By TIOL News Service

MUMBAI, JAN 18, 2017: THE ISSUE IS - Whether Section 194-I would apply to contractual payments in case of 'outsourcing of specialized job' to recording studios, if the job is performed by the personnel of those studios. NO is the Answer.

Facts of the case:

The assessee is engaged in the business of sound recording, dubbing and other ancillary post production activities for movies and serials at her own sound recording studio. At times, for certain specialized jobs, she has to take assistance/aid of other recording/dubbing studios which have necessary equipments for the specialized jobs. The assessee did not in any way herself use the equipments of the outsourced studios for the specialized job. According to the assessee the above activity was in the nature of a contract and the tax deducted at source would be at 2% u/s 194C. The AO rejected the assessee's contention and held that Section 194-I was applicable and in the absence of deduction of tax at source disallowed expenditure u/s 40(a)(ia). On appeal, the CIT(A) held that the activity of outsourcing of specialized jobs to the other studios done by assessee was in the nature of contract. Therefore the tax deducted at source would be u/s 194C. On further appeal, the ITAT held that the activity of specialized jobs done at the outsourced studios would be in the nature of payment for job work/contract and the assessee would be obliged to deduct tax u/s 194C.

On appeal, the HC held that,

++ it is found that both CIT(A) as well as ITAT have recorded a finding of fact that the specialized job which is outsourced to other studios is carried out by the personnel of those studios. The assessee or her team is not allowed to work with the machine/equipments in other studios for the specialized activity. This itself would establish that the assessee has no access to the machinery/equipments for the specialized jobs. Therefore it cannot be said to have hired or taken on rent the machines/equipments for Section 194I of the Act to apply. In the above view, the concurrent findings of fact rendered by the CIT(A) and the Tribunal, no substantial question of law arises as it is not shown to be perverse in any manner.

(See 2017-TIOL-120-HC-MUM-IT)