2004 (3) TMI 58 - HC - Income Tax

Deduction claimed by the assessee under section 80HHC - Beta-earn tapes - word goods or merchandise - Beta-earn tapes make the film available at 35 mm cinematography, compatible for transmission and telecast - the beta-cam tape, which has incorporeal rights, is a goods or merchandise for the purposes of section 80HHC - beta-cam tapes are goods or merchandise and the transactions in question involve export of goods out of India falling within the sweep of the words sale or otherwise - AO was not justified in refusing to treat beta-earn tapes as goods or merchandise for the purposes of section 80HHC

Summary

Issues Involved:
1. Whether the product involved can be said to be "goods" and/or "merchandise."
2. Whether it was exported out of India by way of sale or otherwise involving clearance at the customs station.
3. Whether the consideration received can be described as sale proceeds constituting part of export turnover.

Detailed Analysis:

Issue 1: Whether the product involved can be said to be "goods" and/or "merchandise."
The court analyzed the nature of beta-cam tapes containing films, which were exported by the assessee. The term "goods" is defined broadly in various legal texts and dictionaries to include all movable properties. The court referred to several legal precedents and statutory definitions to conclude that beta-cam tapes, which embody the right to telecast films, qualify as "goods" or "merchandise." The court also noted that the Customs Department treated beta-cam tapes as goods for the imposition of duty. Therefore, the court held that beta-cam tapes are "goods" or "merchandise" for the purposes of Section 80HHC of the Income-tax Act.

Issue 2: Whether it was exported out of India by way of sale or otherwise involving clearance at the customs station.
The court examined whether the transaction involved the export of goods out of India. It was undisputed that the beta-cam tapes were subjected to customs clearance, which is a key criterion for considering a transaction as an export. The court further analyzed whether the transaction constituted a sale. It referred to the term "sale" as understood in common parlance and legal definitions, concluding that the transfer of telecasting rights on a lease for five years, considering the short life of films, amounted to a sale. The court also interpreted the word "otherwise" used in Section 80HHC to include transactions akin to sale, such as leases, thereby covering the transaction in question. Thus, the court held that the transaction involved the export of goods out of India by way of sale or otherwise, involving customs clearance.

Issue 3: Whether the consideration received can be described as sale proceeds constituting part of export turnover.
The court considered whether the consideration received from the transaction could be termed as "sale proceeds." It noted that the term "export turnover" is defined to mean sale proceeds received in convertible foreign exchange. The court referred to Circular No. 572 issued by the Central Board of Direct Taxes, which equated "export proceeds" with "sale proceeds." Given that the transaction was akin to a sale, the consideration received could be termed as "sale proceeds." The court also addressed the introduction of Section 80HHF, which provides deductions for similar transactions but came into effect after the relevant assessment year. It concluded that Section 80HHF did not negate the applicability of Section 80HHC for the assessment year in question.

Conclusion:
The court concluded that the transaction involving the export of beta-cam tapes containing films qualified for deduction under Section 80HHC of the Income-tax Act. The assessee was entitled to claim the deduction of Rs. 84,23,746 for the assessment year 1996-97. The alternate claim for deduction under Section 80-O was not considered necessary given the favorable ruling under Section 80HHC. The appeal was allowed in favor of the assessee.