Circular No. 736

1152. Clarification regarding applicability of provisions of section 194-I to film distributors and exhibitors

What this is

Circular No. 736 was issued by the Central Board of Direct Taxes on 13 February 1996. Its subject is 1152. Clarification regarding applicability of provisions of section 194-I to film distributors and exhibitors.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Holds that section 194-I does not apply to the sharing of film proceeds between a distributor and an exhibitor who owns the cinema theatre. The Board's reasons are that the exhibitor does not let the cinema hall out to the distributor, the exhibitor's share is generally on account of composite services, and the distributor does not take the cinema building on lease, sub-lease, tenancy or any similar agreement.

Why it was issued

Representations were received from various quarters on whether the rent deduction provision applies to such revenue sharing.

Who it reaches

Film distributors paying an exhibitor's share of collections
Cinema theatre owners exhibiting films
Assessing Officers examining film industry payments

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.194	s.2, s.393, s.397, s.400, s.402

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

1152. Clarification regarding applicability of provisions of section 194-I to film distributors and exhibitors
Representations have been received from the various quarters regarding applicability of the provisions of section 194-I of the Income-tax Act to the sharing of the proceedings of film between film distributor and a film exhibitor owning a cinema theatre. The matter has been examined by the Board and the Board are of the view that the provisions of section 194-I are not attracted to such payment because :
(i) The exhibitor does not let out the cinema hall to the distributor;
(ii) Generally, the share of the exhibitor is on account of composite services; and
(iii) The distributor does not take cinema building on lease or sub-lease or tenancy or under any agreement of similar nature.
You are requested to bring these instructions to the notice of the Assessing Officer under your charge.
Circular : No. 736, dated 13-2-1996.

What to watch

The reasoning turns on the facts recited -- no letting of the hall, composite services, no lease or tenancy of the building; an arrangement that does amount to hiring the theatre is not covered.
The circular speaks only to section 194-I; it does not decide whether some other deduction provision applies to the payment.
Section 194-I has been amended since in terms this text does not carry.

Where you meet it

In a section 201 or section 40(a)(ia) proceeding on the exhibitor's share of box office collections.

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 52/2023 [F.No. 275/17/2023-IT(B)] / SO 3254(E) — Ministry of Finance 20 July 2023
Circular No. 10/2022 — Circular regarding use of functionality under section 206AB and 206CCA of the income tax act 1961 17 May 2022
Circular No. 20/2021 — Guidelines under sub section 4 of section 194 o sub section 3 of section 194Q and sub section 1 i of section 206C of the 25 November 2021
Notification No. 106/2021 [F. No. 370149/158/2021-TPL] / SO 3679(E) — 2 the Gazette of INDIA : Extraordinary [Part Ii—sec. 3(ii)] 10 September 2021
Circular No. 21/2017 — Non applicability of the provisions of section 194 1 of the i.t. act 1961 on remittance of passenger service fees psf by 12 June 2017
Notification No. 48/2017/F. No. 370 142/16/2017-TPL / GSR 561(E) — Ministry of Finance 8 June 2017

← Circular No. 737 · Circular No. 735 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.