2015 (11) TMI 1448 - AT - Income Tax

TDS u/s 194I - non deduction of TDS - as contended by the assessee that the agreement is neither a Rent Agreement nor an agreement to take the cinema hall for exhibiting the film nor it was an agreement to take on rent the plant and machinery installed in the cinema hall but was an agreement for conducting of business and for the purpose of ensuring and boosting the business of film exhibition by M/s. Show Time Entertainment Pvt. Ltd the said agreement was entered by the assesse with cinema owner Held that - We are of the opinion for the purposes of attracting section 194-I the prime condition was that the payment of rent should be relatable to any use of land/building together with furniture fixtures etc. From the perusal of the terms and conditions of the agreement referred above it is clear that there is no corelation between the payment of 65, 00, 000/- and uses of cinema hall/plant and machinery. further we are of the opinion that the term Rent is a periodical payment payable by the user of land building etc to the owner/landlord of the land building etc. In the present case the second party (the assessee) is not the user of the cinema hall/plant and machinery moreover no payment was made by the second party i.e. assessee . therefore we hold that the payment of 65 lacs were not in the nature of rent within the meaning of section 194-I of the Act and the said provision is not attracted . Thus the payment is not required to be made by the assessee (second party) to the first party rather it was other way round i.e. the first party/ M/s. Show Time Entertainment Pvt. Ltd was required to make the payment to the second party/ assessee in case of excess collection. In fact the assessee did not have any control over the funds as the funds were collected and managed by selling of tickets by the first party i.e. M/s. Show Time Entertainment Pvt. Ltd. and no money was being paid by the second party / Assessee to the first party / M/s. Show Time Entertainment Pvt. Ltd. Thus the provisions relating to the tax deduction at source do not come cannot come into play. Assured and guaranteed return by the assessee was given to the cinema owner in 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. - Decided in favour of assessee.

Summary

Issues Involved:
1. Rejection of the assessee's claim of Rs. 65,00,000 as a guaranteed amount.
2. Applicability of Section 194-I of the Income Tax Act, 1961, on the adjustment of Rs. 65,00,000.
3. Consideration of CBDT Circular No. 736 dated 13.02.1996.

Issue-wise Detailed Analysis:

1. Rejection of the assessee's claim of Rs. 65,00,000 as a guaranteed amount:
The assessee firm, engaged in the business of shares and films, filed a return declaring NIL income. The case was selected for scrutiny, and the Assessing Officer (AO) noticed that the assessee had guaranteed a gross collection of Rs. 65,00,000 to M/s. Showtime Entertainment Pvt. Ltd. from film exhibitions. The Cinema Hall collected Rs. 80,59,051, out of which Rs. 65,00,000 was retained by the Cinema Hall, and Rs. 15,59,051 was paid to the assessee. The AO issued a show-cause notice questioning why the Rs. 65,00,000 should not be disallowed and added to the total income. The AO concluded that the assessee was required to deduct TDS on the amount under Section 194-I and disallowed the expenses due to non-deduction of TDS.

2. Applicability of Section 194-I of the Income Tax Act, 1961, on the adjustment of Rs. 65,00,000:
The AO and CIT (A) held that the payment of Rs. 65,00,000 was in the nature of rent, falling under Section 194-I, which mandates TDS deduction for rent payments. The assessee contended that the agreement was for conducting business, not renting the cinema hall. The agreement terms showed that the Cinema Hall's management and expenses were handled by M/s. Showtime Entertainment Pvt. Ltd., not the assessee. The Tribunal found that the dominant intention of the agreement was business conduct, not letting out the cinema hall. Consequently, the Rs. 65,00,000 was not considered rent under Section 194-I, and the provisions of TDS were not applicable.

3. Consideration of CBDT Circular No. 736 dated 13.02.1996:
The assessee relied on CBDT Circular No. 736, which clarifies that Section 194-I is not applicable to revenue sharing between film distributors and exhibitors. The Tribunal agreed with the assessee, stating that the agreement was for conducting business and ensuring minimum collections, not renting the cinema hall. The Tribunal noted that the Cinema Hall's management, ticket sales, and statutory compliances were handled by M/s. Showtime Entertainment Pvt. Ltd., not the assessee. The Tribunal concluded that the agreement was not for letting out but for business conduct, making the provisions of Section 194-I inapplicable.

Conclusion:
The Tribunal allowed the appeal, holding that the Rs. 65,00,000 was not rent under Section 194-I, and the provisions of TDS were not attracted. The agreement was for conducting business, and the dominant intention was not letting out the cinema hall. The appeal was allowed in favor of the assessee.