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The Central Government in the light of recent changes in the law and CBEC Circular No. 109/03/2009, dated 23-2-2009 has clarified the taxability of profit/ revenue-sharing arrangement in case of distribution of films and exhibition of movies in the following manner: 1. Where the arrangement between the distributor/sub-distributor/area distributor and the movie exhibitor/theatre-owner in exhibiting the film produced by the producer (the original copyright holder) is on principal-to-principal basis, service tax liability would be as under:
(a) If the movie is exhibited by the theatre-owner or exhibitor on his account — i.e., the copyrights are temporarily transferred — Service tax would be levied under copyright service to be provided by distributor or sub-distributor or area distributor or producer, etc., as the case may be.
(b) If the movie is exhibited on behalf of distributor or sub-distributor or area distributor or producer, etc. i.e., no copyrights are temporarily transferred — Service tax would be levied under business support service/renting of immovable property service, as the case may be, to be provided by theatre owner or exhibitor.
2. Where the arrangement between the distributor/ sub-distributor/area distributor and the movie exhibitor/theatre-owner is on unincorporated partnership/ joint collaboration basis, services provided by each of the persons i.e., the ‘new entity’/theatreowner or exhibitor/distributor or sub-distributor or area distributor or producer, etc. as the case may be, would be liable to service tax based on the nature of transaction under applicable service head.
It is further clarified that the arrangements mentioned in this Circular will apply mutatis mutandis to similar situations across all the services taxable under the Finance Act, 1994.
