By TIOL News Service

JAIPUR, FEB 17, 2017: THE ISSUE IS - Whether sharing of proceedings of film between film distributors and film exhibitor owning a cinema theatre, would warrant deduction of taxes u/s 194I. NO is the verdict.

Facts of the case:

The assessee firm is engaged in this business of purchase and sales of shares and is also engaged in films business. It had filed the return declaring NIL income. However, subsequently the case was selected for compulsory scrutiny and notice u/s 143(2) was issued to the assessee. In response, the AR of the assessee attended the hearing and filed written submission. However, assessment was carried without considering those. On appeal, the CIT(A) also confirms the order of AO. When the matter reached Tribunal, the term of agreement were considered and it was observed that payments made by assessee were not towards rental expenses and hence no TDS u/s 194-I would be applicable to such case. Accordingly, the entire disallowance of Rs. 65,00,000/- made on account of non-deduction of TDS was deleted.

On appeal, the HC held that,

++ it is clearly founded by the ITAT that the assessee was not responsible for any of the above said activities rather it is M/s. Show Time Entertainment pvt. Ltd. was only responsible for managing and running the due exhibition of pictures at the cinema hall after complying all the statutory requirements. Further The counsel for the assessee upon the Board's Circular No. 1294 Where by the Board has clarified that the provisions of section 194-I of the IT Act to the sharing of proceedings of film between film distributors and film exhibitor owning a cinema theatre, are not attracted to such payment. We find that the above said circular squarely applicable to the facts and circumstances of the case. In fact, in the present case assured and guaranteed return by the assessee was given to the cinema owner is case of exhibiting of films by the cinema owner. There is no letting out of the cinema hall, plant and machinery, furniture and fixture for exhibition of films. We feel that the dominant and prime intention of the parties entered into agreement to conduct business and to give comfort level by the assessee to the cinema owner. The day to day maintenance and running of commercial activities remained with the owner of the cinema owner and the assessee had no control or interference whatsoever. The cinema was exclusively owned and managed by the cinema owner and the assessee was having no interference with selecting the films, exhibiting the films, issuing tickets, paying tax, maintaining statutory Compliances Whatsoever. Thus the agreement was not of letting out but was for conduct of business. Therefore, the view taken by the Tribunal is just and proper, no interference is called for. In the opinion of this court, is not rent it was the collection which was assured by the parties to the agreement.

(See 2017-TIOL-332-HC-RAJ-IT)