a)The assessee was engaged in production of 2D and 3D animation films. It had outsourced part of its project on sub-contract to foreign sub-contractors.
b)The assessee had made payments to foreign companies as per agreement, named as 'Outsourcing Facilities Agreement'. The Assessing Officer (‘AO’) held that the payments made to foreign companies were 'fees for technical services' and, thus, said payments were taxable in India.
c)Since the assessee had not made TDS before making aforesaid payments, it was to be treated as assessee-in-default under section 201 and 201(1A). On appeal, the CIT(A), set aside the order of AO. The aggrieved-revenue filed the instant appeal.
The Tribunal held in favour of assessee:
1)There was no element of any technical services involved in the production of animation films to attract the provision of section 9(1)(vii), read with section 5(2)(b).
2)It is possible that job undertaken by one party for the other party' of supply of any goods or services may involve utilization of the knowledge, information and expertise of the party undertaking the said job.
3)However, just because such expertise, knowledge, technology and experience are possessed by the said party and the same have been utilized for rendering the services, it cannot be said that the services so rendered are in the nature of technical and consultancy services without making any technology available to the other party.
4)Thus, the impugned payment made by the assessee could not be treated as 'fees for technical services'.
5)The foreign parties had not done any activity in India nor they had any permanent establishment in India. As there was no liability to deduct tax on the impugned payments under section 195, the AO was not justified in raising demand on assessee. Thus, the appeal of revenue was to be dismissed.- ADIT (INTERNATIONAL TAXATION) V. DQ ENTERTAINMENT (INTERNATIONAL) (P.) LTD  45 taxmann.com 17 (Hyderabad - Trib.)