Can film songs be termed as ‘service’? Case filed by A.R. Rahman poses interesting questions

A.R. Rahman. Photo: File   | Photo Credit: B. Velankanni Raj

A case filed this week in the Madras High Court by Academy-award winning composer A.R. Rahman has brought forth an interesting question of law: whether songs and background score composed by a music director at the behest of a film producer and as per the requirements of the movie’s director could be termed as a ‘service’ liable to tax or not.

More interestingly, his case has posed a generic question whether a musician can claim copyright over songs composed by him on the basis of contractual obligations to a film’s producer, unlike instances of composing music on his/her own without being bound by such a contract and then assigning the copyright to the producer for a valuable consideration.

Documents accessed by The Hindu show that a Commissioner of Goods and Services Tax (GST) answered both the questions against Mr. Rahman in an order passed on October 17, 2019, accusing him of intentionally evading service tax payment of ₹6.79 crore and imposing a penalty of another ₹6.79 crore at the rate of 100% of tax supposedly evaded.

The order was passed after rejecting the musician’s contention that music composed for movies would also fall under the term ‘original music work’ as defined in Section 13(1)(a) of the Copyright Act of 1957 and therefore, he should be considered as a copyright owner, who simply transfers his right to the producer of a movie and therefore not liable to pay service tax.

Artistic works

Enunciating reasons for rejecting the contention, the Commissioner said Section 17 of the Copyright Act explains who could be the first owner of a copyright and it distinguishes between a ‘contract of service’ and a ‘contract for service’, with the latter being in the nature of artistic works performed by an employee at the behest of his/her employer.

After extracting certain clauses in agreements entered between Mr. Rahman and Thenandal Films for actor Vijay-starrer ‘Mersal’ and with Lyca Productions for Rajinikanth starrer ‘Robot 2.0’, the Commissioner said: “The above clauses clearly indicate that the nature of service is a ‘contract of service’ and ARR is not the original owner or author of the work/service he is providing.

“The agreement remains only a contract of service and mention of any assignment of copyright is only to camouflage the ‘service agreement’ as an ‘assigning agreement.’ It is also clear that the assessee is not producing music in his leisure and assigning it to the producers. It is the producers who enter into a service agreement to engage his services for scoring music.

“Therefore, in as much as the work of the composer/assessee is under a ‘contract of service’ and the music is made as per requirements of a film producer/director, the producer is the author of the copyright as per Section 17(c) of the Copyright Act... By no stretch of imagination, the assessee can be the original owner of copyright,” the Commissioner of GST had concluded.

The Commissioner also pointed out that Mr. Rahman was in the habit of receiving a composite amount from film producers for composing tunes, engaging singers, sound engineers and instrumentalists and also for recording the music. He does not hand over the musical notations to the producers. Only the recorded compositions are handed over in hard disks.

Of the composite amount, he used to earmark 10 to 15% towards sound recording expenses, since the songs got recorded in his own studio and had paid service tax for that recording expense alone.

“I find that ARR has artificially segregated the total consideration into taxable part and non-taxable part without any valid ground and paid service tax only for a meagre portion.

“He withheld all the related information from the knowledge of the department and contravened the provisions of the Finance Act of 1994 with the intention to evade payment of service tax,” the officer had said and invoked Section 78, which provides for penalty for failure to pay service tax for reasons of fraud, collusion, wilful misstatement or suppression of facts.

Now that Mr. Rahman has challenged the Commissioner’s order before the Madras High Court and also obtained an interim stay on the operation of the order, a final verdict in his case would have larger implications on the practices followed by various musicians in the Indian film industry.

Can film songs be termed as ‘service’? Case filed by A.R. Rahman poses interesting questions

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Printable version | May 18, 2021 9:20:22 AM |

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