Income Tax Appellate Tribunal - Cochin
Anurag Pictures vs Income-Tax Officer on 18 July, 2003
Equivalent citations: [2004]90ITD669(COCH), (2004)84TTJ(COCH)890
ORDER
K.P.T. Thangal, Judicial Member
1. These appeals by the assessee pertain to the assessment years 1992-93 to 1999-2000. Since common issue are involved, these appeals are disposed of by this consolidated order for the sake of convenience.
2. The assessee is a firm engaged in the business of exploitation, exhibition and distribution of feature films. For all the assessment years under consideration the assessee filed the returns showing Nil income for some years and positive income for some years, and the returns were processed under Section 143(1)(a). Subsequently, during the course of assessment proceedings for the year 1998-99, the assessing officer noticed that the assessee had claimed deduction under Section 80HHC which, according to the assessing officer, was not permissible as per the law. Therefore, he disallowed the claim for deduction for the assessment year 1998-99 for the first time. Re-assessment proceedings were also initiated for all the preceding 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. The assessee, by lease agreement, acquired the right of exploitation, exhibition and distribution of films for a short period of 10 years. Subsequent to this lease agreement, the assessee had entered into another agreement with foreign party covering a period of 7 years and by virtue of that lease agreement, granted exhibition right to the parties outside India. Film prints were also exported along with the lease-hold rights. The assessing officer held that the proceeds realised out of such lease agreement with foreign buyer does not partake of the character of export turnover as envisaged in Expln.(b) to Section 80HHC for the reason that as and when the sale takes place, the purchaser gets absolute ownership of the sold goods unlike the case of a foreign buyer who gets only leased right of the film prints for a period of 7 years. In other words, in other materials the foreign party gets an absolute right for an indefinite period, whereas in the instant case, he does not get an absolute right but gets the right to exhibit the film for 7 years only. The assessing officer held that after the period of 7 years, the ownership of the films exported reverts back to the assessee. He further held, resorting to Section 2 of the Sale of Goods Act which defines "delivery of goods" as voluntary transfer of possession from one person to another, held that what is exported out of India is only the leasehold right on the films for a given period of time and the foreign lessee ceases to have possession of the exported films after the lease period. In view of the above, the assessing officer held that the transfer of right of exhibition, exploitation and distribution of the films out of India does not acquire the character of export sales so as to be eligible for deduction under Section 80HHC. Further resorting to the newly inserted provisions of Section 80HHF with effect from 1-4-2000 by Finance Act 1999 granting tax holidays to the assessees engaged in the cinematography business, the assessing officer held that such tax holidays were not available to the assessees engaged in the film industry prior to 1-4-2000. The above findings of the assessing officer were objected to by the assessee vide assessee's letter dated 2-3-2001 on the following lines:
"As stated by your goodself in the above mentioned communication an assessee is entitled to claim deduction Under Section 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 to
4) Sub-section 4B of the 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 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 on the foreign buyer duly attested by the customs authorities.
c) The Insurance Policy cover note issued by the Original Insurance Co. Ltd. to cover the risk in the transport of the film print.
d) Air way bill issued by Luftansa Cargo for the transport of the film print from the port of loading to the final destination being the buyers place of business.
e) Certificate from the bankers confirming the receipt of convertible foreign exchange within the time prescribed under the Act viz. six months from end of the accounting year i.e. 31.3.98.
f) Exchange Control Declaration (GR) Form No. AL confirming the Export of goods made by us.
g) Packing list.
On an examination and perusal of the above documents, particularly the invoice raised by us on the buyer, the letter of the buyer agreeing to purchase the film prints and other publicity materials, Air way bill prepared by the carriers, the insurance cover note issued to cover the risk during the transport of the film print from the customs barriers to the buyers place, it can be clearly noted that the description of goods sold by us is shown as film print. The price/value of the film print as stated in the letter given by the buyer is also shown in the invoice raised by us and other documents such as insurance cover note, Airway bill etc. It is very clearly stated in all these documents that we have sold goods viz. film prints of the respective pictures for the price stated therein. It is beyond doubt and absolutely clear that film print is goods as well as merchandise. The merchandise is not defined in the Act. Hence, the general meaning of the term in the common parlance has to be adopted. The term merchandise means the goods that are brought and sold in trade.
We purchased the film prints of the respective picture from the film laboratories where the negatives are kept. The permission/right for exhibition/exploitation of these films prints are purchased from the producers of the film, we dol the film prints. We further granted permission/transferred the right for the exhibition and exploitation of the said film prints for a specific period.
From the above, your goodself can kindly note that we have exported only goods i.e. the film print to the foreign buyer. The finding of your goodself that we have only exported out of India the right of exhibition exploitation and distributed of the films 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 realised 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 delivery of the goods as per the letter of understanding/the agreement with us. We have permitted them to use the exploitation rights for a period of seven years. That means the restriction to use is only with regard to the distribution, exhibition and exploitation rights. We will not acquire the ownership of the film prints after the period of seven years".
The assessing officer agreed with the proposition that "there was a letter of foreign buyer agreeing to purchase film prints for the consideration stated therein, that the invoice raised by the assessee on the foreign lessee is duly attested by the Customs Authorities, that the Insurance Policy Cover Note is issued by the Oriental Insurance Co.Ltd., that the Air-Way bill is issued for the transport of film print from the Port of loading to the final destination, that the certificate from the bankers confirming receipt of convertible foreign exchange within the time prescribed has been filed, that exchange control declaration confirming export of film prints has been filed and that packing list of the prints exported has been filed". However, he held that it has to be mentioned in this connection that the assessee has not produced any authority or data to establish that it was engaged in the business of export out of India in goods or merchandise except stating that what is exported is film prints which is nothing but goods or merchandise mentioned in Section 80HHC.
4. The assessing officer held firstly that in effect there was no sale transaction. The lease agreement by which right of exploitation, exhibition and distribution of the films has been given to the foreign lessee for a fixed period is only a transfer of leasehold right, notwithstanding film prints and advertisement materials were transported to the foreign lessee. The foreign lessee does not become the absolute owner of the goods said to be purchased.
5. Secondly he held that there was no sale of goods or merchandise. The term "goods or merchandise" is not defined in the IT Act and hence accepting the meaning of the above term as given in Webster's Nineth New Collegiate Dictionary i.e. personal property having intrinsic value but usually excluding money, securities and nogotiable instruments, the assessing officer held that the right of exhibition given to the foreign party under the lease agreement for a limited period of time has to be taken 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 software, television software, music software, television news software, including telecast rights (hereafter in this section referred to as the software or software rights), there shall in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee (a deduction of the profits) derived by the assessee from such business".
Explanation (d) given under Sub-section (6) of Section 80HHF reads as under:
"'film software' means a copy of a cinematography film made by any process analogous to cinematography on acetate polyster or celluloid film positive, magnetic tape, digital media or other optical or magnetic devices and certified by the Board of film certification constituted by the Central Government Under Section 3 of the Cinematograph Act, 1952 (37 of 1952)".
From a reading of the section and the explanation given thereunder, it is clear that the export benefits are vailable to persons like the assessee but only with effect from 1-4-2000 subject to the fulfilment of the conditions mentioned therein. The Hon'ble Minister's Speech contained in Paragraph 105 while presenting the Budget for 1999-2000, supplies ample testimony to this view. The relevant portion of Finance Minister's speech is extracted below:
"The Indian entertainment industry, which includes films, music and television software is growing by leads and bounds. I believe that with our creativity and our talent, India has the potential to become a global media super power. We have done remarkably well in the field of computer software development and exports, and the same can be achieved in the development export of entertainment industry products, specially films, TV, software ad music. With a view to facilitating India becoming a super power in this sector, I am including a number of measures in the budget. My aim is to give similar facilities and tax benefits to this sector as are available to the export of goods and merchandise Under Section 80HHC".
Similarly, while presenting the Union Budgent for 2001-2002, the Hon'ble Finance Minister in para 75 of his Budget Speech has explained as under:
"Our entertainment industry, particularly the film industry not only provides the much needed fantasy to millions of our people who live in an otherwise harsh and cruel world, it has also emerged as an important segment of our economy and holds great 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 ad that the 2expression 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 purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration is a sale/purchase. It further states that such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made. Thus, it was the case of the assessee that Constitution itself has clearly laid down that a lease transaction has to be deemed to be a sale transaction by virtue of this enlarged meaning. It was further submitted that by virtue of this definition, the State of Kerala, for example, amended the word "sale" to include the transfer of the right to use any goods for any purpose even for a specified period. It was the case of the assessee that when the legal meaning of the word 'sale' is clearly settled, there was no need to look into other interpretation of 'sale'. It was further claimed that there was actual sale of film prints as per the Invoice prepared for export. For the above proposition, assessee relied on the letter of the foreign buyer, Invoice raised by the assessee, the Insurance Policy Cover, Air-way bill and certificates from bankers confirming the receipt of convertible foreign exchange. On the basis of the above documents, the assessee claimed that it had exported the film prints and other materials and this export comes within the ambit of goods and merchandise as used in Section 80HHC. It was contended that the goods and merchandise mentioned in Section 80HHC embraced all types of movable properties. Agreement for sale of the film right to exhibit is a transfer of film prints and hence it is a sale of goods or merchandise. For this proposition, the assessee relied on the decision of the Kerala High Court in the case of Rohini Panikker (1997) (1)KLT 125. In this case, the Hon'ble High Court held that lending of video cassettes gives exclusive control over the cassettes to the person who has taken the cassettes during the period which the cassettes are in his custody. The High Court held that this amounted to sale for purposes of Kerala State Sales Tax Act. It was further submitted that introduction of Section 80HHF with effect from 1-4-2000 does not in any way interfere with the right of the assessee to claim the deduction Under Section 80HHC.
8. It was claimed 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 the 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 72 ITR 203 and also the decision of the Tribunal in the case of Tangerine Exports (49 ITD 386).
9. The Commissioner (Appeals) did not accepted 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 authority held that the definition in KGST Act of 'sale' is relevant for the purpose of sales-tax in Kerala and it cannot be imported to interpret the provisions of the IT Act. For the above proposition, he relied on the decision of the Hon'ble Supreme Court in the case of Venkteswara Hatcheries Pvt. Ltd. & Others (237 ITR 174). In this connection, the Hon'le Supreme Court held that the meaning assigned to a particular word in a particular statute cannot be imported to a word used in a different statute. Thus, the assessee's contention that the meaning adverted to in Kerala General Sales-tax Act should be taken an authority for income-tax purposes was also rejected.
10. Coming to the assessee's contention that Article 366 (29A) of the Constitution defines 'sale' and it includes the transfer of right to use any goods for any purpose for a specified period was also rejected relying on the decision of the Hon'ble Supreme Court (supra).
11. Coming to the next contention that the claim of the assessee cannot be denied in the light of Section 80HHF since it was introduced subsequently and came into force subsequently cannot be considered for explaining an already existing section, the first appellate authority rejected this contention observing as under:
"In the said decision the Supreme Court has held that a subsequent Act or Parliament affors no useful guide to the meaning of another Act which came into existence before the later one was ever framed."
The Commissioner (Appeals) relying on the following observation of the Hon'ble Supreme Court in the case of Mani Ram & Others (72 ITR 203) - "Generally speaking, a subsequent Act of Parliament affords no useful guide to her meaning of another Act which came into existence before the later one was ever framed. Under special circumstances, the law does, however, admit of a subsequent Act to be resorted to for this purpose but the conditions under which the later Act may be resorted for the interpretation of the earlier Act are strict; both must be laws on the same subject and the part of the earlier Act which it is sought to construe must be ambiguous and capable of different meanings." - the first appellate authority held that "the fact is that the Section 80HHC applies to goods or merchandise and the Section 80HHF applies to film and television software, including telecast rights. Sections 80HHC and 80HHF do not cover the same subjects. 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 reported in 49 ITD 386 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 reported in 49 ITD 386 does not apply in the case of film software covered by Section 80HHF. The film software is governed by the special provisions of the Cinematograph Act, 1952 and the Cinematograph Rules, 1983. He further held that if there is no permission from the Central Board of Film Certificate, the film prints procured by the assessee had no value, and as such, it is distinguishable from computer software. The Commissioner (Appeals) further held that while presenting the Union Budget for the years 1999-2000 and 2001-2002, the Finance Minister had said that Section 80HHF was introduced to grant tax benefits to film industry also, and relying on the decision of the Supreme Court in KSIDC v. CIT (259 ITR 81), the first appellate authority held that "the Finance Minister's speech throws light on the subject and considering from this angle, the assessee was not entitled for 80HHC benefit in respect of the export of film prints under the export lease agreement".
12. In the light of the foregoing discussion, the Commissioner (Appeals) confirmed the order of the assessing officer. Aggrieved by the above order, the assessee in appeal before the Tribunal for all the years under consideration, and this is the only ground that the assessee has canvassed before the Tribunal.
13. The ld.counsel for the assessee first submitted that the very first objedt of Section 80HHO is to be kept in mind as envisaged by the Hon'ble Supreme Court in the case reported in 247 ITR 578, at page 583 specifically. It reads:
"The object of Section 80HHC is to grant an incentive to earners of foreign exchange. The matter therefore will have to be considered with reference to this object."
Secondly, the assessee's counsel submitted that Section 80HHC is for goods exported and for earning valuable foreign exchange for the country. The stand of the assessing officer is that what is exported is only the right to exploit the film and not the tapes or film roll or positive print as such and therefore such right to exploit the film is not goods or merchandise. The Commissioner (Appeals) has not gone on that basis. Relying upon the decision of the Hon'ble Supreme Court in the case of State of AP v. NTPC Ltd. (127 STC 280) wherein it has been observed that if there was sale and purchase of electrical energy like any other movable object, there was no difficulty in holding that electrical energy was intended to be covered by the definition of goods, the counsel submitted that this right to 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 or 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 Company (127 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. Further more, he contended, Their Lordships held that tapes and media where it is implanted or recorded are goods. Therefore, even assuming that what is exported is only the right to exhibit the film, it is still the export of goods or merchandise. Inviting our attention to the decision of the Madras High Court in the case of Vijaya & Suresh Combines (252 ITR 255), the ld.counsel for the assessee submitted that positive film prints would constitute goods when prints are taken in India and such prints are carried to markets outside India for being distributed to exhibitors abroad. Coming to the question of sale or lease, the counsel submitted that even if the word 'lease' is used, in substance it is sale especially when it is connected with films. He invited our attention to the book "Taxation of Film Industry" by Ninad Korpe, (current law Publishers) here it is specifically stated at pages 122 and 123 that the normal practice in the film industry is to lease the right for a limited period of 10 years and that coupled with a lease agreement, the buyer of the rights is given one or more prints of the film to enable him to exhibit the film. It is the practice in this industry that the lease deeds are executed and this method is recognized by the Department in practice. While making Rule 9A and 9B under the Rule making power under Section 295(2) of the I.T. Act for ascertaining income in certain classes of cases, it is provided that in this film industry sale includes lease". Rule 9B is more applicable to the assessee. The counsel submitted that the definition of Rules 9A(7) and 9B(6) would make this fact clear. So, in the film industry, for distribution trade, lease documents have to be understood as sale documents and so what is received for purpose of Section 80HHC is also sale proceeds. The ld.counsel submitted that there is no concept of a lease of movables. The lease is a legal transaction only for immovable properties as per Section 105 of the Transfer of Property Act. Movable can be parted with only on sale or bailment which includes hire purchase or pledge. So when the expression 'lease' is used, it has to be found out whether it is sale or hire purchase or pledge so that the sale proceeds can be pigeon-holded in the right classification. to classify it as income from lease is contrary to the legal concept. There is no case for anyone that this is a bailment or pledge. So it is sale. The assessee has parted with the possession and ownership. The ld.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 ld.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 established. Clause 9 should not be taken in isolation and the document interpreted with this clause as the key clause for interpretation.
It was submitted that the document by which the assessee purchased the rights and the document by which it was sold to Dubai party contains correct description of the nature of documents and what the assessee bought and sold. The operative portion of document of purchase, according to the ld.counsel, states:
"The lessors have the right to assign and whereas the lessors have agreed to do so".
In the document to Dubai party also the same words are used. So, what is purchased is the right to assign and what is sold to Dubai party also is the right to assign and right to assign is not lease, it was submitted. For the above proposition, the ld.counsel relied on the decision of the Hon'ble Supreme Court in the case of Getti Chettiar (82 ITR 599). In assignment, the right of property is transferred whereas in lease, only the right to enjoy property is transferred. Therefore, the counsel for the assessee submitted that even with Rule 9A and Rule 9B, what the assessee has done constitutes a sale.
Coming to Section 80HHF, the ld.counsel submitted that it is meant only for software which is connected with Computer; but film roll or positive print is not connected with Computer. It can be only exhibited in the screen as any other film. Merely because video rights are given the film roll will not become software. The counsel further submitted that whether such software, the export of which has been on large scale by direct export and various other modes on account of development of this branch of science, it became necessary to enact a new section to give relief because Section 80HHC is insufficient because of "goods" and its export. This new section omits the words "goods" and states export of transfer by any means outside which clause is not in Section 80HHC. For getting the benefits under Section 80HHC, there must be goods and it must be exported. In fact, still there is some controversy over the question whether data and other information in discs relating to computer is goods, and the matter is now before 5 Member Bench in the Supreme Court (249 ITR 99) - Tata Consultancy v. State of AP. Section 80HHC was introduced so as to avoid all these confusion.
14. In reply to the above contentions of the ld. counsel for the assessee, the ld.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 was a sale, and sale is sine qua non for getting 80HHC benefit. Unless there is sale, there is no 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 ld.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 fixed time or duration. In a transaction of sale and purchase, the seller parts with the possession of the goods and the purchaser takes possession of the goods. There can be a conditional sale, but the condition can only be as to the time when the actual sale takes place. Once the sale is complete and possession taken, there is no reverting back of the property sold. The ld.Sr.departmental representative submitted that there is difference between sale and lease. Sale is defined as transfer of ownership for a price and as such, in a sale there is absolute transfer of all rights in the property sold. No right are left with the transferor. In a lease, there is only a partial transfer of the rights in the property leased out. The ld.departmental representative submitted that even according to the assessee, in the instant case, only the right to exploit and exhibit the film is leased out to a foreign party for a limited period of time. The lease according to the definition is a partial transfer i.e. transfer of right in the property for enjoyment by another for a certain period. What the assessee has done in the instant case is exactly the same. In addition to this, the Sr.departmental representative submitted that what is exported is not any goods or merchandise. He has not sold anything but only leased for a period of 7 years the right of the film for exhibition outside India. He further submitted that assessee's reliance on Article 366(29A) is misplaced. That is for the purpose of tax on sale of goods. First of all, in the instant case, there is no sale of goods, and further, that definition itself is for inter-State sale and has nothing to do with Income-tax Act. Placing reliance on the decision of the Supreme Court in the case of Venkateswara Hatcheries (P) Ltd. (237 ITR 174), the ld.Sr.departmental representative submitted that the definitions given or rendered under different Acts cannot be inter-changed while interpretation any other Act which is totally independent.
Coming to the newly introduced Section 80HHF, the ld.departmental representative submitted that according to the assessee, it is a subsequent entrant into the Act and it cannot be used for interpretation of an already existing section or to minimise the scope thereof. The very section relied on by the assessee's counsel supports the Revenue's view, submitted the ld.departmental representatives. Relying on para (iv) of the Commissioner (Appeals)' order; the ld.departmental representative submitted that in 72 ITR 203 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 soft-wares. 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 (supra) cannot be applied in the instant case as that decision was rendered under a different Act i.e. Sales-Tax Act. Thus, the ld.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 submissions, we are of the view that the assessee is entitled to succeed.
16. The first objection of the revenue is that in the instant case, there is no goods or merchandise sold by the assessee. Assessee by a lease agreement acquired a right of exploitation and exhibition and distribution of film for a short period and by another subsequent lease agreement, allowed the foreign party to exploit the same rights that he acquired. This objection by the revenue cannot be sustained. Article 366 (29A) of the Constitution of India defines 'sale or purchase' of goods. The sale or purchase of goods includes -
a) . . . . .
b) . . . . .
c) . . . . .
d) "a tax on the transfer of 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 such transfer, delivery or supply of any goods shall be deemed to be a sale of those goods by the person making the transfer, delivery or supply and a purchase of those goods by the person to whom such transfer, delivery or supply is made".
It has to be seen that Article 366(29A) is applicable for inter-State sale and purchase of goods. It is incorrect to say that this definition can only be considered while interpreting sales-tax laws. It lays down a principle that the transfer of goods for any purpose even for a limited period for a consideration is a sale for sales-tax purposes.
The case of the revenue is that there cannot be sale, in fact, for a limited period. Sale means transfer of goods for consideration from one party to another for ever. The goods sold cannot come back to the seller. It is true, as far as tangible goods are concerned. The Transfer of Property Act came into existence at a time when scientific development was in its infancy. Transfer of intangible goods was a difficult conception and especially for a consideration. The thing which cannot be possessed cannot be transferred that was the idea and a thing can be possessed Physically only if it is a tangible goods. Now it is universally accepted that electricity is goods which can be transferred from one place to another. It is converted and used for various purposes. In the case of National Thermal Power Corporation Ltd. and Others (127 STC 2002) the Hon'ble Supreme Court held that electricity is goods and saleable even if it is intangible. The definition 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.
16. Coming to the proposition of the revenue that interpretation and definition 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 Act.
17. Regarding the sale of tangible goods and intangible goods, we are of the view that such sales are to be treated differently. Export of tangible goods like fish, books, etc. which can be seen and touched physically an different from export of intangible goods. If a fish exporter exports fish and if the foreign party buying it consumes it or somehow destroys it, the physical existence of the material is gone, whereas an intangible goods sold can be enjoyed without physical possession of it and can be used by another person again. For example, if in a theatre a film is exhibited at one time some people see the movie and take the benefit and when it is screened again in the next show, some more people see the film and enjoy it. Thus, the same stuff is allowed for enjoyment by other viewers. It does not yet exhausted like other material tangible goods like rice and vegetables.
18. In the case of Rohini Panikker (1997) (1)(KLT) 125, the Hon'ble Kerala High Court held that in the case of lending of video cassettes the person who is taking on lease the video cassettes from the video library gets exclusive control over the cassettes during the period in which the cassettes are in his custody. Such a transfer is taxable as sale. If such a transfer for a short period is sale, there is no reason why the export of films by persons like the assessee also cannot be treated as sale for the purpose of Section 80HHC.
19. Rule 9A and 9B made by virtue of Section 295(2) of the I.T.Act supports the assessee's case. This Rule provides that in the filed of film industry, sale includes lease. Rule 9A(7)(i) reads as under:
"(7): For the purpose of this rule,-
(i) the sale of the rights of exhibition of a feature film includes the lease of such rights or their transfer on a minimum guarantee basis."
Again Rule 9B is with regard to deduction in respect of expenditure on acquisition of distribution rights on feature films. Here again, Rule 9B(6)(i) reads as follows:
"(6): For the purposes of this rule,--
(i) the sale of the rights of exhibition of a feature film includes the lease of such rights or their transfer on a minimum guarantee basis."
So, if the leasing of a film, for the purpose of expenditure, can be treated as sale, there is no reason why leasing of a film with the right of exhibition also cannot be treated as sale for the purpose of Section 80HHC.
20. Now, coming to the objection of the revenue authorities that in view of the fact that a new section i.e. Section 80HHF, has been introduced with effect from 1-4-2000 by Finance Act, 1999, there was no deduction available to the persons like the assessee from the export or transfer of films or soft-wares, 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 of 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-soft-wares, which can be used in computer, and computer soft-wares. The film rolls are used normally in theatres. Merely because, due to the technological advancements, film can be converted into soft-ware 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 country, in view of the observation of the Hon'ble Supreme Court in the case of Sea Pearl Industries and Others (247 ITR 578) wherein Their Lordships observed "The object of Section 80HHC is to grant an incentive. The matter will have to be considered with reference to this object". So, denial of the benefit available under Section 80HHC to the assessee, who earns valuable foreign exchange by exporting films for exhibition, by resorting to the newly introduced Section 80HHF is unfair. Because, beneficial sections like 80HHC are to be interpreted in assessees' favour unless it is specifically denied by the Legislature.
20. If the leading out of film is considered as sale for the purpose of deduction Under Rule 9A & 9B, the export of positive prints of the films giving right of exhibition and exploitation cannot be treated differently for 80HHC benefit. Export of film prints is export of goods or merchandise.
21. In view of the above discussion, we allow the appeals by the assessee for the years under consideration.
22. In the result, the appeals by the assessee are allowed.