2017 (2) TMI 1003 - HC - Income Tax

Non-deduction of tax (TDS) u/s 194I - payment is not towards rental expenses as per ITAT - Held that - Board s Circular No. 1294 Where by the Board has clarified that the provisions of section 194-I 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. - Decided against revenue

Summary

Issues:
1. Disallowance of TDS on payment of rent under Section 194-I of the Income Tax Act
2. Validity of Tribunal's decision in reversing orders passed by CIT (A) and Assessing Officer

Analysis:
1. The appellant challenged the Tribunal's decision allowing the assessee's appeal against the disallowance of ?65,00,000 for non-deduction of TDS on rental expenses under Section 194-I of the Income Tax Act. The Tribunal held that the payment in question was not towards rental expenses, as per the agreement terms. The agreement specified that any sum exceeding ?65,00,000 in gross collection was to be paid by the first party to the second party, indicating that the assessee was not responsible for making payments to the first party. The Tribunal reasoned that since the assessee did not control the funds and was not involved in payment transactions, TDS provisions did not apply. Additionally, the Tribunal highlighted that the agreement was for conducting business, not for letting out property, as clarified by a relevant Board circular. The Tribunal found the appeal to be without merit and upheld the assessee's position.

2. The Tribunal's decision was based on a thorough analysis of the agreement terms and the actual conduct of the parties involved. The Tribunal found that the assessee's role was limited to providing assured collections to the cinema owner for exhibiting films, without involvement in day-to-day operations or statutory compliances. The Tribunal emphasized that the agreement did not constitute a rental arrangement but a business arrangement, as the cinema owner retained full control over operations. Moreover, the Tribunal noted that the agreement did not involve letting out property for film exhibition, as the cinema owner managed all aspects related to film screening and ticket sales. Therefore, the Tribunal concluded that the appeal lacked merit and upheld the decision in favor of the assessee.

In conclusion, the High Court agreed with the Tribunal's decision, stating that the payment in question was not rent but an assured collection as per the business agreement. The Court found no reason to interfere with the Tribunal's decision, as it was deemed just and proper. Consequently, the Court dismissed the appeal, affirming the Tribunal's ruling in favor of the assessee.