2025 (7) TMI 213 - AT - Service Tax

Classification of services - Renting of Immovable Property service or not - screening/exhibiting the films in the theatre - HELD THAT - Considering the agreement between the appellant with M/s. UTV it is apparent from Clause 1 that the distributor grants Theatrical Exhibition Rights of the film to the appellant which implies that Theatrical Exhibition Rights are transferred by the distributor to the appellant. From the submissions of the appellant we find that the film distributors entered into an agreement with the appellant to screen the movie in the theatre under two different situations i.e. A. Agreement where right/license to exhibit the film is granted to the exhibitor by the distributor for specified number of shows and period; and B. Agreement where theatrical exhibition rights in perpetuity to exhibit the films are guaranteed - In the second case the appellant would make payment to the distributor for the grant of the rights to screen the films and the payments were described as Theatre Shares Fixed Hire Theatre Hire which was specified percentage of the NBOC. In the case of Moti Talkies Vs. Commissioner of Service Tax Delhi-I 2020 (6) TMI 87 - CESTAT NEW DELHI the Principal Bench considered the agreements entered into between the distributor and the appellant being an exhibitor for screening pictures which was alleged by the Revenue to be an agreement for Renting of Immovable Property as defined under Section 65(90a) of the Act. On the basis of the agreement between the parties the Bench concluded that it is difficult to even visualise that the appellant is providing his service to the distributor by renting of property or even any other service in relation to such renting. It was held that the agreements executed confer rights upon the appellant to screen the film for which the appellant is making payment to the distributor and not the distributor making any payment to the appellant. What emerges from various decisions is that the owner of the Multiplexes/theatres exhibits the films and for getting the films exhibited in their theatre they enter into agreements with the film distributors/producers for which the owner of the theatre agrees to pay certain amount to the distributors generally fixed as a percentage of the NBOC. The purpose of the agreement and the intention of the parties is for screening of the film in the theatre which cannot be treated as Renting of Immovable Property Service . Moreover the element of consideration i.e. the quid pro quo for services which is a necessary ingredient of any taxable service is absent. The revenue has not been able to establish the service provider and service recipient relationship between the appellant and the distributor (Mormugao Port Trust). Consequently no service tax can be levied on the appellant. Depending upon the terms of the agreement the theatre owner also renders operational or administrative assistance and liable to pay service tax and respect of renting of Vimal property and also other operational and administrative assistance . Reference was made to the Circular dated 13.12.2011 clarifying the levy of service tax on distributors/sub distributor of films and exhibitors. There are no merits in the impugned order and hence the same is set aside - appeal allowed.

Summary

The core legal questions considered by the Tribunal in this appeal are:

1. Whether the appellant, as a theatre owner/exhibitor, provides a taxable service of "Renting of Immovable Property" to film distributors/sub-distributors by allowing screening of films in their cinema halls.

2. Whether the appellant is liable to pay service tax on amounts received or payable under agreements characterized as "Theatre Hire," "Fixed Hire," or revenue sharing from Net Box Office Collections (NBOC).

3. The nature of rights transferred under agreements between film distributors and the appellant-whether these constitute transfer of copyright or merely permission to exhibit films, and the consequent tax implications under the Service Tax and Copyright Acts.

4. The applicability and interpretation of relevant Circulars issued by the Central Board of Excise and Customs (CBEC) regarding taxation of film exhibition services.

5. The relevance of judicial precedents interpreting the scope of "Renting of Immovable Property" and "Copyright Service" in the context of film exhibition.

Issue-wise Detailed Analysis

Issue 1: Whether the appellant provides "Renting of Immovable Property" service by screening films in their theatre

The legal framework involves Section 65(90a) of the Finance Act, 1994, defining "Renting of Immovable Property," and Section 65(105)(zzzz) and Section 65B(41) which elaborate on taxable services related to renting during different periods. The CBEC Circular No.109/3/2009-ST dated 23.02.2009 clarifies that screening of a movie is not taxable service except where the distributor leases out the theatre and the theatre owner receives fixed rent, in which case the service is "Renting of immovable property."

The Commissioner relied on Circular No.148/17/2011-ST dated 13.12.2011, interpreting that the appellant, as theatre owner, provides renting service and other ancillary services, and thus liable to pay service tax on amounts received.

The appellant contended, supported by prior decisions of the Tribunal, that the agreements with distributors do not amount to renting of immovable property. Instead, the appellant obtains theatrical exhibition rights from the distributor and pays the distributor a share of NBOC or fixed hire. The appellant does not receive any consideration from the distributor; rather, the payment flow is from the appellant to the distributor.

The Tribunal referred to the decision in Moti Talkies, where it was held that the exhibitor does not provide renting service to the distributor since the distributor does not pay the exhibitor; the exhibitor pays the distributor for screening rights. This principle was reinforced by subsequent decisions including Asian Art Printers, Shri Vinay Kumar, Golcha Properties, and Satyam Cineplexes Ltd.

The Tribunal also cited the three-member Bench decision in INOX Leisure Ltd, which held that the revenue sharing arrangement does not automatically imply a service provider-recipient relationship necessary for service tax liability. The Supreme Court dismissed the Revenue's appeal in that matter, affirming the principle.

Applying these precedents, the Tribunal concluded that the appellant does not provide "Renting of Immovable Property" service to the distributors. The absence of consideration from the distributor to the appellant negates the existence of a taxable service under this head.

Issue 2: Nature of rights transferred and applicability of service tax on copyright-related services

The Tribunal examined the agreements, noting that the distributor grants "Theatrical Exhibition Rights" to the appellant, either for specified shows/period or in perpetuity, in exchange for payments such as "Theatre Shares" or "Fixed Hire."

Section 14(d) of the Indian Copyright Act, 1957, defines copyright in cinematograph films to include the right "to communicate the film to the public." The appellant's act of exhibiting films to the public falls squarely within this provision, implying a transfer or permission to use copyright.

Service tax was levied on "Intellectual Property Services" from 10.09.2004, but copyright was initially excluded. From 01.07.2010, service tax was imposed on services involving temporary transfer or permitting use/enjoyment of copyright under Section 65(105)(zzzzt). Subsequent amendments and notifications exempted certain copyrights, including cinematograph films for exhibition in cinema halls, from service tax.

The CBEC Circular No.148/17/2011-ST clarified that the distributor or sub-distributor is liable to collect and deposit service tax under "Copyright Service" when transferring rights to exhibitors. The Circular emphasized that the distributor, not the exhibitor, bears the tax liability on the transfer of rights.

The Tribunal held that this Circular is binding on the Department and that service tax liability lies with the distributor, not the appellant exhibitor.

Issue 3: Applicability of Circulars and judicial precedents

The Tribunal relied on Circular No.109/3/2009-ST and Circular No.148/17/2011-ST, which collectively clarify that screening of films is not taxable except in cases where the theatre is leased out for fixed rent. The appellant's arrangements do not fall within this exception.

Judicial precedents, including the Madras High Court decision in AGS Entertainment Pvt. Ltd., recognized different contractual arrangements between distributors and exhibitors. The Court held that where the theatre owner provides theatre hire or operational assistance and receives fixed rent, service tax is leviable on renting of immovable property and related services. However, in revenue-sharing or license agreements where the exhibitor pays the distributor, no renting service is provided by the exhibitor.

The Tribunal found that the facts of the present case align with the latter scenario, where the appellant pays the distributor for screening rights and does not receive rent or consideration from the distributor.

Issue 4: Treatment of competing arguments and final conclusions

The Commissioner's view that the appellant receives amounts described as theatre hire or fixed hire and thus provides taxable renting services was rejected. The Tribunal emphasized the necessity of a service provider-recipient relationship and the existence of consideration flowing from the service recipient to the service provider for service tax liability.

The appellant's argument that the agreements confer theatrical exhibition rights, involving payment by the appellant to the distributor, negates the existence of renting service was accepted. The Tribunal noted the absence of evidence that the appellant received any consideration from the distributor.

The Tribunal also rejected the Commissioner's contention that copyrights were not transferred but only permission granted, holding that the right to exhibit films to the public is a copyright right as per Section 14(d)(iii) of the Copyright Act, and that service tax on such copyright transfer is payable by the distributor.

Significant Holdings

"It was held that the agreements executed confer rights upon the appellant to screen the film for which the appellant is making payment to the distributor and not the distributor making any payment to the appellant. Considering the provisions of Section 65(90a) defining 'Renting of Immovable Property' read with 'taxable service' under Section 65 (105) (zzzz) prior to July 1, 2012 and provisions of Section 65B (41), which defined 'renting' during the subsequent period from July 1, 2012 to March 21, 2014, it was observed that the appellant has not provided any service to the distributors, nor distributors have made any payment to the appellant as consideration for the alleged service and hence no service tax is leviable."

"The Circulars are binding on the Department. There is no scope for deviation from the aforesaid Circulars which in clear terms imposes the liability to pay service tax on the distributor. Therefore, the service tax is to be levied and paid by the distributor under 'Copy Right Service' for transfer of right by licence to screen the film in the theatre of the appellant."

"The absence of consideration from the distributor to the appellant negates the existence of a taxable service under 'Renting of Immovable Property.' The revenue has not been able to establish the service provider and service recipient relationship between the appellant and the distributor."

"The act of the appellant would squarely come under the purview of Section 14(d)(iii) of the Copyright Act, 1957, which requires the exhibition of film to the public at large."

"The learned Commissioner has taken the view that the copyrights were not transferred or sold to the appellant but only permission for screening the film with other terms and conditions as per the agreements has been given, therefore, the taxability is on the part of the appellant for the payments they have received in the guise of theatre hire, fixed hire and percentage of NBOC and not on the part of the distributor as claimed by the appellant. This view is not sustainable in light of the Circulars and judicial precedents."

"The appeal is allowed and the impugned order is set aside."