2010 (4) TMI 42 - HC - Income Tax

Deduction under section 80HHF - the appellant claimed deduction under Section 80 HHF on the ground that it was engaged in the business of transfer, by any means, out of India, of film software, television software, music software, television news software, including telecast rights - the Assessing Officer, after considering the reply submitted by the appellant to the show-cause notice, found that the assessee was providing services such as arrangement of raw material, engaging technicians, hiring equipments, etc., the film was shot by foreigners who brought their own equipments such as camera, motion picture stock and took the same back while leaving India and, therefore, deduction under Section 80 HHF was not available to it. held that - The first pre-requisite condition, for export or transfer out of India, of the prescribed software by an assessee is that the ownership or title in the software claimed to have been exported or transferred out of India must necessarily have vested in him. There could not have been any export or transfer, by the assessee company unless the ownership rights in the software in question vested in it - A perusal of the agreement between the appellant and Cine Media Services would show that the equipment for shooting the film was brought from Germany and the appellant company was made responsible for customs clearance for bringing the equipment in and taking it out. Under this agreement also, a fixed sum stated in terms of article 4 of the agreement was to be paid to the appellant and it was foreign client which was to bring the equipment to India for the purpose of shooting. deduction is not allowable decided in favor of revenue against the assessee

Summary

Issues Involved:
1. Eligibility for deduction under Section 80 HHF of the Income Tax Act.
2. Ownership and transfer of film software.
3. Nature of services provided by the appellant.

Detailed Analysis:

1. Eligibility for Deduction under Section 80 HHF of the Income Tax Act:
The appellant claimed deductions under Section 80 HHF, asserting it was engaged in the business of exporting or transferring film software out of India. The Assessing Officer disallowed this benefit, stating the appellant was merely a service provider and did not export any film software. The Tribunal upheld this view, noting that the appellant's activities did not constitute export or transfer of film software as required by Section 80 HHF.

2. Ownership and Transfer of Film Software:
The Tribunal and the High Court examined agreements between the appellant and foreign clients, such as Italgest Video SRL and Cine + Media Services. It was found that:
- Italgest Video SRL was the producer of the film, not the appellant.
- The appellant was responsible for expenditures within India, while Italgest Video SRL handled expenses outside India.
- The appellant received a fixed fee for its services, and all rights and proceeds from the film vested in Italgest Video SRL.
- The appellant had no proprietary rights in the film software, indicating no ownership or title to transfer.

The High Court concurred with the Tribunal's findings that the appellant did not own the film software and thus could not transfer or export it. The agreements showed that the appellant's role was limited to providing production services, and the foreign clients retained ownership and control over the film software.

3. Nature of Services Provided by the Appellant:
The Tribunal detailed the nature of services provided by the appellant, which included:
- Crewing and casting.
- Production coordination.
- Negotiation with personnel.
- Arranging equipment.

These services did not confer any proprietary rights to the appellant in the film software. The Tribunal noted that the negatives were handed over to the foreign clients' agents in India, and the entire production process was supervised and financed by the foreign clients.

The High Court emphasized that the appellant's activities were confined to rendering services within India for a fixed fee. The agreements did not involve any sale or transfer of film software by the appellant. The invoices produced showed nil value, further supporting the conclusion that there was no export or transfer of film software by the appellant.

Conclusion:
The High Court upheld the Tribunal's findings, stating that the appellant was not engaged in the export or transfer of film software as required by Section 80 HHF. The appellant's role was limited to providing production services, and it did not own the film software. Consequently, the appeal was dismissed, and no substantial question of law arose for consideration.