CESTAT Rules Cinema Revenue Sharing Not Taxable as Renting of Property
Tribunal sets aside service tax demand, says theatre-distributor deals are principal-to-principal contracts
Ruling offers relief to multiplexes and cinema halls, clarifies tax treatment of film exhibition
By Our Legal Reporter
New Delhi: January 05, 2026:
In a landmark judgment, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that revenue-sharing agreements between cinema theatres and film distributors cannot be treated as “renting of immovable property” for service tax purposes.
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The ruling, delivered in late 2025, sets aside tax demands raised against multiplex operators and theatre owners, offering significant relief to the entertainment industry. The Tribunal emphasized that exhibiting films under revenue-sharing contracts is a business arrangement, not a taxable service of renting property.
Background of the Case
- Tax authorities had demanded service tax from theatres, arguing that revenue-sharing agreements amounted to renting of immovable property.
- Multiplexes and cinema halls challenged the demand, stating that they were not renting property but jointly exploiting film exhibition rights.
- The CESTAT agreed with the theatres, ruling that the agreements were principal-to-principal contracts with no service provider–recipient relationship.
Court’s Observations
- Principal-to-Principal Relationship
- The Tribunal noted that theatres and distributors share revenue from ticket sales.
- This arrangement is not renting but a joint business activity.
- No Service Provider–Recipient Link
- Renting of immovable property requires one party to provide property as a service.
- In cinema revenue-sharing, both parties benefit from film exhibition, making it a partnership-like arrangement.
- Supreme Court Precedents
- The ruling aligns with earlier Supreme Court judgments affirming that exhibiting films on revenue-sharing basis is not a taxable service.
Wider Legal Context
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- Service Tax Law (pre-GST era): Renting of immovable property was taxable.
- Cinema Exhibition: Revenue-sharing agreements were often misclassified as renting, leading to disputes.
- GST Regime: Film exhibition is taxed differently under GST, but the ruling clarifies treatment of past service tax demands.
Why This Judgment Matters
- Relief for Theatres: Multiplexes and cinema halls avoid heavy tax liabilities.
- Clarity in Law: Confirms that revenue-sharing is not renting of property.
- Industry Impact: Strengthens financial stability of cinema operators.
- Legal Precedent: Provides guidance for similar disputes in entertainment and hospitality sectors.
Expert Views
Tax experts welcomed the ruling, noting that:
- It prevents misclassification of business arrangements as taxable services.
- It recognizes the unique nature of cinema exhibition contracts.
- It reinforces the principle that tax law must reflect commercial reality.
Conclusion
The CESTAT’s ruling that cinema revenue-sharing is not taxable as renting of immovable property is a milestone in tax jurisprudence. By setting aside service tax demands, the Tribunal reaffirmed that film exhibition under revenue-sharing contracts is a principal-to-principal business arrangement, not a taxable service.
This judgment provides relief to multiplexes and theatres, clarifies tax law, and strengthens the entertainment industry’s financial foundation.
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