Income Tax-Iv, Tamil Nadu Vs. B.Suresh  INSC 458 (3 March 2009)
APPELLATE JURISDICTION CIVIL APPEAL NO.3300 OF 2007 Commr. of Income Tax-IV,
Tamil Nadu ...Appellant(s) Versus B. Suresh ...Respondent(s) WITH Civil Appeals
Nos.3534, 3294, 3291, 3302, 3298, 3299, 3306, 3304, 5334, 4389, 2490, 2670,
2495, 2500, 2484, 2497, 2496, 2491, 2489, 2498, 2499, 2501, 2483, 2482, 2481,
2492, 2671, 2485, 2502, 2475, 2474, 2477, 2476, 2478, 5221 of 2007, 2811, 4454,
4707, 4705, 6643 of 2008, 94, 432, 1154, 1256, 1004, 1155, 1115 and 1303 of
2009 CIVIL APPEALS NOS. 1576 TO 1586 OF 2009 (Arising out of S.L.P.(C)
Nos.8314, 8315, 18839, 10854 of 2008, 1361, 2162, 3758 of 2009, 9814, 9809 of
2008, 2771 & 5726 of 2009) ORDER Delay condoned.
granted in Special Leave Petitions.
question which arises for determination in this batch of Civil Appeal(s) is
whether the foreign exchange earned by transferring the right of exploitation
of the films outside India by way of lease is admissible for deduction under
Section 80HHC of the Income Tax Act 1961. According to the Department,
movies/films are not goods. They are not merchandise. Hence Section 80HHC is
not invokable. Further, according to the Department, there is a difference between
"sale" and "lease" hence, the subject transaction will not
fall under Section 80HHC.
in Civil Appeal No.3300/2007:
the relevant Assessment Year 1993-94, the assessee, B. Suresh, transferred
feature film rights for exploitation outside India and earned income in foreign
exchange. The assessee claimed deduction under Section 80HHC in respect of the
said receipts. The Assessment Officer (AO) held that the assessee was not
entitled to deduction under section 80HHC, inter alia, on the ground that the
export was not of merchandise or goods as contemplated under Section 80HHC, but
was merely an export of "rights" in the film. This decision of the AO
was over-ruled by CIT(A).
matter came before the Tribunal at the instance of the Department, there was
already a judgment of the Bombay High Court in the case of Abdulgafar A.
the said decision, in the present case, the Tribunal held that the assessee was
entitled to deduction under Section 80HHC, hence, this Civil Appeal by the
of the Revenue, Shri V. Shekhar, learned senior counsel, submitted that the
assessee in this case was not engaged in the export of goods and merchandise;
that the films recorded on beta-cam tapes did not qualify either as 'goods' or
'merchandise'. In this connection, it was urged that beta-cam tape (cassette)
was only a medium of transfer; that, there was no "sale" of the film
in beta-cam format and that the assessee had only transferred the right to use for
a period of five years and since the title remained with the assessee, the
impugned 2 transaction fell outside Section 80HHC. According to the learned
counsel, since the films transferred on beta-cam tapes were given on lease with
a right to telecast given to Star TV under the Lease Agreement dated 29th
March, 1995 for a period of five years, there was no element of sale so as to
attract Section 80HHC. It was further urged that movies are neither
"goods" nor "merchandise". In this connection, learned
counsel placed reliance on Dictionaries.
Harish N. Salve and Shri S.Ganesh, learned senior counsel appearing on behalf
of the assessee, submitted that on a bare reading of Section 80HHC(1), one
finds that the deduction/concession is given in cases where an assessee derives
profits from the activity of exports and earns foreign exchange. It is pointed
out that the said Section is concerned with the Business Profits under the 1961
Act. It is submitted that the word "goods" or "merchandise"
must be read as understood in common parlance. Our attention was also invited
to the dictionary meaning of the word "merchandise". On the basis of
the said meaning, it was submitted that any article of commerce and trade could
fall under the meaning of the word "merchandise". It was submitted
that one has to read the words "goods" and "merchandise" in
the broad sense, keeping in mind the object of the Parliament in enacting
Section 80HHC. According to the learned counsel, the said Section is an
incentive provision. Its object to promote earnings in foreign exchange arising
from exports, which includes sale of goods and merchandise. If one keeps the
object in mind, according to the learned counsel, movies/films which are made
would certainly come within the ambit and meaning of the word
"merchandise" as an article of trade and commerce. It is also urged
that with globalisation and also with advancement in 3 technology, the words
"goods" and "merchandise" have to be read in widest
attention is also invited to the scheme of Section 80HHC in support of the
above contentions to point out that the word "sale" would also
include "lease" as indicated in Rule 9A(7) which states that for the
purposes of Rule 9A, the "sale" of the rights of exhibition of
feature films would include the "lease" of such rights.
under Rule 9B(6), it has been, inter alia, provided that "sale" of
rights of exhibition of a feature film would include the "lease" of
such rights. It is also submitted on behalf of the assessee that Section 80HHF
goes far beyond the physical exports referred to in Section 80HHC(1). Section
80HHF recognises even software transfers "by any means". Further
under clause (5) of Section 80HHF, the Parliament has clearly indicated that if
an assessee has taken the benefit of Section 80HHC, he would not be entitled to
claim the same benefit under Section 80HHF, which provision, according to the
learned counsel, shows that benefit of deduction under Section 80HHC could be
claimed for foreign exchange earned by sale of feature films or rights therein.
questions arise for determination, namely, whether foreign exchange earned by
transfer of feature film rights for exploitation outside India, in the form of
lease, is entitled to the benefit of Section 80HHC deduction. The same is
denied by the Department on the ground that there is no "sale". The
other question is whether such "rights" are goods/merchandise.
requirement of Section 80HHC is earning in foreign exchange 4 and retention of
profits for export business. Profits are embedded in the "income"
Earning of income depends on sale of goods and services. Today the difference
between the two is getting blurred with globalization and cross-border
transaction. Today with technological advancement one has to change our
thinking regarding concepts like goods, merchandise and articles. In the case
of B. Suresh, the assessee had bought rights of various decoders and had
recorded movies on beta-cam tapes which were transferred as telecasting rights
to Star T.V. for five years (it has a limited life). Hence such
"rights" would certainly fall in the category of articles of trade
and commerce, hence, merchandise.
question as to whether transfer of the said rights by way of lease would
attract Section 80HHC, we find merit in the contention that under Rule 9A and
Rule 9B, the word "lease" is included in the meaning of the word
we find no infirmity in the judgment of the Bombay High Court in the case of
Abdulgafar A. Nadiadwala.
above reasons, the Civil Appeals filed by the Department are dismissed with no
order as to cost.
...................J. (S.H. KAPADIA)
..................J. (H.L. DATTU)
March 03, 2009.