TMI Blog2010 (9) TMI 784X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. - it would be just and fair if the impugned order is set aside on this issue and the matter is sent back to the Assessing Officer for deciding the amount includible in the figures of total and export turnover out of the export debtors as at the end of the year as per law. Thereafter the Assessing Officer will re-compute the amount of relief under section 80HHF in accordance with our above directions after allowing a reasonable opportunity of being heard to the assessee. Depreciation on office premises - occupation through purchase of shares purchase of shares and construction contribution - held that:- payments are aimed at acquiring, using and occupying the property. But for the purchase of shares it is not permissible to become member. In the like manner paying construction contribution is also a pre-requisite for becoming the member of WRPL. Unless any person desirous of obtaining, using and occupying the property purchases shares and makes contribution towards construction, he cannot become the member of the company. Both the payments are directed towards acquiring one composite right. As such it is not possible to view these two payments separately and consider the const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit of Rs. 11.53 crores with the export turnover of Rs. 11.56 crores as divided by the total business turnover at Rs. 40.01 crores. The assessee opposed this calculation by explaining that the business of export of software/software rights constituted separate, independent and distinct activity de hors the other streams of revenue as the assessee had maintained separate books of account for this source of income. It was claimed that the entire amount was eligible for deduction. It was further pointed out that the provisions of section 80HHF(3) would not be attracted in this case as profits relatable to export of software/software rights could be ascertained and established by means of separate and independent books of account. In support of its claim for deduction under section 80HHF at 100 per cent of the profits derived from export of software/software rights, the assessee relied on the judgment of the Hon'ble Madras High Court in CIT v. Rathore Bros. [2002] 254 ITR 656/125 Taxman 1033 and certain other judgments laying down the same proposition. The Assessing Officer was not convinced with these submissions and came to hold that the computation of deduction under section 80HH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f export business and in the absence of any judgment delivered by the Hon'ble High Court or any Bench of the Tribunal in the context of section 80HHF, the ld. CIT(A) held that the mandate of the judgment given by the Hon'ble Madras High Court in Rathore Bros.' case (supra) in the context of section 80HHC would apply mutatis mutandis to the provisions of section 80HHF also. In this way it was held that the total turnover for the purposes of deduction under this section would not include turnover from domestic activity including the sale of free commercial time and as such the export activity should be treated as independent business. During the first appellate proceedings, the assessee also filed evidence in support of realization of Rs. 4.42 crores along with the approval from RBI. These documents were sent to the Assessing Officer for his comments, who, apart from pointing out certain inconsistencies, also stated that the RBI's approvel was not filed by the assessee. Considering the facts, the learned CIT(A) observed that the assessee had been able to realize a sum of Rs. 4.41 crores and the remaining amount of Rs. 3,83,618 was not yet realized. In his opinion, the realization a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lecasting of TV serials was directly coming to its pool. On a specific query, the learned A.R. has explained that the overall business activity of the assessee was to purchase or produce TV serials and then exploit the same by either exporting or using in the Indian market through Doordarshan or other channels. Thus it can be seen that the cost in purchasing or producing the TV serials is common and the revenue is arising from export of such programmes or their telecasting in India. It is nobody's case that the exporting of such television software including telecast rights are otherwise not eligible for deduction under section 80HHF. The controversy revolves around the computation of deduction only. The case of the assessee is that the profits derived from export should be computed by reducing the costs from the export realization and in this process its domestic business be totally ignored as the export business is separate and distinct. In order to buttress this claim it has been argued that separate books of account have been maintained in respect of such export business and hence the entire profit derived from such export business is separately identifiable. On the contrary th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (1) to mean the amount which bears to the 'profits of the business', the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. Explanation below sub-section (6) contains the meaning of certain expressions for the purpose of section 80HHF. Clause (f) of Explanation defines 'profits of the business' to mean the profits of the business as computed under the head "Profits and gains of business or profession" as reduced by - (A) ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and (B) the profits of any branch, office, warehouse or any other establishment of the assessee situated outside India;". Clause (c) of the Explanation defines 'export turnover' to mean consideration in respect of software or software rights received in or brought into India in convertible foreign exchange in accordance with sub-section (2). Sub-section (2) of section 80HHF, in turn, provides that the deduction under sub-section (1) shall be allowed only if the consideration in respect of the software or software rights is received in or brought in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. AR, refers to the export business only and once the income of such export business is identifiable, then the deduction has to follow as representing the income from exports business in disregard to the other business income. This interpretation of the expression 'the business' in our considered opinion is devoid of any merit. 'The business' refers to the carrying on of one business, which in the present case is the exploitation of eligible software/software rights. So far as income flows from such business, it shall continue to assume the character of income of that business. Such exploitation of software/software rights may be in domestic or foreign market. Exploiting such rights in foreign market cannot be considered as separate business distinct from that of such exploitation done in the Indian market. So long as the product offered by the assessee is similar in nature and character, it constitutes the same business, notwithstanding the fact that its consumption is in domestic or foreign market. The situation would have been different if the assessee had been earning income from the commercial exploitation of such eligible software/software rights in the foreign market and do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hese figures would be constant. The correct interpretation, in our considered opinion, is to view 'the business' of production and purchase of TV serial as one irrespective of the fact that the income from their exploitation is flowing in from Indian or foreign markets. 9. It has also been argued by the learned A.R. that the definition of "total turnover" given in clause (j) of Explanation should be restricted only to that of export business and that of the domestic business should be excluded. We find that the ld. CIT(A) was swayed by the argument that this definition is not exhaustive as it simply specifies items which would not be included in the total turnover. This contention, in our considered opinion, is bereft of any force for the reason that there are certain exclusions provided for in this definition which shall go to reduce the amount of total turnover. When we go back to sub-section (3) it is seen that the words "total turnover" are joined by the expression "of the business carried on by the assessee". It, therefore, becomes explicitly clear that it is total turnover of the business as a whole which is carried on by the assessee i.e., referred to in sub-section (3) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained then clause (a) of section 80HHC(3) should not be applied and the deduction be allowed in respect of the entire export net profits. All these decisions have been mainly rendered in the context of section 80HHC, in which the mechanism for working out the profits derived from export has been given in three different situations, depending upon the fulfilment of the requisite requirements. But when we turn to section 80HHF(3), it is manifested that only one method has been provided for in the provision to compute the profits derived from exports on the basis of proportion. There is no provision, similar to clause (b) of section 80HHC(3), providing for determining the profits derived from such exports by reducing direct and indirect costs from the export turnover. We are unable to endorse the view of the ld. first appellate authority that in the absence of any direct decision in the context of section 80HHF, the ratio decidendi as laid down in some of the cases in section 80HHC could be followed. 12. We have noted above that sub-section (1) of section 80HHF refers to deduction to the extent of profits derived by the assessee from such business "in accordance with and subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of location and operations. On the other hand we are dealing with a case in which there is only one business that of producing or purchasing the TV serial rights. 14. The other case of Wipro Ge Medical Systems Ltd. (supra) pressed by the ld. AR in support of his view point, also does not support his case for the reason that primarily it is based on section 80HHE and secondly in that case it has been held that the inclusion of other turnover of the assessee not connected with the computer software business was not justified. In reaching this conclusion, the Tribunal noted that : "the total turnover for the purpose of section 80HHE can only mean the total turnover of the computer software both in India and outside India. Under the scheme of the said section, it is not correct to include any other turnover not connected with the computer software business". Thus the ratio of this decision is that the turnover of computer software both from foreign and domestic market be considered and if the assessee is having other turnover not connected with the computer software business, then that should not be considered. This case rather supports the Revenue's contention and not that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change from export and further in respect of which no certificate from RBI seeking permission for the extension of time for realization, was filed. When this matter came up before the learned CIT(A) the assessee filed additional evidence towards realization of Rs. 4.42 crores along with the approval of RBI as against export debtors to the tune of Rs. 4.45 crores. When these documents were referred back by the learned CIT(A), the Assessing Officer pointed out that RBI approval for US$ 7,05,300 was not filed and further the RBI's letter pointed out realization on 17-10-2000 at US$ 10,15,300 against the amount of US$ 10,13,881 mentioned in the certificate issued by the Development Credit Bank Limited. The assessee clarified to the learned CIT(A) that the documents for US$ 7,05,300 did not pertain to this year and the permission from RBI was obtained for remittance of US$ 10,15,300 pertaining to this year, which was equivalent to the value of Rs. 4.42 crores. On the basis of these facts the learned CIT(A) held that the assessee was able to realize only US$ 10,13,881, which on pro-rata basis, meant the realization of Rs. 4.41 crores thereby still leaving a gap of Rs. 3.83 lakhs, which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er copies of the agreement the assessee had purchased only shares in the possession of some share holders. It was further noted that business of WRPL was taken over by the assessee and not the building alone. Since the building was stock-in-trade in the hands of WRPL, the Assessing Officer held that the same could not form part of block of assessee's assets. He, therefore, disallowed depreciation to the tune of Rs. 42,17,350 claimed by the assessee on the premises acquired in Oberoi Chambers. The assessee argued before the learned CIT(A) that in the regular assessment of WRPL, the acquisition of shares by the assessee had been treated as sale of the premises by WRPL and in its support the balance sheet of WRPL as on 31-3-2000 was also filed. The learned CIT(A) noted that sum of Rs. 1.67 crore was paid by the assessee towards non-refundable construction contribution and the remaining sum of Rs. 2.76 crores was towards consideration of shares. It was held that the payment of Rs. 2.76 crore could not be considered as part payment for acquisition of premises. He, therefore, granted depreciation on Rs. 1.67 crore representing contribution towards construction. Such depreciation was allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the assessee acquired three premises in class A with terrace and parking area by acquiring 3,95,600 shares worth Rs. 2.76 crores along with the making of non-refundable construction contribution of Rs. 1.67 crore thereby making total investment at Rs. 4.44 crore. By making this investment the assessee obtained the right to use and occupy these premises. Coming back to the Articles of association of WRPL we find that clause 5 is relevant which reads as under : "Any member who holds/owns the required number of fully paid up equity shares of the Company and who shall contribute the required sums towards interest free non-refundable construction contribution, shall, at his option, be entitled to use and occupy one of the Class A or Class B or Class C or Class D or Class E premises, as the case may be, subject to and in accordance with these Articles of Association and the Appendix "I" annexed hereto." Class 9(a) defines a 'Member' to mean and include a member who has become entitled to the occupancy right in respect of the premises. Sub-clause (b) of clause 9 of Articles of Association defines "shares" as under : "`Shares' shall mean the minimum number of fully paid up e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares and contributing towards construction. Further on the transfer of such shares the ownership of the flat automatically gets transferred to the transferee. Even though the assessee is not a registered owner of the premises but it has got all such rights which enable others to be excluded from the ownership of the property. The assessee has right to use and occupy the property in its own right. When we see this fact in juxtaposition to the other fact that the requisite payment was made for acquiring these premises, there remains no doubt that the assessee become the owner of the property. The Hon'ble Supreme Court in Mysore Minerals Ltd. v. CIT [1999] 239 ITR 775/106 Taxman 166 has held that anyone in possession of property in his own title exercising such dominion over the property as would enable others being excluded therefrom and having right to use and occupy the property and/or to enjoy its usufruct in his own right, would be the owner of the buildings as per section 32(1) though a formal deed of title may not have been executed and registered as such he would be entitled to depreciation thereon. Our view is supported by the order passed by the Mumbai Bench in the case of D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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