2013 (12) TMI 185 - AT - Income Tax

Deduction u/s 80HHC The assessee has made export of certain music rights through one M/s. Galaxy Timber Trading International, his proprietary concern - Held that - Following Abdulgafar A. Nadiadwala v. Asst. CIT 2004 (3) TMI 58 - BOMBAY High Court The payments were made by M/s. Sound of Arts to the assessee for transfer of masters tape - The assessee had provided reasonable evidence to show that masters tapes were delivered by him to the party in Sharjah - The assessee produced copy of certificate of foreign inward remittance by ANZ Grindlays Bank - The assessee had received the consideration for export of the masters tapes which contained the title and rights of songs - Decided against Revenue.

Issues Involved:
1. Deduction under Section 80HHC of the Income-tax Act, 1961.
2. Validity of reopening of assessment under Section 147 of the Act.
3. Requirement of customs clearance for claiming export benefits under Section 80HHC.

Detailed Analysis:

1. Deduction under Section 80HHC of the Income-tax Act, 1961:
The primary issue in this case revolves around the assessee's claim for a deduction of Rs. 38,04,768 under Section 80HHC for the overseas sale of music rights. The Revenue's grievance was that the Commissioner of Income-tax (Appeals) allowed this deduction based on an agreement for the exploitation of rights for a fixed period. The Revenue argued that the Commissioner wrongly relied on the decision of the hon'ble Mumbai High Court in Abdulgafar A. Nadiadwala v. Asst. CIT [2004] 267 ITR 488 (Bom).

2. Validity of Reopening of Assessment under Section 147 of the Act:
The history of the case includes the reopening of the assessment by issuing a notice under Section 148. The original assessment allowed a deduction under Section 80HHC, which was later withdrawn in the reopened assessment. The assessee challenged this reopening and the denial of deduction before the Commissioner of Income-tax (Appeals) and subsequently before the Tribunal. The Tribunal justified the reopening but remitted the issue of deduction back to the Assessing Officer for further verification.

3. Requirement of Customs Clearance for Claiming Export Benefits under Section 80HHC:
The Tribunal required the Assessing Officer to verify whether the goods or merchandise had crossed the customs frontiers to complete the export. The assessee provided various documents, including agreements, bank statements, and remittance certificates, to support the claim of export. However, the Assessing Officer concluded that there was no evidence of customs clearance for the goods, which is essential for claiming export benefits under Section 80HHC.

Detailed Judgment Analysis:

1. Deduction under Section 80HHC:
The Tribunal noted that the Commissioner of Income-tax (Appeals) allowed the deduction based on the decision in Abdulgafar A. Nadiadwala v. Asst. CIT, which held that physical transmission was not always necessary for claiming export benefits. The Commissioner appreciated the contention that music rights, being intellectual property, do not always require physical export. The Tribunal agreed with the Commissioner that the assessee was eligible for the deduction under Section 80HHC.

2. Validity of Reopening:
The Tribunal previously held that the reopening of the assessment was justified. However, the issue of deduction under Section 80HHC was remitted back to the Assessing Officer to verify the completion of export. The jurisdictional High Court upheld this remittance, agreeing that it was necessary to re-examine whether the goods crossed the customs frontiers.

3. Customs Clearance Requirement:
The Assessing Officer denied the deduction on the grounds that there was no evidence of customs clearance for the exported goods. The Tribunal examined the agreement and other documents provided by the assessee, including letters and remittance certificates. The Tribunal noted that the letters indicated the transfer of master tapes to the party in Sharjah and that the assessee received foreign exchange within the stipulated period. The Tribunal concluded that the assessee provided reasonable evidence of export and was entitled to the deduction under Section 80HHC, as supported by the decision in Abdulgafar A. Nadiadwala v. Asst. CIT.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the Commissioner of Income-tax (Appeals)'s decision to allow the deduction under Section 80HHC. The Tribunal found that the assessee had provided sufficient evidence of export and receipt of foreign exchange, justifying the deduction. The requirement of customs clearance was deemed not strictly necessary for intellectual property rights like music rights.

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