Reporting obligation under Section 507
Introduction
Any person carrying on the production of a cinematograph film or engaged in any specified activity is required to furnish a statement of all payments made by him, or due from him, of a sum above Rs. 50,000 in aggregate to each such person as is engaged by him in such production or specified activity.
1. About
1.1. Who is required to furnish a statement under Section 507?
The following persons (‘covered person’) are required to furnish the statement under Section 507:
(a) A person carrying on the production of a cinematographic film; or
(b) A person engaged in any of the following activity:
• Event management;
• Documentary production;
• Production of programs for telecasting on television or over the top platforms or any other similar platform;
• Sports event management; and
• Other performing arts or any other activity, as may be notified by the Govt.
Section 507 has two limbs: (i) Carrying on the production of a cinematographic film (ii) Any person engaged in specified activities. For the second limb, the person can be engaged in any capacity and not necessarily into production.
Reporting requirement under Section 507 shall apply to every covered person, whether resident or non-resident.
For instance, if a Hollywood movie or any part thereof is shot in India and the producer of such film, being a non-resident, engaged any person in India for the production of such film, the reporting requirement under section 507 will attract in such cases also.
1.2. Whose details shall be reported in the statement?
The statement is required to be furnished when a covered person makes payment to each such person engaged by him in the production of the film or specified activity, and such person (recipient) can be a covered or non-covered person.
No statement shall be required to be furnished by a non-covered person for the payment made to a covered person.
For example, XYZ Ltd. (a manufacturing company) gives an event management contract to Mr. A in Rs. 50 lakhs. Mr. A. booked a hotel for Rs. 10 lakhs and a celebrity for the live performance for Rs. 30 lakhs. In this case, XYZ Ltd., being a non-covered person, is not required to furnish the statement. However, Mr. A shall file the statement as event management is a specified activity. He shall furnish the details of payment made to the hotel and to the celebrity.
The reporting shall be required by the covered person whether the payment is made or due to a resident or non-resident person.
1.3. Which payment is required to be reported?
The covered person shall furnish the statement containing particulars of all payments above the threshold limit made by him or due from him to each such person as is engaged by him in production or specified activity.
Such a person can be an employee of the covered person or an outsider, even if he is engaged for a part of the activity. It shall cover every person handling a minuscule activity but essential for the production or specified activity. A covered person shall not be required to give the details of his accountant, receptionist, auditor, etc., in the statement if they are not engaged with the production of the film or specified activity.
For example, a film producer books the hotel for the actors’ stay and books a studio to shoot a scene. The charges paid by him to the hotel should not be reported in the statement, but the sum paid to the studio should be reported as it is connected with the production of the film.
1.4. What is the monetary limit for reporting?
The statement shall include the particulars of all payments, which in aggregate exceeds Rs. 50,000, made by a covered person or due from him to each such person as is engaged by him in such production or specified activity.
The threshold limit of Rs. 50,000 in aggregate shall be computed with reference to the tax year in which production or specified activity is carried on. In other words, the aggregate amount of payment made or due to a person in respect of a tax year should exceed Rs. 50,000. Where the payment does not exceed Rs. 50,000 in a tax year but exceeds the threshold limit in reference to the project, the reporting shall not be required.
For example, Mr. X appoints Mr. Y to edit a documentary movie. He pays Rs. 35,000 to Mr. Y in March and Rs. 25,000 in April. Here, the aggregate payment for the project exceeds Rs. 50,000 but the aggregate payment made during a tax year in reference to such project does not exceed Rs. 50,000. Therefore, Mr. X shall not be required to report the details of Mr. Y in the statement.
1.5. How to compute threshold limit?
To compute the threshold limit of Rs. 50,000, all sum paid or due from the covered person shall be included notwithstanding the method of accounting followed by the covered person. Section 507 requires reporting of the ‘payment made’ and ‘payment due’.
The following points should be considered for reporting under this provision:
(a) The reporting shall be made of advance payments even if it does not accrue or falls due;
(b) The reporting shall be made of sum that accrues and falls due;
(c) The reporting shall not be made of sum that accrues but does not fall due;
(d) As the payment means ‘discharge of a debt or a sum due’, the threshold should be computed on a gross basis, including GST, reimbursement of expenses or any other allied charges.
1.6. Form and time limit to furnish the statement
The statement shall be furnished in Form No. 164 within 60 days from the end of the relevant previous year.
1.7. Mode of furnishing of statement in Form 52A
The statement in Form No. 164 shall be furnished electronically under digital signature where a person is required to furnish return of income electronically under digital signature. In any other case, the statement shall be furnished electronically through Electronic Verification Code (EVC).
1.8. Consequences of failure to furnish the statement in Form 164
If any person fails to furnish the statement in Form No. 164 within 60 days from the end of the relevant previous year, he shall be liable to pay the penalty under Section 465 of Rs. 500 for every day during which the failure continues. However, no penalty shall be imposed if the assessee proves reasonable cause for such failure.
1.9. TDS v. Reporting under Section 507
Reporting under Section 507 is distinct from the requirement of deduction of tax or collection of tax at source. Reporting under this provision shall not absolve the covered person from deducting or collecting tax at source.
For example, Mr. A, an event manager, books a hotel to organize a function. He pays Rs. 3 lakhs to the hotel. He shall deduct tax under Section 393(1) and file Form 140. He shall also report the transaction in Section 507 statement.
2. Meaning of key terms
2.1. Meaning of cinematographic film
The expression "cinematograph film" has been defined in Section 2(f) of the Copyright Act, 1957 to mean "any work of visual recording and includes a sound recording accompanying such visual recording and "cinematograph" shall be construed as including any work produced by any process analogous to cinematography including video films’.
The expression “cinematograph" has been defined in Section 2(c) of the Cinematograph Act, 1952 to include any apparatus for the representation of moving pictures or series of pictures.
The expression “film” is defined in Section 2(dd) of the Cinematograph Act, 1952 to mean a cinematograph film.
The Chambers Twentieth Century Dictionary defines ‘cinematograph’ as an apparatus for projecting a series of instantaneous photographs so as to give a moving representation of a scene, with or without reproduction of sound. A film is defined as a sheet or ribbon of celluloid or the like prepared with such a coating for ordinary photographs or for instantaneous photographs for projection by cinematograph: a motion picture, or connected series of motion pictures setting forth a story.
A combined reading of Section 2(c) and Section 2(dd) of the Cinematograph Act, 1952 and Section 2(f) of the Copyright Act, 1957, and the dictionary meaning, indicates that, in common parlance and in technical language, the words ‘cinematograph film’ refers to a film containing picture and sound, fit for exhibition and which is generally referred to as a feature film in the field of entertainment
It can be submitted that the standalone photoshoot is not covered under cinematograph film.
2.2. Meaning of Event Management
Income-tax Act does not define the meaning of the term ‘event management’. Thus, a general definition should be referred to for the purpose of this provision.
Wikipedia defines ‘event management’ as the application of project management to the creation and development of small and/or large-scale personal or corporate events such as festivals, conferences, ceremonies, weddings, formal parties, concerts, or conventions
For the erstwhile service tax, the term ‘event management’ was defined as any service provided in relation to planning, promotion, organising, or presentation of any arts, entertainment, business, sports, marriage, or any other event and includes any consultation provided in this regard
It should cover every person engaged in managing the series of operations and not just a few operations.
2.3. Meaning of Over-The-Top (OTT) platforms
The provision requires reporting by a person engaged in the production of programs for telecasting on television or OTT platforms or any other similar platform. In general, a platform is categorised as an OTT platform if it offers media services directly to viewers via the internet.
BEREC
For example, payments made by a YouTuber to a professional photographer, marketing guys and social media manager, etc., shall be reported in the statement.
2.4. Meaning of Programme
The word ‘programme’ is not defined under the Income-tax Act. However, it is defined under Section 2(g) of the Cable Television Networks (Regulation) Act, 1995 to mean any television broadcast and includes:
(a) exhibition of films, features, dramas, advertisements, and serials;
(b) any audio or visual or audio-visual live performance or presentation, and the expression "programme service" shall be construed accordingly.
Thus, reporting requirement under section 507 shall apply even in the case of a person engaged in the production of promos, advertisements, trailers, etc. whether visual, audio or both.
2.5. Meaning of Other performing arts
‘Performing arts’ has not been defined under the Act. As per the ordinary meaning, the ‘performing arts’ are arts such as music, dance, and drama that are performed for an audience. It is different from visual arts, which uses paint, canvas, or various materials to create physical or static art objects
For example, an actor should be required to report the payment made to all technicians, make-up artists, stylists, etc., who help him prepare or deliver his performance.
References
CIT v. Prasad Films Laboratories (P.) Ltd. [1998] 100 Taxman 99 (AP)
https://en.wikipedia.org/wiki/Event_management
Section 65(40) of the Finance Act, 1994 (repealed after introduction of Negative List concept)
Body of European Regulators for Electronic Communications
https://en.wikipedia.org/wiki/Performing_arts
This article is general information and not tax advice. Provisions change. Confirm your position with a qualified professional before acting.