TMI Blog2009 (3) TMI 230X X X X Extracts X X X X X X X X Extracts X X X X ..... are narrated in this order with a view to decide the aforesaid grounds. The decision for asst. yr. 2002-03 shall obviously be applicable mutatis mutandis to asst. yr. 2003-04. 2. In the assessment order for asst. yr. 2002-03, it is mentioned that the claim of the assessee was that it was engaged in the business of manufacture of television film software, for which professional services were provided to foreign parties for shooting cinematographic films in India. The main question, which arose, was whether, the assessee was entitled to the deduction under s. 80HHF? In this connection, it was submitted that the primary activities of the assessee were undertaken with a view to act as line producers for shooting of films and commercials on behalf of its foreign clients. In order to achieve this purpose, the assessee organized the entire shooting of the films or commercials in India at various locations. The raw films were purchased; and technicians, cameramen, equipments, etc. were hired. These activities led to conversion of raw films into the final film negatives in the form of tapes or software. All the activities were exclusively undertaken for export of the aforesaid software or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dditional evidence by way of certificate of import-export code (IEC); copy of proforma invoice raised by the assessee; and an album containing photographs evidencing the shooting of the film by the assessee. The AO objected to the admission of the additional evidence on the ground that adequate opportunity to produce all the evidence had been granted to the assessee. The learned CIT(A) admitted the additional evidence by pointing out that the evidence will be useful for deciding the issue raised before him by the assessee. 3.1 It was submitted before him that the essential condition for grant, of the deduction is "export or transfer by any means", which should be interpreted in wider terms because the activities were not really akin to the conventional activities of manufacturing goods. It was further submitted that being a beneficial provision, liberal interpretation should be placed on it. The purpose sought, to be achieved by granting the deduction was to encourage shooting of films by foreigners in India with a view to earn foreign exchange. The learned CIT(A) came to the conclusion that the aforesaid words do not come to the rescue of the case of the AO for the reason that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same, the payments were realized in instalments till the completion of the project. The case of the learned Departmental Representative was that throughout the control remained with the foreign clients, who in fact, were the owners of the film negatives. She also referred to para 2.5 of the appellate order, being rejoinder of the assessee. It was submitted that for the transfer, ownership was not necessary, which is also not an essential condition for grant of deduction under s. 80HHF. A simile was furnished of a case where raw stocks are imported and thereafter exported after completion of the work of filming in India on the basis of permission granted by Ministry of External Affairs by issue of transit package re-export permit. Under the scheme, the imported films etc. must be re-exported after shooting of the films. No customs duty is payable on such import or export. The material is used only for the filming and for the purpose of re-export. Therefore, it is not available for sale and its commercial value is nil. The invoice of the assessee shows that the commercial value at nil. On the basis of these arguments furnished by the assessee, the case of the learned Departmental Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Representative was that Ms. McNally and not the assessee was the producer of the commercial documentaries. She also referred to the proforma invoice placed on p. 55 of the paper book and submitted that it did not contain any date. Invoices at pp. 36-57 had the date of 5th Dec., 2004. which does not pertain to this year. Invoices at pp. 58 to 64 were also undated. Her case was that the assessee has not filed the relevant invoices either before the lower authorities or before the Tribunal. She referred to pp. 79 and 80, being the letter dt. 21st June, 2000 written by Mary Phelps. regarding Rolax Awards for Enterprise UA5371 (the programme). It is mentioned therein that Kalyan Mukherjee and Aruna Harprasad are engaged as fixers for the dates as set out therein. They shall make their services available to expedite all matters related to clearance of permit and production related matters in India, preparation for their arrival on 20th July, 2000. In consideration service charges of pounds 650 + pounds 100 for related expenses were to be paid. On the basis of this document, the learned Departmental Representative argued that the assessee was merely providing services for shooting films ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hip was not sine-qua-non for eligibility of deduction under s. 80HHF. She referred to p. 6 of the paper book which furnishes the details of 11 projects in terms of opening balance, receipts during the year, payments during the year and surplus/deficit. It was clarified that the payments represented the expenditure incurred by the assessee for production of films. Therefore, it was her case that the assessee was engaged in the activities of production of films. Further, references were made to pp. 70 to 78, which furnish the resume of the directors and various projects undertaken by them. On the basis of these papers, it was argued that they were specialists in the field of film production and, therefore, the assessee was also a film production company. Various proforma invoices showed the final product as exposed film negatives. This shows that the films were exposed and developed, leading to production of movies. References were also made to pp. 65 to 69, being certificates for foreign inward remittances (CFIR), which show the purpose of remittance to be "film and television work shoots in India". Therefore, her case was that the assessee is engaged in shooting films in India. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o device programmes for repairing its bugs, for its replacement with another software and to effect modification and enhancement to the software. The client of the assessee was not confident about the OVISS software and, therefore, it was making modifications therein under the agreement with the assessee. The Tribunal distinguished between the use of the term "maintenance" in normal parlance such as maintenance of plant and machinery from maintenance of a software, which also means its development and enhancement and correcting the errors. Thus, it was held that the on-going development of a software system is nothing but its maintenance. In other words, maintenance of a software system is a part of its on-going development. It was held that looking to the responsibility of the assessee under the agreement. the maintenance was nothing but development of software, which amounted to its manufacturing or production. Further, reliance was placed on the order of 'E' Bench of Mumbai Tribunal in the case of Far Video Films (P) Ltd. vs. Asstt. CIT (2007) 15 SOT 385 (Mumbai). The question in that case was whether, income from rendering of job work services was entitled to deduction under s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th production of the film. Rendering of such services did not amount to the production of films. Reference was also made to the agreement with cine + media service GmbH and Company KG, Berlin, Germany. The services to be provided by the assessee were mentioned in art. III under the heading "Obligations of Kas" which include providing for film equipment such as generator truck, lift stand, stands, power cables, diffusion frames with stand, flags and sand bags etc. It was argued that providing for these equipments docs not amount to production of films. 7. In order to get some further clarification, case was again heard on 5th Feb., 2009. The assessee filed supplementary paper book containing pp. 154 to 274, which included the details of completed projects, ledger accounts in respect of projects, wage sheets regarding disbursement at sites. It was the case of the learned counsel that the activities produced intellectual property, which was transferred to the foreign clients. Reliance was placed on the decision of Hon'ble Supreme Court in the case of Tata Consultancy Services vs. State of Andhra Pradesh (2004) 192 CTR (SC) 257 : (2004) 271 ITR 401 (SC), in which it was held that und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tronic 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. Lall's Gem Exports case supports this view. Therefore, we do not agree with the finding of the learned 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 Lall's Gem Exports 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. Insofar as the agreement with Italgist Video SRL is concerned, the production services have been defined as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deo. 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 para 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 and Kalyan Mukherjee from Kas. Ms. Aruna Har Prasad Kalyan Mukherjee will be in-charge of the entire production co-ordination on location in association with the two authors-Mrs. Thomas Uhlmann and Mrs. Anja Freyhoff as well as the line producer from CP, Mr. Georg Lise." 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-o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. 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, cannot be considered to deci ..... X X X X Extracts X X X X X X X X Extracts X X X X
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