On Further Appeals By The Revenue, The Tribunal Following Thedecision Of The Bombay High Court In Abdulgafar A.nadiadwala v. Assistantcommissioner Of Income Tax And Others, [2004] 267 Itr 488 Allowed Theappeals In Favour Of The Assessee. Hence The Present Appeals

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HON'BLE MR.JUSTICE P.D.DINAKARANANDTHE HON'BLE MR.JUSTICE P.P.S.JANARTHANA RAJA T.C.(A).Nos.639 to 642 of 2007 Commissioner of Income Tax.. Appellant inChennai. all the appealsVs.M/s. Giza Impex P. Ltd.73, Nungambakkam High Road,.. Respondent inChennai. all the appeals Appeals under Section 260A of the Income Tax Act, 1961 against the ofthe Income Tax Appellate Tribunal,made in ITA Nos.1363 & 1364/Mds/2002 and1135 & 1136/Mds/2005 for the dated 17.2.2006, and and against the order ofthe commissioner of Income-Tax (Appeals)made in ITA.No.129 and 130/04-05,dated 2.2.2005 and against the assessment order for years 1997-98 dated24.2.2004, 1996-97 dated 15.2.2004 order of the commissioner of Income Tax(Appeals) in ITA.No.127 and 128/2001-02 dated 28.5.2002 against theassessment year 1995-96 dated 26.6.2001 and 1994-95 dated 26.6.2001respectively. J U D G M E N T(Delivered by P.D.DINAKARAN, J.) The above tax case appeals are directed against the common order ofthe Income-tax Appellate Tribunal dated 17.2.2006 made in ITA Nos.1363 &1364/Mds/2002 and 1135 & 1136/Mds/2005 for the assessment years 1994-95 to1997-98 respectively, raising the following common substantial questionsof law: "1. Whether in the facts and circumstances of thecase, the Tribunal was right in holding that there wasno dispute about the allowability of deduction undersection 80HHC in respect of the transfer/export of themaster copies of the film songs and music along with https://hcservices.ecourts.gov.in/hcservices/ the rights to make copies and sell cassettes outsideIndia. 2. Whether in the facts and circumstances of thecase, the Tribunal was right in treating thetransfer/export of the master copies of the film songsand music along with the rights to make copies andsell cassettes outside India as a sale of goods ormerchandise for the purpose of deduction under section80HHC? 2.1. The Revenue is the appellant. The relevant assessment years are1994-95 to 1997-98. The assessee is a company engaged in the business ofexport of Digital Audio Tape Master (DAT Master) containing the recordedversion of film songs from Tamil feature films for exploitation overseasand the assessee claimed deduction under Section 80HHC of the Income TaxAct (for brevity, "the Act"). The Assessing Officer disallowed the claimof the deduction under Section 80HHC of the Act on the ground that theexploitation rights in the film songs and music in feature films tooverseas assignee would not constitute export of goods for the purpose ofdeduction under Section 80HHC of the Act. 2.2. On appeals by the assessee, the Commissioner of Income Tax(Appeals) allowed the appeals directing the Assessing Officer to allowdeduction under Section 80HHC of the Act. 2.3. On further appeals by the Revenue, the Tribunal following thedecision of the Bombay High Court in Abdulgafar A.Nadiadwala v. AssistantCommissioner of Income Tax and Others, [2004] 267 ITR 488 allowed theappeals in favour of the assessee. Hence the present appeals. 3. Mrs.Pushya Sitaraman, learned Senior Standing Counsel for theappellant contends that the deduction under Section 80HHC of the Act isapplicable only for profits derived from export of goods and merchandise,and thus cannot apply to the transaction of the assessee, who has notexported any goods or merchandise, but only the master copies of filmsongs and music along with the rights to make copies and sell cassettesoutside India. 4. In this regard, it would be apposite to determine whether theproduct involved in these cases can be said to be "goods” and/or"merchandise", as defined under Section 80HHC of the Act or not? 5. At this juncture, a reference to Section 80HHC of the Act isessential: 3. Mrs.Pushya Sitaraman, learned Senior Standing Counsel for theappellant contends that the deduction under Section 80HHC of the Act isapplicable only for profits derived from export of goods and merchandise,and thus cannot apply to the transaction of the assessee, who has notexported any goods or merchandise, but only the master copies of filmsongs and music along with the rights to make copies and sell cassettesoutside India. 4. In this regard, it would be apposite to determine whether theproduct involved in these cases can be said to be "goods” and/or"merchandise", as defined under Section 80HHC of the Act or not? 5. At this juncture, a reference to Section 80HHC of the Act isessential: "Section.80HHC. Deduction in respect of profits retained for exportbusiness.--(1) Where an assessee, being an Indian company or aperson (other than a company) resident in India, is engaged in thebusiness of export out of India of any goods or merchandise towhich this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computingthe total income of the assessee, a deduction of the profitsderived by the assessee from the export of such goods ormerchandise:..... (2)(a) This section applies to all goods or merchandise, other thanthose specified in clause (b), if the sale proceeds of such goodsor merchandise exported out of India are received in, or broughtinto, India by the assessee (other than the supportingmanufacturer) in convertible foreign exchange, within a period ofsix months from the end of the previous year or, ~within suchfurther period as the competent authority may allow in this behalf. Explanation.--For the purposes of this clause, the expression"competent authority" means the Reserve Bank of India or such otherauthority as is authorised under any law for the time being inforce for regulating payments and dealings in foreign exchange. (b) This section does not apply to the following goods ormerchandise, namely:-- (ii) minerals and ores (other than processed minerals andores specified in the Twelfth Schedule). Explanation 1.--The sale proceeds referred to in clause (a) shallbe deemed to have been received in India where such sale proceedsare credited to a separate account maintained for the purpose bythe assessee with any bank outside India with the approval of theReserve Bank of India. Explanation 2.--For the removal of doubts, it is hereby declaredthat where any goods or merchandise are transferred by an assesseeto branch, office, warehouse or any other establishment of theassessee situate outside India and such goods or merchandise aresold from such branch, office, warehouse or establishment, then,such transfer shall be deemed to be export out of India of suchgoods and merchandise and the value of such goods or merchandisedeclared in the shipping bill or bill of export as referred to insub-section (1) of section 50 of the Customs Act, 1962 (52 of1962), shall, for the purposes of this section, be deemed to be thesale proceeds thereof. (3) For the purposes of sub-section (1),-- (a) where the export out of India is of goods or merchandisemanufactured or processed by the assessee, the profits derived fromsuch export shall be the amount which bears to the profits of the https://hcservices.ecourts.gov.in/hcservices/ business, the same proportion as the export turnover in respect ofsuch goods bears to the total turnover of the business carried onby the assessee ; (b) where the export out of India is of trading goods, theprofits derived from such export shall be the export turnover inrespect of such trading goods as reduced by the direct costs andindirect costs attributable to such export ; (c) where the export out of India is of goods or merchandisemanufactured or processed by the assessee and of trading goods, theprofits derived from such export shall,-- (a) where the export out of India is of goods or merchandisemanufactured or processed by the assessee, the profits derived fromsuch export shall be the amount which bears to the profits of the https://hcservices.ecourts.gov.in/hcservices/ business, the same proportion as the export turnover in respect ofsuch goods bears to the total turnover of the business carried onby the assessee ; (b) where the export out of India is of trading goods, theprofits derived from such export shall be the export turnover inrespect of such trading goods as reduced by the direct costs andindirect costs attributable to such export ; (c) where the export out of India is of goods or merchandisemanufactured or processed by the assessee and of trading goods, theprofits derived from such export shall,-- (i) in respect of the goods or merchandise manufacturedor processed by the assessee, be the amount which bears to theadjusted profits of the business, the same proportion as theadjusted export turnover in respect of such goods bears to theadjusted total turnover of the business carried on by theassessee ; and (ii) in respect of trading goods, be the export turnoverin respect of such trading goods as reduced by the direct andindirect costs attributable to export of such trading goods : Provided that the profits computed under clause (a) or clause (b)or clause (c) of this sub-section shall be further increased by theamount which bears to ninety per cent of any sum referred to inclause (iiia) (not being profits on sale of a licence acquired fromany other person), and clauses (iiib) and (iiic) of section 28, thesame proportion as the export turnover bears to the total turnoverof the business carried on by the assessee. Provided further that in the case of an assessee having exportturnover not exceeding rupees ten crores during the previous year,the profits computed under clause (a) or clause (b) or clause (c)of this sub-section or after giving effect to the first proviso, asthe case may be, shall be further increased by the amount whichbears to ninety per cent. of any sum referred to in clause (iiid)or clause (iiie), as the case may be, of section 28, the sameproportion as the export turnover bears to the total turnover ofthe business carried on by the assessee : Provided also that in the case of an assessee having exportturnover exceeding rupees ten crores during the previous year, theprofits computed under clause (a) or clause (b) or clause (c) ofthis sub-section or after giving effect to the first proviso, asthe case may be, shall be further increased by the amount whichbears to ninety per cent. of any sum referred to in clause (iiid)of section 28, the same proportion as the export turnover bears tothe total turnover of the business carried on by the assessee, if the assessee has necessary and sufficient evidence to prove that, - (a) he had an option to choose either the duty drawback or theDuty Entitlement Pass Book Scheme, being the Duty Remission Scheme;and (b) the rate of drawback credit attributable to the customsduty was higher than the rate of credit allowable under the DutyEntitlement Pass Book Scheme, being Duty Remission Scheme : Provided also that in the case of an assessee having exportturnover exceeding rupees ten crores during the previous year, theprofits computed under clause (a) or clause (b) or clause (c) ofthis sub-section or after giving effect to the first proviso, asthe case may be, shall be further increased by the amount whichbears to ninety per cent. of any sum referred to in clause (iiie)of section 28, the same proportion as the export turnover bears tothe total turnover of the business carried on by the assessee, ifthe assessee has necessary and sufficient evidence to prove that, - (a) he had an option to choose either the duty drawback or theDuty Free Replenishment Certificate, being Duty Remission Scheme;and Provided also that in the case of an assessee having exportturnover exceeding rupees ten crores during the previous year, theprofits computed under clause (a) or clause (b) or clause (c) ofthis sub-section or after giving effect to the first proviso, asthe case may be, shall be further increased by the amount whichbears to ninety per cent. of any sum referred to in clause (iiie)of section 28, the same proportion as the export turnover bears tothe total turnover of the business carried on by the assessee, ifthe assessee has necessary and sufficient evidence to prove that, - (a) he had an option to choose either the duty drawback or theDuty Free Replenishment Certificate, being Duty Remission Scheme;and (b) the rate of drawback credit attributable to the customsduty was higher than the rate of credit allowance under the dutyFree Replenishment Certificate, being Duty Remission Scheme. Explanation. - For the purposes of this clause, "rate of creditallowable" means the rate of credit allowable under the Duty Freereplenishment Certificate, being the Duty Remission Schemecalculated in the manner as may be notified by the CentralGovernment. Explanation.--For the purposes of this sub-section,-- (a) "adjusted export turnover" means the export turnover asreduced by the export turnover in respect of trading goods ; (b) "adjusted profits of the business" means the profits ofthe business as reduced by the profits derived from the business ofexport out of India of trading goods as computed in the mannerprovided in clause (b) of sub-section (3) ; (c) "adjusted total turnover" means the total turnover of thebusiness as reduced by the export turnover in respect of tradinggoods ;(d) "direct costs" means costs directly attributable to thetrading goods exported out of India including the purchase price ofsuch goods ; (e) "indirect costs" means costs, not being direct costs,allocated in the ratio of the export turnover in respect of tradinggoods to the total turnover ; (f) "trading goods" means goods which are not manufactured orprocessed by the assessee. (3A) For the purposes of sub-section (1A), profits derived by asupporting manufacturer from the sale of goods or merchandise shallbe,-- (a) in a case where the business carried on by the supportingmanufacturer consists exclusively of sale of goods or merchandiseto one or more Export Houses or Trading Houses, the profits of thebusiness; (b) in a case where the business carried on by the supportingmanufacturer does not consist exclusively of sale of goods ormerchandise to one or more Export Houses or Trading Houses, theamount which bears to the profits of the business the sameproportion as the turnover in respect of sale to the respectiveExport House or Trading House bears to the total turnover of thebusiness carried on by the assessee. (4) The deduction under sub-section (1) shall not be admissibleunless the assessee furnishes in the prescribed form along with thereturn of income, the report of an accountant, as defined in theExplanation below sub-section (2) of section 288, certifying thatthe deduction has been correctly claimed in accordance with theprovisions of this section. (4A) The deduction under sub-section (1A) shall not be admissibleunless the supporting manufacturer furnishes in the prescribed formalong with his return of income,-- (a) the report of an accountant, as defined in the Explanationbelow sub-section (2) of section 288, certifying that the deductionhas been correctly claimed on the basis of the profits of thesupporting manufacturer in respect of his sale of goods ormerchandise to the Export House or Trading House; and (b) a certificate from the Export House or Trading Housecontaining such particulars as may be prescribed and verified inthe manner prescribed that in respect of the export turnovermentioned in the certificate, the Export House or Trading House hasnot claimed the deduction under this section: (4A) The deduction under sub-section (1A) shall not be admissibleunless the supporting manufacturer furnishes in the prescribed formalong with his return of income,-- (a) the report of an accountant, as defined in the Explanationbelow sub-section (2) of section 288, certifying that the deductionhas been correctly claimed on the basis of the profits of thesupporting manufacturer in respect of his sale of goods ormerchandise to the Export House or Trading House; and (b) a certificate from the Export House or Trading Housecontaining such particulars as may be prescribed and verified inthe manner prescribed that in respect of the export turnovermentioned in the certificate, the Export House or Trading House hasnot claimed the deduction under this section: Provided that the certificate specified in clause (b) shall be dulycertified by the auditor auditing the accounts of the Export House or Trading House under the provisions of this Act or under anyother law. (4B) For the purposes of computing the total income under sub-section (1) or sub-section (1A), any income not charged to taxunder this Act shall be excluded. Explanation.--For the purposes of this section,-- (a) "convertible foreign exchange" means foreign exchangewhich is for the time being treated by the Reserve Bank of India asconvertible foreign exchange for the purposes of the ForeignExchange Regulation Act, 1973 (46 of 1973), and any rules madethereunder; (aa) "export out of India" shall not include any transactionby way of sale or otherwise, in a shop, emporium or any otherestablishment situate in India, not involving clearance at anycustoms station as defined in the Customs Act, 1962 (52 of 1962) ; (b) "export turnover" means the sale proceeds received in, orbrought into, India by the assessee in convertible foreign exchangein accordance with clause (a) of sub-section (2) of any goods ormerchandise to which this section applies and which are exportedout of India, but does not include freight or insuranceattributable to the transport of the goods or merchandise beyondthe customs station as defined in the Customs Act, 1962 (52 of1962). (ba) "total turnover" shall not include freight or insuranceattributable to the transport of the goods or merchandise beyondthe customs station as defined in the Customs Act, 1962 (52 of1962): Provided that in relation to any assessment year commencing on orafter the 1st day of April, 1991, the expression "total turnover"shall have effect as if it also excluded any sum referred to inclauses (iiia), (iiib) and (iiic) of section 28 ; (baa) "profits of the business" means the profits of thebusiness as computed under the head "Profits and gains of businessor profession" as reduced by-- (1) ninety per cent. of any sum referred to in clauses(iiia), (iiib) and (iiic) of section 28 or of any receipts by wayof brokerage, commission, interest, rent, charges or any otherreceipt of a similar nature included in such profits ; and (2) the profits of any branch, office, warehouse or anyother establishment of the assessee situate outside India ; https://hcservices.ecourts.gov.in/hcservices/ (c) "Export House Certificate" or "Trading House Certificate"means a valid Export House Certificate or Trading HouseCertificate, as the case may be, issued by the Chief Controller ofImports and Exports, Government of India; (d) "supporting manufacturer" means a person being an Indiancompany or a person (other than a company) resident in India,manufacturing (including processing) goods or merchandise andselling such goods or merchandise to an Export House or a TradingHouse for the purposes of export." 6. The provisions of the Act do not define the word “goods” or“merchandise”. Hence, a reference to meaning of "goods" and "merchandise"as can be inferred from the law settled so far would be a guiding factorto decide the case on hand. (c) "Export House Certificate" or "Trading House Certificate"means a valid Export House Certificate or Trading HouseCertificate, as the case may be, issued by the Chief Controller ofImports and Exports, Government of India; (d) "supporting manufacturer" means a person being an Indiancompany or a person (other than a company) resident in India,manufacturing (including processing) goods or merchandise andselling such goods or merchandise to an Export House or a TradingHouse for the purposes of export." 6. The provisions of the Act do not define the word “goods” or“merchandise”. Hence, a reference to meaning of "goods" and "merchandise"as can be inferred from the law settled so far would be a guiding factorto decide the case on hand. 7. The Larger Bench of the Apex Court in Tata Consultancy Servicesv. State of A.P., (2005) 1 SCC 308, while testing whether the propertyinvolved in a transaction is "goods" for the purposes of sales tax, heldas under: "The term "goods" includes all types of movable properties, whetherthose properties be tangible or intangible. In India the test todetermine whether a property is "goods" for the purpose of salestax, is not whether the property is tangible or intangible orincorporeal. The test is whether the item concerned is capable ofabstraction, consumption and use and whether it can be transmitted,transferred, delivered, stored, possessed, etc. The Intellectualproperty, once it is put on to a medium, whether it be in the formof books or canvas or computer discs or cassettes, and marked wouldbecome "goods". A software program may consist of various commandswhich enable the computer to perform a designated task. Thecopyright in that program may remain with the originator of theprogram. But the moment copies are made and marketed, it becomesgoods, which are susceptible to sales tax. We see no differencebetween a sale of a software program on a CD/floppy disc from asale of music on a cassette/CD or a sale of a film on a videocassette/CD. In all such cases, the intellectual property has beenincorporated on a media for purposes of transfer. Sale is not justof the media which by itself has very little value. The softwareand the media cannot be split up. What the buyer purchases andpays for is not the disc or the CD. As in the case of paintings orbooks or music or films the buyer is purchasing the intellectualproperty and not the media i.e. the paper or cassette or disc orCD. Thus a transaction/sale of computer software is clearly a saleof “goods” within the meaning of the term as defined in the saidAct. The term “all materials, articles and commodities” includesboth tangible and intangible/incorporeal property which is capableof abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed, etc. The softwareprograms have all these attributes." 8. The said view of the Larger Bench of the Apex Court was alsoadopted by a Three Judge Bench of the Apex Court in Bharat Sanchar NigamLtd. v. Union of India, (2006) 3 SCC 1. 9. From the law as enunciated from the decisions referred supra,"goods" may be tangible property or an intangible one. It would becomegoods provided it has the attributes thereof having regard to (a) itsutility; (b) capable of being bought and sold; and (c) capable of beingtransmitted, transferred, delivered, stored and possessed. If the aboveattributes are satisfied, the same would be goods. transferred, delivered, stored, possessed, etc. The softwareprograms have all these attributes." 8. The said view of the Larger Bench of the Apex Court was alsoadopted by a Three Judge Bench of the Apex Court in Bharat Sanchar NigamLtd. v. Union of India, (2006) 3 SCC 1. 9. From the law as enunciated from the decisions referred supra,"goods" may be tangible property or an intangible one. It would becomegoods provided it has the attributes thereof having regard to (a) itsutility; (b) capable of being bought and sold; and (c) capable of beingtransmitted, transferred, delivered, stored and possessed. If the aboveattributes are satisfied, the same would be goods. 10. In the cases on hand, the Commissioner of Income Tax (Appeals),after careful consideration of the facts of the case, found that theassessee exported music software and therefore, the transaction comeswithin the purview of Section 80HHC of the Act, and the said view was alsoalso affirmed by the Tribunal. We are, therefore, satisfied that theattributes required for bringing the property involved within the meaningof "goods" is satisfied with reference to its utility; capability ofbeing bought and sold; and capability of being transmitted, transferred,delivered, stored and possessed. 11. The above finding that the property involved is "goods" isfortified with the decision of this Court in Commissioner of Income Tax v.Superstar Music [2007] 291 ITR 8. Accordingly, we have no hesitation tohold that the assessee is entitled to deduction under Section 80HHC of theAct. 12.1. Alternatively, it is contended by Mrs.Pushya Sitaraman, learnedSenior standing counsel for the Revenue that the deduction could beclaimed by the assessee only under Section 80HHF of the Act, but notunder Section 80HHC; and that since Section 80HHF of the Act providingdeduction in respect of profits and gains from export or transfer of anyfilm software, television software, music software, television newssoftware, including telecast rights was inserted by the Finance Act, 1999,with effect from 1.4.2000, the assessee is not entitled to deduction evenunder Section 80HHF of the Act for the assessment years 1994-95 to 1997-98.12.2. A contention made in the above lines, was carefully consideredby the Division Bench of the Bombay High Court in Abdulgafar A.Nadiadwalav. Assistant Commissioner of Income Tax and Others, [2004] 267 ITR 488 andrejected. 12.3. Moreover, in view of the ratio laid down by the Apex Court inTata Consultancy Services v. State of A.P. and Bharat Sanchar Nigam Ltd.v. Union of India, referred supra, we are of the considered opinion thatmerely because Section 80HHF came to be inserted with effect from1.4.2000, that, by itself, does not mean the benefit of Section 80HHC could be denied to the transactions which are governed under Section 80HHCof the Act. Of course, it goes without saying that in view of thespecific provision under Section 80HHF for deductions in respect ofprofits and gains from export or transfer of any film software, televisionsoftware, music software, television news software, including telecastrights, the assessee could very well in future claim such deductions andthe same would be taken care of under Section 80HHF(5) of the Act toprevent double benefits being claimed by the assessee in such events.However, in view of our clear finding that the transaction in question iscovered under section 80HHC, it is inappropriate to hold that merelybecause Section 80HHF was not on the statute book during the assessmentyears in question, viz., 1994-95 to 1997-98, the assessee is not entitledto claim deduction without any hindrance under Section 80HHC in spite ofcompliance of the ingredients thereunder. In the result, finding no substantial questions of law arising forour consideration, these appeals are dismissed. No costs. Consequently,M.P.Nos.1 of 2007 are also dismissed. In the result, finding no substantial questions of law arising forour consideration, these appeals are dismissed. No costs. Consequently,M.P.Nos.1 of 2007 are also dismissed. Consequently, sd/-Asst.Registrar /true copy/ ATR Sub Asst.Registrar 1.The Assistant Registrar,Income Tax Appellate TribunalMadras "A" Bench, Chennai.Income Tax Appellate TribunalMadras "A" Bench, Chennai. 2.The Secretary, Central Board of Direct Taxes, New Delhi.of Direct Taxes, New Delhi. 3.The Commissioner of IncomeTax (Appeals) XI, Chennai.Tax (Appeals) XI, Chennai. 4.The Dy. Commissioner of Income-taxCompany Circle II(2), Chennai.Company Circle II(2), Chennai. 1 cc to Mrs.Pushya sitaraman Advocate SR.NO.35331. VRK(co)RD 25.7.07 T.C.(A).Nos.639 to 642 of 2007