Dirty Picture - Share the booty - Service Tax on Film Industry
FIRST of all our apologies for delay in uploading this DDT. As we were about to upload DDT, we received this Circular and it took some time.
Bollywood, Kollywwod, Tollywood or whatever wood you are in, one thing that is certain in the film industry is that the producer ends up in loss. Only about 5 percent of the movies made in India make any profit – but it is the glamour industry and everybody wants his pound of flesh and taxman included.
Board had received representations from certain sections of service providers requesting clarification on taxability of consideration earned by the distributors/sub-distributors/area distributors of Indian & Foreign films in the form of ‘revenue share' from the exhibitors of the movie, and on revenue retained as percentage by the exhibitors of the movie from the sale of tickets in the light of recent changes in the law and CBEC Circular No 109/03/2009 dated 23.02.2009.
Many films and changes in Law have rolled out of the cans after the above circular was issued.
Temporary transfer or permitting the use or enjoyment of, any copyright defined in the Copyright Act, 1957 (14 of 1957), except the rights covered under sub-clause (a) of clause (1) of section 13 of the said Act were made taxable w.e.f. 01.07.2010 under the sub-clause (zzzzt) of Sec 65(105) by the Finance Act of 2010. Also, for the words ‘operational assistance for marketing', the words ‘operational or administrative assistance in any manner' were substituted in the clause (104c) of Sec 64 of the Act by the Finance Act, 2011, w.e.f. 01.05.2011.
Board understands that the normal business practice in the industry is that the producer of the film, who owns the intellectual property rights of the film, temporarily transfers the rights to a person [normally distributor or any other person] who directly or indirectly enters into an agreement with the exhibitor [normally theater owner] for screening of the film. There are also other variant modes of transaction in the industry.
Board has issued a fresh clarification on taxing the industry which is summarized as:
Type of Arrangement | Movie exhibited on whose account | Service Tax Implication |
|---|---|---|
Principal – to – Principal Basis | Movie being exhibited by Theatre Owner or Exhibitor on his account – i.e. the copyrights are temporarily transferred | Service Tax under Copyright Service to be provided by Distributor or Sub-Distributor or Area Distributor or Producer etc, as the case may be |
Movie being exhibited on behalf of Distributor or Sub-Distributor or Area Distributor or Producer etc – i.e. no copyrights are temporarily transferred | Service Tax under Business Support Service / Renting of Immovable Property Service, as the case may be, to be provided by Theatre Owner or Exhibitor | |
Arrangement under unincorporated partnership/joint/ collaboration basis | Service provided by each of the person i.e. the ‘new entity'/ Theater Owner or Exhibitor / Distributor or Sub-Distributor or Area Distributor or Producer etc, as the case may be, is liable to Service Tax under applicable service head | |
Board understands that the Circular dated 23.02.2009 has been misinterpreted to exclude all ‘revenue sharing' arrangements from the levy of service tax.
And Board finally clarifies that the nature of transaction determines the leviability of service tax. Each case may be looked into on its merits and decision be taken on case to case basis.
And wait, don't discard this as applying to only dirty pictures – Board says the arrangements mentioned in this Circular will apply mutatis mutandis to similar situations across all the services taxable under the Finance Act.
In - 01.01.2008, we said, Producers of movies should hire consultants before they decide on how their films are going to reach the theatre .
Please also see
1. – 24.02.2009
2. Budget targets cine industry through Service Tax
3. Film theatres now come under Central Excise control - through Service Tax
CBEC Circular No. 148/17/ 2011 - Service Tax, Dated: December 13 2011.