Payment to Film Distributors for Exhibition of Film not subject to TDS: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Ahmedabad bench has held that the payment to the film distributors by the assessee for the exhibition of the film would not amount to Fee for Technical services and thus, not subject to TDS under Section 194J of the Income Tax Act, 1961.

While concluding the assessment proceedings, the Assessing Officer observed that the payments made by the assessee to the distributors are in the nature of royalty. He, therefore, disallowed the expenses of Rs.4,76,27,714/- by invoking Section 40(a)(ia) of the Act by holding that the assessee failed to deduct tax at source under s.194J of the Act.

The question before the Tribunal was that whether payments made by the assessee to the Distributors of the Films constitutes fee for professional or technical services within the ambit of Section 194J of the Act.

Section 194J of the Act inter alia includes ‘royalty’ for the purposes of deduction of tax at source.

The assessee conteded that the revenue sharing expenses incurred by the assessee in the nature of royalty is not covered within the sweep of Section 194J of the Act in view of the specific exclusion provided for consideration for the sale, distribution or exhibition of cinematographic film. Thus, the payment in respect of exhibition films is specifically excluded under s.194J of the Act. It is thus conteded that provisions of Section 40(a)(ia) of the Act does not get triggered in the absence of any obligation to deduct TDS under s.194J of the Act.

“A perusal of the order of the CIT(A) would show that assessee is in the exhibition of films procured from distributors on revenue sharing basis. The Revenue shared by the assessee with the distributor to exhibit the cinematographic film is outside the scope of expression ‘royalty’ under Clause (v) to Explanation 2 to Section 9(1)(vi) of the Act referred to under the provisions of Section 194J of the Act. Therefore, such payment to distributor does not call for deduction of TDS. The CIT(A), in our view, has rightly held in applicability of Section 194J of the Act or other similar provisions of the Act and thus, rightly concluded that Section 40(a)(ia) of the Act do not come into play for disallowance of the expenses incurred by the assessee for exhibition of films,” the Tribunal said.