The Commissioner Of Income Tax, Tamil Nadu, Iv, Madras v. V.c.kuganathan

IN THE HIGH COURT OF JUDICATURE AT MADRAS THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) Nos.224 to 226 of 2003, 1093 of 2004,295 of 2005, 548 & 549 of 2005, 1175 of 2005, 1293 to 1299 of 2005 and 2124 of 2006 Commissioner of Income Tax,Chennai...Appellant in T.C(A).Nos.224 to 226 of 2003, 1093 of 2004,1293 to 1299 of2005 1175/2005, 548, 549/2005 and 2124/2006 The Commissioner of Income Tax,Tamil Nadu, IV, Madras...Appellant in T.C (A).No.295/2005. Vs V.C.Kuganathan, ..Respondent in T.C (A) 224/2003 and TCA.No.226/2003A.V.M. LimitedChennai..Respondent in T.C (A) 225/2003B. Suresh58, Panmtheon Road,Egmore Chennai 8...Respondent in T.C (A)1093/2004Suchitra Mahon Lal..Respondent in T.C (A)295/2005 S. Kamal Hasan..Respondent in T.C (A) Nos.1293, 1294, 1295, 1296, 9297, 1298 and 1299/2005. Mrs. Sulfath Mohammed Kutty,No.7, Greenways Road Extention,Raja Annamalaipuram, Chennai 28...Respondent in T.C.(A).1175/2005 Suchitra Mohanlal,No.16, Casa Major Road,Egmore Chennai 600 008...Respondent in T.C (A) 548 and 549/2005 https://hcservices.ecourts.gov.in/hcservices/ R. B. Choudary1, III Street,Dr. Radhakrishnan Road,Chennai 4...Respondent in T.C (A)2124/2006. Appeals filed under Section 260A of the Income Tax Act, 1961against the order of the Income Tax Appellate Tribunal, Madras B/ABench, "C" Bench and "B" Bench respectively dated 30.1.2003,14.7.2004, 21.12.2004, 17.5.2004, 26.5.2004, 10.2.2004 and25.11.2005 in 1). ITA No.1702 & 1992/MDS/1998 Assessment year 199394 & 1992-93 5. ITA.No.217, 218, 219 & 220/MDS/97, 42/MDS/98, 1496/MDS/2000 and1276/MDS/2001 Assessment year 1992-93 1993-94 1994-95 1995-96 1997-98 & 1999 -2000. For Appellant in all : Mrs.Pushya Sitaraman, the T.C.(A)’s Sr.Standing Counsel for Income-tax Department For Respondent in : Mr.R.Subramanian, T.C.(A) Nos.224 and Sr.Counsel for Mrs.S.Hemalatha 226 of 2003 For Respondent in T.C.(A) No.225 of : Mr.Venkat Narayan 2003For Respondent in T.C.(A) No.1093 of : Mr.V.D.Gopal 2004 For Respondent in T.C.(A)Nos.295 of : Mr.Trilokchand Chopda 2005, 548 & 549 of 2005, 1175 of 2005 https://hcservices.ecourts.gov.in/hcservices/ For Respondent in T.C.(A) Nos.1293 to : Mr.V.Ramakrishnan to 1299 of 2005 COMMON JUDGMENT (Judgment of the Court was delivered byP.P.S.Janarthana Raja, J.) The present appeals are filed under Section 260A of the IncomeTax Act, 1961 by the Revenue against the orders passed by theIncome Tax Appellate Tribunal, Madras. The issue involved iscommon for all the tax cases and hence the counsel appearing forboth the sides requested the Court to take up all the above matterstogether. Accordingly, all the matters are taken up together andthe same are disposed of, by a common judgment. 2.The questions of law raised in the above appeals are asunder:a)Tax Case (A) Nos.224 to 226 of 2003, 1093 of 2004, 1293 to1299 of 2005, 1175 of 2005:"Whether in the facts and circumstances of thecase, the Tribunal was right in treating thetransfer of the right to exhibit the films, asa sale of goods or merchandise for the purposeof deduction under Section 80HHC?"b) Tax Case (A) No.295 of 2005:"Whether on the facts and circumstances of thecase the Appellate Tribunal was right in law inholding that, the right of exploitation of thefilms outside India do constitute export ofgoods or merchandise and consequently theassessee would be entitled to deduction underSection 80HHC of the Income-tax Act is valid?"c) Tax Case (A) No.548 and 549 of 2005: 2.The questions of law raised in the above appeals are asunder:a)Tax Case (A) Nos.224 to 226 of 2003, 1093 of 2004, 1293 to1299 of 2005, 1175 of 2005:"Whether in the facts and circumstances of thecase, the Tribunal was right in treating thetransfer of the right to exhibit the films, asa sale of goods or merchandise for the purposeof deduction under Section 80HHC?"b) Tax Case (A) No.295 of 2005:"Whether on the facts and circumstances of thecase the Appellate Tribunal was right in law inholding that, the right of exploitation of thefilms outside India do constitute export ofgoods or merchandise and consequently theassessee would be entitled to deduction underSection 80HHC of the Income-tax Act is valid?"c) Tax Case (A) No.548 and 549 of 2005: "1. Whether on the facts and in thecircumstances of the case, the Income TaxTribunal is right in law in holding that theassessee was entitled to relief under Section80HHC since in the case of lease of film rightsfor exhibition in foreign countries wouldtantamount to export of goods and merchandise?2. Whether on the facts and in thecircumstances of the case, the Income TaxTribunal is right in law in holding that theassessee was entitled to relief under 80HHCespecially what was transferred was only aright to exploit the films and there was nogoods merchsndised or exported? 3. Whether on the facts and in thecircumstances of the case, the Income TaxTribunal is right in law in granting the reliefunder 80HHC since only a lease agreement wasentered for a limited period of five years andnot a outright sale? 4. Whether on the facts and in thecircumstances of the case, the Income TaxTribunal is right in law in holding that 80HHCrelief is to be granted inspite of the factthat in the lease agreement, as per clause 7,after a period of five years, the prints are tobe destroyed, which would clearly show thatonly right to exploit was given adn there wasno goods merchandised or exported?" d) Tax Case (A) No.2124 of 2006: "Whether, in the facts and circumstances of thecase, the Tribunal was right in treating thelease of the right to exhibit the films for alimited period, as a sale of goods ormerchandise eligible for the purpose ofdeduction under Section 80HHC?" 3.For the same of convenience, we are taking up the TaxCase (A) No.224 of 2003, in which the question of law reads asunder: "Whether in the facts and circumstances of thecase, the Tribunal was right in treating thetransfer of the right to exhibit films, as asale of goods or merchandise for the purpose ofdeduction under Section 80HHC?" The brief facts leading to the above question of law are as under: The assessee is engaged in the film business. He held therights over the film "Mudal Kural". The relevant assessment yearis 1993-94 and the corresponding accounting year ended on31.03.1993. The assessee filed Return on 07.01.1994 admitting anincome of Rs.57,950/-. The Return was processed under Section 143(1)(a) of the Income-tax Act (hereinafter referred to as the"Act"). Later, the Assessing Officer issued notice under Section143(2) of the Act. Subsequently, assessment was completed underSection 143(3) of the Act, determining a total income ofRs.1,15,980/-. While completing the assessment, the AssessingOfficer disallowed the deduction claimed by the assessee underSection 80HHC of the Act. Aggrieved by the order, the assesseefiled an appeal to the Commissioner of Income-tax (Appeals). TheC.I.T.(A) allowed the appeal and was of the view that the assesseeis entitled to the relief under Section 80HHC of the Act.Aggrieved, the Revenue filed an appeal to the Income-tax AppellateTribunal (hereinafter referred to as the "Tribunal"). The Tribunal https://hcservices.ecourts.gov.in/hcservices/ dismissed the Revenue's appeal and confirmed the order of theC.I.T.(A). https://hcservices.ecourts.gov.in/hcservices/ dismissed the Revenue's appeal and confirmed the order of theC.I.T.(A). 4.Learned Standing Counsel appearing for the Revenuesubmitted that for the purpose of claiming deduction under Section80HHC of the Act, there should be transfer of goods or merchandisefrom India to outside India. In the present case, there is only anagreement by which, only the right to exploit was transferred, butthere is no export of goods or merchandise. It is also furthersubmitted that Section 80HHC of the Act, clearly stipulates thatthe sale proceeds of such goods must be brought into India. Theword "sale proceeds" means, there should be only actual exportsale. In this case, there is no sale of goods and hence theassessee is not entitled to relief under Section 80HHC of the Act. 5.Learned Senior counsel appearing for the assesseesubmitted that the word "goods" or "merchandise" has not beendefined in the Act and hence the meaning of these words have to beunderstood either from Dictionary or from other Acts. TheDictionary meaning of the word "good" is immovable property,chattels, merchandises, freight (Oxford Dictionary). He alsofurther stated that the word "goods" means not only tangibleassets, but also intangible assets. It is also further submittedthat under the Sale of Goods Act, 1930, the term "goods" meansevery kind of movable property stocks and shares, growing crops,grass and things attached to or forming part of the land which areagreed to be served before sale or under the contract of sale. Itis therefore, contended that there is nothing in the abovedefinition to exclude film prints (together with the rights) fromthe purview of the term 'goods' and relied on the Bombay High Courtjudgment reported in 267 ITR 488 in the case of AbdulgafarA.Nadiadwala Vs. Assistant Commissioner of Income-tax and Othersand Supreme Court judgment reported in 271 ITR 401 in the case ofTata Consultancy Services Vs. State of Andhra Pradesh, to supporthis contention. 6.Heard the counsel. It is seen from the order of theTribunal that the Departmental Representative appearing for theRevenue before the Tribunal, relied on the decision of the Tribunal(Mumbai Bench-B) in Abdulgafar A.Nadiadwala Vs. Dy.CIT (2000) 75I.T.D. 395. In that case the assessee had transferred thetelecasting of films for a limited period to Star TV, a foreignenterprise. The question was whether such transfer could be saidto amount to sale of goods or export of goods or merchandise out ofIndia. The Tribunal held that it was not sale of goods andtherefore no export was carried out and accordingly, deductionunder Section 80HHC of the Act was denied. Aggrieved by the order,the assessee filed an appeal to the Bombay High Court. The BombayHigh Court considered the scope of Section 80HHC of the Act andallowed the assessee's appeal. The said Bombay High Court judgmentis now reported in 267 ITR 488. The contentions raised before the https://hcservices.ecourts.gov.in/hcservices/ Bombay High Court by the counsel is at Page No.508 of the saidjudgment and the same reads as follows: "Points for determination: The substantial points for determination,in a narrow compass, on rival contentions asbetween the parties canvassing rival views, onthe facts and circumstances of the case, are asunder: 1. Whether the product involved can besaid to be "goods" and/or "merchandise"?2. If yes, can it be said that it wasexported out of India by way of sale orotherwise involving clearance at the customsstation? https://hcservices.ecourts.gov.in/hcservices/ Bombay High Court by the counsel is at Page No.508 of the saidjudgment and the same reads as follows: "Points for determination: The substantial points for determination,in a narrow compass, on rival contentions asbetween the parties canvassing rival views, onthe facts and circumstances of the case, are asunder: 1. Whether the product involved can besaid to be "goods" and/or "merchandise"?2. If yes, can it be said that it wasexported out of India by way of sale orotherwise involving clearance at the customsstation? 3. If yes,whether the considerationreceived can be described as sale proceedsconstituting part of export turnover?"In respect of first point, the Bombay High Court held as follows:"Having given our anxious consideration to allthe factors referred to hereinabove, thetransaction in question, whereby the assesseehad purchased the rights of various decodersand had recorded on beta-cam tape and enteredinto an agreement with the Star TV for transferof telecasting rights for Asian region for aperiod of five years, can conveniently bedescribed as article or thing falling withinthe sweep of the word "goods" or "merchandise".We, therefore, hold that the beta-cam tape,which has incorporeal rights, is a "goods" or"merchandise" for the purposes of section 80HHCof the Act."In respect of second point, the Bombay High Court held as follows:"Having taken the survey of various provisions,one fails to understand as to why the word"otherwise" should not cover within its sweepsuch types of transactions and, if such typesof transactions are taken into account, thenthey would be nothing but sale for the purposesof section 80HHC. We, thus, hold that thetransaction in question involved export ofgoods out of India falling within the sweep ofthe concept of "sale" involving clearance atthe customs station as contemplated undersection 80HHC of the Act."In respect of third point, the Bombay High Court held as follows:"Reading of the above illustrations in generaland clauses (v) and (vi) thereof in particularmake it clear that while describing thededuction under section 80HHC the words used are 50 per cent of the "export proceeds"brought into India. It is, therefore, clearthat even the Central Board of Direct Taxes hasunderstood the words "export proceeds" to besynonymous to "sale proceeds". If that be so,the amount received by way of consideration inthe transaction in question can conveniently betermed as "export proceeds" equal to that of"sale proceeds". Once we hold that thetransaction involved in this case is akin to"sale" falling within the sweep of the words"sale or otherwise" then the considerationi.e., export proceeds received can be termed as"sale proceeds". Finally, the Bombay High Court considered the above contentions indetail and held as follows: "In the above view of the matter and followingthewellrecognisedprinciplesofinterpretation reiterated from time to time andadopting purposive interpretation keeping inmind the practical common sense approach andcommercial expediency we have reached theconclusion that the transaction involved inthis appeal, on the facts and circumstances ofthe case, is well within the sweep of section80HHC of the Act and all the authorities belowwere not justified in denying the deduction tothe claim of the assessee under section 80HHCin the sum of Rs.84,23,746 in respect of exportof beta-cam tapes as per agreement dated March29, 1995. We, thus, hold that the assessee isentitled to such deduction under section 80HHCof the Act and allow the appeal on this count.Accordingly, we answer the question in favourof the assessee and against the Revenue on thiscount." We have gone through the judgment of the Bombay High Court and wefind that the facts including the contentions of the counsel in theBombay High Court judgment are same, identical and similar to thefacts involved in the present case. The counsel for the Revenue,neither produced any material or evidence, nor shown any other HighCourt judgment, taking a contrary view of the Bombay High Court.Further, no compelling reasons were given by the Revenue to take adifferent view of the Bombay High Court and hence, we respectfullyagree with the view taken by the Bombay High Court. Further, wenote that the contentions of the counsel are also well supported bythe Apex Court judgment reported 271 ITR 401, in the case of TataConsultancy Services Vs. State of Andhra Pradesh. In thatjudgment, the Supreme Court considered the scope of the word"goods" and held as follows: "It is not in dispute that when a programme iscreated it is necessary to encode it, uploadthe same and thereafter unloaded. Indian law,as noticed by my learned Brother, Variava J.,does not make any distinction between tangibleproperty and intangible property. A "goods"may be a tangible property or an intangibleone. It would become goods provided it has theattributes thereof having regard to (a) itsutility; (b) capable of being bought and sold;and (c) capable of being transmitted,transferred, delivered, stored and possessed.If a software whether customized or non-customized satisfies these attributes, the samewould be goods. Unlike the American courts,Supreme Court of India have also not gone intothe question of severability." Applying the abovesaid principles, we are of the view thatexporting the right for exhibition of positive print is nothing butsale of goods or merchandise. 7.Under these circumstances, we are of the view that theassessee had satisfied the conditions contemplated under Section80HHC of the Act and hence the assessee is entitled for thededuction under Section 80HHC of the Act. 8.In view of the foregoing reasons, we answer the questionsof law in favour the assessee and against the Revenue in all thetax cases. Accordingly, the tax cases are dismissed. No costs. kmSd/Asst.Registrar/true copy/ To 1. The Asst Registrar,Income Tax Appellate Tribunal,A/B Bench, 'B' Bench, and 'C' BenchRajaji Bhavan, Besant Nagar, Chennai 600 090. 2. The SecretaryCentral Board of Direct Taxes,New Delhi. https://hcservices.ecourts.gov.in/hcservices/ 3. The Commissioner of Income Tax,Appeals X, Chennai 4. The Commissioner of Income Tax,Tamilnadu IV, Chennai 5. The Income Tax officer,Film Ward I, Chennai 6. The Assistant Commissioner of Income Tax,Film Circle, Chennai. 7. The Commissioner of Income Tax,Chennai. 8. The Deputy Commissioner of Income Tax,Film Circle, Chennai 6. 9. The Deputy Commissioner of Income Tax,Special Range XI, Chennai. 10. The Income Tax Officer,Film Ward II, Chennai. 11. The Deputy Commissioner of Income Tax,Madia Circle 1/11 Chennai. + 8 ccs to M/s. Pushya Sitaraman Sr. Standing Counsel for ITSR.Nos.51313, 51314, 51315, 51316, 51317, 51318, 51319, 51320+ 2 ccs to Mr. T. Pramod Kumar Chopda, SR Nos. 51401, 51402 + 1 cc to Mr. V. D Gopal Advocate SR No. 51394 + 1 cc to Mr. R. Venkatnarayanan, Advocate SR No. 51468 + 1 cc to Mr. V. Ramakrishnan, Advocate SR No. 51255 MAR(CO)SR/15.12.2006 Tax Case (A) Nos.224 to 226 of 2003, 1093 of 2004, 295 of 2005, 1293 to 1299 of 2005, 1175 of 2005, 548 and 549 of 2005, 2124 of 2006. https://hcservices.ecourts.gov.in/hcservices/