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M/s. Ajit & Company Versus The ITO, Ward 2 (1) , Jaipur.

2015 (11) TMI 1448 - ITAT JAIPUR

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 owne .....

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al 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 b .....

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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 giv .....

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as for conduct of business. - Decided in favour of assessee. - ITA No. 240/JP/2012 - Dated:- 9-10-2015 - SHRI T.R.MEENA, AM & SHRI LALIET KUMAR, JM For The Assessee : Shri N.K. Shrimal (C.A) For The Revenue : Shri O.P. Bhateja (Addl.CIT) ORDER PER SHRI LALIET KUMAR : This is an appeal by the assessee against the order of ld. CIT (A)-III, Jaipur dated 13.01.2012 for the A.Y. 2007-08. The grounds raised in the appeal are as under :- 1. The learned CIT (A) & Assessing Officer erred in law a .....

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lowable. 3. The learned CIT (A) and Assessing Officer failed to consider the Board s Circular No. 736 dated 13.02.1996 which clearly state that provisions of Sec. 194-I are not attracted where there is sharing of proceeds of film exhibition between a film distributor and a film exhibitor, since the distributor does not take cinema building on lease or sub lease or tenancy or under any agreement of similar nature. Earlier, the appeal filed by the assessee was fixed for hearing on 30.09.2014 but o .....

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t of above, the assessee has filed affidavit duly notarized. Considering the circumstances stated above, the order in ITA No. 240/JP/2012 dated 30.09.2014 was recalled and restored the appeal to its original stage vide order passed in M.A. No. 43/JP/2014 dated 12.06.2015. 1. Brief facts of the case are that the assessee firm is engaged in the business of purchase and sales of shares and is also engaged in films business. The assessee has filed the return of income on 31.07.2007 declaring NIL inc .....

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s asked to give the details of film business. The assessee complied and vide letter dated 13.05.2009 submitted that assessee has entered into an agreement with M/s. Showtime Entertainment Pvt. Ltd. for conducting its film business. According to the agreement dated 01.04.2006 the assessee had guaranteed for a gross collection of ₹ 65,00,000/- to M/s. Showtime Entertainment Pvt. Ltd., namely SPACE-1,2,3 at City Plaza, Jaipur from 01.04.2006 to 30.05.2006 for running of film at Cinema Hall. T .....

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lowed and added to the total income of the assessee. The notice reads as under : Hence from the above provisions of the I.T. Act, it is clear that you have taken the Cinema Hall, Space - 1, 2, 3 on lease/rent along with all its facilities including staff, management, plant & machinery etc. for carrying out business activities. You have executed an agreement with the owners of the Cinema Hall i.e. M/s. Show Time Entertainment Pvt. Ltd. that the collection from selling of tickets will be made .....

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o use the Cinema Hall for this period, definitely falls under the definition of rent as defined in the provisions of section 194-I of the I.T. Act and as per the provisions of this section you have to deduct income tax as per the rate prescribed therein. Since, you have not deducted any tax on the payment made towards the rent to M/s. Show Time Entertainment Pvt. Ltd. for ₹ 65,00,000/-, you are requested to show cause why not the expenses claimed of ₹ 65,00,000/- be not disallowed an .....

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r as under :- The submission of the assessee regarding non deduction of tax on the payment of ₹ 65,00,000/- to M/s. Showtime Entertainment Pvt. Ltd. is also not acceptable. Board s Circular No. 736 dated 13.12.1996 is not applicable in this case because in the present case the film distributor i.e. the assessee has taken the entire cinema hall for a fixed period of 2 months i.e. from 01.04.2006 to 30.05.2006 for a fixed amount of ₹ 65,00,000/-. The assessee has to pay this amount com .....

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ent payment of ₹ 65,00,000/-, the same has been disallowed as expenses claimed by the assessee and added to the income of the assessee. The assessee has earned income from film business with total gross receipts of ₹ 80,59,501/- but failed to got it accounts audited and submit audit report in prescribed proforma as required u/s 44AB. Therefore, it is a fit case to initiate penalty u/s 271B of the IT Act. The penalty proceedings u/s 271B of the IT Act is initiated separately. 4. Being .....

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, the payment made in this regard is akin to the rent payment in nature, therefore, the appellant was liable for deduction of TDS u/s 194-I of the Act and for the non compliance of the same, on his part, the entire claimed made in this regard is liable to be disallowed. On the other hand, the ld. AR stated that the payment was made, towards the sharing of the proceed of film exhibition between the assessee (as film distributor) and the film exhibitor owning the cinema theatre, therefore, does no .....

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payment made in this regard was found as a fixed payment in nature for using the cinema hall for the fixed period and not an arrangement of sharing of the proceed of film exhibition, as claimed by the appellant. It is also noted that the above payment was required to be made, irrespective of the actual collection of the film exhibition, as enumerated in the relevant agreement. Thus, in my considered view, the provision/clarification as given in the above mentioned CBDT Circular is not applicable .....

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ion of TDS thereon, u/s 194-I of the Act. Consequently this ground of appeal is rejected. 5. Now the assessee is in appeal before us. It was contended by the assessee that the agreement dated 01.04.2006 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. The said agreement was an agreement for conducting of business and for the purpose of ensuring and boosting th .....

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is as under :- Section 194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of - (a) Two per cent for the use of any machinery or plant or equipment ; and (b) Ten per cent for t .....

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w Time Entertainment Pvt. Ltd. had made the payment to it. further ld. Counsel for the assessee also relied upon the Board s Circular No. 1294 wherein the Board has clarified that the provisions of section 194-I of the IT Act to the sharing of proceedings of film between film distributors and film exhibitor owning a cinema theatre, are not attracted to such payment. 7. The ld. D/R for the Revenue has supported the order of the AO and has submitted that he relies upon the orders passed by the AO/ .....

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part (Showtime Entertainment Pvt. Ltd.) hereby agreed to grant to party of Second part the playing time of two months at their above cinema i.e. SPACE-1,2,3 at City Plaza, Jaipur from 01.04.2006 to 30.05.2006. 2. That party of Second part agreed to pay to party of 1st part guaranteed fixed gross collection of ₹ 65,00,000/- (Rs. Sixty five lac only) for the above period against aforesaid playing time granted to them. 3. That all the pictures during the period to be screened in SPACE-1, 2, 3 .....

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All publicity expenses etc. will be borne by either distributor//or Space Cinema and the party of the Second Part is not responsible for the same. 7. All disputed with the distributor or any other party will be handled & dealt with by M/s. Showtime Entertainment Pvt. Ltd. directly and any claim and there from will be at the cost of Showtime Entertainment Pvt. Ltd. 8. That in case of any disputes arising out of the agreement same will be referred to arbitration whose decision will be binding .....

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0 days thereof. 10. Party of IInd part will be entitled to depute at their cost any of their representative at the cinema to supervise the screening of the pictures. However, they will not be entitled to interfere in any way with the management of the cinema. 11. That it will be the responsibility of First party to manage the cinema and carry out the exhibition of the pictures and all expenses for the management and running of the cinema will be fully borne by 1st party and IInd party is not lia .....

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cts and dealings with the distributors will be done by 1st party only. 14. All other terms and conditions will be as usual in trade. 15. Both the parties have signed this agreement in confirmation of above 01.04.2006 at Jaipur. 9. The terms and conditions of the agreement are required to be examined along with other attending circumstances for the purposes of deciding the true nature of the agreement . The intention of the parties will be reflected from the terms and conditions of the agreement .....

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nses were borne by the first party / M/s. Show Time Entertainment Pvt. Ltd and the second party was not responsible for the same. C) The maintenance of the cinema hall for the period from 01.04.2006 to 30.05.2006 remains with the first party i.e. M/s. Show Time Entertainment Pvt. Ltd. All the pictures during this period were required to be booked by M/s. Show Time Entertainment Pvt. Ltd. i.e. first party. D) The first party / M/s. Show Time Entertainment Pvt. Ltd was required to ensure smooth sc .....

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he above, it is clear that the dominant intention of the parties to the agreement was to conduct the business and to ensure that the minimum collection would be collected by the first party/ M/s. Show Time Entertainment Pvt. Ltd by exhibiting the films. There is no letting out of the cinema hall, plant and machinery by the first party / M/s. Show Time Entertainment Pvt. Ltd to the second party/ Assessee. 11 We feel that the guarantee amount of ₹ 65,00,000/- received by the first party/ M/s .....

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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 .....

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t while any deficit will be paid by IInd part to 1st Party. 13. 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 . For the purpose of section 194-I, what is sine qua non is the assessee should be responsible for paying to a resident any income by way of rent. In the prese .....

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ds the provisions of para 2 and 5 of the agreement, a sum of ₹ 15,59,051/- paid to the assessee by the Cinema Hall, which the assessee has shown as income from film business under the head of the income from other sources. Thus, in the computation of the income also, assessee has treated this income from the business of films. 14. 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 Ti .....

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ma exhibitor is required to pay the sales-tax on the sale of tickets. 3) The cinema exhibitor is also required to collect and pay the entertainment tax on the sale of tickets to the revenue department . 4) The cinema owner is also required to have the statutory permission from the law enforcement authority. 16. From the reading of the agreement, it is clear that the assessee was not responsible for any of the above said activities rather it is M/s. Show Time Entertainment Pvt. Ltd. was only resp .....

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