The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that the convenience fee collected and retained by BookMyShow for providing an online ticket-booking facility does not constitute commission paid by a cinema operator, so the amount does not attract tax deduction at source (TDS) under Section 194H of the Income Tax Act, 1961.
The Bench of Amit Shukla (Judicial Member) and Arun Khodpia (Accountant Member) observed that commercial coordination between two parties cannot, by itself, be treated as legal agency. For Section 194H to apply, the recipient of the payment must act in a representative capacity “on behalf of” the alleged principal.
The proceedings were originally initiated against Inox Leisure Limited, which subsequently amalgamated with PVR Limited, now known as PVR INOX Limited, with effect from January 1, 2023. The amalgamation was approved by the National Company Law Tribunal, New Delhi Bench, through an order dated January 12, 2023.
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Following the amalgamation, the assets, liabilities and operations of Inox Leisure vested in PVR INOX, which prosecuted the appeal as the successor entity.
The principal dispute concerned an agreement dated March 30, 2011, between Inox Leisure and Big Tree Entertainment Private Limited, which operates the online ticketing platform BookMyShow.
Under the arrangement, customers could use the BookMyShow platform to select a city, cinema, show and seat before making payment through the payment gateways provided on the platform. BookMyShow would then generate a voucher that enabled the customer to obtain the cinema ticket.
The amount collected by BookMyShow consisted of two distinct components: the face value of the cinema ticket fixed by the theatre operator and a separate convenience fee charged for providing the online booking facility.
BookMyShow was required to remit the entire face value of each ticket to the cinema operator. It was also required to pay a fixed amount of ₹7.25 per ticket out of the convenience fee. The balance convenience fee was retained by BookMyShow.
During the relevant financial year, BookMyShow retained convenience fees aggregating to ₹5,08,58,545.
The agreement further stipulated that BookMyShow would guarantee payment of the agreed amounts to the cinema operator for tickets booked through its platform, irrespective of whether it actually recovered the corresponding payment from the customer.
PVR INOX raised invoices for its fixed share of the convenience fee. BookMyShow deducted TDS under Section 194C while remitting that amount to the cinema operator.
The Assessing Officer held that BookMyShow was selling cinema tickets on behalf of the cinema operator and that the convenience fee retained by it represented commission for services rendered to the operator.
According to the Assessing Officer, BookMyShow’s retention of a portion of the convenience fee amounted to constructive payment of commission by the cinema operator. The officer relied principally on CBDT Circular No. 619 dated December 4, 1991, the Supreme Court’s decision in J.B. Boda & Co. (P.) Ltd. v. CBDT, and certain provisions of the commercial agreement.
The Assessing Officer also considered the contractual ceiling imposed on the convenience fee and the requirement of the cinema operator’s approval before altering that ceiling as evidence of control over BookMyShow.
However, the company furnished an accountant’s certificate in Form 26A showing that BookMyShow had included the amount of ₹5.08 crore in its income tax return and paid the applicable tax. In view of the certificate, the Assessing Officer did not ultimately treat the company as an assessee in default under Section 201(1) for the principal tax amount.
The officer nevertheless held that interest under Section 201(1A) remained payable.
Since month-wise details of the convenience fee were stated to be unavailable, interest was calculated on the entire amount of tax allegedly deductible from April 2012 until September 28, 2013, when BookMyShow filed its income tax return. This resulted in an interest demand of ₹9,15,454.
The CIT(A) upheld the Assessing Officer’s findings, holding that the arrangement created a principal-agent relationship and that the fee retained by BookMyShow represented constructive payment of commission liable to TDS under Section 194H.
PVR INOX argued before the ITAT that the fundamental statutory requirement for invoking Section 194H was absent because BookMyShow did not act on behalf of the cinema operator while providing its online booking facility.
The convenience fee was charged by BookMyShow to users of its platform in consideration for the digital services provided to them. The cinema operator neither paid nor credited any convenience fee to BookMyShow.
Instead, PVR INOX received the entire face value of the cinema ticket and a predetermined share of ₹7.25 per ticket from BookMyShow.
The company maintained that an agreed upper limit on the convenience fee did not transform an independent commercial arrangement into a relationship of agency. The parties operated in separate commercial spheres and independently bore the risks and liabilities associated with their respective operations.
Examining Section 194H, the Tribunal noted that its definition of “commission or brokerage” covers payments received directly or indirectly by a person acting on behalf of another person for specified services or transactions.
The indispensable statutory requirement, the ITAT said, is that the person receiving the amount must act “on behalf of” another person.
It is the representative character of the relationship—not merely the fact that one party’s activities facilitate or increase the business of another—that forms the legal foundation for treating an amount as commission.
The Tribunal held that an amount cannot be brought within Section 194H merely because one contracting party earns a margin or retains part of the gross collections. The agreement must establish that the recipient acted in a representative capacity for the alleged principal.
The ITAT found several provisions of the agreement inconsistent with the Revenue’s allegation of agency.
Under the agreement, users of the online booking platform were identified as customers of BookMyShow. Customer data collected through the platform remained BookMyShow’s exclusive property, subject to certain restrictions relating to the disclosure of ticket-sales information.
BookMyShow was also entitled to undertake promotional activities at its own cost and commercial risk where the cinema operator declined to participate in them.
The Tribunal said these provisions showed that BookMyShow operated an independent digital platform, dealt with users as its own customers and could conduct promotional activities on its own account.
The agreement also allocated responsibility for third-party and consumer claims according to the party primarily responsible. BookMyShow was independently liable for disputes, litigation, expenses and consumer claims arising from its electronic platform or attributable to its own non-compliance.
The parties additionally retained their separate intellectual property rights.
According to the ITAT, these were not merely formal or incidental contractual clauses. They constituted the substantive architecture of the arrangement and demonstrated that the parties maintained independent commercial identities and bore risks within their respective areas of operation.
The Tribunal rejected the finding that the agreed ceiling on the convenience fee demonstrated the cinema operator’s control over BookMyShow.
It noted that BookMyShow could determine the convenience fee within the agreed commercial parameters. Regardless of the amount ultimately charged to customers, PVR INOX’s entitlement remained restricted to a fixed sum of ₹7.25 per ticket.
The upper ceiling was a commercial safeguard against an excessive convenience fee potentially affecting ticket sales, customer experience and the goodwill of both parties.
Such a safeguard did not establish that the entire convenience fee first belonged to the cinema operator and was subsequently allowed to be retained by BookMyShow as remuneration for services rendered on its behalf.
The ITAT attached importance to the provision requiring BookMyShow to guarantee payment to the cinema operator for confirmed ticket bookings irrespective of whether it actually recovered the corresponding amount from the customer.
BookMyShow was also liable to pay interest if it delayed remitting the agreed amount.
The risk of non-collection from customers was therefore borne by BookMyShow and not by the cinema operator. This allocation of risk supported the conclusion that BookMyShow operated independently rather than as an agent acting on behalf of PVR INOX.
The Tribunal acknowledged that the face value of the cinema ticket belonged to the theatre operator and was collected by BookMyShow for onward remittance. It nevertheless held that the same conclusion could not be applied to the convenience fee.
The convenience fee was separately charged for access to and use of BookMyShow’s online platform. BookMyShow provided the technological interface, online access, payment-processing facilities and related customer-facing services.
The ticket price and convenience fee consequently had separate commercial sources and characteristics. Their collection through a single payment interface could not erase that distinction.
The ITAT held that CBDT Circular No. 619 did not assist the Revenue.
The circular explains that where an agency relationship already exists, the retention of commission by an agent may be regarded as constructive payment by the principal. It does not eliminate the preliminary requirement of proving that the amount is commission and that the recipient acted as an agent.
“Constructive payment” is only a mode of satisfying an existing payment obligation, the Tribunal explained. It cannot create an underlying payment obligation or an agency relationship where none exists.
The ITAT similarly distinguished the Supreme Court’s judgment in J.B. Boda & Co., observing that it dealt with settlement through netting instead of circuitous two-way remittances. It did not establish that every amount retained from gross collections must be treated as commission regardless of the parties’ legal and commercial relationship.
The Bench also distinguished the Supreme Court’s ruling in Director, Prasar Bharati v. CIT. In that matter, the agreement repeatedly characterised the disputed amount as commission, and the advertising agencies expressly acted to secure advertisements for Doordarshan. Comparable provisions were absent from the BookMyShow agreement.
The Tribunal found that the authorities had placed disproportionate emphasis on the word “appoints” appearing in the agreement and on the agreed ceiling for the convenience fee.
A term used to introduce or appoint a service provider cannot, by itself, determine the legal nature of the relationship. The actual rights, obligations, risks and conduct of the parties must be considered together.
The ITAT concluded that BookMyShow collected the convenience fee from users in consideration for the digital booking facility provided through its platform. PVR INOX neither paid nor credited that fee to BookMyShow.
BookMyShow’s obligation to pay PVR INOX was independently fixed, and the platform operator bore the commercial risks and liabilities associated with its digital services.
The Tribunal observed that while commercial coordination was essential for operating the online booking arrangement, such coordination was not synonymous with legal agency.
The ITAT held that the ₹5,08,58,545 collected and retained by BookMyShow did not constitute commission paid or constructively paid by PVR INOX within the meaning of Section 194H.
BookMyShow was not acting on behalf of the cinema operator while charging the convenience fee. It independently provided a digital booking facility to users and received the convenience fee as consideration for that facility.
PVR INOX was therefore under no obligation to deduct TDS from the amount retained by BookMyShow. The proceedings under Sections 201(1) and 201(1A), insofar as they related to the convenience fee, could not be sustained.
Since the underlying obligation to deduct TDS did not exist, the Tribunal directed the deletion of interest of ₹9,15,454 levied under Section 201(1A).
The Bench did not decide PVR INOX’s alternative argument that interest could not be recovered because BookMyShow had already declared the amount and paid tax on it, as demonstrated by Form 26A. That question became academic after the Tribunal held that Section 194H was not applicable in the first place.
The ITAT clarified that a separate demand of ₹30,376 relating to alleged short deduction under Section 194J, non-deduction under Section 194C and corresponding interest was not challenged through any specific ground in the appeal. That demand was therefore left undisturbed.
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