9911796707
TMI Blog1999 (11) TMI 874X X X X Extracts X X X X X X X X Extracts X X X X ..... ock period on 16-7-1996 declaring undisclosed income of ₹ 2,33,000 for the block period. The Assessing Officer made an assessment vide order dated 29th of January 1998. The dispute before us in the present appeal is relating to the deduction under section 80HHC of ₹ 84,36,746 and an addition of ₹ 1,18,891 on account of alleged inadequate household withdrawals. 4. The learned counsel for the assessee contended that there is no justification for making the addition on account of low household withdrawals. It was contended before us that the Assessing Officer has not found any material whatsoever to establish that the household withdrawals made by the assessee were not adequate. The addition has been made purely on surmises and conjectures which is not warranted. The block assessment is to be made on the basis of the evidence found during the course of search. 5. The learned Departmental Representative on the other hand contended that the life style of the assessee was quite high and the withdrawals shown are not commensurate with the life style. It was accordingly contended that the additions made by the Assessing Officer are justified. 6. We have g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference about the inadequacy of the household withdrawals made by the assessee. The main reason for making the addition on account of low household withdrawals is that in assessment year 1992-93 when assessee s son was staying with him the household expenses were of the order of ₹ 1,25,398 when in the assessment year 1993-94 the household expenses have gone up to ₹ 2,78,256 even when the assessee s son was not living with them. The assessee had been confronted as to why addition on account of low withdrawals be not made. An explanation was furnished before the Assessing Officer which has been reproduced on Pages 5 6 of the assessment order. The Assessing Officer has rejected the explanation with the following observation :- The explanation offered by the assessee is not accepted. The expenses shown when Mr. Firoz Nadiadwala was living with the assessee are less when compared to the expenses shown by the assessee after he separated. For example, in Assessment year 1992-93, when Mr. Firoz Nadiadwala was staying with the assessee, the expenses shown are ₹ 1,25,398 whereas in assessment year 1993-94, i.e., after Mr. Firoz Nadiadwala has separated, the expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 1996-97. In this case it is to be noticed that the assessee had filed the return for assessment year 1996-97 on 30th of October 1996. The search took place on 18-12-1996 i.e., after the date of filing of the return for assessment year 1996-97. That means as on the date of the search the assessee s return relating to the regular assessment was pending with the Assessing Officer. Whether the assessee is entitled to deduction under section 80HHC or not is a subject matter of dispute in regular assessment. It was therefore not necessary for the Assessing Officer to separately decide the issue in the block assessment. As already pointed out section 158BB provides the manner of computation of undisclosed income of the block period. The purpose of block assessment is to make the assessment of undisclosed income as a result of search and not to make a regular assessment. 10. The scheme of the block assessment is not to be confused with the regular assessment. Whereas the regular assessment determines the assessable income on the basis of the return of income filed by the assessee and on the basis of the material gathered during the course of assessment proceedings, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xports was disclosed and the deduction under section 80HHC was claimed. Therefore the deduction under section 80HHC was subject matter of regular assessment. Whether such deduction is allowable or not could not be subject matter of determination in a block assessment. As already clarified the purpose of block assessment is to assess the income detected as a result of search and not to make a regular assessment. Regular assessment is totally different than a block assessment. In this view of the matter the Assessing Officer was not justified in making the disallowance under section 80HHC in both the assessments, one in the block assessment and another in the regular assessment. If that is so, it would be necessary for the Assessing Officer to first compute the total income of the previous year. From that certain deductions are to be made. The deductions, as already pointed out, are dependent on the returned income or the assessments made as the case may be. In this case the assessee had filed the return of income on 30-10-1996. The search took place on 18-12-1996 i.e., after the date of the filing of the return. The Assessing Officer has completed the block assessment on 29-1-1998 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eved with the disallowance of deduction under section 80HHC in the block assessment. When the Assessing Officer completed the block assessment on 29-1-1998 regular assessment had not been completed. However, when the CIT(A) took up the appeal of the assessee at that time the regular assessment had been completed and therefore it would have been in the fitness of things and to avoid multiplicity of litigation to allow a deduction to the assessee of the income assessed under section 143(3) as provided under section 158BB. Keeping in view the law and the procedure indicated above, we direct the Assessing Officer to reduce the income determined in block assessment by the amount of assessed income. To elaborate, the computation of the income shall have to be done as under:- The entire income including the income assessable under regular assessment in ordinary course is to be determined first. From such income the income which is assessed under section 143(3) has got to be reduced (If no regular assessment has been made then the returned income has got to be reduced). The balance income would be the undisclosed income for purposes of block period subject to tax at the rate of 60%. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be considered as export of goods and merchandise and the consideration therefrom will be entitled to deduction under section 80HHC. Reliance was also placed on the decision of the Bombay Bench of the Tribunal in the case of Tangerine Exports v. ITO [1994] 49 ITD 386 where the assessee after recording computer programme on tapes had exported the software and claimed deduction under section 80HHC. The Tribunal upheld the claim and allowed the deduction. The CIT(A) rejected the contentions advanced on behalf of the assessee. 17. The learned counsel for the assessee reiterating the contentions advanced before the CIT(A) submitted that the words under section 80HHC are export of goods or merchandise. The word merchandise , according to the learned counsel, is something which are not goods but which can be exported. Reliance was placed on the decision of the Madras High Court in the case of Gemini Pictures Circuit Ltd. v. CIT [1958] 33 ITR 547at page 553 where the films have been held as stock-in-trade in the hands of the producers. Similar view has been taken by the Madras High Court in the case of CIT v. Modern Theatres Ltd. [1963] 50 ITR 548. Reference was also mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the expression, similar property rights referred to in section 80-O. The Board has held that it would be included in such expression. It was accordingly contended that deduction under section 80HHC may be allowed or in the alternative deduction under section 80-O may be granted. 20. The learned Departmental Representative, on the other hand, contended that deduction under section 80HHC was permissible in regard to the export of goods and merchandise. As per the DR, export means sale outside customs frontier. Our attention was invited to section 80HHC(3) which provides as to how the deduction is to be computed. Export turnover is also defined in section 80HHC, it was pointed out. Our attention was also invited to section 4 of the Sale of Goods Act which provides that the transfer of property takes place on the payment of price for the sale of goods. Inviting our attention to Clause (6) of the agreement, the learned DR contended that the assessee had agreed to provide the rights for telecasting of the film(s) for the period of five years. In one case the period of lease was only two years. In this case the assessee has not transferred the rights of the ownership. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate to refer to Rule 9B which is applicable to film distributors where the lease is also considered to be a sale. It was accordingly urged that the matter may be decided in favour of the assessee. 24. We have given our careful consideration to the rival contentions. Section 80HHC provides for a deduction to an assessee engaged in the business of export out of India of any goods or merchandise subject to the specified conditions being satisfied. The condition for attracting section 80HHC is that the assessee should be in the business of export out of India of any goods or merchandise to which this section applies. Therefore, it will be necessary for us to ascertain as to whether the assessee is engaged in the business of export out of India of any goods or merchandise and whether the assessee has exported any goods during the year under appeal. The assessee has purchased rights of various pictures of which Beta tapes had been prepared. Star TV had been granted the telecasting rights of a film(s) for a period of five years. The term export out of India is defined under Explanation ( b ) to section 80HHC. It reads as under:- Explanation- For the purposes of this section- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt are fully empowered to grant the said Rights i.e., STAR TV Satellite Rights and Pay TV Rights through Star TV Satellite for Asian Region only and enter into this Agreement. And whereas the Party of the second part have approached the Party of the First Part and shown their interest for acquiring Star TV Satellite Broadcasting Transmission Rights and Rights for pay TV through Star TV Satellite Broadcasting of and relating to the Said Films for and in the Asian Region only; And whereas at the request of the Party of the Second Part, the Party of the First Part have agreed to grant to the Party of the Second Part the Sole and Exclusive rights of Satellite Broadcasting and Pay TV only through Star TV Satellite for Asian Region only in respect of the Said Films. For the purpose of broadcasting through Star TV Satellite, the right include Sub-titling, exhibition, exploitation and Mechanical Syncronisation in relation to such Exclusive Satellite Broadcasting and Pay TV Rights only through the said Star TV Satellite in Asian Region only as expressed and described hereinbelow, hereinafter collectively referred to as the Said Films Rights for the period as fully described he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot sold any goods it cannot be said that he has exported the goods or merchandise out of India. 28. It may be relevant to note that the Legislature intended to grant deduction on the transfer of telecasting rights from 1-4-2000. The Legislature has specifically granted deduction to the companies which are engaged in the business of export or transfer by any means out of India of any film software, TV software, music software, TRV news software including telecasting rights. The incorporation of section 80HHF with effect from 1-4-2000 clearly establishes the fact that the Legislature was conscious of the distinction between the export business and the business of transferring out of India of telecasting rights of any films. The contention on behalf of the assessee that the benefit of Rule 9B should be given effect to in interpreting section 80HHC is not acceptable. Rule 9B provides for the computation of deduction in respect of expenditure on acquisition of distribution rights of feature film. Sub-rule (6) provide that for the purposes of this Rule - sale of rights of exhibition of a feature film includes the lease of such rights or their transfer on a minimum guarantee basis. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise by the assessee, or in consideration of technical or professional services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of an amount equal to fifty per cent of the income so received in, or brought into India, in computing the total income of the assessee. Provided .......... 31. This section has been amended by the Finance Act of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or ( g )Amount received in consideration of technical or professional services rendered or agreed to be rendered outside India. 33. The assessee has allowed telecasting rights of 14 films to be used by a foreign enterprise i.e., Star TV for a period of five years. One has to consider as to whether the films constitute a patent, invention, model, design or a secret formula or process and if not, if it can be termed as a similar property right. In our considered view, the feature films do not fit in within the items referred to in section 80-O of the Act. The assessee would be entitled to deduction under section 80-O if information concerning industrial, commercial or scientific knowledge, experience or skill was made available to the foreign enterprise. By allowing the use of telecasting rights of 14 films for a period of five years it cannot be said that the assessee had provided information concerning industrial, commercial or scientific knowledge, experience or skill to the foreign enterprise. Another category that qualifies for deduction is for technical or professional services rendered or agreed to be rendered outside India. In this case the assessee did not render ..... X X X X Extracts X X X X X X X X Extracts X X X X
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