This is an appeal by the assessee against the order of ld. CIT (A)-III, Jaipur dated 13.01.2012 for the A.Y. 2007-08. The grounds raised in the appeal are as under :-

1. The learned CIT (A) & Assessing Officer erred in law and on facts in rejecting the claim of Rs. 65,00,000/- which was the guaranteed amount as per agreement with the Film Exhibitor. In fact no such payment was made but it was only an appropriation ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. made by the Exhibitor out of gross film receipts of Rs. 80,59,051/-.

2. The learned CIT (A) and Assessing Officer also erred in holding that provisions of Sec. 194-I of I.T. Act, 1961 were applicable on such adjustment of Rs. 65,00,000/- and since no TDS was made on it, it was considered disallowable.

3. The learned CIT (A) and Assessing Officer failed to consider the Boards Circular No. 736 dated 13.02.1996 which clearly state that provisions of Sec. 194-I are not attracted where there is sharing of proceeds of film exhibition between a film distributor and a film exhibitor, since the distributor does not take cinema building on lease or sub lease or tenancy or under any agreement of similar nature. Earlier, the appeal filed by the assessee was fixed for hearing on

30.09.2014 but on this date none attended on behalf of the assessee. Therefore, the appeal was dismissed in limine as pronounced in the open court. Against this order of the Tribunal, the assessee has filed Miscellaneous Application No. 43/JP/2014 dated 15.12.2014 praying to recall the order passed on 30.09.2014 and restore the appeal stating that due to closure of the Office of the Chartered Accountants, the assessee did not receive the notice of hearing which prevented the assessee for non- appearance. In support of above, the assessee has filed affidavit duly notarized. Considering the circumstances stated above, the order in ITA No. 240/JP/2012 dated 30.09.2014 was recalled and restored the appeal ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. to its original stage vide order passed in M.A. No. 43/JP/2014 dated 12.06.2015.

1. Brief facts of the case are that the assessee firm is engaged in the business of purchase and sales of shares and is also engaged in films business. The assessee has filed the return of income on 31.07.2007 declaring NIL income. However, subsequently the case was selected for compulsory scrutiny and notice under section 143(2) was issued to the assessee on 08.09.2008. Further, a notice u/s 143(2) was issued on

19.09.2008 which was served on the assessee on 24.09.2008. In response to the notice, the ld. A/R of the assessee attended the hearing and filed written submission, produced books of account which were test checked.

2. The assessee has shown the income from film business at Rs. 24,48,479/-. The assessee was asked to give the details of film business. The assessee complied and vide letter dated 13.05.2009 submitted that assessee has entered into an agreement with M/s. Showtime Entertainment Pvt. Ltd. for conducting its film business. According to the agreement dated

01.04.2006 the assessee had guaranteed for a gross collection of Rs. 65,00,000/- to M/s. Showtime Entertainment Pvt. Ltd., namely SPACE- 1,2,3 at City Plaza, Jaipur from 01.04.2006 to 30.05.2006 for running of ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. film at Cinema Hall. The AO noticed that the gross collection of Rs. 80,59,051/- was made by the Cinema Hall for the period from 01.04.2006 to 30.05.2006 from running of the film by the assessee and after keeping a sum of Rs. 65,00,000/- by the owner of the Cinema Hall, a sum of Rs. 15,59,051/- was paid to the assessee by the owner of the Cinema Hall. The AO, after noticing section 194-I has issued show cause notice to the assessee asking as to why the expenses claimed for Rs. 65,00,000/- be not disallowed and added to the total income of the assessee. The notice reads as under :

Hence from the above provisions of the I.T. Act, it is clear that you have taken the Cinema Hall, Space 1, 2, 3 on lease/rent along with all its facilities including staff, management, plant & machinery etc. for carrying out business activities. You have executed an agreement with the owners of the Cinema Hall i.e. M/s. Show Time Entertainment Pvt. Ltd. that the collection from selling of tickets will be made by the owners of Cinema Halls and after deducting the expenses towards running of film, the surplus will be handed over to you. You guaranteed for a fix amount of Rs. 65,00,000/- on behalf of taking Cinema Hall for running of films for a time period of 2 months i.e. from 01.04.2006 to 31.05.2006. This guaranteed payment to the owners of the Cinema Hall for a particular period of time for having right of playing movies in their Cinema under the condition that no other party will be entitled to use the Cinema Hall for this period, definitely falls under the definition of rent as defined ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. in the provisions of section 194-I of the I.T. Act and as per the provisions of this section you have to deduct income tax as per the rate prescribed therein. Since, you have not deducted any tax on the payment made towards the rent to M/s. Show Time Entertainment Pvt. Ltd. for Rs. 65,00,000/-, you are requested to show cause why not the expenses claimed of Rs. 65,00,000/- be not disallowed and added to your income as per the provisions of section 40(a)(in accordance with) of the I.T. Act.

3. The assessee has filed reply and thereafter, the AO had held that the assessee was required to deduct the TDS on the amount of Rs. 65,00,000/- under section 194-I of the IT Act and on account of failure on the part of the assessee to deduct the TDS, the expenses of Rs. 65,00,000/- were disallowed. For the purpose of convenience, we are reproducing herein the operative portion of the order as under :-

The submission of the assessee regarding non deduction of tax on the payment of Rs. 65,00,000/- to M/s. Showtime Entertainment Pvt. Ltd. is also not acceptable. Boards Circular No. 736 dated

13.12.1996 is not applicable in this case because in the present case the film distributor i.e. the assessee has taken the entire cinema hall for a fixed period of 2 months i.e. from 01.04.2006 to 30.05.2006 for a fixed amount of Rs. 65,00,000/-. The assessee has to pay this amount compulsorily to the owners of the cinema hall and there was no provision regarding sharing of receipts in between owners of the ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. cinema hall and the assessee. Assessee has to pay a fixed amount of Rs. 65,00,000/- to the owners of the cinema hall even if the gross receipts are below Rs. 65,00,000/-. Hence, the nature of this payment is clearly rent and covered u/s 194-I of the IT Act and assessee has to deduct income tax on this payment. Since the assessee has not deducted income-tax on the rent payment of Rs. 65,00,000/-, the same has been disallowed as expenses claimed by the assessee and added to the income of the assessee. The assessee has earned income from film business with total gross receipts of Rs. 80,59,501/- but failed to got it accounts audited and submit audit report in prescribed proforma as required u/s 44AB. Therefore, it is a fit case to initiate penalty u/s 271B of the IT Act. The penalty proceedings u/s 271B of the IT Act is initiated separately.

4. Being aggrieved, the assessee filed appeal before ld. CIT (A). The ld. CIT (A) being not convinced with the submissions of the assessee, has affirmed the order passed by the AO by observing as under :-

3.3. I have duly considered the rival stands of the AO and the ld. AR as discussed above. The AO has made the addition of Rs. 65 lacs paid as guaranteed amount to the Film Exhibitor, as agreed upon, towards the using the entire Cinema Hall for exhibiting the movies therein. In the opinion of the AO, the payment made in this regard is akin to the rent payment in nature, therefore, the appellant was liable for deduction of TDS u/s 194-I of the Act and for the non compliance of the same, on his part, the entire claimed made in this ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. regard is liable to be disallowed. On the other hand, the ld. AR stated that the payment was made, towards the sharing of the proceed of film exhibition between the assessee (as film distributor) and the film exhibitor owning the cinema theatre, therefore, does not amount to rent payment and the provisions of Sec. 194-I are not applicable on such payments. The ld. AR heavily depended upon the clarification given in this regard, in the circular No. 736 dated

13.02.1996 of the CBDT. Considering the totality of the facts and circumstances and also the provisions of the agreement under consideration and also the contents of the above CBDT Circular, I find that the AO is justified in disallowing the above payment, for non compliance of TDS provisions, as the payment made in this regard was found as a fixed payment in nature for using the cinema hall for the fixed period and not an arrangement of sharing of the proceed of film exhibition, as claimed by the appellant. It is also noted that the above payment was required to be made, irrespective of the actual collection of the film exhibition, as enumerated in the relevant agreement. Thus, in my considered view, the provision/clarification as given in the above mentioned CBDT Circular is not applicable in the present case, as the same is only dealt with the revenue sharing model of film exhibition and not the rent type of payment as found in the present case. In view of the above factual position, it is felt that the AO has correctly treated the same as a rent payment made to the film exhibitor, hence covered u/s 194-I of the Act. Accordingly, it is held that the disallowance of claim of Rs. 65 lacs, towards the hiring the cinema hall, is justified u/s 40(a)(ia) of the ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. Act, for non deduction of TDS thereon, u/s 194-I of the Act. Consequently this ground of appeal is rejected.

5. Now the assessee is in appeal before us. It was contended by the assessee that the agreement dated 01.04.2006 is neither a Rent Agreement nor an agreement to take the cinema hall for exhibiting the film nor it was an agreement to take on rent the plant and machinery installed in the cinema hall. The said agreement was an agreement for conducting of business and for the purpose of ensuring and boosting the business of film exhibition by M/s. Show Time Entertainment Pvt. Ltd the said agreement was entered by the assesse with cinema owner . The ld. Counsel for the assessee has submitted that the intention of the agreement is required to be appreciated and by no stretch of imagination/ interpretation the agreement can be termed as an agreement for renting out the land or building or plant and machinery within the meaning of section 194-I. for the purposes of clarity he referred section 194-I which is as under :- Section 194-I. Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of (a) Two per cent for the use of any machinery or plant or equipment ; and ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. (b) Ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings.

6. Lastly, it was contended that the assessee has not received any amount from the sale of tickets and in fact there was no occasion for the assessee to retain/deduct the tax on the alleged payment of Rs. 65,00,000/-. it was furhter submitted that, M/s. Show Time Entertainment Pvt. Ltd. was collecting the receipts of film exhibition and M/s. Show Time Entertainment Pvt. Ltd. had made the payment to it. further ld. Counsel for the assessee also relied upon the Boards Circular No. 1294 wherein the Board has clarified that the provisions of section 194-I of the IT Act to the sharing of proceedings of film between film distributors and film exhibitor owning a cinema theatre, are not attracted to such payment.

7. The ld. D/R for the Revenue has supported the order of the AO and has submitted that he relies upon the orders passed by the AO/CIT (A).

8. Before we examine the issue, it will be prudent to reproduce the terms and conditions of the agreement :-

This agreement is entered on 01.04.2006 between M/s. Showtime Entertainment Pvt. Ltd having registered office at 4, Ziledar House, Kachcha Bandha, Amer Road, Jaipur engaged in exhibition of films at their cinema called SPACE-1, 2, 3 at City Plaza, Bani Park, Jaipur hereinafter called as party of 1 st part and M/s. Ajit & Company of Second Part, at Jaipur. ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur.

1. The part of first part (Showtime Entertainment Pvt. Ltd.) hereby agreed to grant to party of Second part the playing time of two months at their above cinema i.e. SPACE-1,2,3 at City Plaza, Jaipur from 01.04.2006 to 30.05.2006.

2. That party of Second part agreed to pay to party of 1 st part guaranteed fixed gross collection of Rs. 65,00,000/- (Rs. Sixty five lac only) for the above period against aforesaid playing time granted to them.

3. That all the pictures during the period to be screened in SPACE- 1, 2, 3 will be booked by M/s. Showtime Entertainment Pvt. Ltd. with the consultation of second party.

4. That all the payment to the Distributors towards the distribution share a/c will be made directly by M/s. Showtime Entertainment Pvt. Ltd. & M/s. Ajit & Company has nothing to do in this regard.

5. That any sum in terms of Gross collection which is more than Rs. 65,00,000/- during above period will be paid by 1 st part to IInd part while deficit will be paid by IInd part to 1 st Party.

6. All publicity expenses etc. will be borne by either distributor//or Space Cinema and the party of the Second Part is not responsible for the same.

7. All disputed with the distributor or any other party will be handled & dealt with by M/s. Showtime Entertainment Pvt. Ltd. directly and any claim and there from will be at the cost of Showtime Entertainment Pvt. Ltd.

8. That in case of any disputes arising out of the agreement same will be referred to arbitration whose decision will be binding for both the parties subject to Jaipur Jurisdiction only.

9. That after the aforesaid playing time period gets over the accounts will be duly settle and 1 st party agree and undertake to pay to IInd Part the amounts belonging to them and due to them within 30 days thereof. If however any amounts are due from ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. IInd Party to 1 st party towards any deficit in the aforesaid guaranteed fixed share for the said period, IInd party agree and undertake to pay to 1 st party such amount as may be due within 30 days thereof.

10. Party of IInd part will be entitled to depute at their cost any of their representative at the cinema to supervise the screening of the pictures. However, they will not be entitled to interfere in any way with the management of the cinema.

11. That it will be the responsibility of First party to manage the cinema and carry out the exhibition of the pictures and all expenses for the management and running of the cinema will be fully borne by 1 st party and IInd party is not liable for any sort of expenses of the cinema, Showtime Entertainment Pvt. Assured to maintain the cinema in good condition.

12. That 1 st party will be fully entitled to terminate this agreement by giving notice of 3 days to another party in case of any violation and IInd party will not raise any objection to it.

13. That keeping in view the rules and regulations of the CCCA (Association of distributors & Exhibitors) the membership of the cinema is in the name of 1 st partys name and all contracts and dealings with the distributors will be done by 1 st party only.

14. All other terms and conditions will be as usual in trade.

15. Both the parties have signed this agreement in confirmation of above 01.04.2006 at Jaipur.

9. The terms and conditions of the agreement are required to be examined along with other attending circumstances for the purposes of deciding the true nature of the agreement . The intention of the parties will be reflected from the terms and conditions of the agreement and also from ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. their conduct. The reading of the agreement and the attending circumstances clearly show : A) The dominant intention of the parties of the agreement was to conduct the business and not of letting out of the building, fixtures and furniture. In the agreement, the possession of the cinema hall remains with M/s. Show Time Entertainment Pvt. Ltd. B) Under the agreement The first party namely M/s. Show Time Entertainment Pvt. Ltd , was be responsible for publicity and all publicity expenses were borne by the first party / M/s. Show Time Entertainment Pvt. Ltd and the second party was not responsible for the same. C) The maintenance of the cinema hall for the period from 01.04.2006 to 30.05.2006 remains with the first party i.e. M/s. Show Time Entertainment Pvt. Ltd. All the pictures during this period were required to be booked by M/s. Show Time Entertainment Pvt. Ltd. i.e. first party. D) The first party / M/s. Show Time Entertainment Pvt. Ltd was required to ensure smooth screening of the pictures and the second party representative was only entitled to supervise the screening of the film. The management and control of the cinema hall remains with the first party/ M/s. Show Time Entertainment Pvt. Ltd and the second party/ assessee has no right. ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. E) The management and running of the cinema hall is to be done by the first party/ M/s. Show Time Entertainment Pvt. Ltd and all the expenses for that were also required to be borne by the first party.

10. In the light of the above, it is clear that the dominant intention of the parties to the agreement was to conduct the business and to ensure that the minimum collection would be collected by the first party/ M/s. Show Time Entertainment Pvt. Ltd by exhibiting the films. There is no letting out of the cinema hall, plant and machinery by the first party / M/s. Show Time Entertainment Pvt. Ltd to the second party/ Assessee. 11 We feel that the guarantee amount of Rs. 65,00,000/- received by the first party/ M/s. Show Time Entertainment Pvt. Ltd under the agreement from the sale proceeds of tickets cannot be considered as rent even under the extended definition of Rent in Explanation-1. We are of the opinion for the purposes of attracting section 194-I, the prime condition was that the payment of rent should be relatable to any use of land/building together with furniture, fixtures etc. From the perusal of the terms and conditions of the agreement referred above, it is clear that there is no co- relation between the payment of Rs. 65,00,000/- and uses of cinema hall/plant ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. and machinery. further we are of the opinion that the term Rent is a periodical payment payable by the user of land , building etc to the owner/landlord of the land , building etc. In the present case the second party (the assessee) is not the user of the cinema hall/plant and machinery, moreover no, payment was made by the second party i.e. assessee . therefore we hold that the payment of 65 lacs were not in the nature of rent within the meaning of section 194-I of the Act and the said provision is not attracted .

12. Even otherwise, clause 5 of the agreement clearly shows that the sum in terms of gross collection if it is more than Rs. 65,00,000/- during the above period, was to be paid by the first party to the second party. Clause 5 of the agreement reads as under :-

5. That any sum in terms of Gross collection which is more than Rs. 65,00,000/- during above period will be paid by 1 st part to IInd part while any deficit will be paid by IInd part to 1 st Party.

13. Thus the payment is not required to be made by the assessee (second party) to the first party, rather it was other way round i.e. the first party/ M/s. Show Time Entertainment Pvt. Ltd was required to make the payment to the second party/ assessee in case of excess collection . For the purpose of section 194-I, what is sine qua non is the assessee should be responsible for paying to a resident any income by way of rent. In the present case the assessee is neither ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. responsible for making any payment to the first party i.e. M/s. Show Time Entertainment Pvt. Ltd. nor any payment was made by the assessee to the first party. It will be useful to mention here that even the AO at page 4 of his order acknowledges this aspect in the following manner:- Gross collection of Rs. 80,59,051/- was made by the Cinema Hall i.e. Space-1, 2, 3 for the period from 01.04.2006 to 31.05.2006 and after keeping a sum of Rs. 65,00,000/- towards the provisions of para 2 and 5 of the agreement, a sum of Rs. 15,59,051/- paid to the assessee by the Cinema Hall, which the assessee has shown as income from film business under the head of the income from other sources. Thus, in the computation of the income also, assessee has treated this income from the business of films. "

14. In fact, the assessee did not have any control over the funds as the funds were collected and managed ,by selling of tickets by the first party i.e. M/s. Show Time Entertainment Pvt. Ltd. and no money was being paid by the second party / Assessee to the first party / M/s. Show Time Entertainment Pvt. Ltd. Thus the provisions relating to the tax deduction at source do not come cannot come into play. 15 There are other reasons for setting aside the orders of the authorities below that operation of cinema generally requires various statutory regulations/law such as ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur.

1) License from the local authorities is required for the exhibition of films.

2) The cinema exhibitor is required to pay the sales-tax on the sale of tickets.

3) The cinema exhibitor is also required to collect and pay the entertainment tax on the sale of tickets to the revenue department .

4) The cinema owner is also required to have the statutory permission from the law enforcement authority.

16. From the reading of the agreement, it is clear that the assessee was not responsible for any of the above said activities rather it is M/s. Show Time Entertainment Pvt. Ltd. was only responsible for managing and running the due exhibition of pictures at the cinema hall after complying all the statutory requirements. further The ld. Counsel for the assessee upon the Boards Circular No. 1294 where by the Board has clarified that the provisions of section 194-I of the IT Act to the sharing of proceedings of film between film distributors and film exhibitor owning a cinema theatre, are not attracted to such payment. We find that the above said circular squarely applicable to the facts and circumstances of the case. In fact, in the present case assured and guaranteed return by the assessee was given to the cinema owner in case of exhibiting of films by the cinema owner . There is no letting out of the cinema hall, plant and ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. machinery, furniture and fixture for exhibition of films. We feel that the dominant and prime intention of the parties entered into agreement to conduct business and to give comfort level by the assessee to the cinema owner. The day to day maintenance and running of commercial activities remained with the owner of the cinema owner and the assessee had no control or interference whatsoever. The cinema was exclusively owned and managed by the cinema owner and the assessee was having no interference with selecting the films, exhibiting the films, issuing tickets, paying tax, maintaining statutory compliances whatsoever. Thus the agreement was not of letting out but was for conduct of business. In the light of above, the appeal of the assessee is allowed .

17. In the result, appeal of the assessee is allowed . Order pronounced in the open court on 9.10.2015. Sd/- Sd/- Vh-vkj-ehuk yfyr dqekj (T.R. Meena) (Laliet Kumar) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 9/10/ 2015 Das/ ITA No. 240/JP/2012 A.Y. 2007-08. M/s. Ajit & Company, Jaipur. vknsk dh izfrfyfi vxzsfkr@Copy of the order forwarded to:

1. vihykFkhZ@The Appellant- M/s. Ajit & Company, Jaipur.

2. izR;FkhZ@ The Respondent- The ITO, Ward 2(1), Jaipur.

3. vk;dj vk;qDr@ CIT

4. vk;dj vk;qDrvihy@The CIT(A)

5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur

6. xkMZ QkbZy@ Guard File (ITA No. 240/JP/2012). vknskkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar.