered into an agreement with “Colin Davie Artiste Services”, a UK company, under which the latter agreed to procure renowned foreign entertainers like “Diana King” & “Shaggy” for performances in India. The assessee agreed to pay a fee to the entertainers as well to Colin Davie & to reimburse expenses incurred. In respect of the fees paid to the entertainers, the assessee accepted that the same was chargeable to tax in India under Article 18 of the India-UK DTAA and deducted tax at source u/s 195. However, in respect of the fees paid to Colin Davie and amounts paid towards reimbursement of expenses, the assessee argued that the same were not liable to tax in India. The AO took the view that as the payment to Colin Davie was high, it was actually meant for payment to the entertainers. He also held that the nature of services agreed to be rendered by Colin Davie were such that it could not be performed without having a presence in India. On appeal, the CIT (A) accepted the stand of the assessee. On appeal by the department, HELD dismissing the appeal:

(i) The contention of the AO that the entire consideration including the fee to be paid to Colin Daive is in fact fees payable to the artiste for performance in India is not substantiated. On the other hand, it is well known that internationally reputed performers are not easily approachable and to discuss with them about performing in India, time schedule, structure of the show/concert, venues, itinerary, fees etc requires good business negotiation and persuasive skill apart from accessibility. The artists/performers are quite unapproachable and emotional and are known for their varied and sometimes unpredictable behavior. Accordingly, agents, who act as a link and who have acumen and skills to negotiate with such artists/performers are required to be engaged and paid fees;

(ii) As Colin Davie was not a performer, his income was not covered under Article 18 of the DTAA but was covered by Article 7 and as the services were rendered outside India and there was no PE, the same was not assessable to tax in India. Even under the Act, by virtue of Carborandum Co 108 ITR 335 (SC), Circular No. 17 of 1953 dated 17.7.1953 & Circular No.786 dated 7.2.2000, commission paid to agents for services rendered outside India is not chargeable to tax in India and there is no obligation to deduct tax u/s 195;

(iii) As regards payment made towards reimbursement of expenses, the law is well settled by virtue of Krupp UDHE Gmbh 38 DTR (Bom) 251 & Siemens AG 220 CTR (Bom) 425 that the same is not chargeable to tax and there was no obligation to deduct tax at source.