Case Law Details
RELEVANT PARAGRAPH
8. We have considered the facts of the case and rival submissions. Section 80HHF regarding deduction in respect of profits and gains from export or transfer of film software etc. This provision grants the deduction in a case, where the assessee is engaged in the business of export or transfer by any means out of India, of any film software, television software etc., including telecast rights. On closer examination, it becomes clear that either the film software should be exported outside India or transferred out of India by any means by the person resident in India. The term “export” involves the crossing of the customs frontier by the goods or the software sought to be exported. However, due to advancement in technology, the software etc. can be transferred, which does not involve the crossing on customs frontier as normally understood in case of export of goods. That is why, the words “transferred by any means” were included in the section to the word “export”. However, both the expressions involve an element of export of film software (in the case of the assessee) from India to a country outside India by the assessee. Further, the word `transfer’ does involves at least a bilateral transaction under which some proprietary rights are transferred from the transferor in India to transferee outside India. Therefore, essentially this provision contains a stipulation about a bilateral agreement with further stipulation that there should be transfer of film software from India to a place outside India. This transfer, in the case of transfer by conventional manner, takes place when the film or software crosses the customs frontier and in electronic transfer software it takes place when by computer command it is transferred outside India. But handing over the software or film to the clients’ representative does not amount to transfer outside India by any means under either of the situations. Lai Gem’s case supports this view. Therefore, we do not agree with the finding of the Id. CIT (A) when he held that transfer of the film software by the agent of the foreign parties, who received it from the assessee in India, amounts transfer to a place outside India by any means. In doing so, he did not take into account the fact that the expressions “export” and “transfer by any means” have been used in conjunction and, therefore, have to be interpreted by applying the principle of ejusdem generis. Further, the order of the Tribunal in the case of Lai’s Gems Export (supra) supports the case of the revenue.
8.1 Coming to the issue whether the case involved a bilateral transaction, which could be called “transfer”, we may have regard to the terms of two agreements filed by the assessee in respect of its duties. In so far as the agreement with Italgist Video SRL is concerned, the production services have been defined as under: –
“Production on 6ei vices means all and usual and necessary production services for the production, provision of general counseling services and advice (subject to Producer’s decision being final) regarding the production of the film in India including, without limitation budgetary matters, aspects of crewing and casting advertisements. Procurement of such production equipment as necessary in connection with the production of the film including, without limitation, camera, grip and fighting equipment, props as required by Producer in conjunction with the Designated Representative of Producer; Negotiation of the agreements on behalf of Producer for all India Personnel and all Indian suppliers of facilities and equipment necessary for the production of the film on the best terms obtainable and as approved, in advance, by Producer in accordance with the Budget-Arrangement, in conjunction with the Designated Representative of Producer of ail office space, hotel and other lodging, transportation and catering service as may be required by Producer in connection with the Film, including supervision of ail cast and crew travel to and from locations in India; Assistance in arrangements of all vehicle rentals, required by Producer for shooting the film; supervision and negotiation of all location agreements on terms and conditions approved in advance by Designated Representative of Producer. Provision of officer and personnel, as required, for production end final wrap up of outstanding issues, accounting, deposit, bonds, etc., as and if required by Producer.”
8.2 The responsibility of the assessee was in respect of crewing and casting, production of equipment, negotiation with the personal etc. The foreign party has been termed to be the These services did not confer any proprietary right on the assessee in the product, i.e., the film negatives, which were the sole property of the aforesaid Italgist Video. The assessee received production fees as per paragraph 6 of the agreement. It has already been mentioned that the film had to be handed over to the agent of Italgist in India, who would carry it to a place outside India and exhibit after receiving approval from the Indian Embassy. The agreement, to our mind is one of providing assistance in shooting the films and ultimately does not lead to transfer of any film or software from the assessee to the Italgist Video. There was no provision that the assessee will be responsible for losses in case the negative was not found satisfactory by Italgist video. Thus, the agreement cannot be said to be one for transfer of film software by any means outside India by the assessee to Italgist Video.
8.3 Coming to the agreement with sign + media service GmBH and Company, the obligations of the assessee are contained in paragraph 3, which reads as under: –
“Article 3: Obligations of Kas
KAS as a party hereto commissions hereto CP as the other party hereto with the complete organization for this film production to the extent to such activities are carried out of India. Responsible Executive – Producer of these three documentaries in India is Ms. Aruna Har Prasad & Katyan Mukherjee from KAS. Ms. Aruna Har Prasad & Katyan Mukherjee will be in charge of the entire production coordination on location in association with the two Authors – Mrs. Thomas Uhimann & Mrs. Ania Frevhoff as well as the line producer from CP. Mr. Geora Use.”
8.4 Under this agreement also, the assessee did not acquire any proprietary right in the film software as the agreement was for providing various services for production co-ordination at various places in India. The subject matter of the films was authored by foreigners and Mr. George Use was the line producer. Therefore, we are of the view that it is neither a case of export or transfer by any means out of India of any film software. Coming to the order in the case of Far Video Films (P) Ltd. (supra), the fact is that the assessee was the owner of the film until the same was found satisfactory by the customer and supply thereof was accepted by him. The deduction was claimed u/s 80HHC as export of goods or merchandise. There was nothing on the record to show that if the film was not found satisfactory, the customer was bound to accept it. In such a situation, the Tribunal found that mere grant of advance by the customer did not change the character of the assessee from being an owner to a service renderer. The facts of our case are distinguishable from the facts of that case. In this case the assessee was rendering service for production of films, which were handed over to the agents of the customers in India. The expenses were incurred on behalf of the clients and no proprietary right got vested in the assessee. Although the assessee was required to render satisfactory services, the risk and reward remained with the clients. The handing over negatives in India neither involved export nor transfer by any means, outside India. Coming to the case of Direction Software Solutions (supra), the assessee was maintaining and developing software owned by the customer with a view to see that it functioned properly, the flaws were removed and it was developed. The finding of the Tribunal was that the activities undertaken by the assessee amounted to manufacture or production of computer software. Deduction u/s 80HHF does not, in the first place, as even argued by the Id. Counsel, hinge upon production of film software, but it essentially involves the element of export or transfer by any means of film software, outside India. Therefore, the ratio of that case is not applicable to the fact of that case. Coming to the case of Tata Consultancy Services (supra), the decision of Hon’ble Supreme Court was that when pre-recorded software is sold off the shelf, it amounts to sale of goods under the Andhra Pradesh General Sales Tax Act, 1957. In the instant case there has been no sale of the film software off the shelf. That is also not the case of the assessee. It is a case where certain services were rendered to foreign clients for shooting films in India, and the negatives were handed over to them in India. The services may involve the use of assessee’s expertise in the process of production. We have already seen that this activity neither involves export nor transfer of film software by any means outside India by the assessee and everything was handed to the clients in India. Therefore, the ratio of that case is also not applicable to the facts of that case.
8.5 The invoices produced by the assessee show nil value. We are of the view that this fact goes against the assessee as it shows that there was no export etc. by the assessee and it was the case of sending or transmitting of the film software by the client from India to a place outside India with no transactional value. Further, mere allotment of IEC does not ipso-facto leads to the conclusion that the assessee transferred software outside India. This issue has to be decided on the basis of agreement between the assessee and the client. We may also add that the documents unrelated to the period under appeal, though not favouring the assessee, can not be considered to decide the issue at hand. The Id. counsel had also filed a compact Dise (CD) showing Ms.Aruna Har Prasad as director. However, the assessee did not make any arrangement to display its contents. ON the other hand, the annual accounts and notes on account clearly show that the assessee received only service charges and it had no proprietary rights in goods etc. purchased by it. Therefore, these relevant documents go against the case of the assessee.
8.6 In a nut-shell, it is held that the instance case is one of rendering multi-farious services for production of films by foreign companies in India and handing over the negatives to them in India. This does not involve export or transfer outside India by any means of any film software by the assessee. That is why the Id. CIT(A) had to read words in the section which are no there, and had to resort to purposive interpretation of the provision. However, since the basic conditions of this section are not satisfied, there is no question of applying purposive rule of construction to read something, which is not there in the section. Therefore, we are of the view that the Id, CIT(A) erred in granting the deduction to the assessee.
