THE C.I.T.B.C-III. vs. M/S.RUPAM PICTURES P.LTD.

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ITR/312/1998HC Bombay05 May 2015Bench: HON'BLE SHRI JUSTICE S.C. DHARMADHIKARI, HON'BLE SHRI JUSTICE A. K. MENON5 pages
AI SummaryAllowed

What did the High Court hold?

The High Court answered both questions in the affirmative, in favour of the assessee. Regarding the first question, the Court held that the disallowance made by the ITO under Section 40(c) was not justified. The amounts paid to the directors were for professional services rendered in directing and producing a film, not as remuneration for their directorship. Therefore, the character of the payment was different, and the revenue was not justified in disallowing the claim. The Tribunal was correct in deleting the disallowance. For the second question, the Court relied on its prior decision in Commissioner of Income Tax V/s. D.K. Kondke [1991 Mh.L.J. 572]. It held that if the production of a cinematograph film amounts to the manufacture of an article or goods, then the activity must be treated as that of an industrial undertaking within the purview of Section 80J. The Court observed that film production is considered a manufacturing activity and the undertaking as an industrial one, consistent with excise and other allied laws. Therefore, the Tribunal was right in holding that the business of film production constitutes an industrial undertaking for Section 80J. The Court added a rider that the authorities below must ascertain if the assessee satisfies the conditions of Section 80J as it stood at the relevant time.

What were the facts?

The assessee, M/s. Rupam Pictures Pvt. Ltd., is engaged in the business of film production. For the assessment year 1981-82, the company paid `3,00,000/- and `1,50,000/- to two directors, Shri Hrishikesh Mukherjee and Shri N.C. Sippy, respectively, for directing and producing a film. The Income Tax Officer (ITO) disallowed payments exceeding `72,000/- to each director under Section 40(3) of the Income Tax Act, 1961. The Commissioner of Income Tax (Appeals) upheld this disallowance. The Income Tax Appellate Tribunal (ITAT) deleted the addition, relying on its prior decisions. The assessee also claimed deduction under Section 80J, which the ITO rejected, stating film production does not constitute an industrial undertaking. The ITAT allowed this claim, again based on its earlier ruling. The Revenue has referred two questions of law to the High Court.

What were the issues?

The High Court was asked to decide two questions of law: 1. Whether, on the facts and in the circumstances, the Tribunal was right in law in deleting the disallowance made under Section 40(c) of the Income Tax Act, 1961, out of the remuneration of `3,00,000/- and `1,50,000/- paid to two directors for directing and producing a film? 2. Whether, on the facts and in the circumstances, the Tribunal was right in law in holding that the business of production of films constitutes an industrial undertaking for the purpose of Section 80J of the Income Tax Act, 1961? Contentions: Assessee: The amounts paid to the directors were professional charges for directing and producing a film, not remuneration in their capacity as directors. The business of film production qualifies as an industrial undertaking for Section 80J benefits. Revenue: The payments to directors were excessive and should be disallowed under Section 40(c). Film production is not an industrial undertaking for the purpose of Section 80J.

Which sections of the Income-tax Act were involved?

Section 40(c),Section 40(3),Section 80J,Section 256(1)

AI-generated summary — verify with the full judgment below

itr312-98 sas IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX REFERENCE NO.312 OF 1998 Commissioner of Income Tax, ] Mumbai City-III, Mumbai ] ..Applicant. V/s. M/s. Rupam Pictures Pvt. Ltd. ] C/o. N.V. Vale & Co., ] National Indian Ins. Bldg., ] 30, Ropewalk Street, ] Mumbai – 400 023. ] ..Respondent. Mr.Suresh Kumar for the applicant. None for the respondent. CORAM : S.C.DHARMADHIKARI AND A.K.MENON, JJ.

RESERVED ON : 23RD APRIL, 2015 PRONOUNCED ON : 5TH MAY, 2015. JUDGMENT (PER A.K.MENON)

1.

The Income Tax Appellate Tribunal has referred the following two questions under Section 256(1) of the Income Tax Act, 1961 ('the Act) for the opinion of this Court :- 1/5 CNR No : HCBM020100911991 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:12:51

itr312-98 (i) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in deleting the disallowance made u/s.40(c) of the I.T. Act, by the I.T.O. Out of the remuneration of `3,00,000/- and `1,50,000/- paid to two directors of the company viz. Shri Hrishikesh Mukherjee and Shri N.C. Sippy ? (ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the business of production of films constitutes an industrial undertaking for the purpose of section 80J of the I.T. Act, 1961 ? 3. The facts pertain to the assessment year 1981-82. The assessee was in the business of production of films. During the relevant year, two directors of the company Mr.Hrishikesh Mukherjee and Mr.N.C.Sippy were paid `3,00,000/- and `1,50,000/- respectively for directing and producing a film. The Income Tax Officer ('the ITO') applied the provisions of Section 40(3) of the Act which was in force at the relevant time and disallowed the payment in excess of `72,000/- in respect of the payments made to each of these persons. The Commissioner of Income Tax (Appeals) upheld the order of the ITO. In second appeal the Appellate Tribunal 2/5 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:12:51

itr312-98 relying on its earleir decision on the issue deleted the addition made by the ITO. 4. The assessee had claimed to be industrial undertaking undertaking and sought deduction under Section 80J of the Act. The ITO rejecting the application claimed that the assessee being in the business of film production was not entitled for deduction under Section 80J of the Act. The Tribunal relied upon its earlier decision in the case of one D.K. Kondke and allowed the deductions under Section 80J of the Act. This is how the reference came to be made. 5. As far as the second question is concerned, the issue being already decided by this Court in the case of Commissioner of Income Tax V/s. D.K. Kondke [1991 Mh.L.J. 572] we proposed to deal with the second question first. By this judgment, this Court hs decided Income Tax Reference No.195 of 1977 on 12th March, 1991. This Court observed that if the production of a cinematograph film amounts to manufacture of an article or goods within the meaning of section 104 (40(a) as it then stood, it follows that the said activities must be treated as that of an industrial undertaking 3/5 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:12:51

itr312-98 within the purview of Section 80J of the Act. This position was conceded by the counsel for the revenue in that case. 6. Accordingly, the activities of production of a film amounted to manufacturing of an article or goods. The activities be treated as those of an industrial undertaking within the purview of Section 80J of the Act. Even otherwise, this Court was of the view that film production will have to be considered as a manufacturing activity and the undertaking will have to be considered as an industrial undertaking as the same is considered under excise law and other allied laws also. We accordingly, answer this question in the affirmative with a rider that whether the assessee satisfies the conditions of the said Section as it then stood, will have to be ascertained by the authorities below. 7. As far as the first question is concerned, we find that the disallowance made by the ITO under section 40(c) of the Act was not justified. The amounts paid to the two individuals were not paid in their capacity as members of the Board of Directors but these amounts were paid as professional charges for directing and producing a film. The 4/5 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 04:12:51

itr312-98 revenue is, therefore, not justified in disallowing the claim, the character of the remuneration mode being different. As we have observed above, we are of the view that the Tribunal was right in deleting the disallowance. Accordingly, we answer the first question in the affirmative. 8. In the result, both the questions of law referred to us in the present reference are answered in the affirmative i.e. in favour of the assessee and against revenue. There shall be no order as to costs. (A.K. MENON, J.) (S.C.DHARMADHIKARI, J.)

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