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Minimum guarantee paid by film distributor is not royalty, says Income Tax Appellate Tribunal

The Income Tax Appellate Tribunal (ITAT), New Delhi has ruled that the minimum guarantee amount paid by film distributors for acquiring distribution rights does not fall under ‘royalty’ and does not attract tax deduction at source (TDS).

According to the Income Tax Department, Yashovardhan Tyagi, assessee is in the business of film distribution in the name of M/s Sukrit Pictures. The assessee has paid an amount of ₹2 crore as Minimum Guarantee Royalty (MGR) and has not deducted TDS for the assessment year 2011-12, it added.

The copyrights are always with the producer. The distributor is only given the right of exhibition of cinematographic films. Hence, such transactions do not attract the provisions of TDS, ITAT said.

Further, the minimum guarantee amount which is paid by the distributor for acquiring the exhibition rights of a movie is a fixed expenditure for the distributor that is paid to producers irrespective of whether the film generates a profit or incurs losses, it added.

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

Vaitheeswaran, advocate and tax consultant said this is a welcome decision since the concept of minimum guarantee is unique to the film industry.

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