TIOL-DDT 1752 · the untouched capture
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<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><font color="#663399" size="3">TIOL-DDT 1752 </font><br>
14.12.2011 <br>
Wednesday </strong></font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Dirty Picture - Share the booty - Service Tax on Film Industry </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>FIRST</strong> 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. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Many films and changes in Law have rolled out of the cans after the above circular was issued. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board understands that <em>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. </em></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board has issued a fresh clarification on taxing the industry which is summarized as: </font></p>
<table width="90%" border="1" align="center" cellpadding="3" cellspacing="0">
<tr>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Type of Arrangement </font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Movie exhibited on whose account </font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax Implication </font></strong></p></td>
</tr>
<tr>
<td rowspan="2" valign="middle"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Principal – to – Principal Basis </font></td>
<td valign="top"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Movie being exhibited by Theatre Owner or Exhibitor on his account – i.e. the copyrights are temporarily transferred </font></td>
<td valign="top"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax under Copyright Service to be provided by Distributor or Sub-Distributor or Area Distributor or Producer etc, as the case may be </font></td>
</tr>
<tr>
<td valign="top"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Movie being exhibited on behalf of Distributor or Sub-Distributor or Area Distributor or Producer etc – i.e. no copyrights are temporarily transferred </font></td>
<td valign="top"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax under Business Support Service / Renting of Immovable Property Service, as the case may be, to be provided by Theatre Owner or Exhibitor </font></td>
</tr>
<tr>
<td valign="top"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Arrangement under unincorporated partnership/joint/ collaboration basis </font></td>
<td colspan="2" valign="top"><div align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">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 </font></div></td>
</tr>
</table>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Board understands that the Circular dated 23.02.2009 has been misinterpreted to exclude all ‘revenue sharing' arrangements from the levy of service tax. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And Board finally clarifies that<strong> 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. </strong></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And wait, don't discard this as applying to only dirty pictures – Board says the <font color="#FF6633"><strong>arrangements mentioned in this Circular will apply <em>mutatis mutandis</em> to similar situations across all the services taxable under the Finance Act. </strong></font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">In <strong><a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=6587" target="_blank">DDT 772 - 01.01.2008</a></strong>,<font color="#FF6633"><strong> we said, Producers of movies should hire consultants before they decide on how their films are going to reach the theatre . </strong></font></font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Please also see </font></p>
<blockquote>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>1. <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=8652" target="_blank">DDT 1059 – 24.02.2009</a></strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong> 2. <a href="http://www.taxindiaonline.com/RC2/print_story.php?newsid=10519&forumid=1&header=Budget%20targets%20cine%20industry%20through%20Service%20Tax">Budget targets cine industry through Service Tax </a></strong></font></p>
<p><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. <a href="http://www.taxindiaonline.com/RC2/inside2.php3?filename=bnews_detail.php3&newsid=6949">Film theatres now come under Central Excise control - through Service Tax </a></font></strong></p>
</blockquote>
<p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=41&filename=notification/servicetax/2011/sercir148.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">CBEC Circular No. 148/17/ 2011 - Service Tax, Dated: December 13 2011. </font></strong></a></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Budget 2012 - Wish Lists start flying in </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>WITH</strong> just two and a half months to go for the 2012 Union Budget, Trade Associations have started sending in their wish lists for the kind consideration of the Hon'ble Finance Minister and more honourable, kind, respected and all-powerful babus of North Block. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It seems that The Indian Electrical and Electronics Manufacturers Association (IEEMA) has represented that Service Tax exemption has to be given to all Power Projects including power generation, transmission and distribution projects, like other infrastructure projects. They want the interest charged on differential duty due to fluctuations, to be waived; they have pointed out certain anomalies in rates of Customs duty fro raw materials and finished goods. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It seems that the Indian Paper Manufacturers Association (IPMA) wants excise duty on paper to be reduced to 4 percent; SSI exemption to paper up to clearances of 3500 MTs; the 1 percent duty to be withdrawn; 100 percent CENVAT credit on capital goods in the first year itself; rate of interest on delayed duty, non paid duty etc. to be brought back to 13 percent. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">They also want excise duty, Cess SHE – all to be collected under one head. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">They want depreciation allowed under Income Tax to be enhanced to 25 percent on Plant and Machinery. They want CST to be brought down to 1 percent. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">And with just two and half months to go for the Budget, the Government has changed the portfolios of CBEC Members and has given the charge of BUDGET to a Member who will be retiring on 31st of March – just a month after Budget. He may not see the Budget through Parliament unless he gets an exemption. </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">If wishes were horses …… </font></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">RBI delegates Compounding Powers under FEMA to its Regional Offices </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>AS</strong> a customer service measure and for operational convenience, it has been </font><font size="2" face="Verdana, Arial, Helvetica, sans-serif">decided to delegate powers to the Regional Offices of the Reserve Bank of India to compound certain contraventions of FEMA 1999. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The contraventions include: </font></p>
<blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ delay in reporting of inward remittance, </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ delay in filing of form FC-GPR after allotment of shares and </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">++ delay in issue of shares beyond 180 days. </font></p>
</blockquote>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">(i.e. paragraphs 9(1)(A), 9(1)(B) and 8, respectively, of Schedule I to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000 and as amended from time to time) </font></p>
<table width="90%" border="1" align="center" cellpadding="3" cellspacing="0">
<tr>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Contraventions </font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Regional Offices </font></strong></p></td>
<td valign="top"><p align="center"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Amount of Contravention </font></strong></p></td>
</tr>
<tr>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Delay in reporting of inward remittance and delay in filing of form FC-GPR after allotment of shares </font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Bhopal, Bhubaneshwar, Chandigarh, Guwahati, Jaipur, Jammu, Kanpur, Kochi, Patna and Panaji </font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Below Rupees One Crore only </font></p></td>
</tr>
<tr>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Delay in reporting of inward remittance, delay in filing of form FC-GPR after allotment of shares and delay in issue of shares beyond 180 days </font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Ahmedabad, Bangalore, Chennai, Hyderabad, Kolkata, Mumbai and New Delhi </font></p></td>
<td valign="top"><p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Without any limit </font></p></td>
</tr>
</table>
<p><a href="http://www.taxindiaonline.com/RC2/subCatDesc.php3?subCatDisp_Id=280&filename=notification/rbi/2011/rbi11cir057.htm" target="_blank"><strong><font size="2" face="Verdana, Arial, Helvetica, sans-serif">A P (DIR Series) CIRCULAR No. 57/RBI., Dated: December 13, 2011 </font></strong></a></p>
<p align="center"><strong><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif">Corruption Case - Suspension of Conviction very difficult </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>IF</strong> a Government servant is convicted by a court in a corruption case, it is very difficult to get that order suspended and the officer will have to certainly spend a couple of years in jail and lose his job. </font></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court had in a 2001 case observed, </font></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">“Corruption by public servants has now reached a monstrous dimension in India. Its tentacles have started grappling even the institutions created for the protection of the republic. Unless those tentacles are intercepted and impeded from gripping the normal and orderly functioning of the public offices, through strong legislative, executive as well as judicial exercises the corrupt public servants could even paralyse the functioning of such institutions and thereby hinder the democratic polity. Proliferation of corrupt public servants could garner momentum to cripple the social order if such men are allowed to continue to manage and operate public institutions. When a public servant was found guilty of corruption after a judicial adjudicatory process conducted by a court of law, judiciousness demands that he should be treated as corrupt until he is exonerated by a superior court. The mere fact that an appellate or revisional forum has decided to entertain his challenge and to go into the issues and findings made against such public servants once again should not even temporarily absolve him from such findings. If such a public servant becomes entitled to hold public office and to continue to do official acts until he is judicially absolved from such findings by reason of suspension of the order of conviction it is public interest which suffers and sometimes even irreparably. When a public servant who is convicted of corruption is allowed to continue to hold public office it would impair the morale of the other persons manning such office, and consequently that would erode the already shrunk confidence of the people in such public institutions besides demoralising the other honest public servants who would either be the colleagues or subordinates of the convicted person. If honest public servants are compelled to take orders from proclaimed corrupt officers on account of the suspension of the conviction the fall out would be one of shaking the system itself. Hence, it is necessary that the court should not aid the public servant who stands convicted for corruption charges to hold only public office until he is exonerated after conducting a judicial adjudication at the appellate or revisional level. It is a different matter if a corrupt public officer could continue to hold such public office even without the help of a court order suspending the conviction. </font></em></p>
<p align="justify"><em><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The above policy can be acknowledged as necessary for the efficacy and proper functioning of public offices. If so, the legal position can be laid down that when conviction is on a corruption charge against a public servant the appellate court or the revisional court should not suspend the order of conviction during the pendency of the appeal even if the sentence of imprisonment is suspended. It would be a sublime public policy that the convicted public servant is kept under disability of the conviction in spite of keeping the sentence of imprisonment in abeyance till the disposal of the appeal or revision." </font></em></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is based on this order of the Supreme Court that the Bombay High Court rejected the appeal of an Additional Commissioner of Income Tax who was sentenced to three years imprisonment for having disproportionate assets to the tune of Rs. 16 Lakhs (maybe this is pittance compared to the figures we hear today). </font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif">The Supreme Court rejected the SLP and the officer lost his job too </font></p>
<p align="center"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong><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"> – Thursday's cases</font></strong></font></strong></font></p>
<p><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><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"><strong><font color="#663399">Central Excise </font></strong></font></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Exemption to goods cleared to projects financed by JBIC - Clearances on certificates by Project Authorities - No extended period of limitation; Duty can be demanded even in revenue Neutral situations: CESTAT by Majority </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> question of revenue-neutrality for non demanding of the duty is not envisaged under the provisions of Section 11A. Hence the question of revenue-neutrality could not arise in this case, though assessee may be eligible for the benefit of the terminal excise duty paid by them on the project from the DGFT authorities, subject to the provisions and the conditions of the refund as has been envisaged by the DGFT authorities. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Income Tax</font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">Whether profit from sale of shares intended as investment in books and treated as short-term capital gains, can be construed as business income on basis of frequency and magnitude of transactions - ruled in favour of Revenue by ITAT </font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> assessee is a Private Limited Company engaged in the business of dealing in shares and securities. The assessee had switched from trading to the investment based business following a resolution passed by its Board of Directors in March 2005, stating that all transactions related to delivery based shares were to be carried out only on investment account. Accordingly, during the year, the assessee had not made any fresh purchases of shares in respect of trading. Through a software used by the assessee, all the trading transactions were automatically bifurcated on a day-to-day basis, as an investment or a speculative activity depending on when the contract for share purchase was squared up, whether on the same day without taking delivery or in a few days after taking delivery. Thus the assessee had a scrip wise analysis for every listed company share on a day to day basis. </font></p>
<p align="justify"><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">Service Tax </font></strong></p>
<p align="justify"><strong><font color="#FF6633" size="2" face="Verdana, Arial, Helvetica, sans-serif">When case detected, tax paid along with interest - since there is no communication in 'writing' to department about payment of service tax, issuance of SCN u/73 of FA, 1994 and imposition of penalty u/s 76 is proper: CESTAT</font></strong></p>
<p align="justify"><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>THE</strong> provisions envisaged payment of service tax before the notice is issued and information regarding such payment in writing to the service tax officer so that notice need not be issued. In the instant case, the appellant has not intimated the payment of service tax to the Central Excise officer though they have filed the return for October 2006 to March 2007 on 5.10.2007. There is no communication in the said return about the tax liability that has been discharged by them amounting to Rs.1,30,477/- for the period from October 2006 to December 2006. </font></p>
<p><strong><font color="#663399" size="2" face="Verdana, Arial, Helvetica, sans-serif">See our columns Tomorrow for the judgements </font></strong></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Tomorrow with more <strong>DDT</strong> </font></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a Nice Day. </font></p>
<p><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments</font><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> to <a href="mailto:vijaywrite@taxindiaonline.com"><strong>vijaywrite@taxindiaonline.com </strong></a></font></p>
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