Bombay High Court
The Commissioner Of Sales Tax vs M/S. Bombay Sound Service And Others on 16 September, 1998
Equivalent citations: 1998(4)BOMCR888, 1999(2)MHLJ516
Author: A.Y. Sakhare
Bench: A.Y. Sakhare
ORDER Dr. B.P. Saraf, J.
1. By this reference under section 61 (1) of the Bombay Sales Tax Act, 1959 ("Act") read with section 8(1) of the Maharashtra Sales Tax on the Transfer of the Right to use any Goods for any Purpose Act, 1985, the Maharashtra Sales Tax Tribunal has referred the following questions of law to this Court for opinion at the instance of the revenue.
"(i) Whether on the facts and in the circumstances of the case and on a true and correct interpretation of section 2(10) of the Maharashtra Sales Tax on Transfer of Right to use any Goods for any Purpose Act, 1985 was the Tribunal justified in law in holding that the transaction in regard to charges received for recording of song on 30-3-88 for Parbat Ke Uspar, Invoice No. 87/88/618 dated 30-3-88 was issued by the respondents is not a sale liable to tax under the provisions of the said Act?
(ii) Whether on the facts and in the circumstances of the case and on a true and correct interpretation of section 2(10) of the Maharashtra Sales Tax on the transfer of Right to use any Goods for any Purpose Act, 1985, was the Tribunal justified in law in holding that the charges received for background music recording of Andha Yudh and for which Invoice No. 87/ 88/613 dated 29-3-88 was issued by the respondents is not a transaction of sale liable to tax under the said Act?
(iii) Whether on the facts and in the circumstances of the case and on a true and correct interpretation of section 2(10) of the Maharashtra Sales Tax on Transfer of Right to use any Goods for any Purpose Act, 1985, was the Tribunal justified in law in holding that the charges received for songs dubbing done for the picture Parbat ke Uspar and for which Invoice No. 87/88/620 dated 31-3-88 has been issued, is not a transaction of sale liable to tax under the said Act?"
These three questions arise out of the common order of the Tribunal in six appeals of six different assessees. As the facts and circumstances of all these cases as also the legal issues involved are common, the Tribunal disposed of all the six appeals by a common order and at the instance of the revenue made this common reference and referred the above questions of law arising therefrom.
2. The assessees in all the six cases are the owners of cine laboratories and studios. All the studios are located in Mumbai. These studios are fully air tight and air conditioned. In these studios sound recording instruments are permanently installed with electric fittings etc. The assessees do the job of sound recording, re-recording, dubbing, mixing and transferring the sound on the negative films. These studios are taken on hire by the film producers for recording songs on shift basis. The recordists, projector operators and helpers are engaged in the studios on permanent basis by the assessees who are the owners of the studios. They are the employees of the assessees. When a song is recorded, the musicians sit in the hall with their musical instruments like piano, drum, harmonium, trumpet, accordion, flute, violin, mouth organ etc. In one corner of the hail singer or the singers sit with microphones to sing the song along with accompaniments of the music being played by the musicians. The sound from the different microphones known as channels are fitted into a big console known as the sound mixing console which is installed in the control room. The recordist is the employee of the studio owners. The sound comes in from the various microphones is mini-theatre on large speakers installed in the control rooms. By means of the switches and knobs on the mixing console, the recordist mixes the inputs from the various channels and achieves an ideal balance. The rehearsal of the playing of music is always at the direction of the music director, who is employed by the film producer. When the music director is satisfied with the complete song as played and sung and mixed by the recordist, the entire song is recorded in the mixing console into a magnetic tape by means of a big tape recorder. The tape is then played back and if the producer and the music director are satisfied with the reproduction, the sessions ends. The procedure is more or less the same in case of recording of background music except that there are no singers and the song requiring background music are naturally projected on a screen by means of regular cinema. After the recording on the magnetic tape is over, the magnetic master is transferred through an optical sound recorder installed in the studio to produce a sound track negative which has to be subsequently developed in a film processing laboratory and matched with the picture negative to produce the final release print with the sound. In the recording and re-recording studios there are separate compartments for various purposes. The main hall in meant for musicians to sit with their musical instruments. The control room consists of mixing console and speakers which are embedded to the earth. In the machine room, recorder and projector are embedded to the earth. At times singer has a separate room. Optical sound recorder is embedded to the earth in other room. There is a power room consisting of sesym motors and rectifiers. The film producers hire the studios for recording music and pay for the same. This is common in all cases. In addition to this activity, the assessees also have mini-theatres which they give on hire for exhibiting films to the distributors. Studios for shooting films fully equipped with all instruments are also given on hire for shooting films. The assessees also give editing machines on hire to the film producers for editing the film before they are exhibited. Those editing machines are operated not by the assessee but by the film producers who take them on hire.
3. After the enactment of the Maharashtra Sales Tax on Transfer of the Right to use any Goods for any Purpose Act, 1985 (referred to as the "1985 Act" or "the Act"), which came into force with effect from 1st October 1986, the assessees moved the Commissioner of Sales-tax under section 8 of the said Act read with section 52 of the Bombay Sales Tax Act, 1959 for determining the question whether the transactions referred to in the three questions and the hiring of mini-theatres, studios for shooting films and editing machines were covered by the provisions of the Act and the hire charges received by the assessee in respect thereof were taxable under Act. The Commissioner decided all these questions against the assessees. He was of the opinion that the transactions would be subject to tax as they were covered by the expression "sale", in Clause (10) of section 2 of the Act. Aggrieved by the above order of the Commissioner, the assessees appealed to the Maharashtra Sales-tax Tribunal ("Tribunal"). The Tribunal visited the studios of the assessees to ascertain whether the hiring of the studios for various purposes could be regarded as "sale" within the meaning of Clause (10) of section 2 of the Act. After inspection of the same, the Tribunal by its judgment dated 10th October, 1991, held that the activity of sound recording, re-recording, dubbing, mixing and transferring sound on negative films on charges would not amount to "sale" within the meaning of Clause (10) of section 2 of the 1985 Act. The Tribunal also held that the hire of the mini theatre to exhibit unreleased films to the distributors on charges would not come within the mischief of the Act. The Tribunal further held that the activity of giving the studios on hire with all equipments, light arrangements etc. for shooting films did not fall within the purview of Clause (10) of section 2 of the Act. The Tribunal was, however, of the opinion that the activity of hiring editing machines for editing the films would amount to "sale' within the meaning of Clause (10) of section 2 of the Act. The Tribunal accordingly allowed the appeals of the assessees partly. The assessees have not challenged the finding of the Tribunal in regard to the hiring of editing machines which is against them. Similarly, the revenue has not challenged the finding of the Tribunal in regard to the hiring of the mini-theatres for exhibiting unreleased films to the distributors and hiring of studios for shooting of films which is in favour of the assessees. Revenue has challenged the finding of the tribunal only is so far as it relates to the hiring of studios for recording of music and back ground music and dubbing of film music is concerned.
4. We have heard Mr. NT. Saraf, learned Counsel for the revenue, who submits that the tribunal was wrong in holding that the hiring of the studios for recording songs and background music and dubbing sound did not amount to sale within the meaning of Clause (10) of section 2 of the Act. According to him, the charges received by the assessees for hiring of the studios for the above purposes would be taxable under the provisions of the Act. The learned Counsel further submits that though the charges are claimed to be charges for hiring of studio for the above purposes, in effect and in reality, they are charges for hiring of the various music equipments and instruments required for recording of songs, background music etc. According to the learned Counsel, the fact that the various instruments required for the purposes of recording/ re-recording of songs and background music, dubbing of songs etc. are embedded to the earth in the studios is of no significance because the real object of the transaction was to hire the equipments and not the studio. The learned Counsel submits that in any view of the matter the equipments in question could be regarded as movable property merely because they are not permanently embedded to the earth as they can be removed without much damage. He also submits that though the studio as well as the equipments are manned by the employees of the studio owners, the transaction in question should be regarded as hiring of equipments because in course of recording of songs, background music, dubbing etc. all those persons remain under the control of the hirers. Mr. Saraf, therefore, submits that the tribunal was wrong in holding that the charges received by the assessees for recording of songs, background music and dubbing were not in respect of transfer of the right to use any goods liable to tax under the Act.
5. Mr. Gaitonde, learned Counsel for the assessees, on the other hand, submits that the Tribunal was correct in holding that the transactions in question did not amount to sale within the meaning of Clause (10) of section 2 of the Act. According to him what was given on hire was not the machinery or equipments but a studio which was acoustically perfect with the recording equipments firmly embedded to the earth and linked by wires which were carried underground to the recording microphones etc. It was pointed out by the learned Counsel that none of the equipments can be shifted or removed from the studio without damaging the studio, the walls or the foundation of the studio. The learned Counsel also submitted that the various instruments installed in the studio for the purpose of recording of songs, background music etc. have no utility independent of the studio. It was pointed out that the studios are so constructed that even the noise of air conditioners is not allowed to be heard in the recording hall. It was, therefore, urged that what was given on hire was the studio equipped with the recording machines and all other equipments permanently installed there. Mr. Gaitonde submitted that the case of hiring of the studio with recording machines etc. was exactly identical to the hiring of mini-theatres and studios for shooting films in which cases the tribunal itself has held that the charges do not fall within the purview of the Act.
6. We have carefully considered the rival submissions in the light of the relevant provisions of the Act. The said Act was enacted to levy and collect tax on the transfer of the right to use any goods for any purposes for valuable consideration in the State of Maharashtra. Sections 3 and 4 of the Act deal with the incident and levy of tax. Section 3 provides that subject to the provisions contained in this Act, tax shall be leviable on the turnover of sale in respect of (i) the transfer of right to use any goods agreed to before the appointed day but the right to use is exercised on or alter the appointed day, (ii) the transfer of right to use any goods agreed to prior to the appointed day, and where in the right to use has been continued after the appointed day, to the extent of the sale price received or receivable in respect of such use on or after the appointed day and (iii) the transfer of right to use any goods agreed to on or after the appointed day. The appointed date was notified to be 1st October, 1986. Section 4 provides that tax shall be levied on the turn over of sales in respect of transfer of the right to use goods specified in the schedule at such rate not exceeding fifteen paise in the rupee, as the State Government may by notification in the official gazette specify from time to time. The liability to pay tax is on a dealer. "Dealer" has been defined in Clause (4) of section 2 of the Act as follows :
"dealer" means any person who whether for commission, remuneration or otherwise transfer the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration; and includes the State Government or the Central Government which so transfers the right to use such goods and also any society, club or association of persons which so transfer the right to use such goods to its members."
The expression "Goods" has been defined in Clause (5) of section 2 to mean, "All kinds of movable property (not being newspapers or actionable claims or money, or stocks, shares or securities).
"Sale" has been defined in Clause (10) as follows:
"Sale" means the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or any other valuable consideration and the word "sell" with all its grammatical variations and cognate expressions, shall be construed accordingly."
"Sale price" and "turnover of sales" have been defined in Clauses (11) and (15) of section 2 respectively in the following terms :
"(11) 'sale price' means the amount of valuable consideration received or receivable for the transfer of the right to use any goods for any purpose (whether or not for a specified period);
(15) 'turnover of sales' means the aggregate of the amounts of sale price received or receivable during a year by a dealer in respect of the transfer of the right to use any goods and includes any advance received by a dealer as a part of sale price."
The schedule to the Act originally contained the following six items:
i) The transfer of the right to use video cassettes, the rupee
ii) The transfer of the right to use television sets, video cassette recorders, video cassette players or projectors.
iii) The transfer of the right to use plant, machinery, equipment, including office equipment, computers, instruments or appliances.
iv) The transfer of the right to use air-conditioning equipment, air-conditioners, deep freezers, cold storage plants, humidification plants or dehumidifiers.
v) The transfer of the right to use vehicles, such as trucks, tractors, buses, mini buses, jeeps, cars or three wheelers
vi) The transfer of the right to use aircrafts, ships, boats of vessels.
By notification dated 18th March 1988, the following item was inserted as item No. (vii):
"vii) The transfer of the right to use the goods in incorporeal or intangible character, that is to say:
a) Patents,
b) Trade marks,
c) Import licences."
By another notification dated 29th March 1994, the following four more items were inserted :
"viii) The transfer of the right to use all kinds of machinery,
ix) The transfer of the right to use all kinds of furniture,
x) The transfer of the right to use all kinds of music systems,
xi) The transfer of the right to use software."
The reference before us pertains to period prior to 29th March, 1994.
7. It is clear from the perusal of the above provisions of the Maharashtra Sales Tax on the Transfer of the Right to use any Goods for any Purpose Act, 1985 that the levy of tax under this Act is on the turnover of the sales of a dealer in respect of transfer of right to use any goods specified in the schedule. Goods have been defined specifically to mean "all kinds of movable property". The definitions of "sale price" and "turnover of sales" also make it clear that the tax is on the amount of valuable consideration received or receivable for the transfer of right to use any goods, meaning thereby movable property. Two questions thus arise for consideration in the instant case. First, whether, in the transactions in question, there is a transfer of the right to use any movable property for valuable consideration. In other words, whether the hiring of studio for the purpose of recording of songs, background music and dubbing of sound amounts to transfer of right to use any movable property or it is a transfer of the right to use immoveable property i.e. the studio with all the equipments required for recording of songs etc. embedded therein. Second, even assuming that there is transfer of right to use equipments required for recording of songs and background music and dubbing of sound, whether such instruments would fall within any of the items of the schedule to the Act, as it stood at the material time or as amended, to attract liability to pay tax under the Act.
8. So far as the first question is concerned, the answer will require determination of the question whether the studio is an immovable property with all the instruments and equipments installed there or the use of equipments therein can be regarded as use of movable property. The expression "movable property" has not been defined in the Act. This expression, however, has been defined in Clause (31) of section 3 of the Bombay General Clauses Act, 1904 to mean property of every description except immovable property. "Immovable property" has been defined in Clause (24) of the same section to include land, benefits arising out of land and things attached to the earth. Identical definition of these two expressions is found in the Central General Clauses Act, 1897, The expression "attached to the earth" is defined in section 3 of the Transfer of Property Act, 1882 to mean (a) rooted in the earth, as the case of trees and shrubs; (b) imbedded in the earth, as in the case of walls buildings; or (c) attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached.
9. It is clear from the above definitions that if any property is embedded to the earth or attached to the earth in a manner essential for the beneficial user of the immovable property, it would be an immovable property. The real criteria to examine whether a property is movable property or immovable property is whether the movable property which is embedded or attached to the earth can be used without so attaching and the attachment is only for the proper and smooth functioning of particular movable property or equipment or it is for the beneficial user of the immovable property. If a thing is embedded to the earth or attached to what is so embedded for the permanent beneficial enjoyment of that to which it is attached, then it is part of the immovable property. On the other hand, if the attachment is mainly for the beneficial enjoyment of the movable property itself, then it remains movable property even though fixed for the time being for proper enjoyment thereof. In the instant case, there can be no dispute about the fact that the recording of songs, background music and dubbing of sound can be done only in studios which are fully equipped for that purpose. It is not possible to undertake these activities anywhere and everywhere even with the aid of the very same machines or equipments which are fitted or installed permanently in the studios. In fact, what is really required is the studio and the instruments for recording of songs etc. are essential part of the studio. There cannot be any studio without such equipments. The construction of studio is a very sophisticated task and what is taken on hire is the studio and not the recording machines and instruments installed there. The various instruments for recording music etc. are annexed or embedded to the earth for the purpose of beneficial enjoyment of the studio which is an immovable property and not for the beneficial enjoyment of those instruments. The instruments are essential fixtures of studios. There cannot be a studio without those instruments and equipments. In view of the above, we are of the clear opinion that hiring of studios for the purpose of recording songs, background music and dubbing of sound does not amount to transfer of right to use any movable property and hence such transactions do not fall within the definition of sale as contained in Clause (10) of section 2 of the Act.
10. We are supported in our above conclusion by the ratio of the decisions of Patna High Court in Hemendra Lal Roy v. Indo Swiss Trading Co. Lt., and of the Madras High Court in Carborandum Universal Ltd. v. C.I.T., 1984(146) I.T.R. 1. In Hemendra La! Roy (supra), question arose before the Patna High Court whether a power house consisting of structures, plants and machineries, transmission lines, etc. which are really fixtures could be called "movable property" for the purpose of section 49 of the Limitation Act. It was held that until the power house is dismantled, the machineries, etc., which are fixed to the earth are uprooted and until the buildings are demolished, they cannot be called "movable property". In Carborandum Universal Ltd. v. C.I.T. (supra), the controversy before the Madras High Court was whether printing machinery which was embedded in the earth and used as press could be regarded as immovable property. The Madras High Court held that having regard to the fact that the owner of the machinery has embedded the same in the earth for the purpose of working his factory as a press, it should be taken to come within the definition of "immoveable property". The same analogy will apply to a studio. In the instant case the tribunal itself has held that the lease of the studios with equipments, light arrangements etc. in the exteriors to shoot their films and the mini theatre for exhibiting the films would not amount to sale within the meaning of section 2(10) of the Act. The same analogy, in our opinion, would apply to the studios for recording, re-recording and dubbing of background music.
11. We may now turn to the alternate submission of the learned Counsel of the assessee that the equipments for recording music, background music and for sound dubbing do not fall in any of the items of the schedule as it stood at the material time and even under the items added thereafter and, therefore, even if there is a transfer of the right to use those instruments, such transaction would not be covered by the provisions of the Act. According to the revenue, these items fall under Entry-3 of the schedule which refers to transfer of right to use plant, machinery, equipment, including office equipment, computers, instruments or appliances. The learned Counsel also submits that it falls under Entry-10 of the schedule which was inserted with effect from 1st April 1994 i.e. transfer of the right to use all kinds of music systems. The learned Counsel for the assessee, on the other hand, submits that these instruments or appliances fitted in a studio used for recording songs etc. do not fall in any of these two entries. Instruments and appliances mentioned in item No. 3, according to the learned Counsel, refer to instruments and appliances used in the office. This entry, according to the learned Counsel, does not refer to instruments installed in a studio for recording of songs, background music and for dubbing of sound. The learned Counsel further submits that so far as Entry-10 is concerned, it has relevance for the purpose of present cases which pertain to the period much prior to the date of insertion of that entry i.e. 1st April, 1994. In any event, according to him, the instruments fitted in a studio for recording of songs, etc. do not fall under that item because they are not music system. We have carefully considered the rival submissions. However, in view of the fact that we have already held that in the instant case there is no hiring of the instruments or equipments but it is a hiring of the studio with all the facilities available therein including the equipments embedded or installed therein, we do not think it necessary to examine and decide this aspect of the controversy.
12. In the result, all the three questions referred to us are answered in the affirmative i.e. in favour of the assessee and against revenue. This reference is disposed of accordingly with no orders as to costs.
13. Reference answered in affirmative.