TIOL-DDT 1059 · the untouched capture
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<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01 Transitional//EN" "http://www.w3.org/TR/html4/loose.dtd"> <html> <head> <title>Untitled Document</title> <meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1"> </head> <body bgcolor="#FFFFFF"> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1059</font><br> 24.02.2009<br> Tuesday</strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax on Movie Theatres – Board Clarifies</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">We raised this issue on 01 01 2008 in <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=6587" target="_blank">DDT 772</a>.</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board's latest clarification issued yesterday visualises four situations under which a movie can reach audiences through theatres.</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>1. </strong>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 <strong>liable to pay service tax.</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>2. </strong>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 <strong>not covered under service tax.</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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 <strong>also not subject to service tax </strong> being in the nature of sale of goods.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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 <strong>receives a fixed sum </strong> 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?]</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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 <strong>the principal activity is to be undertaken by the client while assistance or support is provided by the taxable service provide </strong>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'.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now as usual some questions:-</font></p> <blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Does the taxability of a service depend on the wordings of a contract? Are you taxing the activity or language?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><em>2. </em>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 <strong>rent </strong> while in situation 4, the owner gets a fixed <strong>sum </strong>. What is the difference? Is it taxable only if there is <strong>rent </strong> and not a <strong>sum? </strong> As per the definition, <em>"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 ----</em></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. And what about a situation wherein the theatre owner provides infrastructure like tickets, gatemen, ushers, cleaners, security in addition to renting the theatre?</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Producers of movies should hire consultants before they decide on how their films are going to reach the theatres.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It was just three weeks ago in <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8520" target="_blank">DDT 1042- 30.01.2009</a>, </strong>we mentioned,</font></p> <blockquote> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">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?</font></p> </blockquote> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is indeed gratifying that the Board has issued the clarification before much damage could be done.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2009/sercir109.htm" target="_blank">CBEC Circular No. 109/2009 – ST Dated: February 23 , 2009</a></strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Business Support Service – Clarified</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Good things like manna often simply fall from heaven and this is what happened while clarifying on service tax on renting; the Board dropped a bit of manna and clarified that <font color="#FF6600">By definition ‘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 provider.</font></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A colleague told me, “One positive aspect of the clarification is that it clarified what a business support service constitutes. I think many cases booked under BSS will fail going by this clarification.”</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">While the ‘renting' clarification is applicable only to theatres, this will have a larger application and may touch many a service.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Let's hope this will not be considered as an <em>obiter dictum </em> by Board.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2009/sercir109.htm" target="_blank">CBEC Circular No. 109/2009 – ST Dated: February 23 , 2009</a></strong></font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax exemption for <font color="#FF6600">osc</font>AR Rahman – PC</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Former Finance Minister Chidambaram said, “If the Oscars carry a cash award, I will recommend to the Finance Minister that it should be exempt from taxation."</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If the recommendation comes from someone of the stature of Chidambaram, it is sure to be accepted, though the CBDT Chairman, when asked whether such an exemption would be given, was not very direct and said that it was a policy decision.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Anyway, PC need not bother, Pranab need not worry and CBDT Chairman need not draft that notification, for the Oscar does not carry any cash prize, only honour, prestige, fame and a statuette.</font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Will Rahman get Customs Exemption?</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">But the CBEC Chairman may have a problem;</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Oscar statuettes weighing 8.5 pounds are made of britannia metal, plated in copper, nickel, silver, and 24-karat gold.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Rahman will be bringing in two of them, obviously in his baggage and the Customs will have a tough time clearing them and if they want to find its value – should be invaluable! It will be a shame to ask Rahman to declare its value. Maybe we can say Rahman got it for a song.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Now what will happen if they don't know whether it can be cleared without customs duty or if duty is to be paid, how much? Will they detain the statuettes?</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">To remove any doubts, CBEC may try to issue a clarification/notification that the Oscar statuettes are exempted from Customs Duties, so that there are no embarrassing scenes at the airport when Rahman returns to India to a tumultuous welcome. CBEC and the Finance Minister should act immediately.</font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Tax Revenue doubled under UPA Govt; New Building for Revenue – Rajaswa Bhavan</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The acting FM Pranab Mukherjee while laying the foundation stone for the new building for the Revenue Headquarters in Delhi yesterday said that tax collection had doubled during the tenure of the UPA government. He was happy with the CBEC and CBDT which achieved these impressive collections at an extremely low cost of just half percent.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Rajaswa Bhawan will be built on a 5.73 acre plot in New Delhi by DRDO keeping in mind the ethnicity of Lutyen Zone and will take about three years time when the Boards will move out of the North Block.</font></p> <p align="center"><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Today is Central Excise Day – TIOL's Greetings</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">All over the country Excisemen will be celebrating Central Excise Day with speeches, dances and awards. This year with no impending budget and targets impossible to reach, the officers are a relaxed lot. It's your Day out. Have a Nice Time.</font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Why is Central Excise Day celebrated on 24th February?</font></p> <p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#006600">Jurispruden</font><font color="#FF6633" size="5">tiol</font><font color="#006600">–Tomorrow's cases</font></strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><strong><strong><strong><strong><strong><strong><b><img src="http://www.taxindiaonline.com/RC2/image/stories/ddt_hammer.jpg" alt="Legal Corner Icon" width="100" height="84" hspace="5" border="0" align="left"></b></strong></strong></strong></strong></strong></strong></strong></font></strong></font><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs</strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>What does the ‘___' against an entry in Customs Notification 21/2002 under the column for CVD mean? – wait till tomorrow</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>Notification exempts from so much of additional duty as is in excess of the rate specified under column 5. Now this column has <strong>nil </strong> for certain goods, certain rates as 10% for certain goods and “__” for certain other goods. Now what does this “__” mean? Is it nil, or the tariff rate? You will have to wait till tomorrow to know the answer.</font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Income Tax</strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Assessee having more than 25% of domestic sales entitled to partial deduction proportionately on export turnover – In the Income-tax Act there is no statutory provision mandating denial of domestic sales to the export-oriented undertaking. ITAT by Third Member</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>It is that delicate and important branch of judicial power, the concession of which is dangerous but the denial is disastrous. </strong> At one stream stands Lord Denning who said: <strong>"We do not sit here to pull the language of the Parliament to pieces and make nonsense of it. That is an easy thing to do. We sit here to find out the intention of Parliament and carry it out. We do this better by filling in the gaps and making sense of the enactment than by opening to destructive analysis </strong>. Viscount Simonds called it <strong>'a naked usurpation of the legislative function under the thin guise of interpretation</strong>." The intention of legislature is a very slippery phrase. When the language of the statute is transparently plain, it is wrong to give it colour according to the temper of time. When the language implied by the enactment is clear, there is no question of interpreting the provisions in any manner except by giving them their plain and obvious meaning.</font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Service Tax </strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Commission received from the “reinsurers” is taxable even before the amendment to Finance Act in 2006 –CESTAT</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE </strong>appellant is an insurance broker and also is a reinsurance broker. He receives the commission from the reinsurer also. The question before the Tribunal was whether this commission received from the reinsurers is taxable prior to the amendment in 2006 to the Finance Act, 1994 wherein Sections 65(58) and 60(105)(zl) have been amended to specify “ insurer includes reinsurer”.</font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Central Excise</strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Valuation – Trade Discount to dealers not commission, not includible in assessable value - CESTAT</strong></font></p> <p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">THE moot point to be decided in this case is whether the dealers to whom the appellants extended trade discount were actually not dealers but consignment agents. The only similarity between the two agreements which would have affected the transactions is the point, that dealers were only custodians of the goods and had no right to deal with the goods clearly show that this did not change the character of the transaction.</font></p> <p align="justify"><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>See our columns Tomorrow for the judgements</strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT</strong></font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice day.</font></p> <p align="justify"><font color="#FF6600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> <a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p> </body> </html>