The Bombay High Court has held that 'Beta-cam' tapes, which have incorporated rights attached thereto, are 'goods' or 'merchandise' for the purpose of availing export benefits under Section 80HHC of the Income Tax Act, 1961.
For filmmakers, who have already sold or are planning to sell their film rights overseas, the judgment comes as a shot in the arm.
The judgment was delivered by the Court on March 29, 2004 in the case Hindi film producer Abdulgafar A Nadiadwala vs the assistant commissioner of income tax & others.
The court observed that if goods are required to be cleared from customs stations it would be export out of India. The court concluded that the transaction involved in the appeal, based on the facts and circumstances of the case, is well within the purview of Section 80 HHC.
The assessee had entered into an agreement with Star TV on March 29, 1995 granting it the sole and exclusive right to broadcast 14 films in the Asian region for a period of five years. Nadiadwala, in his return of income for the assessment year 1996-97, declared his income as Rs 960,000 and claimed deduction amounting to Rs 84.23 lakh (Rs 8.42 million) under Section 80 HHC in respect of the export of Beta-cam tapes with rights attached thereto.
Without prejudice to his right to claim deduction under Section 80 HHC, Nadiadwala also made an alternate claim for deduction under Section 80-O.
In support of his alternative claim, the assessee contended that the amount received by him in convertible foreign exchange, representing the amount of royalty for allowing exhibition of films, was nothing but the income derived by him as consideration for allowing use of copyrights outside India.
The assessing officer (AO) in his order in May 1998, however, held that as the assessee exported only user rights to telecast films and the same cannot be treated as 'goods' or 'merchandise'. In his view the tapes were only an ancillary to the export.
Hence the benefit of Section 80 HHC was denied. Further it was pointed out that Section 80HHF clearly indicates that 'cinematographic films' were not covered for the purposes of Section 80 HHC.
The alternative claim for deduction was also rejected by AO on the ground that the assessee did not render any service outside India and that the receipts of the assessee had no nexus with the so-called services rendered abroad.
The view of the AO was also confirmed by the Income Tax Appellate Tribunal. Aggrieved by the Tribunal's order, Nadiadwala filed an appeal with the Bombay High Court.
Benefits under Section 80 HHC will be completely phased out in financial year 2005-06. The five year phase out began in the financial year 1999-2000.
