Bangalore Tribunal remands matter for examining the applicability of withholding by movie theater owner on convenience fees earned by online ticket booking platform from end customer

In Shri Srinivas Rudrappa^[1] (Taxpayer), the issue before the Bangalore Tribunal (Tribunal) was whether movie theater owner is required to withhold taxes on convenience fees earned by Indian company (ICo), which facilitated online booking of movie tickets through its online platform. 

As per an agreement between Taxpayer (being movie theater owner) and ICo, when the end customer books tickets through ICo’s portal, it makes payment to ICo for ticket and convenience fees. ICo retains the convenience fees and remits the ticket fees to the Taxpayer. The tax authority argued that convenience fees retained by ICo is in the nature of commission earned from movie theater and hence theater owner is liable to deduct taxes at source. It argued that there is an implied principal-agency relationship between the Taxpayer and ICo. However, the Taxpayer contended that there was no principal and agent relationship with ICo. ICo directly received service charges from the end customers and has not received the same from the Taxpayer. Hence, the Taxpayer was not obligated to deduct taxes on the convenience fees.

While analyzing the issue Bangalore Tribunal held that whether taxpayer is required to deduct taxes on the convenience fees of ICo depends on whether the amount is payable by the Taxpayer. The Tribunal noted the terms of the agreement and stated that ICo charged fees from the end customer for providing online booking services to end customer and not from the Taxpayer. Further, the Tribunal noted the following favorable facts, indicating that ICo was not an agent appointed by the Taxpayer: 

• The Taxpayer had not claimed any deduction of convenience fees. 
  
• ICo was not under any control of the movie theater owner. ICo did not act exclusively for the Taxpayer but helped in selling tickets of other theater owners as well.
• ICo was not responsible for ensuring that the tickets of the Taxpayer are sold in entirety. Also, there was no penalty on ICo in case no tickets were sold through ICo’s platform. End customers had the discretion to use ICo’s platform for booking the tickets. 
• ICo charged service tax on the additional convenience fee, but no service tax was levied on the ticket charges, which also established that the Taxpayer did not cast any obligation on ICo to sell tickets from their platform. 

However, it was not clear that if the theater owner was unable to start or play the movie, then who is liable to refund the ticket price- ICo or the Taxpayer. This being a critical fact, Tribunal remanded the matter back to tax authority for factual verification and consider the claim of the Taxpayer in accordance with law.

[1] [TS-1026-ITAT-2022(Bang)]