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ITA 6655-6657/Mum/2014
ITA 92 & 93/Mum/23015

IN THE INCOME TAX APPELLATE TRIBUNAL

MUMBAI BENCH H, MUMBAI

BEFORE SHRI D.T. GARASIA (JUDICIAL MEMBER)

AND
SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER)

I.T.A. No.6655/Mum/2014 - A.Y 2005-06

I.T.A. No.6656/Mum/2014 - A.Y 2006-07
I.T.A. No.6657/Mum/2014 - A.Y 2007-08
I.T.A. No.92/Mum/2015 - A.Y 2005-06
I.T.A. No.93 /Mum/2015 - A.Y 2006-07

Red Chillies Entertainment Pvt Ltd vs ACIT (TDS), Mumbai

Backstage, Plot No.612, Junction of
Ram Krishna Mission Road & 15th
Cross Road, Santacruz (W),
Mumbai-54
PAN No. AACCR2518P
(Appellant) (Respondent)

Appellant by Shri Aditya R Ajgaonkar

Respondent by Shri M.C. Omi Ningshen

Date of hearing : 16-02-2017

Date of order : 28-02-2017
ORDER
Per Ashwani Taneja, AM:-
These appeals pertain to same assessee involving identical issues, therefore,
these were heard together and are being disposed of by this common order.
2. First, we shall take up appeal for A.Y. 2005-06 in ITA No.6655/Mum/2014 filed
by the assessee against the order of Commissioner of Income-tax (Appeals)-14,
Mumbai [hereinafter called CIT(A)]dated 14-08-2014 for A.Y. 2005-06 on the
following grounds:-

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1. The Learned CIT (A) erred in upholding that the fees paid to
various professionals as being liable for deduction of tax u/s 192 of
the Act, though the appellant company has rightfully
deducted the appropriate tax on such payments u/s 194J of the
Act.

2. Alternatively and without prejudice to any other

ground of appeal, the Learned CIT (A) erred in upholding that the
Six professionals namely Mr.Sanjiv Chawla, Ms. Shushma
Chitnis, Mr. Blesson Oommen, Mr. Amitabh Shukla, Mr.
Vishal Panjabi and Mr. Rajesh Wanmali had an employer-
employee relationship with the appellant company.

3. Alternatively and without prejudice to any other

ground of appeal, the learned CIT (A) has erred in not
appreciating that the demand of Rs. 3,73,166/- for alleged
short deduction of tax (being the difference of tax deducted as
between provisions of Sec 194,1 and 192 of the Act) as made
by the Assessing officer is erroneous and bad in law.

4. Without prejudice to any other ground of appeal as

taken by appellant, the Learned CIT (A) erred in upholding
that in this particular circumstance where the six professionals
have paid their due taxes, interest u/s 201(A) will remain
chargeable till date of filing of return by the payee and
in directing-the assessing officer to recompute the same.

5. Alternatively and without prejudice to any other ground of

appeal, the Learned CIT(A) erred in upholding that the payments
made to manager for the benefit of co-owners towards the use of
premises at Mukesh Mills compound shall be liable for deduction
of Tax u/s 1941 of the act though the payments of the hire
charges in the hands of the respective recipients were below the
threshold limit specified u/s 1941.
6. Alternatively and without prejudice to any other ground of
appeal, the learned CIT (A) has erred in upholding that the demand

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of Rs. 57,961/- on account of payments made to the manager of

Mukesh Mills Compound on behalf of the co-owners of the
property.
7. Alternatively and without prejudice to any other
ground of appeal, the learned CIT (A) has erred in upholding that
the processing charges debited by Adlabs Films Pvt. Ltd. (for Ad
films) amounting to Rs. 1,41,776/- were liable for deduction of tax
u/s 194J.
8. Alternatively and without prejudice to any other
ground of appeal the learned CIT (A) has erred in upholding that
the processing charges debited by Adlabs films Pvt. Ltd. (for
film Main Hoon Na) amounting to Rs. 34,93,624/- were liable
for deduction of tax u/s 194J though the amount was charged for
the prints processed and printed by Adlabs Films Pvt. Ltd.
9. Alternatively and without prejudice to any other
ground of appeal, the learned CIT (A) has erred in not
appreciating the fact that Adlabs films Pvt. Ltd. had during
the course of business given a discount of Rs. 47,20,138/- to
the appellant company, which was more that the amount
charged by it to the appellant company (Rs. 36,35,400/-).
Hence, the Appellant company was not liable to deduct TDS on the
printing and the processing charges merely debited by Adlabs
Films Pvt. Ltd. of Rs. 36,35,400/-.
10. Alternatively and without prejudice to any other ground
of appeal, the learned CIT (A) has fail to appreciate the
circumstances as envisaged by the grounds of appeal No 7,8 &
10 and hence has erred in directing that the interest u/s201(IA)
will be levied till the date of payment of taxes by the payee
namely Adlabs Films Pvt. Ltd.
11. Alternatively and without prejudice to any other ground of
appeal, the learned CIT (A) has erred in upholding that the payment
of Rs.8,00,96/made to Empire Audio Centre Pvt. Ltd. was fees for
professional or technical services liable for deduction of tax u/s 194J,
though the appellant company had concluded that the payments of
contract with the party was liable for deduction u/s194C and had
deducted tax thereon accordingly.
12. Alternatively and without prejudice to any other ground of
appeal the learned CIT (A) has erred in upholding the demand of Rs.
28,431/- on account of payment made to empire Audio Centre Pvt

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Ltd. towards digital mixing work due to the difference being due to
the tax deducted u/s 194C as contract for work visa-a-vis technical
services as u/s 194J.
3. Grounds 1 to 4: These grounds involve identical issue wherein assessee
has contested the action of the lower authorities in holding that remuneration
paid to six professionals engaged by the company was liable for deduction of
tax at source u/s 192 as the same was in the nature of salary as against the
claim of the assessee to deduct tax u/s 194J on these payments on the ground
that these persons were acting in the capacity of independent professionals
and not as employee of the company.
4. The brief background is that during the year assessee was engaged in
the business of film production. A survey u/s 133A of the Income-tax Act, 1961
was conducted on 23-11-2006 on the assessees business premises. It was
inter-alia noted by the AO that during the F.Y. 2004-05, the assessee company
had paid remuneration to various persons in pursuance to the service contract
agreement entered with these persons and the compensation paid to these
persons was termed as retainership fee and assessee deducted tax u/s 194J
on these payments on the ground that these persons were independent
professionals and amount paid to them was in the nature of fee. The AO went
through the contract entered with these persons and he was of the opinion
that there existed employer-employee relationship between the assessee and
these persons and, therefore, assessee was required to deduct tax u/s 192.
Accordingly, he worked out the amount of shortfall in TDS u/s 192 of the Act in
the case of following persons:-
Name of the Gross Effective TDS TDS effected Shortfall
employee payments u/s 192
Sanjeev Chawla 660000 175440 33700 141740
Sushma Chitnis 660000 170340 33700 136640

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Blesson Oomen 302500 66045 15750 50295

Amitabh Shukla 203500 35750 10450 25301
Vishal Punjabi 150000 19380 7100 12280
Rajesh Wanmali 120000 13260 6350 6910
Total default 373166

5. Being aggrieved, assessee filed appeal before Ld. CIT(A) wherein

following submissions were made:-
The business of the appellant company is laden with risks. The
appellant company, being a film production company, is into an
uncertain business. The activities of the company peak out when
there is film under production and the activity level tapers off,
when there are no films under production. Most of the people
whose services are taken for film production are not employed
on monthly basis but their services are used on a contractual
basis so that in case of lull in business activities their contract
can be terminated to save the cost. Such persons are hired or
eased out based on the business needs of the company and
therefore, they are not given employment with the company,
unless the company is certain about the sustainability of the
need of their respective services for the business of the
company. During the year, the company has utilized the services of
the following persons and fees were paid to them as per the
understanding of retainership.
Name of the Gross fees Services rendered
professional
Sanjeev Chowla 6,60,000 Production Management
Services
Sushma Chiitnis 6,60,000

Executive Services

Blesson Oomen 3,02,500

Account Finance
Services

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Amitabh Shukla 2,03,500

Editing Services
Vishal Punjabi 1,50,000

Direction Services
Rajesh Wanmali 1,20,000

Production
Management Services

These persons were not employees of the company and they

were free to give their services to any other party. The company
found it desirable to keep them on contract till such time the
business of the company stabilized. Therefore they were not taken
on employment but there services were contracted. While they
were under the contract as professionals and not employed by
the company, the company deducted tax @ 5% plus applicable
surcharge and cess from the fees paid to them u/s 1941 as
these persons were professionals. However, assessing officer
claimed that these persons were in employment of appellant
company and therefore, he raised a demand of Rs.3,70,1661- as
shortfall in deduction of tax. It may be appreciated that the
relation between these respective parties and the company
were contractual relations and they were not that of
employment. So much so that the appellant company did not
deduct any professional tax of these parties from the payments
made to them and they were liable to pay their own professional
tax. These parties were not entitled for any gratuity or any other
facility available to the employees. They had no fix hours of
duty and there was no exclusivity. The parties as well as the
company had a clear understanding that the relation was of
taking professional services and not of employment. Under
the circumstances, it was incorrect on the part of the
assessing officer to assume that these professionals were
under employment of the appellant company and demanding
additional tax as TDS though the appellant company had
lawfully deducted the applicable tax under 194]. For ready
reference of your Honour the copies of the contracts as well as
the ledger accounts of these parties are enclosed herewith. In

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light of the above submissions and the fact that the employee-
employer relation is an understanding between an
organization and an employee and not just a matter of
inference, we request Your Honour to delete the demand raised
by the assessing officer treating these contractual professionals
as the employees of the company.
6. During the course of hearing before us, the submissions made before the
lower authorities were reiterated. It was vehemently argued by the Ld.
Counsel that contract with these persons may have been termed as
employment contract, but actually, these persons were acting as independent
professionals. The arguments made by him have been summarized by way of a
note and relevant part of the same is reproduced hereunder:-

1. The contract between the Assessee and the professionals

did not constitute an emp lo yer emp lo yee re la t io nsh i p a s
t h e i n te nt of t he Ass esse e a n d t he professionals was not to
enter into an employer employee relationship If the company and
the employee had understood the agreement in a certain way and
had acted upon that agreement, it is not open to the ITO to give
another interpretation.
2. The Professionals engaged were not for regular work but were
engaged in capacities that require and high amount of
autonomy, inherent skills and qualification. The designations
given to such professionals were 'Production manager', 'Executive
Assistant to the chairman', 'Manager accounts and finance', 'Avid in
charge', 'Production executive', 'VFX service', 'Direction Services',
Editing Services', "Executive services, 'Supervisory Services' and '
Production assistant' which res ipsa shows that they were not
mere executors and there was a large degree of professional
discretion and that their tasks required technical or professional
skills or experiences. The fact that they were given designations does
not by itself show that an employer employee relationship exists
but merely spoke to the scope of the type of assignments that were
given to them.

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3. The covenants in contracts by themselves were wide in nature

and afforded a large degree of flexibility for the retainers. There
were no restrictive covenants on timings to come to office or leave, or
any exclusivity bar. They were not subject to the general rules and
regulations. They were not authorized to act as agents by entering
into any commitments with third parties on behalf of the
Assessee without express authorization. Though the number of
days of leave were contractually fixed, there were no covenants
binding the said professionals to the company rules and regulations
as applicable to employees on the pay roll of the company.
The mere isolated mention of the word 'employment' or
'termination' would not ipso facto make the said relationship a
employer - employee relationship. The word termination is used non-
exclusively in the Indian Contracts Act, 1872 in multiple sections such
as Sec. 201, 202, 153 etc. even for contracts of agency and bailment.
The use of the word 'employee' in isolation in a heading of one of
the clauses of the contract by itself would not result in an
employer employee relationship. A contract has to be read as a
whole and in light of the intentions of the contracting parties and
one word in isolation in the title of a clause cannot lend colour to
the entire contract especially when the operative part of the same
clause says otherwise.
5.The said professionals were not provided any benefits of
employment like PF, ESIC, gratuity, bonus etc. that form a part
and parcel of employment. Even the option of exercising any such
facility in the long run was not contractually provided to them.

7. In support of its claim, the Ld. Counsel placed reliance upon the following
judgments:-
1. CIT vs Yashodha Super Speciality Hospital [2011] 365 ITR 256
(Anbdhra Pradesh HC)
2. ACIT vs Grant Medical Foundation [21015] 375 ITR 49
(Bom)(HC)
3. ITO VS Entertainment Network td ITA No.13512/M/2014 dated
11/1/2017

8. P

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er contra, the Ld. DR appearing on behalf of the Revenue vehemently

supported the orders of the lower authorities. It was argued by him that it is a
clear cut case of employment of these persons. The perusal of the contract
entered with these persons shows that they were hired as employees of the
assessee company. It was submitted that the terms of the contract shows that
requisite ingredients of employer-employee relationship exist in this case.
Therefore, lower authorities have rightly held it to be a case of deduction of tax
u/s 192. He placed reliance upon the decision referred to by Ld. CIT(A) in his
order in the case of DCIT vs Wokhardt Hospitals Ltd 139 ITD 161 (Hyd). It was
lastly argued by him that cases relied upon by the Ld. Counsel have been
delivered on the basis of facts of those cases which are distinguishable from
the facts of the case of the assessee before us.
9. We have gone through the orders passed by the lower authorities service
contract with aforesaid 6 persons and also the submissions made before us.
Firstly, we have analysed the service contract with these persons which have
been enclosed in the paper book filed before us. One of the contracts is
reproduced hereunder, for the sake of ready reference:-
SERVICE CONTRACT
This service agreement is made on this 1st December, 2003 between,
RED CHILLIES ENTERTAINMENTS PRIVATE LTD
Mannat, B.J. Road, Bandstand, Bandra West, Mumbai 400 050
(Hereinafter referred to as RC)

And
SANMJIV CHAWLA,
153, Oxford Towers
Andheri West,
Mumbai 400 058
(Hereinafter referred to as SANJIV)
Whereas RC is desirous of appointing SANJIV on contractual basis for the
purpose of performing certain duties, which may be assigned by RC from

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time to time and SANJIV has consented to being appointed on following

terms and conditions:

DUTIES:
You shall be designated as PRODUCTION MANAGER and perform all such
duties as may be assigned from time to time.

COMPENSATION AND BENEFITS:

RC shall pay SANJIV a total remuneration of Rs.60,000/- per month,
subject to tax deduction at source, at applicable rate of tax.
In addition, you will be provided with a company car. The company will
also provide you with a cell phone for local and official use.

LEAVES:
You shall report to office on daily basis to perform the duties assigned to
you from time to time. However you shall not remain absent from work for
more than 30 days in a calendar year.

DATE OF COMMENCEMENT:
Your contract will take effect from 1st December, 2003.

TERMINATION OF EMPLOYMENT:
Either party will be entitled to terminate this contract at any time
after giving ONE Month notice in writing. It may however be open for
the company to waive the notice period or part thereof in the event
of your resignation. In the case of termination by the company it will
be the company's option to pay your remuneration in lieu of notice
period.
OTHER TERMS AND CONDITIONS:
1. Confidentiality:
During the tenure of your service or later you will not divulge to any
person whomsoever any trade secrets or process or any information
regarding the business or finance of the company or any dealings,
transactions or affairs which may come to your knowledge during the
course of your employment and you shall exercise your best endeavor
to prevent the publication or disclosure thereof.
2. Commitments and Dealings:
You will not enter into any commitments or dealings on behalf of the
company for which you have no express authority nor alter or be a
party to any alteration of any principle or policy of the Company or
exceed the authority or discretion vested in you without the previous

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sanction of the Company or those in authority over you.

3. Notices:
All notices and other communications which are required to be or
may be given will be in writing and will be given in person or will be
mailed to you at your office e-mail address or to such other address
as mutually decided.
In acceptance of the above terms and conditions, please sign the duplicate
copy of this letter.
Yours Faithfully,
For RED CHILLIES ENTERTAINMENTS PRIVATE LTD
Sd/-
Director
I agree to accept the above terms and conditions
Sd/-
(SANJIV CHAWLA)

Perusal of the aforesaid contract shows that Shri Sanjiv Chawla has been
appointed as Production Manager for performing all the duties as may be
assigned to him from time to time. In the case of professional, who is engaged
on independent basis, assignments/duties to be executed are generally
specified in advance whereas in the case of Shri Chawla it has been clarified
that he shall perform all the duties as will be assigned to him from time to
time. The independent professionals are engaged in specific assignments /
jobs whereas employees are assigned with the duties which are not feasible to
be defined in specific terms in advance. Only designation can be given and
functional profile can be assigned in advance and that is what has been done.
10. Further, the remuneration has been fixed @ Rs.60,000/- per month.
There is no variation clause or escalation clause indicating that remuneration
shall be increased or decreased depending upon the quantum of work. Thus, it
indicates that the remuneration has been fixed keeping in view the relationship
of an employee and employer. It is also worthwhile to note here that Shri
Chawla has been provided with a company car along with a mobile phone.

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These perks have been provided as are generally provided in the case of an
employee. These perks also indicate that Shri Chawla has been engaged on full
time basis and that is why the assessee company was pleased to provide these
facilities to Shri Chawla.
11. It has also been noted that it has been stipulated in the agreement that
Shri Chawla shall attend office on daily basis to perform the duties as may be
assigned to him from time to time by the assessee company. He has also been
provided with leaves of around 30 days in a year. Thus, impliedly, for the
remaining days he shall be attending the office. These types of terms are kept
in the case of employees only and not in the case of independent professionals.
12. A condition has been stipulated for termination of employment. That
itself shows that this contract has been drafted keeping in view the relationship
of employer-employee. Thus, the totality of terms and conditions of this
agreement clearly indicates that there existed an employer-employee
relationship between Shri Chawla and the assessee company and he was hired
as an employee by the assessee company and not in the capacity of an
independent professional.
13. It has been argued by Ld. Counsel that there was no payment of PF, ESI,
gratuity, bonus, etc. In our opinion, payment of these incentives is one of the
indicators of existence of employer-employee relationship but not the
conclusive or the only ingredient. It depends upon the overall financial terms
entered into between the employer and employee. In the case before us, the
overall remuneration of Rs.60,000/- per month has been fixed keeping in view
this factor that these incentives shall not be paid by the assessee to Shri
Chawla.
14. Further, despite our specific queries, Ld. Counsel was not able to show

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anything contrary to the natural inference that can be drawn from the perusal
of the agreement. Nothing has been shown to prove that Shri Chawla was not
engaged on full time basis or he was working on part time basis with the
company as an independent professional and he was free to take up other
assignments. No cogent reason could be given before us as to why the
designation of Production Manager was assigned if he was acting simply as an
independent professional. Thus, in our considered opinion, the facts and the
evidences brought before us duly establish that there existed an employer-
employee relationship between the assessee company and Shri Chawla.
Similarly in the case of other persons, it is noted that all the terms and
conditions are identical. Ms. Sushma Chitnis designated as Executive Assistant
to the Chairman, Shri Blesson Oomen has been designated as Manager Cum
Accounts & Finance, Shri Amitabh Shukla designated as Avid Incharge, Shri
Vishal Punjabi designated as Production Executive, and Shri Rajesh Wanmali
designated as Production Assistant. The remaining terms and conditions in
the case of all these persons were same. Thus, the facts and the evidences
brought before us clearly establish that there existed an employer-employee
relationship between these persons and the assessee and thus, the assessee
was liable to deduct TDS u/s 192 because the remuneration paid to them
constituted salary. The judgments relied upon by the Ld. Counsel are not
applicable on the facts of the case before us. These judgments were delivered
on the basis of peculiar facts of those cases and were based upon the contracts
entered in those cases. Therefore, keeping in view totality of facts and
circumstances of this case as discussed above, these grounds are rejected.
15. Grounds 5 & 6 were not pressed, therefore these are dismissed as such.
16. Grounds 7 to 10 and ground 11 & 12 involve a common issue that on the

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various expenses incurred by the assessee which were part of post production
activities, the assessee deducted tax at source u/s 194C treating them as
contractual work whereas the AO was of the opinion that services rendered to
the assessee by the payees were professional services, therefore, assessee
ought to have deducted tax at source u/s 194J. Ld. CIT(A) confirmed the order
of the AO on this issue.
17. We have gone through the orders passed by the lower authorities and
also gone through the submissions made by the Ld. Counsel in this regard. The
assessee has paid processing charges by Adlabs Films Pvt Ltd amounting to
Rs.34,93,624 which included a sum of Rs.23,79,972 towards print and
processing charges for which credit was given to the said party. It has been
submitted that taking out of the final negative of the films does not involve
rendering of any technical or professional services. Therefore, TDS is required
to be deducted u/s 194C. In any case, printing and processing of film is a part
of post production activity. Thus, TDS should be deducted u/s 194C. Similarly,
the assessee has paid amount for digital mixing, which is also part of post
production activities.
18. Our attention was brought on the decision of Mumbai bench of the
Tribunal in the case of DCIT vs Yashraj Films Pvt Ltd 160 ITD 626 (Mum)
wherein it was held that taking out a final negative of film does not involve any
technical or professional service, therefore, TDS should be deducted u/s 194C.
Our attention has also been brought on the following judgments wherein all
post production activities have been held covered within the definition of work
as provided u/s 194C:-
CIT v. Prasar Bharati [2007] 292 ITR 580 (Delhi HC) - The Hon'ble
Delhi High Court held that Explanation (iii) to Sec. 194C which was
introduced along with Sec. 194J is very specific in its application to

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not only broadcasting and telecasting but also includes

production of programmes for such broadcasting and
telecasting. The High Court held that when there are two provisions
one general and one specific, the specific one manifests the intention
of the legislature and should be followed.

Nitin M Panchamiya v. ACIT [2012] 50 sot 468 (Mumbal) as affirmed

by CIT v. Nitin M Panchamiya [2015] 228 Taxman 259 (Bombay
HC)(Mag) - The Hon'ble ITAT held that cinematographic films can
be covered under the ambit of 'productions of programs for
broadcasting and telecasting' and that the payment made for
production of such films would fall for consideration u/s 194C of
the Act (Pg. 20 - Case Law PB 3). The said ground was not appealed by
the Revenue before the Hon'ble High Court and hence can be said to
have been accepted by the revenue.
ACIT v. Sahara One Media & Entertainment Ltd. [2014] 41
Taxmann.com 488 (Mumbai-Trib) - Dubbing expenses print
processing fees are in the nature of a part of production of programmes
and are covered u/s 194C
ACIT v. Zee Entertainment Enterprises Ltd. [2014] 51 Taxmann.com 231
(Mumbai - Trib) -Equipment, labour and operators hired for
production purposes. CIT(A) also examined the issue of hiring of
equipment u/s 1941 of the Act and found in favour of the Assessee. The
Hon'ble ITAT rendered a considered opinion that there was no error in the
CIT(A) order.

19. We have gone through these judgments and find that case of the
assessee is squarely covered in its favour. The impugned expenses incurred by
the assessee are in the nature of post production activities. Therefore, the
assessee was obliged to deduct TDS u/s 194C only and not u/s 194J. As a
result, these grounds are allowed.
20. In the result, appeal of the assessee is partly allowed.
21. Now we shall take up appeal filed by the assessee in ITA
No.92/Mum/2015 for A.Y. 2005-06 against the order of the CIT(A) dated 01-10-

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2014 passed against the order u/s 201(1) / 201(1A) r.w.s. 263 of the Act dated
30th January, 2014 for A.Y. 2005-06 on the following grounds:-
1. The learned CIT (A) has erred in upholding that the payment of Rs. 8,46,838/-
made to VHQ SPTE Ltd. was liable to deduction of tax U/S 194J
amounting to Rs. 1,90,053/-, ignoring both the submissions
made by the appellant company and also the fact that the
recipient was a non resident to whom the provisions of Section 194J
do not apply.

2. Without prejudice to the ground of appeal no 1 as stated

above, the learned CIT(A) has erred in not appreciating the fact that
as per the provision of section 194J, the tax was deductible at the rate
of 5% plus applicable surcharge and cess and therefore, the tax
deductible, if any, u/s 194J amounted to Rs.47,508/- and not
Rs.1,90,053/- as incorrectly assessed by the assessing officer.

3.The learned CIT (A) has erred in upholding that the payment of
Rs. 14,59,514/- made to KBW Ltd. was liable deduction of tax U/S
194J amounting to Rs.81,874/-; ignoring both the submissions
made by the appellant company and the fact that the recipient
was a.non resident to whom the provisions of Section 194J do
not apply.

4. The learned CIT (A) has erred in concluding that the payment
of Rs.2,80,000/- made to Jai Mahal Palace Hotel was liable
to deduction of tax U/S 1941 amounting to Rs.61,832/-; ignoring the
submissions made by the appellant company including the fact that a
part of the amount was paid for food.
5. The learned CIT (A) has erred in concluding that the payment of
Rs.1,69,146/- made to Hotel Teej was liable to deduction of tax
u/s 194I amounting to Rs.37,956/-; ignoring the submissions made
by the appellant company including the fact that a part of the
amount was paid for food.
6.The learned CIT (A) has erred in concluding that the payment of
Rs.5,24,873/- made to Holiday Inn Hotel was liable to deduction
of tax U/s 1941 amounting to Rs. 1,17,815/-: ignoring the
submissions made by the appellant company including the fact that a

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part of the amount was paid for food.

7.The learned CIT (A) has erred in concluding that the payment of
Rs.3,68,557/- made to Roop Niwas Palace Hotel was liable to deduction
of tax u/s 194I amounting to Rs.82,704/-; ignoring the
submissions made by the appellant company including the fact that
a part of the amount was paid for food.

8.The learned CIT (A) has erred in concluding that the payment of
Rs. 1,76,727/- made to Grand Hotel was liable to deduction of tax U/S
1941 amounting to Rs.39,658/-; ignoring the submissions made by
the appellant company including the fact"that a part of the
amount was paid for food.

9. The learned CIT (A) has erred in concluding that the payment of
Rs.3,12,933/- made to Alfa Properties & Investment Pvt. Ltd. was liable
to deduction of tax U/S 1941 amounting to Rs.70,223/-; ignoring the
submissions made by the appellant company including the fact that a
part of the amount was paid for food.

10.The learned CIT (A) has erred in concluding that the payment of
Rs.6,19,000/- made to Cross Country Hotel was liable to deduction of
tax U/S 1941 amounting to Rs.1,38,904/-; ignoring the
submissions made by the appellant company including the fact that a
part of the amount was paid for food.

22. Grounds 1 & 2: The brief background of the issue is that during the
F.Y. 2004-05, the assessee paid a sum of Rs.8,46,838/- to M/s VHQ Singapore
without deducting tax on the same. The AO was of the opinion that this
amount was in the nature of professional fee and, therefore, assessee was
required to deduct tax at source on the applicable rates. The assessee
submitted before the AO that the recipient company was located in Singapore
and it did not have a Permanent Establishment (PE) in India. The said company
had rendered post production services in Singapore for the purpose of an
advertisement film and the work was executed wholly outside India and,

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therefore, the assessee company was not liable to deduct TDS on the same.
However, AO was not satisfied with the reply of the assessee and was of the
opinion that since payment was made for processing of a film, assessee was
liable to deduct tax u/s 194J and accordingly, he held the assessee in default
u/s 201 / 201(1A) of the Act. During the course of appeal before CIT(A), the
assessee submitted as under:-
A payment of Rs.8,45,838/- was made to VHQ SPTE Ltd.,
which was a company located in Singapore. The said
company had no permanent establishment in India. The
amount was paid towards studio hire charges in Singapore for
post product/on work for an advertisement film produced by
the appellant company. As per the provisions of DTAA
between India and Singapore , , the appellant company did not
deduct any tax on the payments made to the VHQ SPTE Ltd. as
it had no permanent establishment in India. In the original
assessment, the assessing officer did not raise any demand on
account of TDS for this payment as he was convinced from the
verification of bills/ vouchers, that no tax was deductible on
account of these payments. However, while completing the
assessment u/s 201(1)1 201(1 A) r.w.s 263 of the Income Tax Act,
1961, the then assessing officer considered the payment to the
party liable for deduction of tax u/s 194I. He mentioned that
as the payment is made for processing of the film, it was liable for
deduction u/s 194J attracted for such payments. Further, as per
the DTAA between India and UK, as the party did not have any
permanent establishment in India, it was not liable to
deduction of tax for this payment. It may be appreciated from
the bills that the services were rendered by a non-resident
company to which the DTAA between the two countries
applies. Further, even as per the certificate issued in
annexure B by a Chartered Accountant, no tax was liable to be
deducted on this payment. In light of the above submissions
and the bills/ vouchers submitted, we request Your Honour to
delete the demand of Rs.81,878/- made on ac of the payment
to KBW Ltd. by the assessing officer and oblige.
23. However, Ld. CIT(A) did not accept the submissions of the assessee. It

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was held by him that amendment was brought in section 9(1) wherein it was
provided that situs of rendering services was not relevant in determining the
taxability of the income of the payee u/s 9 of the Act as far as payment on
account of FTS was concerned. It was held that services rendered in Singapore
for production of advertisement film was used in India, therefore, the same
was taxable in India and accordingly the order of the AO was upheld.
24. During the course of hearing before us, Ld. Counsel of the assessee
vehemently contested this issue. The arguments made by him are summarized
as under:-

1. 'VHQ.' merely carried out post production activity. In the

process no technical knowledge, experience, skill, know-how or
process as envisaged by Article 12 of the India Singapore DTAA
was made available to the Appellant. Hence, the transaction
cannot be held to be a fee for technical services as envisaged by
Article 12 (4)(a) of the said DTAA. (Pg. 60 - 61 - Case Law PB 3)

2. Hence, as per the India Singapore DTAA, the fees paid to

'VHQ' were business profits as per Article 7 of the India Singapore
DTAA and could be taxed only in the Singapore as 'VHQ' did not
carry out any business via any permanent establishment in India.
(Pg. 62 - Case Law PB 3)

3. It is a settled position of law that in case of an International

transaction governed by a DTAA, the specific provisions of the
DTAA shall override the general provisions of the act. This is amply
demonstrated by Circular No. 333 [F No. 506/42/81-FTD] dated 2-4-
1982 that states that "where a double taxation avoidance
agreement provides for a particular mode of computation of
income, the some should be followed, irrespective of the
provisions in the Income-tax Act. Where there is no specific
provision in the agreement, it is basic law, i.e., the Income-tax
Act, that will govern the taxation of income." The circulars of the
CBDT are binding upon the Department.
Reliance placed upon CIT v. Hero Cycles Pvt. Ltd. [228 ITR 463 (SC),

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K.P. Varghese v. ITO 131 ITR 597 (SC) and UOl v. Azadi Bachao
Andolan 263 ITR 706 (SC).

4. Hon'ble Jurisdictional High Court in the case of CIT v. Siemens

Aktiongesellschaft [20091 310 ITR 320 (Born) held that where the
provisions of the DTAA are more beneficial than provisions of the
Act, the provisions of the DTAA would prevail.

5. For Article 12 of Singapore - India DTAA to apply, technical

knowledge, experience, skill, know-how or process needs to be
'made available'. Generally speaking, technology would be
considered 'made available' when the person acquiring the
service is enabled to apply the technology as was also held in:

Mc. Kinsey & Co., Inc. (Philippines) v. ADIT 99 ITD 549

(Mumbai)
ICICI Bank Ltd. v. DIT 20 SOT 453 (Mumbai)
Anapharm Inc., In re 305 ITR 394 (AAR)
As the payment made to 'VHQ' is not taxable in India, assessee
cannot be held to be an Assessee in default.

25. Per contra, Ld. DR vehemently supported the order of the Ld. CIT(A) and
AO and submitted that since payment has been made for the work used in
India, the assessee should deduct TDS u/s 194J.
26. We have gone through the facts and circumstances of this case and
orders passed by the lower authorities. The undisputed fact is that VHQ, i.e.
the recipient merely carried out post production activities. Nothing has been
brought before us to indicate or show that in the process of carrying out any
work, whether any technical knowledge, experience, skill, know-how or process
was made available to the assessee. VHQ is resident of Singapore. This is also
an admitted fact that it had no PE in India. This amount could be brought to
tax in India only subject to the provisions of Double Taxation Avoidance
Agreement between India and Singapore. Since this activity was not carried
out through any PE in India, it cannot be taxed as business profit of VHQ under

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Article 7 of India Singapore DTAA. Therefore, we have to examine its taxability

under Article 12 of India Singapore DTAA which provides for taxability of Fee
for Technical Services. It has been stipulated in Article 12(4)(b) of India
Singapore DTAA that Fees for Technical Services means payment to any
person in consideration for services of managerial, technical or consultancy
nature fee, if such services make available technical knowledge, experience,
skill, know-how or process which enables the person availing the services to
apply the technology contained therein.
In the facts of the case before us, VHQ has carried out post production job. In
this process, no technology or skill has been made available to the assessee. In
case assessee would need similar job again, then he will have to go back to
VHQ to get this job done. No replication or repetition is possible at the end of
the assessee at its own. Thus, the requisite mandatory condition of make
available of technical knowledge or know-how or skill is missing in this case.
Therefore, in our considered opinion, this amount cannot e brought to tax as
FTS under India-Singapore DTAA. The judgments relied upon by the Ld.
Counsel in his submissions have taken similar view. It is also noted that as per
provisions of section 90(2) of the Act, most beneficial provision shall be
available to the assessee between provisions of the Act and the provisions of
the DTAA. Therefore, we find that this amount was not taxable in the hands of
VHQ in India. Therefore, assessee was not obliged to deduct tax at source on
the payment made to VHQ. As a result, these grounds are allowed.
27. Ground 3: In this ground, it was held by the AO that amount paid by
the assessee to M/s KWB, UK for providing dancers, who had rendered services
in India for advertisement films used in India was taxable in India and,
therefore, assessee was liable to deduct TDS u/s 194J for professional or

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technical services. Limited prayer of the Ld. Counsel before us is that since the
payment was made for production of the programme for broadcast, therefore,
TDS should have been deducted u/s 194C and not u/s 194J.
28. Per contra, Ld. DR did not make any objection to this.
29. We have gone through the orders passed by the lower authorities and
find that the contention of the Ld. Counsel that amount was paid for
production of a programme for broadcast is factually correct. Therefore, TDS
was required to be deducted u/s 194C in view of the specific provision
contained in section 194C in this regard. Therefore, it is held that TDS should
have been deducted u/s 194C and not u/s 194J. Accordingly, this ground is
partly allowed.
30. Grounds 4 to 10: These grounds deal with the issue of non-deduction of
tax at source on the hotel expenses incurred by the assessee. It was held by
the AO that assessee should have deducted tax at source u/s 194I for rent of
hotel expenses incurred during shooting done at various locations. Ld. CIT(A)
agreed with the contention of the assessee partly and held that bills for the
hotel expenses also include expenses on account of food on which TDS should
not be made and, therefore, he reduced the amount of food expenses from the
bills of hotels and also in those cases where the expenses on hotel stay did not
exceed aggregate amount of Rs.1,20,000/- as prescribed u/s 194I. Therefore,
he provided relief to the assessee. However, for all those hotels, where the
stay expenses after deduction of the food expenses was more than
Rs.1,20,000, it was held by him that TDS was required to be deducted u/s 194I
on the whole of such amount.
31. During the course of hearing before us, Ld. Counsel of the assessee relied
upon the CBDT circular No.5 of 2002 dated 30-07-2002 wherein it was clarified

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that where earmarked rooms are let out for specified rate and specified period,
only then, they will be construed to be accommodation made available on
regular basis whereas the facts of the assessees case are that there was no
prior contract with the hotels. The rooms were hired on as and when available
basis, corresponding to the date of shooting. There was no contract for any
specific rates or period and thus TDS was not required to be made u/s 194I.
32. We have gone though the orders passed by the lower authorities and
facts brought before us on the basis of bills of hotels and other evidences. It is
noted that nothing has been brought before us to show that assessee had
entered into any prior contract with the hotels for any specific room or rooms
for any specific rates or rooms for any specific period. The rooms were hired
on as and when available basis at the regular tariff rates subject to the
discounts as agreed at the time of booking of rooms. Under these
circumstances, the assessee deserves to be given the benefit of the circular
issued by the Board providing that under these circumstances, TDS will not be
required to be made u/s 194I. Therefore, it is held that no TDS was required to
be made in this case. As a result, these grounds are allowed and this appeal is
partly allowed.
33. Now, we shall take up appeal filed by the assessee in ITA
No.6656/Mum/2014 for A.Y.2006-07 against the order of CIT(A) dated 14-08-
2014 passed against the order u/s 201(1) of the Act dated 24-03-2011 on the
following grounds:-

1. The Learned CIT (A) erred in upholding that the fees paid to
various professionals as being liable for deduction of tax u/s 192 of the act
though the appellant company has rightfully deducted the appropriate tax
on such payments u/s 194J of the Act.

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2. Alternatively and without prejudice to any other ground of

appeal, the Learned CIT (A) erred in upholding that the Six professionals
namely Mr. Sanjiv Chawla. Ms. Shushma Chitnis, Mr. Blesson Oornrnen,
Mr. Amitabh Shukia, Mr. Vishal Panjabi and Mr. Rajesh Wanmali had
an employer- employee relationship with the appellant company.

3. Alternatively and without prejudice to any other ground of

appeal, the learned CIT (A) erred in not appreciating that the
demand of Rs. 7,33,978/- for alleged short deduction of tax (being the
difference of tax deducted as between provisions of Sec 194J and 192 of
the Act) as made by the Assessing officer is erroneous and had in law.

4. Without prejudice to any other ground of appeal as taken by

appellant, the Learned CIT (A) erred in upholding that in this particular
circumstance where the six professionals have paid their due taxes,
interest u/s 201(A) will remain chargeable till date of filing of
return by the payee and in directing the assessing officer to recompute
the same.

5. Alternatively and without prejudice to any other ground of appeal,

the Learned CIT (A) erred in upholding that payments made for
various activities of post production work aggregating to Rs.
47,60,935/- were fees for professional or technical services and liable
for deduction u/s194J as opposed to contracts liable for deduction
u/s 194C as actually deducted by the Appellant.

6. Alternatively and without prejudice to any other ground of appeal,

the Learned CIT(A) failed to appreciate that the various activities of
Post production work (Annex-A) are merely work contracts which do
not require any professional or specialized technical knowledge and
hence are liable for deduction u/s 194C.
7. Without prejudice to any other ground of appeal taken by appellant,
the Learned CIT(A) erred in upholding that in this particular
circumstance where the various entities which took part in the post
production process have been assessed to and paid their due taxes,
interest u/s 201(A) will remain chargeable till date of filing of return
by the respective payees and in directing the assessing officer to
recomputed the same.
34. Grounds 1 to 4 : These grounds pertain to deduction of tax at source on the

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amount paid to professionals engaged by the assessee where tax was deducted u/s
194J whereas the AO was of the opinion that these persons were employees of the
assessee and therefore, TDS should have been deducted u/s 192 of the Act. During
the course of hearing, it was jointly stated that these grounds are identical to grounds
1 to 4 of ITA No.6655/Mum/2014. Facts and legal position remain the same.
Therefore, following our order in appeal in ITA No. 6655/Mum/2014, these grounds
are decided against the assessee.
35. Grounds 5 to 7: These grounds deal with the issue of requirement of
deduction of tax u/s 194C vs 194J on behalf of production expenses. It has already
been held in ITA No. 6655/Mum/2014 that TDS is required to be deducted on these
expenses u/s 194C and not u/s 194J. Therefore, following our order, these grounds
are allowed in favour of the assessee.
36. As a result, this appeal is partly allowed.
37. Appeals in ITA No.93/Mum/2015 for A.Y. 2006-07 and ITA
No.6657/Mum/2014 for A.Y. 2007-08 involve identical grounds which have already
been decided in aforesaid appeals. The AO is directed to follow our order of
aforesaid appeals which shall apply mutatis mutandis on the grounds raised in this
appeal also.
38. In the result, all the appeals are partly allowed in terms of our directions
contained in the orders passed in the aforesaid appeals.

39. Order pronounced in the court on this 28th day of February, 2017.

Sd/- sd/-
(D.T. GARASIA) (ASHWANI TANEJA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai, Dt : 28th February, 2017

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Copy to :
1. The appellant
2. The respondent
3. The CIT(A)
4. The CIT
5. The Ld. Departmental Representative for the Revenue, H-Bench
(True copy) By order

ASSTT.REGISTRAR, ITAT, MUMBAI BENCHES

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