2015 (2) TMI 638 - HC - Income Tax

Liability to deduct tds u/s 194C - cinecasting / distribution of movies - tribunal deleted disallowance - Held that - Tribunal is justified in coming to the conclusion that the exhibition of film in the theatre has not been described in the Explanation, therefore, there is no case of the revenue, by which it can be held that the assessee was required to deduct tax at source from the payments made by it to the distributor of films. The Tribunal has rightly considered the agreement/arrangement between the parties and in detail discussed the same. We have considered the decision cited by learned Senior Counsel appearing for the revenue, however, the same shall not be applicable on the facts of the present case inasmuch as the distributor gets his share because he has acquired rights of the distribution of the films in the particular area and as no work is carried out by the distributor for which the payment is made. We concurr with the finding of facts by the Tribunal. The Appellate Tribunal was right in law in holding that cinecasting/distribution of movies would be outside the purview of section 194C of the Income Tax Act, 1961 requiring tax deduction at source. - Decided in favour of the assessee.

Summary

Issues Involved:
1. Applicability of Section 194C of the Income Tax Act, 1961 to cinecasting/distribution of movies.
2. Requirement of tax deduction at source (TDS) for payments made to movie distributors.
3. Interpretation of "work" under Section 194C and Explanation III of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Applicability of Section 194C of the Income Tax Act, 1961 to cinecasting/distribution of movies:
The primary issue in this case was whether the activity of cinecasting/distribution of movies falls under the purview of Section 194C of the Income Tax Act, 1961, which mandates tax deduction at source for payments made for carrying out any work under a contract. The Revenue argued that the payments made by the assessee to the movie distributor should be subject to TDS under Section 194C. However, the Tribunal held that cinecasting/distribution of movies does not constitute "work" as defined under Section 194C and its Explanation III. The Tribunal observed that the distributor merely acquires rights for distribution and does not perform any work for the exhibitor.

2. Requirement of tax deduction at source (TDS) for payments made to movie distributors:
The Revenue contended that the assessee was required to deduct TDS on payments made to the movie distributor, as per Section 194C. The Tribunal, however, found that the arrangement between the assessee and the distributor was not for carrying out any work but rather a revenue-sharing agreement where the distributor gets a share of the ticket sales. The Tribunal emphasized that the distributor does not perform any work for the exhibitor; hence, the payments do not fall under the ambit of Section 194C.

3. Interpretation of "work" under Section 194C and Explanation III of the Income Tax Act:
The Tribunal referred to the definition of "work" under Explanation III to Section 194C, which includes advertising, broadcasting and telecasting, carriage of goods or passengers, and catering. The Tribunal noted that the exhibition of films is not explicitly mentioned in this definition. The Revenue's argument that the definition of "work" is inclusive and should cover movie distribution was rejected. The Tribunal reasoned that if the legislature intended to include movie distribution, it would have explicitly mentioned it alongside broadcasting and telecasting. The Tribunal cited similar decisions from other cases to support its conclusion that the exhibition of films does not fall within the scope of "work" under Section 194C.

Conclusion:
The High Court, after considering the arguments and the Tribunal's findings, agreed with the Tribunal's interpretation. The Court held that the Tribunal was correct in concluding that cinecasting/distribution of movies is outside the purview of Section 194C, and therefore, the assessee was not required to deduct TDS on payments made to the distributor. The High Court confirmed the Tribunal's order and dismissed the Revenue's appeals, answering the substantial question of law in favor of the assessee.