INCOME TAX OFFICER (TDS) v. SHRINGAR CINEMAS (P) LTD
[Citation -2007-LL-1211]

Citation 2007-LL-1211
Appellant Name INCOME TAX OFFICER (TDS)
Respondent Name SHRINGAR CINEMAS (P) LTD.
Court ITAT
Relevant Act Income-tax
Date of Order 11/12/2007
Assessment Year 2004-05, 2005-06
Judgment View Judgment
Keyword Tags deduction of tax at source • composite service • bona fide belief • film distributor • land appurtenant • film exhibition • cinema building • hire charges
Bot Summary: These appeals are preferred by the Revenue against the respective orders o f the CIT(A) on common ground that CIT(A) has erred in holding that the working on movie exhibition in the theatre through contract between the distributor and the exhibitor of cinematographic films is not covered under the definition of any work and envisages under the provisions of s. 194C of the Act and consequently cancelling the order raising demand under s. 201(1) and interest charged under s. 201(1A) thereon. Not finding favour with the submissions and explanation offered by the assessee, the AO for the reasons discussed in detail, passed order under s. 201(1) by raising a demand under s. 194C and also charged interest under s. 201(1A) for the asst. From the above discussion and going through the views of both AO and Authorized Representative, it is seen that the appellant s case does not fall either under s. 194-I or under s. 194C. Admittedly, the appellant filed a copy of the Standard Film Renting Contract entered into between the distributor and the appellant from which I find that the contract between the appellant and distributor is for the supply of film prints for exhibition in the cinema halls for a particular period. The provisions of s. 194- I are not applicable in view of CBDT s Circular 736. III, to, s. 194C. Thus, in view of Hon ble High Court of Bombay in the case of Chamber of Income tax Consultants, and Gujarat High Court s decision in the case of All Gujarat Federation of Tax Consultant vs. CBDT, the Tribunal, Gujarat s decision in the case of Asstt. As regards second ground of appeal, which is against charging of interest under s. 201(1A), it has been submitted the learned AO erred in levying interest for both the years, by treating the appellant an assessee in default under s. 201(1A) for not deducting the tax at source from the payments made to the distributor. Since the provisions of s. 201(1A) are consequential in nature, and once the demand raised as per first ground of appeal stands deleted and the appellant h a s been held as not in default, the interest charged stands automatically deleted.


These appeals are preferred by Revenue against respective orders o f CIT(A) on common ground that CIT(A) has erred in holding that working on movie exhibition in theatre through contract between distributor and exhibitor of cinematographic films is not covered under definition of any work and envisages under provisions of s. 194C of Act and consequently cancelling order raising demand under s. 201(1) and interest charged under s. 201(1A) thereon. Since these appeals were heard together, these are being disposed of by single consolidated order. We have heard rival submissions and carefully perused orders of authorities below and documents placed on record. facts in brief borne out from orders of lower authorities are that assessee is company engaged in business of exhibition of films. survey under s. 133A was conducted consequent to which it came to notice of AO that assessee during financial years 2003-04 and 2004-05 paid substantial amount to distributors as share on account of supply of film prints of various films during these years. distributors were paid certain fixed percentage of net weekly collection from exhibition of films, on basis of Standard Film Renting Contract (SFRC) entered into between assessee and distributor. AO was of opinion that payments made to distributors were in nature of contractual payment which attracted provisions of s. 194C and required assessee to explain as to why it should not be treated assessee in default under s. 201(1) of Act for not deducting tax at source of these payments and charged interest under s. 201(1A) of Act for not depositing amount deductible. Not finding favour with submissions and explanation offered by assessee, AO for reasons discussed in detail, passed order under s. 201(1) by raising demand under s. 194C and also charged interest under s. 201(1A) for asst. yrs. 2004-05 and 2005-06. assessee preferred appeal before CIT(A) with submissions that he was in business of setting up and running multiplex cinema halls for exhibition of films in India including programming of theatres and owning/managing multiplexes. theatres are either owned by assessee or are taken on lease. Since assessee is in business of exhibition of films, it approaches distributor for supply of films. agreement that is entered into between exhibitor i.e., assessee and distributor is called Standard Film Renting Contract, said agreement is approved by Indian Motion Picture Distributors Association, Bombay and Cinematograph Exhibitor s Association of India and Theatre Owners Association. It was stipulated that this agreement was for supply of film prints for exhibition in multiplexes cinema halls owned by exhibitor for particular period and after end of stipulated period film prints have to be returned to distributor. In other words, consideration paid by exhibitor to distributor is for license to use films or running of film prints. provisions of deduction of tax at source from rent payments are contained in s. 194-I of IT Act. But, provisions of s. 194-I are applicable only in respect of payments for use of any land or any building including factory, building, together with furniture, fittings and land appurtenant thereto. It was further contended that in present case, payment is made for license to use films or renting of films and, therefore, not covered under provisions of s. 194-I of Act. reliance was placed upon Circular No. 736 dt. 13th Feb., 1996 [(1996) 131 CTR (St) 1] issued by CBDT which clarified that provisions of s. 194-I are not attracted to sharing of proceeds of exhibition of film between distributors and exhibitors. assessee further contended that as per provisions of s. 194C any person responsible for paying any sum to any resident contractor for carrying out any work (including supply of labour for carrying out any work) in pursuance of contract between contractor and bodies mentioned therein shall, at time of credit of such sum to account of contractor or payment thereof in cash or by issuing of cheque or draft or by any other mode whichever is earlier, deduct amount equal to 2 per cent of such sum as income-tax on income comprised therein. Thus thrust of s. 194C is on payments made for any work carried on by contractor. But, in present case distributor has only given its film on rent to assessee. Therefore, payment made is for license to use films or renting of films and is not covered under s. 194C of Act. CIT(A) re-examined this issue in light of relevant provisions i.e., ss. 194C and 194-I of Act, Circulars issued by CBDT and various judgments referred to by parties and finally arrived at conclusion that action of AO in treating assessee in default for not deducting tax at source under s. 194C, cannot be held to be justified. He, accordingly, deleted demand raised under s. 201(1) of Act. So far as, interest under s. 201(1A) is concerned, CIT(A) has held that AO has erred in not appreciating that company was under bona fide belief that no tax is required to be deducted from payments made to distributors. He, accordingly, deleted interest charged by AO. relevant observation of CIT(A) is extracted hereunder: "5. I have carefully considered submissions of Authorized Representative on behalf of appellant and gone through order of AO. AO in his order, while rejecting contention of appellant that distributor is allowed to share collection made from exhibition of films, for supply of prints and thus in way appellant receives hire charges from distributor, for services rendered through theatre with attendant facility, including staff for exhibition of film, has concluded that as per provisions of s. 194C, arrangements of distributing collection made out of exhibition of movie, not belonging to either distributor or exhibitor is definitely based on certain terms and conditions, which may be oral or in writing and thus is carrying out any work in pursuance of contract for which provisions of s. 194C would attract. He has also drawn analogy by stating that if supply of labour could be termed as carrying out any work , supply of film prints by distributor can also be considered as carrying out any work . He has also relied on decision of Hon ble Supreme Court in case of ACC Ltd. and subsequent issuance of guidelines in form of Circular No. 736 [(1996) 131 CTR (St) 1] and amendment of s. 194C, vide Finance Bill, 1995 to include services like broadcasting, telecasting etc., which in his opinion also implies having include cinecasting as well. He has further concluded that since as per Circular No. 736, provisions of s. 194-I are not applicable, in respect of film exhibition by exhibitors and distributors, hence, this type of work or service falls under provisions of s. 194C of IT Act, 1961. Since, terms of contract between exhibitor and distributor is for sharing of money after exhibition of film, assessee is responsible, under contract to exhibit and collect money and share income on percentage basis. Thus in wider meaning of term any work as given by apex Court, in case of ACC Ltd., exhibition of movies by assessee based on terms of contract falls under provisions of s. 194C. (i) But, as per submissions made by Authorized Representative, AO has erred, in not appreciating fact of arrangement between exhibitors i.e., appellant and distributor, which is as per Standard Film Renting Contract approved by Indian Motion Picture Distributor s Association, Bombay and Cinematographic Exhibitor s Association of India and Theatre Owners Association, Bombay and same is bona fide arrangement as per which certain fixed percentage of net weekly collection of film is paid to distributor i.e., proceeds of film exhibition are shared between appellant and distributor. (ii) It was further contended that AO has not appreciated nature of services rendered by distributor in its proper perspective. service that is being provided by distributor is only restricted to supply of films and not extended to cinecasting. Hon ble Supreme Court in case of Associated Cement Company Ltd. vs. CIT (1993) 111 CTR (SC) 165: (1993) 201 ITR 435 (SC), referred to by AO has decided limited question before it i.e., whether supply of labour is also covered under provisions of s. 194C or not. While interpreting in that context Supreme Court has issued directions to cover any work , which has been further clarified by Hon ble High Court of Gujarat, in case of All Gujarat Federation of Tax Consultants vs. CBDT (1995) 126 CTR (Guj) 288: (1995) 214 ITR 276 (Guj). issue has been made clear that intention of Supreme Court was to bring supply of labour in ambit of s. 194C, but not to stretch to include any work in section. Similarly, Hon ble High Court of Bombay in case of Chamber of Income-tax Consultants, referring to above Supreme Court s decision observed that judgments must be read as whole and observations in judgments should be considered in light of questions which were before Court and that decision of Supreme Court did not intend to give extended meaning to expression any work so as to include professional services within its ambit. iii. Thus as per submissions made by Authorized Representative in view of Supreme Court s decision in case of ACC Ltd. Circular No. 681 [(1994) 117 CTR (St) 229], and Expln. III to s. 194C, interpretation of word any work does not include exhibition of films in theatre. His argument is mainly consisting of facts like in decision by Supreme Court, where there was limited question, whether supply of labour amounts to contract or not? But, Supreme Court s decision is silent on exhibition of movies in purview of interpretation of word any work . Similarly, Board s Circular No. 681 and Expln. III of s. 194C, also, expressly does not include exhibition of movies. Whereas, telecasting and broadcasting have been included in circular and also in Explanation. Therefore, I find considerable force in submissions and argument of Authorized Representative of appellant that film exhibition is not covered under purview of s. 194C and word any work explained by Supreme Court has not expressly, included exhibition of films in theatre, particularly multiplex theatre. circular issued by Board, bearing No. 681 was further guideline to include different types of contract in view of definition of word any work delivered by Supreme Court. However, in circular also, exhibition of movies is not included. iv. From above discussion and going through views of both AO and Authorized Representative, it is seen that appellant s case does not fall either under s. 194-I or under s. 194C. Admittedly, appellant filed copy of Standard Film Renting Contract entered into between distributor and appellant from which I find that contract between appellant and distributor is for supply of film prints for exhibition in cinema halls for particular period. After end of stipulated period, film prints have to be returned to distributor and consideration paid by exhibitor to distributor is for license to use films or for renting of films. Therefore, provisions of s. 194- I are not applicable in view of CBDT s Circular 736. I am not convinced with conclusion of AO that if provisions of s. 194-I are not applicable, then, provisions of s. 194C should be made applicable. CBDT vide Circular No. 720 dt. 30th Aug., 1995 [(1995) 127 CTR (St) 82], has clarified that each section regarding TDS under Chapter XVII, deals with particular kind of payment to exclusion of all other sections in this chapter. Thus payment of any sum, shall be liable for deduction of tax only under one section. I am also not inclined to agree with opinion of AO that if services like broadcasting, telecasting etc., could be held to be covered under s. 194C, cinecasting also, should have been covered under this section. As there is no express provision of including cinecasting under provisions of s. 194C, either by circular or amendment, to insist on including same, would definitely tantamount to be arbitrary action on part of Department. Moreover, I also find truth in submissions of Authorized Representative of appellant, that print distributed by distributor is exhibited in various theatres of multiplex on sharing basis of collection from week to week. ownership of movie print never rests with exhibitor, which is distinct point to be considered in case of contract and in case of sharing of collection. sharing of collection from exhibitor of each movie is also explained by AO in his order. Further, Hon ble Tribunal, Ahmedabad Bench SMC , in case of Asstt. CIT, TDS- Range Ahmedabad vs. Esseem Entertainment (P) Ltd. vide ITA Nos. 3731 and 3732/Ahd/2004 dt. 7th April, 2005 has held that sharing of receipt from exhibition of films between theatre owner and distributor would not fall under definition of work as defined in Expln. III, to, s. 194C. Thus, in view of Hon ble High Court of Bombay in case of Chamber of Income tax Consultants, and Gujarat High Court s decision in case of All Gujarat Federation of Tax Consultant vs. CBDT (supra), Tribunal, Gujarat s decision in case of Asstt. CIT, TDS vs. Esseem Entertainment (P) Ltd. (supra) on similar issue, wherein it has also been held that logic cannot be further extended to cover movie exhibition, in definition of any work , action of AO in treating appellant assessee in default for not deducting tax at source under s. 194C cannot be held to be justified. Accordingly, demand raised under s. 201(1) for both years are deleted. This ground of appeal is decided in favour of appellant. As regards second ground of appeal, which is against charging of interest under s. 201(1A), it has been submitted learned AO erred in levying interest for both years, by treating appellant assessee in default under s. 201(1A) for not deducting tax at source from payments made to distributor. learned AO has erred in not appreciating that payment made by appellant to distributor was for supply of film prints for exhibition and not rendering any service and, therefore, not liable for deduction of tax. Without prejudice to these, learned AO erred in not appreciating that company was under bona fide belief that no tax is required to be deducted from payments made to distributors. learned AO has further erred in not correctly computing interest under s. 201(1A). Since provisions of s. 201(1A) are consequential in nature, and once demand raised as per first ground of appeal stands deleted and appellant h s been held as not in default, interest charged stands automatically deleted. Therefore, this ground of appeal is also decided in favour of appellant." A. Now Revenue has preferred appeal and placed heavy reliance upon order of AO. learned counsel for assessee on other hand besides placing heavy reliance upon order of CIT(A) has invited our attention to copy of Standard Film Renting Contract, Circular Nos. 681 dt. 8th March, 1994 [(1994) 117 CTR (St) 229] and 736 dt. 13th Feb., 1996 [(1996) 131 CTR (St) 1] issued b y CBDT. He has also placed reliance upon order of Tribunal in case of Esseem Entertainment (P) Ltd. (ITA Nos. 3731 and 3732/Ahd/2004) in which identical issue was examined by Tribunal in light of relevant provisions of Act. We have carefully examined provisions of ss. 194C and 194-I of IT Act and circulars issued by CBDT and we find that provisions of s. 194C cannot be applied to present case, as it can only be invoked where payments are made to any resident contractor for carrying out any work including supply of labour for carrying out any work in pursuance of contract between contractor and various bodies given under s. 194C of Act. But, in instant case, agreement between assessee and distributor was not executed to perform/carry out particular work. It is basically leasing/renting of film by distributors to exhibitor and whatever proceeds were collected, it were shared between exhibitor and distributor in accordance with terms agreed between them. We have also examined provisions of s. 194-I which can only be invoked where payments of rent are made, but, it relates to payment of rent for use of machinery or land or building etc. It cannot be invoked to present facts and it has been clarified by Board Circular No. 736 dt. 13th Feb., 1996 that exhibitors do not let out cinema hall to distributor. Generally share of exhibitor is on account of composite service and distributor does not take cinema building on lease o r sub-lease or tenancy or under any agreement of similar nature. word, thus, clarified that provisions of s. 194-I are not attracted in sharing of proceedings of film exhibitions between film distributor and film exhibitor owning cinema theatre. Keeping in view totality of facts of case we are of opinion that neither provisions of s. 194C nor 194-I are attracted in this case. We, therefore, find no infirmity in order of CIT(A) who has rightly adjudicated issue in light of given facts and circumstances of case. We, accordingly, confirm his order. So far as charging of interest point is concerned, we find no infirmity in order of CIT(A) and we also confirm same. In result, appeals of Revenue are dismissed. *** INCOME TAX OFFICER (TDS) v. SHRINGAR CINEMAS (P) LTD.
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