2003 (7) TMI 273 - AT - Income Tax

Summary

Issues Involved:
1. Eligibility for deduction under section 80HHC.
2. Definition and scope of "goods or merchandise" under section 80HHC.
3. Interpretation of lease agreements as sales.
4. Applicability of section 80HHF to the assessee's case.
5. Use of Article 366(29A) of the Constitution for defining 'sale.'

Detailed Analysis:

1. Eligibility for Deduction under Section 80HHC:
The primary issue revolves around whether the assessee, engaged in exporting film prints and related rights, is eligible for deductions under section 80HHC. The assessee argued that film prints exported out of India qualify as "goods or merchandise," thereby satisfying the conditions for deduction under section 80HHC. The Assessing Officer (AO) and the Commissioner (Appeals) held that the assessee's transactions did not qualify as export sales of goods or merchandise, as they involved only the lease of exhibition rights for a limited period.

2. Definition and Scope of "Goods or Merchandise" under Section 80HHC:
The AO contended that the term "goods or merchandise" should exclude the lease of exhibition rights, which are considered negotiable instruments rather than tangible goods. The assessee countered by presenting various documents (invoices, insurance policies, airway bills, banker certificates) to prove the export of film prints, arguing that these should be considered goods or merchandise. The Tribunal agreed with the assessee, stating that film prints are indeed goods and merchandise, and their export qualifies for deductions under section 80HHC.

3. Interpretation of Lease Agreements as Sales:
The AO and the Commissioner (Appeals) argued that the lease agreements for the right of exploitation, exhibition, and distribution of films do not constitute sales. The assessee, however, cited Article 366(29A) of the Constitution, which expands the definition of 'sale' to include the transfer of the right to use goods for any purpose. The Tribunal concurred with the assessee, noting that the lease of film prints for exhibition rights should be treated as a sale for the purposes of section 80HHC, especially given the specific provisions in Rules 9A and 9B of the Income-tax Act, which equate the lease of film rights with sales.

4. Applicability of Section 80HHF to the Assessee's Case:
The AO argued that the introduction of section 80HHF, effective from 1-4-2000, which provides tax benefits for the export of film software, implied that such benefits were not available under section 80HHC prior to this date. The Tribunal rejected this argument, clarifying that section 80HHF pertains to film and television software, including telecast rights, and does not restrict the scope of section 80HHC, which applies to goods or merchandise. The Tribunal emphasized that the introduction of section 80HHF does not negate the benefits available under section 80HHC for the export of film prints.

5. Use of Article 366(29A) of the Constitution for Defining 'Sale':
The assessee referenced Article 366(29A) to argue that the lease of film exhibition rights should be deemed a sale. The Commissioner (Appeals) initially rejected this argument, relying on a Supreme Court decision that definitions in one statute should not be imported into another. However, the Tribunal upheld the assessee's interpretation, stating that the constitutional definition of 'sale' should be considered, especially given the specific context of the film industry where leasing rights are a common practice.

Conclusion:
The Tribunal ruled in favor of the assessee, allowing the appeals for the assessment years under consideration. It concluded that the export of film prints qualifies as the export of goods or merchandise under section 80HHC, and the lease agreements should be treated as sales. The Tribunal also clarified that the introduction of section 80HHF does not restrict the benefits available under section 80HHC. The appeals by the assessee were allowed, granting them the claimed deductions.