9911796707
TMI Blog2003 (7) TMI 273X X X X Extracts X X X X X X X X Extracts X X X X ..... years i.e., for assessment years 1992-93 to 1997-98 so as to bring to tax the income that had escaped assessment by allowing wrongly the claim of the assessee under section 80HHC. In response to notice under section 148 issued with the approval of the Jt. Commissioner of Income-tax, the assessee filed the returns declaring the same income as originally declared. The assessee is a registered firm. For all these years under consideration, the assessee had sold the distribution right of feature films to foreign buyers for different amounts. Out of the net income as per the accounts, the assessee claimed deduction under section 80HHC for all the years. 3. It was the contention of the assessee before the Assessing Officer that the film prints exported out of India being goods or merchandise, the conditions envisaged under section 80HHC have been satisfied completely and the assessee was entitled for deduction under section 80HHC. The Assessing Officer held that the export effected by the assessee was only the right of exploitation and exhibition of films for a limited period along with the film prints and there was in effect no sale of goods or merchandise involved in the transactions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 80HHC of the IT Act on fulfilling the following conditions: (1) The assessee must be a person resident in India. (2) The assessee should be engaged in the business of export out of India of any goods or merchandise. (3) The assessee should comply with various other terms and conditions prescribed under section 2. (4) Sub-section (4B) of section 80HHC of the Act. (5) The amount of deduction allowable Shall be computed in accordance with the provisions contained in section 2 to sub-section (4B) of section 80HHC of the Act. Now, we submit that we have complied with all the above-mentioned conditions for validly claiming the deduction under section 80HHC and consequently we are eligible for this deduction. Your goodselves raised an objection that we did not export any goods or merchandise during the year. We respectfully submit that at the time of the case, we have produced before your goodself the following documents in support of the claim regarding export of goods viz., film prints, made by us during the financial year 1997-98. (a) Letter of the foreign buyer agreeing to purchase the "film prints" for the consideration stated there. (b) The invoice raised by us o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for a certain period as evidenced by the lease agreement entered into by us as a lessor with the foreign lessee is not correct. The finding of your goodself that there is no sale of goods or merchandise involved in the contract is factually incorrect. As explained above, there is sale of goods viz., film print to the foreign buyer by us by virtue of the contract with them. Thus, the export was that of the film print of the respective pictures. In the above-mentioned communication, your goodself has stated as under: 'It is true that as a result of such lease contract with the foreign buyer film print and advertisement materials have been exported out of India'. Here it is clearly admitted and accepted that in the course of the execution of the contract with the foreign buyer we have exported goods. The proceeds realized out of such sale of film prints will only constitute an export turnover as envisaged in Explanation (b) of section 80HHC of the Act. It may kindly be noted that the ownership of the goods exported viz., the film print was severed as and when sale and delivery has taken place. The foreign buyer got absolute ownership of the goods sold as and when he has taken delive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a negotiable instrument as the lease agreement is a formal legal document and the lessee's right is mentioned therein as transfer to one person to another by delivering with or without endorsement so that the title passes to the transferee. He further held that in order to consider whether there was export of any merchandise, it has to be seen whether there was any purchase or sale in the export transaction, The assessee acquired the right of exhibition and delivered the right of exhibition of the films to the foreign party by means of a lease agreement for a fixed period and as such there existed no purchase and sale of commodities or goods. There was no export sale of any goods or merchandise, the Assessing Officer held. 6. He further held that the above conclusion is fortified by the newly inserted section 80HHF with effect from 1-4-2000 by Finance Act, 1999. The relevant discussion of the Assessing Officer as given at pages 7 and 8 of his order is reproduced below : "Section 80HHF: Where an assessee, being an Indian Company [or a person (other than a company) resident in India], is engaged in the business of export or transfer by any means out of India, of any film soft ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... promise for the future. Two years ago, I provided for this industry the same tax exemption that was available for merchandise exports". On a reading of the above budget speeches it becomes clear to any one that the incentive to film industry is proposed to be given only with effect from 1-4-2000 and that the expression "export of goods or merchandise" as given in section 80HHC did not include export of films, so as to be entitled for deduction with effect from a period earlier to 1-4-2000. In view of the above, the Assessing Officer held that the assessee was not an exporter of goods or merchandise so as to entitle the assessee to claim deduction under section 80HHF and hence, the claim of the assessee was rejected and the amount added back to the total income of the assessee. Aggrieved by the above order, assessee approached the first appellate authority. 7. It was contended before the first appellate authority that Article 366 of the Constitution expanded the definition of sale in the context of levying tax on the sale or purchase of goods by virtue of 46th amendment brought in the year 1983. By virtue of Article 366(29A), the transfer of the right to use any goods for any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med that film prints along with the rights are commercially saleable goods. Assessee entered into an agreement for export of film prints along with the rights to exploit them. Relying on the definition of sale in Expln. (3B) to section 2(xxi) of the Kerala Sales Tax Act, it was submitted that export lease of the film prints would be of the same nature as the export sale and therefore the assessee is entitled for deduction under section 80HHC. It was further submitted that the newly introduced section 80HHF cannot be treated as a section restricting the meaning of section 80HHC. For the above proposition, assessee relied on the decision reported in ITO v. Mani Ram [1969] 72 ITR 203 (SC) and also the decision of the Tribunal in the case of Tangerine Exports v. ITO [1994] 49 ITD 386 (Bom.). 9. The Commissioner (Appeals) did not accept the above contentions. He held that the definition of export turnover in Expln. (b) to section 80HHC clearly shows that 'export turnover' means the sale proceeds received in or brought into India by the assessee in convertible foreign exchange of any goods or merchandise to which the section applies, excluding freight or insurance. The first appellate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bjects. Therefore, they apply in different areas. The section 80HHF has not been used to interpret section 80HHC. It has only been used to indicate that they operate with respect to different objects. Therefore, it is obvious that section 80HHF and section 80HHC are mutually exclusive. That being so, it cannot be said that goods or merchandise include film software. If goods and merchandise included film software, there would not have been the need for the introduction of section 80HHF". He distinguished the decision of the Tribunal in Tangerine Export's case holding that in that case the item dealt with by the Tribunal was computer software and not film software. He held that for the transfer of computer software there is no need of any permission from any authority such as the Central Board of Film Certification. Therefore, the computer software cannot be equated with the film software. Under these circumstances, he held that the decision of the Tribunal in Tangerine Export's case does not apply in the case of film software covered by section 80HHF. The film software is governed by the special provisions of the Cinematorgaph Act, 1952 and the Cinematograph Rules, 1983. He further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exhibit film which can also be purchased and sold is definitely 'goods'. He further submitted that it is not the right to exploit and exhibit the film that has been sold. But, the film tape or film print on which the movie is recorded is also sold. The exploitation is as a result of sale of tape, and tape of film print and what is recorded there are indivisible and cannot be severed and treated into two. It is, therefore, the film print that is sold. In the decision of the Supreme Court in the case of Associated Cement Co. Ltd. v. Commissioner of Customs [2001] 124 STC 59 it was held that "any media, whether in the form of books or computer disks or cassettes, which contain information technology or ideas, would necessarily be regarded as goods under these provisions of the Act: these items are movable goods and would be covered by section 2(22)(e)". Relying on this decision, the counsel for the assessee contends that the question whether drawings, diskette manual etc. imported are goods are discussed at page 66 of the judgment, and it was held that these are goods. Furthermore, he contended, their Lordships held that tapes and media where it is implanted or recorded are goods. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned counsel, answering a question from the Bench as to whether there can be a sale for a limited period, submitted that it is permissible and it is not incompatible with a sale. For the above proposition, the assessee's counsel brought our attention to Pullock Mulla's Sale of Goods Act, 5th Edition by R.K. Abhichandani and at page 60 it is stated as under : "The contract of sale is compatible with a distinct collateral contract between the same parties as to the buyers subsequent use or disposal of the thing sold". At page 61, it is stated as follows: "The sale of shares is nonetheless a sale under section 4 because the vendor stipulates that certain dividends that may be declared are to go to him and that the purchaser may not resell the shares except under conditions to be mutually agreed." Thus, the learned counsel for the assessee submitted that such clause restricting the time is not inconsistent with the factum of sale. At worst if the document is read as a whole, a sale clause like 9 may not be enforceable against the purchasers if it is not complied with. Clause 9 will not take away the character of sale if otherwise the ingredients of sale are establishe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned counsel for the assessee, the learned departmental representative supported the orders of the revenue authorities and submitted that first of all what the assessee sold is not goods or merchandise and there is no sale. Assessee was only leasing out the right to exhibit and exploit the film. The sale cannot be for a limited period. In the instant case of the assessee, assessee gets the right to exhibit the film on lease and it is sub-leased to a foreign party. By no stretch of imagination, it can be said that it wag a sale, and sale is sine qua non for getting section 80HHC benefit. Unless there is sale, there is no section 80HHC benefit. The conditions for availing the benefits under section 80HHC are firstly, it should be a company or a person of Indian origin, resident of India, in the export business and the export material should be either some goods or merchandise. These are the primary conditions to be fulfilled so as to claim the benefit under section 80HHC. The learned departmental representative submitted that, as far as the assessee is concerned, first of all there is no sale; secondly there is no export of any goods or merchandise. There cannot be sale for fix ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentative. Relying on para (iv) of the Commissioner (Appeals) order, the learned departmental representative submitted that in Mani Ram's case the Hon'ble Supreme Court has held that a subsequent Act may be resorted to as a guide for the interpretation of an earlier Act, but the only condition is that the laws must be on the same subject. In the instant case, section 80HHF is a part of Income-tax law; not only that, it deals with export or transfer of film softwares. So, the decision relied on by the assessee to the effect that a subsequent piece of legislation/section cannot be used for interpretation of a section which was already in existence is not applicable as far as the point involved in this case is concerned. The decision relied on by the assessee in the case of Rohini Panikker cannot be applied in the instant case as that decision was rendered under a different Act i.e. Sales Tax Act. Thus, the learned departmental representative submitted that the appeal by the assessee is liable to be dismissed. 15. We heard the rival submissions and have gone through the orders of the revenue authorities as well as the decisions relied on by both sides. Considering the rival submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finition of 'goods' as given in article 366(12) of the Constitution was considered by the Supreme Court and it was held that the definition in terms is very wide according to which 'goods' means all kinds of movable property. The term 'movable property' when considered with reference to 'goods' as defined for the purpose of sales tax cannot be taken in a narrow sense and merely because electrical energy is not tangible or cannot be moved or touched like, for instance, a piece of wood or a book it cannot cease to be movable property when it has all the attributes of such property. It is capable of abstraction, consumption and use which if done dishonestly is punishable under section 39 of the Indian Electricity Act, 1910". Therefore, the idea that intangible goods cannot be sold is no more a good law. 16A. Coming to the proposition of the revenue that interpretations and definitions rendered while dealing with Sales Tax Act cannot be imported to Income-tax Act, even if it is accepted, it cannot be made applicable under all circumstances. When the Court says that intangible goods can be sold under Sales Tax Law, it also means that intangible goods can be sold under the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming to the objection of the revenue authorities that in view of the fact that a new section i.e., 80HHF has been introduced with effect from 1-4-2000 by the Finance Act, 1999, there was no deduction available to the persons like the assessee from the export or transfer of films or softwares, we are afraid, this objection of the revenue is also without merit. As rightly pointed out by the counsel for the assessee, Section 80HHF does not use the word 'goods', whereas in section 80HHC, to avail the benefits thereunder, it should be export goods or merchandise. In the instant case, assessee was exporting film rolls. By introducing section 80HHF, the Legislature intended to extend the benefit to film-softwares, which can be used in computer, and computer softwares. The film rolls are used normally in theatres. Merely because, due to the technological advancements, film can be converted into software that can be used in computer, it will not be fair to deny the benefit available to the assessee under section 80HHC when the idea of using the film for computer was not so popular in the country. It will be denial of justice to the assessee who was earning valuable foreign exchange for the, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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