9911796707
TMI Blog2006 (6) TMI 476X X X X Extracts X X X X X X X X Extracts X X X X ..... ct"). For the assessment years 1995-96 and 1996-97, the petitioner's assessments were completed by the Assistant Commercial Tax Officer by his orders dated March 27, 1996 and June 9, 1997. The petitioner claimed that it was engaged in the business of production of movies, acquisition of satellite rights of feature films produced by the other film producers. The petitioner was also engaged in production of tele-serials and film based programmes. The films produced/acquired or programmes produced were exploited by the petitioner to earn income by telecasting. Depending on the popularity of the programmes, sponsors and advertisers would pay for telecasting them. The programmes are telecast along with advertisement material of the sponsors and advertisers. During the relevant years, the petitioner did not have a satellite telecast facility. "Eenadu Television" (hereinafter referred to as, "ETV"), a division of "Ushodaya Enterprises Limited" (UEL) had booked transponder of satellite with "Videsh Sanchar Nigam Limited" (hereinafter referred to as, "VSNL") and entered into an agreement dated July 7, 1995 with "Srilanka Telecom" for up-linking video signals from their earth station at "Pad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cast and re-telecast. The petitioner had to incur all the expenditure in procurement and production of films, and the ETV had to do canvassing and telecasting of the programmes. The petitioner would raise bills every month for the program software telecast by ETV, and ETV would pay share of advertisement revenue on or before 15th of following month. The case of the petitioner had been that its entire activity of producing and telecasting the films was with an intention to earn income from advertisement and sponsors. As it had no satellite facility, it associated with ETV who had the satellite time and infrastructure. The programmes were accordingly entrusted to ETV who copied them with their own equipment and carried them to Sri Lanka/Singapore via Chennai and telecast the programmes. In this transaction, there was no transfer of right to use goods effected by the petitioner in favour of ETV and such a transaction would not attract provisions of the Act. The Commercial Tax Officer visited the business premises of the petitioner on December 17, 1996. He inspected the documents, referred to the terms of MOU and issued show cause notices dated June 30, 1997. He proposed to levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d not be given effect to. It is submitted that the matter had been heard by a Full Bench of the Tribunal, but the judgment was pronounced only by two members of the Tribunal, as one of the members who belonged to the Income-tax Department, in the meantime, had gone back to his department. The judgment was delivered on September 3, 2004 dismissing the appeals filed by the petitioner. Therefore, these revisions were filed. The question which needs an answer from this court is, whether within article 366(29A)(d) of the Constitution of India read with Explanation IV to section 2(n) of the Andhra Pradesh General Sales Tax Act, 1957 the petitioner and ETV were involved in transfer of right to use of goods. We have heard learned counsel for the parties. The learned Senior Counsel appearing for the petitioner submits that there was no transfer as the petitioner and ETV were a Hindu undivided family and two concerns were created and as a matter of fact, they were running a joint venture and therefore, there was no transfer. It was a case where A was transferring to A in terms of a mutual agreement. A plea was also taken that what were transferred, were not goods. But the learned Senio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ARTY. The FIRST PARTY shall pay the SECOND PARTY a minimum guarantee fee for the programme software provided by it. Since the SECOND PARTY incurs all expenditure in the procurement/production of films/programmes and entirely depends on canvassing and telecasting of the programmes by the FIRST PARTY, a share of advertisement revenues at the rates indicated in the Schedule annexed to this Memorandum of Understanding, shall be paid by the FIRST PARTY to the SECOND PARTY provided always the said rates may be reviewed and revised from time to time. The payment by the FIRST PARTY for telecasting other programmes will be as mutually agreed: Provided that the SECOND PARTY shall be entitled to receive the minimum guarantee fee and share of advertisement revenue at the rates in vogue on the date of telecast/re-telecast. Further provided that wherever the FIRST PARTY desires to telecast programmes involving higher cost of production, the minimum guarantee fee or the share of advertisement revenue for such programmes may be determined separately by mutual consent. 6.. The SECOND PARTY shall raise bills every month for the programme software telecast by the FIRST PARTY for the minimum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If we analyse various terms of the MOU, it can be found that in the preamble it was stated that the First Party was desirous of exploiting the programmes, which it was producing, for mutual commercial benefit. The first clause of the agreement declares that the Second Party shall provide software to the First Party for telecast on its television channel, consisting of Telugu feature films, Telugu dubbed versions of programmes produced in other languages. Clause 2(a) declares that the Second Party should produce and provide quality programme software to the First Party for telecast on its T.V. channel, which would mean that after the Second Party produced the programmes, it had to transfer them to the First Party for being telecast. Whether it was done in Hyderabad, Sri Lanka or in any other country was immaterial for the purposes of this MOU. The First Party was only allowed to canvass for advertisement insertion programmes and it could insert advertisements in the programme capsule sent for telecast by the Second Party. The MOU also discloses that the Second Party would hold with itself all the rights in the feature films, Telugu dubbed programmes and other software provided to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant will not get even the minimum guarantee fees. But there is no supporting authority in MOU to support this contention. The information furnished by the assessee which is available in reassessment file at pages 137 to 139 does not indicate the same. Even the sale bill copies raised by the appellant also indicate the same that for no telecasting of software programmes no consideration is agreed. The said sale bills are available in the assessment file. Besides, a concession given to the transferee of right in the case of non-telecasting of programme in the form of waiver of minimum guarantee fees cannot alter the true nature of the transaction. The taxable event is the transfer of right to use the goods. Whether the transferee actually uses the goods under transfer of right to use after the taxable event and pays the money cannot alter the true nature of the transaction. Actual exercise of right to use the goods and waiver of minimum guarantee fees is not the ingredients of section 5-E and is irrelevant as held in the dissenting judgment, which is not in clash with the majority judgment reported in 20th Century Finance Corpn. Ltd. v. State of Maharashtra [2000] 119 STC 182 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 70 per Romilly M.R. The learned Senior Counsel for the petitioner has specifically drawn the attention of the court to the observations of Lord Davey, which are also quoted in the book. His Lordship said: "I take it to be a settled principle of law that the operative words of deed which are expressed in clear and unambiguous language are not to be controlled, cut down or qualified by a recital or narrative of intention." There is no quarrel with the principle laid down, but what we have found from MOU is that the operative part as well as other terms and conditions of the MOU point towards the same thing that there has been a transfer of goods and the object was that the First Party had satellite time to telecast programmes through its T.V. channel and the Second Party was producing the programmes, and therefore, it was transferring the right to use of goods to the First Party. To achieve this objective, other terms and conditions were laid in the MOU. As such, there is no conflict between the terms and conditions of the MOU with the objective mentioned in the preamble of the MOU. The learned Senior Counsel for the petitioner has relied on a judgment in the case of Provash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 546 (SC); AIR 1960 SC 1172. Special reliance was laid by the learned counsel on paragraphs 9 and 11 of the judgment (at page 551 of ITR), which reads as under: "It is enough for our purpose to refer to three decisions: In re, B.N. Elias [1935] 3 ITR 408 (Cal), Commissioner of Income-tax v. Laxmidas Devidas [1937] 5 ITR 584 (Bom) and In re Dwarakanath Harishchandra Pitale [1937] 5 ITR 716; AIR 1938 Bom 353. In In re, B.N. Elias [1935] 3 ITR 408 (Cal) Derbyshire, C.J., rightly pointed out that the word 'associate' means, according to the Oxford Dictionary, 'to join in common purpose, or to join in an action'. Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. This was the view expressed by Beaumount, C.J., in Commissioner of Income-tax v. Laxmidas Devidas [1937] 5 ITR 584 (Bom) at page 589 and also in In re Dwarakanath Harishchandra Pitale [1937] 5 ITR 716; AIR 1938 Bom 353. In In re, B.N. Elias [1935] 3 ITR 408 (Cal), Costello, J., put the test in more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or to join in an action'. Therefore, an association of persons must be one in which two or more persons join in a common purpose or common action, and as the words occur in a section which imposes a tax on income, the association must be one the object of which is to produce income, profits or gains. This was the view expressed by Beaumont, C.J., in Commissioner of Income-tax v. Laxmidas Devidas [1937] 5 ITR 584 (Bom) at page 589 and also in In re Dwarakanath Harishchandra Pitale [1937] 5 ITR 716 (Bom); AIR 1938 Bom 353. In In re, B.N. Elias [1935] 3 ITR 408 (Cal), Costello, J., put the test in more forceful language. He said: 'It may well be that the intention of the Legislature was to hit combination of individuals who were engaged together in some joint enterprise but did not in law constitute partnerships . . . . When we find, . . . that there is a combination of persons formed for the promotion of a joint enterprise . . . then I think no difficulty arises whatever in the way of saying that . . . these persons did constitute an association . . . ' We think that the aforesaid decisions correctly lay down the crucial test for determining what is an 'association of persons' wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f import as 'sales within the State' by fixing the situs of sales within its State in the definition of sale, as it is within the exclusive domain of the appropriate Legislature, i.e., Parliament, to fix the location of sale by creating legal fiction or otherwise. . . . 27.. Article 366(29A)(d) further shows that levy of tax is not on use of goods but on the transfer of the right to use goods. The right to use goods accrues only on account of the transfer of right. In other words, right to use arises only on the transfer of such a right and unless there is transfer of right, the right to use does not arise. Therefore, it is the transfer which is sine qua non for the right to use any goods. If the goods are available, the transfer of the right to use takes place when the contract in respect thereof is executed. As soon as the contract is executed, the right is vested in the lessee. Thus, the situs of taxable event of such a tax would be the transfer which legally transfers the right to use goods. In other words, if the goods are available irrespective of the fact where the goods are located and a written contract is entered into between the parties, the taxable event on such a d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aracter of sale the situs of sale is immaterial. When goods are entrusted to a common carrier for delivery, it amounts to delivery to consignee. If it takes place outside the State, the fact that subsequently goods have reached the State where they are put to use, cannot be a ground for determining the tax liability on the ground that the goods are located in that State for use." This judgment, in our view, helps the respondents rather than the petitioner. All the tests laid down by this judgment for ascertaining whether there was transfer of right to use, are satisfied in the present case as we have discussed hereinabove. The learned counsel has also relied on a judgment in Hanuman Mining Corporation Ltd. v. Commissioner of Sales Tax, Madhya Pradesh [1970] 25 STC 60, in which, the Supreme Court held: "The interpretation of section 3(a) of the Central Sales Tax Act was the subject-matter of consideration by this court in Tata Iron Steel Co. Limited v. S. R. Sarkar [1960] 11 STC 655; [1961] 1 SCR 379, and Shah, J., speaking for the majority of the Bench, observed as follows: 'In our view, therefore, within clause (b) of section 3 are included sales in which property in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract. This stipulation in the contract necessitated the movement of the wagons from the State of Madhya Pradesh to the Gondia weigh-bridge for the fulfilment of the terms of the contract as to the payment of the price. Gondia weigh-bridge was the basis of the fixation of price of the manganese ore and therefore the parties necessarily contemplated the movement of the goods to the Gondia weigh-bridge and the weighment of the goods at Gondia in performance of the terms of the contract. In our opinion, the movement of goods across the frontier was a direct and necessary consequence of the important covenant with regard to the fixation of price. It follows that the sales under the eight contracts were inter-State sales within the language of section 3(a) of the Central Sales Tax Act and were not liable to be taxed under the Madhya Pradesh General Sales Tax Act. In our opinion, the present case falls within the ratio of the decision of this court in Commissioner of Sales Tax, M.P. v. Allwyn Cooper [1970] 25 STC 26, in which the relevant clauses of the contract of sale were almost identical with the terms of the contract of sale in the present case. The High Court has followed its previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a direct and necessary consequence of important covenant with regard to the fixation of price. It follows that the sales under these two contracts were inter-State sales within the language of section 3(a) of the Central Sales Tax Act and were not liable to be taxed under the Madhya Pradesh General Sales Tax Act." Another judgment upon which the learned Senior Counsel has placed reliance is in the case of State of Bihar v. Tata Engineering Locomotive Co. Ltd. [1971] 27 STC 127 (SC), in which, the court held: "The decided cases establish that sales will be considered as sales in the course of export or import or sales in the course of inter-State trade and commerce under the following circumstances: (1) When goods which are in export or import stream are sold; (2) When the contracts of sale or law under which goods are sold require those goods to be exported or imported to a foreign country or from a foreign country as the case may be or are required to be transported to a State other than the State in which the delivery of goods takes place, and (3) Where as a necessary incidence of the contract of sale goods sold are required to be exported or imported or transported ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... important aspects of the matter, namely, (1) it was a matter of policy for the State to decide whether such transactions should be entered into or not, (2) the transaction was entered into by the State so that a paper mill could be started in the State as shown by the various terms of the said agreement and thus was an encouragement to setting up of industries in the State, and (3) the transaction ensured employment for the people of the area because the said agreement expressly provided that the respondent was to engage minimum 50 per cent of the labour for the working of the contract area from the local source, if available. Just as a document cannot be interpreted by picking out only a few clauses ignoring the other relevant ones, in the same way the nature and meaning of a document cannot be determined by its end-result or one of the results or consequences which flow from it. If the second part of the above rule were correct, the result would be startling. There would be almost no agreement relating to immovable property which cannot be construed as a contract of sale of goods. Two instances would suffice to show this. If a man were to sell his building to another and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r observations here may not be good currency beyond the factual-legal boundaries of sales tax situations under a specific statute'. We are constrained to observe that they are not 'good currency' so far as even those situations are concerned." In page 291, the court observed: "A chameleon may change its colour according to its surroundings but a document is not a chameleon to change its meaning according to the purpose of the statute with reference to which it falls to be interpreted and if documents having the same tenor are not to be construed by courts in the same way, it would make for great uncertainty and would introduce confusion, leaving people bewildered as to how they should manage their affairs so as to make their transactions valid and legal in eye of the law." The learned Advocate-General appearing for the respondent has relied on a judgment of this court in Industrial Oxygen Company Pvt. Ltd. v. State of Andhra Pradesh [1992] 86 STC 539. This judgment mainly relied on Rashtriya Ispat Nigam Ltd.'s case [1990] 77 STC 182 (AP). The learned Advocate-General has also relied on another judgment of the Supreme Court reported in State of Uttar Pradesh v. Union of India [2 ..... 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