Minimum Guarantee Paid By Film Distributor Is Not A Royalty, According To Income Tax Appeal Tribunal

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Payment made by distributor to producer will not attract withholding tax provisions, court said

The Income Tax Appeals Tribunal (ITAT) in New Delhi has ruled that the minimum amount of collateral paid by the film distributor for the acquisition of distribution rights is not “royalty.” and does not result in withholding tax deduction (TDS).

According to the Income Tax Department, Yashovardhan Tyagi, the assessed person is a film distribution company on behalf of M / s Sukrit Pictures.

The appraiser paid an amount of 2 crore as a minimum guarantee fee (MGR) and did not deduct TDS for the 2011-12 appraisal year, he added.

Copyright still belongs to the producer. The distributor only receives the right to use cinematographic films. Therefore, such transactions do not attract TDS provisions, ITAT said.

In addition, the minimum security amount that is paid by the distributor for the acquisition of the exploitation rights of a film is a fixed expense for the distributor that is paid to the producers regardless of whether the film generates a profit or incurs losses, he added.

Therefore, payments made by the appraised do not fall under the term “royalty” and do not attract the provisions of the TDS. The appeal for revenue on this ground is dismissed, ITAT said.

Mr Vaitheeswaran, a lawyer and tax advisor, said it was a welcome move as the concept of minimum guarantees is unique to the film industry.


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