Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: ACCOUNTING STANDARDS :: cpt :: list of goods taxed at 4% :: due date for vat payment :: VAT RATES :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: VAT Audit :: TAX RATES - GOODS TAXABLE @ 4% :: ACCOUNTING STANDARD :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TDS :: form 3cd :: articles on VAT and GST in India :: empanelment :: Central Excise rule to resale the machines to a new company
 
 
From the Courts »
 Ravneet Takhar Vs. Commissioner Of Income Tax Ix And Ors.
 Jaiprakash Associates Ltd. Vs. Commissioner Of Income Tax
 Formula One World Championship Limited Vs. Commissioner Of Income Tax, International Taxation-3 And Anr.
 Commissioner Of Income Tax International Taxation-3 Delhi Vs. Formula One World Championship Ltd. And Anr.
 Reliance Communications Ltd vs. DDIT (ITAT Mumbai)
  Sushila Devi vs. CIT (Delhi High Court)
 Ashok Prapann Sharma vs. CIT (Supreme Court)a
  Vatsala Shenoy vs. JCIT (Supreme Court)
  Vatsala Shenoy vs. JCIT (Supreme Court)
 M.K.Overseas Pvt. Ltd. Vs. Pr.Commissioner Of Income Tax-06
 Arshia Ahmed Qureshi Vs. Pr. Commissioner Of Income Tax-21

ITAT clears Karan Johar-Shah Rukh Khan companies' deal
October, 16th 2013

Many actors, including leading stars such as Shah Rukh Khan, Amitabh Bachchan and Aamir Khan, have set up their own production houses, entirely for commercial efficiency. But this has brought to the fore many challenges on the tax front.

Payments made to actors' production houses are often contested by the tax authorities. There have been instances where tax authorities have denied a deduction of such payments from the business profits in the hands of the payer - the producer or co-producer.

This means, such expenditure is added back to the income of the producer or that of his business entity, which inflates the net profits and consequently results in a higher tax burden.

A recent ruling by the Income-Tax Appellate Tribunal (ITAT) brings respite from this tax challenge. The Mumbai bench of the ITAT has allowed a deduction of Rs 1.52 crore for Karan Johar's Dharma Productions. This business entity had made these payments to Red Chillies Entertainments Pvt Limited (RECL), founded by actor Shah Rukh Khan.

These payments were towards joint production of the film Kaal - a Bollywood horror film released in April 2005. Under the agreement between the entities owned by Johar and Khan, the profits were to be shared equally and their contractual obligations and responsibilities were clearly defined.

For instance, in addition to creative, technical and marketing input, RCEPL was also to provide use of cinematographic equipment. Further, Kaal was also released under a joint banner.

One of the main objections raised by the tax authorities was that the services were rendered by Khan in his personal capacity. Thus, as no service was rendered by RCEL, the payments made to it by Dharma Productions were not an 'admissible business deduction' for the latter.

The ITAT did not agree with this view. It held that these services rendered by RECL were creative in nature and required personal expertise and talent. It also observed that Khan had also performed the title song in the film for which no separate payment was made to him.

"The only inference that can be drawn from the given facts and circumstances is that the services rendered by Khan are on behalf of RCEL and under the contractual obligation," the ITAT concluded.

Rakesh Jariwala, EY partner specializing in the entertainment sector, states, "With participation agreements gaining popularity in Bollywood, the ITAT has given a significant ruling as it recognizes that a creative services company (RCEL in this case) is entitled to arrange and provide services for a project as per the terms of the contractual agreement."

Gowree Gokhale, partner at law firm Nishith Desai Associates, explains, "If actors charged sky-high fees, it was not commercially feasible as not all films do well. On the other hand, if an actor charged moderate fees and the film was a huge success, he lost out. In this backdrop, business-savvy actors began to set up their own production companies and entered into co-production deals where they owned part of the intellectual property in the film and could also claim their share of back-end profits.

There are variations to such business models - such as revenue share, profit share and service fee models - and the tax implications accordingly differ. Proper structuring of the business model and agreement helps deal with tax challenges."

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Content Management System development CMS development Content Management Solutions CMS Solutions Content Management Services CMS Services CMS Software

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions