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Judgment
The Appellant, an owner of a cinema hall called ‘Regal Theatre’ and engaged in the business of exhibiting films in this theatre, has assailed
the order dated January 25, 2016 passed by the Principal Commissioner of Service Tax, Delhi, the Principal Commissioner that confirms the demand
of service tax under “renting of immovable property†service with penalty and interest proposed in the two show cause notices dated April 21,
2014 and April 20, 2015 for the reason that the Appellant is providing service to the film Distributors by way of renting its theatre for screening the
films.
The Appellant had entered into agreements with films Distributors under which the theatrical exhibition rights for exhibition of the films were
transferred to the Appellant, either for a specified number of shows and period or in perpetuity. It is in exercise of such rights obtained from the
Distributors that the Appellant exhibited movies in its theatre. In lieu of obtaining such rights, the Appellant agreed to share a specified percentage of
Net Box Office Collection with the Distributors, subject to the conditions specified in the agreements. In one such agreement dated March 23, 2013
entered into between M/s. Eros International Media and the Appellant, the Appellant agreed to share 50% of the Net Box Office Collection, subject to
a maximum theatre share of Rs.1,75,000/-.
The Department, however believed that the Appellant was providing various elements of inter connected services to the Distributors, such as
renting/ letting/ leasing of theatre for exhibition of films; manpower to manage the theatre operations, provision of projector and other related
equipment to screen the films; arranging of power supply and providing arrangements to collect the box office collections. According to the
Department, the essential character of the bundle of services provided by the Appellant was in the nature of “renting of immovable propertyâ€
service which would be taxable under section 65(105) (zzzz) of the Finance Act 1994, the Finance Act for the period up to June 30, 2012 and under
section 66E(a) of the Finance Act read with section 66F(3)(b) of the Finance Act for the period from July 1, 2012 to March 31, 2014. The view of the
Department was that copy rights of movies/ films were not transferred/ sold by the film Distributors, either temporarily or otherwise, and so the
Appellant was only letting out its premises for exhibition of films to the Distributors.
The Appellant filed replies to the two show cause notices but the Principal Commissioner, by the impugned order dated January 25, 2016, confirmed
the demand for the period October 2008 to March 2014. The demand proposed for the period April 2008 to September 2008 was dropped for the
reason that it was beyond the period prescribed under the Finance Act.
The impugned order holds that service tax will be leviable under the head of ‘renting of immovable property’ and the relevant portion of the
order is reproduced below:
“9.18 I therefore come to a conclusion that while allowing the use of theatre, they have also provided the facility of projection of film on
the said screen in terms of contract for which they are receiving remuneration as a share in Net Box Office Collections (NBOC). Had it been
purely Principal to Principal relationship, rightful owner of the NBOC would have been exhibitor. Had it been purely Principal to Agent
relationship, rightful owner of the NBOC would have been distributor who is owning the copyright of the film.
9.19 However, this situation is a mix of both and hence instead of a fixed rent, interest in net box office collection by way of sharing it after
certain extent as defined in the agreement is being paid instead of a fixed rent, so as to promote business and protect their respective
interest. The noticee, therefore, appears performing dual activities simultaneously viz. rendering taxable services to the Distributors on one
hand and entertainment to the clients on other hand. Whereas they were paying tax for entertainment; they failed to pay tax on the services
provided where they provided services to the Distributors in screening their films and in return the noticee received charges termed by them
as Box Office collection share. The terms of contract also substantiate my findings.
9.20 In view of above, the noticee’s plan that there is no provision of service and hence no service tax liability is found baseless and
thus their activities are rendered liable to service tax under the major head ‘Renting of Immovable Property’, which is taxable under
erstwhile Section 65 (105) (zzzz) of the Act ibid upto 30.06.2012. Further the service provided by the noticee to the Distributors remained
taxable under clause (a) of Section 66E of the Act ibid as “Declared Services†and is not covered in the negative list as provided under
Section 66D of the Act after introduction of negative services regime w.e.f. 01.07.2012.â€
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11.1 As regards to weighing machine receipts, the noticee has submitted in their written submissions filed on 20.10.2014 that the income
earned by the Noticee was by way of collections from the coin box kept for the weighing machine whereby individuals would insert a coin
and know the individual's weight by standing on the weighing machine. They also argued that the said incomes were not in the nature of
income from renting and hence not liable to service tax under renting of immovable property service. They also argued that the same was
much below the threshold exemption of Rs.10 lakhs as provided in the Notification No. 8/2008- ST dated 01.03.2008 in each of the financial
years included in the relevant period and hence not liable to service tax.
11.2 I find that the notice has not provided any plausible explanation for non-applicability of service tax on such incomes, except contesting
the same on the grounds of exemption limits. The ledger copies submitted by the Noticee on this count do not elaborate the issue. However, I
have analysed the issue of their exhibition of films as Exhibitor vis-Ã -vis share from NBOC and held the same to be liable to service tax
under renting of immovable service. Therefore, the threshold exemption is not available to them under Notification No. 8/2008 dated
01.03.2008 and therefore I hold that they are liable to pay service tax for the period 2008-09 to 2012-13 on such services. However, I find
that the demand for the period 01.04.2008 to 30.09.2008 is time barred being beyond five years as provided under the provisions of
Section 73 of the Act. The notice has provided ledgers of their income for the FY 2008-09 and I find that an amount of Rs. 1,491/- pertains
to such receipts for the period 01.04.2008 to 30.09.2008. Accordingly, the noticee is liable to pay service tax on amount of Rs 12,352/-
(13,843-1491) received during Oct 2008-Mar 09 to 2012-13 out of the total amount as demanded in SCN dated 21.04.2014. They are also
liable to pay service tax on amount of Rs.2,307/- received during 2013-14 as demanded in SCN dated 20.04.2015.
11.3 The noticee has submitted that the amounts of miscellaneous incomes shown in the books of account screening the movies for the
annual film festival held by Hindustan Times. They have also argued that the above incomes were not in the nature of income from renting
and hence not liable to service tax under renting of immovable property service. They have also argued that the said incomes were much
below the threshold exemption of Rs. 10 lakhs as provided in the Notification No. 8/2008-ST dated 01.03.2008 in each of the financial
years included in the relevant period and hence not liable to service tax.
11.4 I find from perusal of the submissions of the noticee that such services are related to the screening of films in their theatre for the
annual film festival organized by Hindustan Times. These services are exactly the same as screening of films under an agreement with the
distributors on regular show basis. I have analysed the issue of their exhibition of films as Exhibitor vis-Ã -vis share from NBOC and held
the same to be liable to service tax under renting of immovable service. Therefore, the threshold exemption is not available to them under
Notification No. 8/2008 dated 01.03.2008 and therefore I hold that they are liable to pay service tax for the period 2008-09 to 2012-13 on
such services. Accordingly, the noticee is liable to pay service tax on amount of Rs.3,17,397/- received during 2008-09 to 2012-13 as
demanded in SCN dated 21.04.2014. They are also liable to pay service tax on amount of Rs.72,000/- received during 2013-14 as
demanded in SCN dated 20.04.2015.
11.5 The noticee have also argued that such income for the period from 01.04.2008 to 30.09.20O8 was beyond the extended period of five
years and hence the demand was not sustainable. However, I find that they have not produced any documentary evidence to show that the
amount so received pertains to the period 01.04.2008 to 30.09.2008. I also note that the noticee has not provided any monthwise
bifurcation of such income for the period 01.04.2008 to 31.03.2009 separately. Therefore to compute service tax liability for the period
01.04.2008 to 30.06.2009, I find that the entire income for the period 2008-09 would have to be considered for the purpose of levy of
service tax. Therefore, I reject their arguments and hold that they are liable to pay service tax on the gross amount on such services for the
relevant period.â€
Shri B.L.Narasimhan learned counsel appearing for the Appellant has made the following submissions:
(i) The Appellant is not providing ‘renting of immovable property’ services to the Distributors. For an activity to fall under ‘renting of
immovable property’ services, the nature of the activity should be that of renting or letting or leasing or licensing or other similar arrangements of
immovable property, for use in the course or furtherance of business or commerce. In the instant case, the immovable property i.e. the theatre is used
and occupied by the Appellant in its own right to screen the film and at no point of time, the theatre is used by the Distributor;
(ii) A bare perusal of the agreements between the Appellant and the Distributors would make it abundantly clear that it is the Appellant who is making
payments to the Distributors for grant of theatrical rights, which indicates both, the flow of service and consideration. Hence, no service tax can be
levied on the Appellant, in absence of either a consideration or a service. In support of this submission, reliance has been placed on a recent decision
of the Tribunal in Moti Talkies vs. Commissioner of Service Tax, Delhi-I, 2020(6) TMI 87- CESTAT New Delhi;
(iii) The agreements between the Appellant and the Distributors is on a revenue sharing basis and hence, no service tax is leviable;
(iv) The Appellant is not providing any service to the Distributors;
(v) Income under the heads ‘Weighing Machine Receipts’ and ‘Miscellaneous Income’, shown in the balance sheet is not leviable to
service tax; and
(vi) The extended period of limitation could not have been invoked in the present case. Hence, the demand till March 2012 is time barred.
Shri Dr. Radhe Tallo, learned Authorised Representative of the Department has however, supported the impugned order. It is his submission that
the Principal Commissioner committed no illegality in confirming the demand.
The submissions advanced by learned counsel for the Appellant and the learned Authorised Representative of the Department have been
considered.
It is not in dispute that the Appellant is the owner of a cinema hall. According to the Appellant, the theatrical exhibition rights were transferred to
the Appellant under the agreements on the basis on which the Appellant exhibited the movies in the theatre. For obtaining such rights, the Appellant
agreed to share a specified percentage of the Net Box Office Collection with the Distributors.
The agreements entered into between the Appellant and the film Distributors clearly indicate that the film Distributors had granted theatrical
exhibition rights to the Appellant and in return of transfer of such rights, the Appellant had agreed to pay certain amount to the Distributors, fixed
generally as a percentage of Net Box Office Collection. The Principal Commissioner found that the Appellant had provided ‘renting of immovable
property’ services. For an activity to fall under ‘renting of immovable property’ services, the nature of the activity should be that of renting
or letting or leasing or licensing or other similar arrangements of immovable property, for use in the course or furtherance of business or commerce. In
other words, where an immovable property is given for use by the service recipient or where there is a transfer of the right to enjoy property for a
certain time for a consideration paid or promised or where there is granting of the right to use and occupy the immovable property by way of tenancy,
lease, license, the transaction would be covered under the category of ‘renting of immovable property’ services. In the instant case, the
immovable property i.e. the theatre is used and occupied by the Appellant in its own right to screen the films and at no point of time, the theatre is
used by the Distributor.
A perusal of the agreements between the Appellant and the Distributors would also make it abundantly clear that it is the Appellant who makes
payment to the Distributors for grant of theatrical rights. This clearly indicates the flow of service and the consideration. Thus, as it is the Appellant
who pays a fixed consideration to the Distributor, no service tax can be levied on the Appellant.
This issue also came up for consideration before a Division Bench of the Tribunal in Moti Talkies. It was held that the demand of service tax
under ‘renting of immovable property’ service was not justified for the reason that the Appellant had not provided any service to the Distributor,
nor the Distributor had made any payment to the Appellant as a consideration for the alleged service. The relevant portion of the decision is
reproduced below:
“Agreements entered into between distributors and the Appellant, who is an exhibitor for screening pictures, have been considered to be
agreements for “renting of immovable property†as defined under section 65(90a) of the Finance Act 1994, the Finance Act by the
Department and accordingly, show cause notices have been issued to the Appellant demanding service tax. The demands made in the show
cause notices have been confirmed by the Additional Commissioner (Adjudication) and the appeal filed by the Appellant to assail the said
order has been dismissed by the Commissioner (Appeals). It is the dismissal of the appeal by the Commissioner (Appeals) by order dated 12
July that has led to the filing of this appeal.
The appellant is the owner of a cinema hall situated at Chandni Chowk, New Delhi and is engaged in the business of exhibiting films in
its theatre. The copy right over the films is owned by the distributors. The appellant enters into agreements with the film distributors to
obtain such copy rights under which the right to exhibit the films is transferred to the appellant, either temporarily or in perpetuity,
depending upon the nature of the agreements between the parties.
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It is more than apparent from a bare perusal of the aforesaid agreements that they have been entered into between the appellant as an
exhibitor and the distributors for screening of the films on the terms and conditions mentioned therein. The payments contemplated under
the terms and conditions either require the exhibitor to pay a fixed amount or a certain percentage, subject to minimum exhibitor share or
theatre share of effective shows in a week.
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It is very difficult to even visualize that the appellant is providing any service to the distributor by renting of immovable property or even
any other service in relation to such renting. The agreements that have been executed between the appellant and the distributors confer
rights upon the appellant to screen the film for which the appellant is making payment to the distributors. The distributors are not making
any payment to the appellant. Thus, no consideration flows from the distributors to the appellant for the alleged service.
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It is not possible to accept the reasonings given by the Commissioner (Appeals) for confirming the demand of service tax under
―renting of immovable property for the simple reason that the appellant has not provided any service to the distributors nor the distributors
have made any payment to the appellant as consideration for the alleged service. In fact, the appellant who has paid money to the
distributors for the screening rights conferred upon the appellant. The Commissioner (Appeals) completely misread the agreements entered
into between the appellant as an exhibitor of the films and the distributors to arrive at a conclusion that the appellant was providing the
service of ―renting of immovable property.
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The position in law does not change with effect from 1 July, 2012 because even under section 66B of the Finance Act, service tax is
levied on the value of all services, other than those services specified in the negative list, provided or agreed to be provided in the taxable
territory by one person to another. Though, ―renting of immovable property is a declared service under section 66E of the Finance Act,
then too under section 67(1) of the Finance Act, the value shall, in a case where the provision of service is for a consideration in money, be
the gross amount charged by the service provider for such service provided or to be provided by him. The appellant is not receiving any
payment from the distributor and, therefore, no service can be said to have been provided by the appellant.â€
It is, therefore, not possible to sustain the finding recorded by the Principal Commissioner that ‘renting of immovable property’ service had
been rendered by the Appellant to the film distributors.
The next issue that arises for consideration is about the confirmation of demand on the amount of Rs.4,04,056/- shown by the Appellant under the
income heads of 'weighing machine receipts’ and 'miscellaneous income' in its balance sheet, under the category of renting of immovable property
service, for the period 2008-09 to 2013-14.
The demand of service tax on the income head of 'weighing machine receipts is not sustainable as the said income is on account of collections
from the coin box kept with the weighing machine. By inserting a coin in the coin box an individual would know the weight. This income cannot be
classified as 'renting of immovable property’ service.
The income received under the head 'miscellaneous receipts' is in connection with the screening of movies for the annual film festival held by
Hindustan Times. The said income cannot also be said to be towards provision of any 'renting of immovable property' service. It is, therefore, not
leviable to service tax.
In any view of the matter, the incomes under both of these heads are exempted, being below the threshold exemption of Rs. 10 lakhs in terms of
Notification dated March 1, 2005 (as amended by Notification dated August 1, 2008) till June 30, 2012 and under Notification dated June 20, 2012 with
effect from July 1, 2012. 18. Thus, for all the reasons stated above, the confirmation of the demand by the impugned order cannot be sustained and is
set aside. The impugned order dated January 25, 2016 is, accordingly, set aside and the appeal is allowed.