Service Tax on Movie Theatres – Board Clarifies
We raised this issue on 01 01 2008 in .
Board's latest clarification issued yesterday visualises four situations under which a movie can reach audiences through theatres.
1. The distributor leases out the hall for screening of the movie. Here, the theater owner gets a fixed rent from the distributor. The profit or loss from exhibiting the film is borne by the distributor. In such a case, the theatre owner provides the taxable service of ‘Renting of immovable property for furtherance of business or commerce' and is accordingly liable to pay service tax.
2. The contract between the theatre owner and the distributor is on revenue sharing basis i.e. a fixed and pre-determined portion i.e. percentage of revenue earned from selling the tickets goes to the theater owner and the balance goes to the distributor. In this case, the two contracting parties act on principal-to-principal basis and one does not provide service to another. Hence, in such an arrangement the activities are not covered under service tax.
3. The theater owner buys the print/CD of the film on payment of a fixed price and thereafter screens it in his theater. This transaction is also not subject to service tax being in the nature of sale of goods.
4. The theater owner screens the movie for fixed number of days under a contract. The proceeds earned through sale of tickets go to the distributor but the theatre owner receives a fixed sum depending upon the number of days of screening. In this arrangement, the advertisement and display of posters etc. is done by the distributor. Under this arrangement, the fixed amount contracted is given to the theater owner by the distributor irrespective of the fact whether the movie runs well or not. However, there is no rental arrangement between the theater owner and the distributor as in the arrangement at 1 above. [There is no doubt that there is no service tax on renting but what about Business Support Service?]
Board clarifies that Business Support Service' is a generic service of providing ‘support to the business or commerce of the service receiver'. In other words the principal activity is to be undertaken by the client while assistance or support is provided by the taxable service provide r. In the instant case the theatre owner screens/exhibits a movie that has been provided by the distributor. Such an exhibition is not a support or assistance activity but is an activity on its own accord. That being the case such an activity cannot fall under ‘Business Support Service'.
Board finally clarifies that “ screening of a movie is not a taxable service except where the distributor leases out the theater and the theater owner get a fixed rent. In such case, the service provided by the theater owner would be categorized as ‘Renting of immovable property for furtherance of business or commerce' and the theater owner would be liable to pay tax on the rent received from the distributor. The facts of each case and the terms of contract must be examined before a view is taken.
Now as usual some questions:-
1. Does the taxability of a service depend on the wordings of a contract? Are you taxing the activity or language?
2. In the four situations above, what is the real difference between (1) and (4)? According to the Board – in situation 1, the theatre owner gets a fixed rent while in situation 4, the owner gets a fixed sum . What is the difference? Is it taxable only if there is rent and not a sum? As per the definition, "renting of immovable property" includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include ----
3. The Circular states that in Situation 4, the owner gets a fixed amount whether the movie runs well or not – so is the case in Situation 1.
4. And what about a situation wherein the theatre owner provides infrastructure like tickets, gatemen, ushers, cleaners, security in addition to renting the theatre?
Producers of movies should hire consultants before they decide on how their films are going to reach the theatres.
It was just three weeks ago in DDT 1042- 30.01.2009, we mentioned,
Recently a regional office of an intelligence agency felt that screening of movies in theatres is rendering renting of immovable property service and started issuing notices. When such important issues which have all India ramifications are involved, shouldn't there be uniformity in approach across the length and breadth of the Country?
It is indeed gratifying that the Board has issued the clarification before much damage could be done.
CBEC Circular No. 109/2009 – ST Dated: February 23 , 2009