TMI Blog1967 (3) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... o in detail later. In respect of the second film, a similar agreement of lease was entered into in August, 1963, with Messrs Murugan Brothers and this lease comprised 1/20th of the rights of the petitioner. Later by another agreement, a lease of 10/20ths of the rights in that film for a period of 49 years, and a further agreement covering the balance of 9/20ths of the rights, were granted to Messrs A.V.M. Limited. In respect of the agreement for the first film, the petitioner received over Rs. 25 lakhs in 1964, and with regard to the second film, an aggregate of Rs. 19 lakhs and odd was received by the petitioner in 1965. For the assessment year 1964-65, the petitioner submitted his return which did not include the above sums. The assessing authority, the Deputy Commercial Tax Officer, however decided to include in the assessable turnover the two sums mentioned above, treating the sums as representing the turnover of sales of films liable to a single point tax at 10 per cent. under the First Schedule to the Madras General Sales Tax Act (1 of 1959). The contention of the petitioner broadly stated is that these are not sales of any goods but represented only realisations of the right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner in respect of similar agreements relating to a lease of the exploitation rights of a Tamil film "Nanum Oru Penn". For reasons similar to those which have already been indicated, the petitioner claims this amount is not assessable to tax. The assessing authority has, in addition to proposing to include this amount, issued a notice proposing to levy a penalty as well. The petitioner seeks the issue of a writ of prohibition in this case. W.P. No. 784 of 1966 raises the question of a provisional assessment made for the year 1965-66 based upon the assessment for 196465. The assessing authority proposed by the notice to fix the turnover at Rs. 44 lakhs and odd and called upon the petitioner to pay a tax of Rs. 4,48,000 and odd thereon. In W.P. Nos. 782 of 1966 and 784 of 1966, the petitioner prays that the assessment orders, final in the first case and provisional in the second, may be quashed as illegal by the issue of writs of certiorari. In the counter-affidavit filed on behalf of the respondents, the statement of facts Is not denied. But what the respondents say is that "it was found that the petitioner had effected a sale of negative prints of these pictures for considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a different object, continues to be a film, and when the sale of such a film takes place, it can be taxed under this entry; that is to say, the department claims that in interpreting the expression "film", a processed film must be regarded as different from the raw film, and though on the purchase of the raw film tax might have been paid, that fact cannot obviate the levy of tax on the sale of a processed film. The counter-affidavits have not however traversed the complaint of the petitioner with regard to the levy of penalty. By a further affidavit filed on behalf of the petitioner, an additional ground has been taken that the definition of "goods" embodied in the Madras General Sales Tax Act Is ultra vires the powers of the State Legislature in so far as such definition goes beyond the definition of "goods" as found in the Constitution. It would suffice to say at this stage that by a further counter-affidavit filed by the respondents, the validity of this attack is questioned, and it is claimed that the Constitution-makers were not unaware of the enlarged definition of "goods" in the various Sales Tax Acts at the time when "goods" was defined for purposes of the Constitution. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us to be distinguished from the rights conferred by a patent, trademark and design legislation........" Salmond in his jurisprudence, 11th edition, refers to copyright as an example of a right over immaterial property, which has been raised to the level of a legal right by Statute (page 269). Copyright is referred to as an immaterial form of property recognised by law, being the product of human skill and labour or of a man's brains (page 462). In all the English text books which it is unnecessary to refer at length, copyright has been regarded as incorporeal movable property and that view has been adopted in our country as well. It would be sufficient to refer to Savitri Devi v. Dwarka PrasadA.I.R. 1939 All. 305. Proceeding on the basis that copyright is incorporeal movable property, the further contention of Mr. V.K. Thiruvenkatachari, for the petitioner, is that in so far as Parliament provided for the legislative competence of the State Legislature to enact laws with regard to sale of goods, Parliament must, for reasons to be mentioned hereafter, have intended to restrict such competence only to concrete goods and not abstract goods or incorporeal goods such as property repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the natural sense of the word conveys, but if the statute merely sets down only that very natural sense, the statute cannot be intended to have added to that natural sense. It is said therefore that the very natural sense of the expression given as the interpretation cannot be regarded as an extension, for "includes" is generally employed only for the purpose of extending the natural sense. In that view, it is said the definition of "goods" both in the Government of India Act and the Constitution must be regarded as being exhaustive. In a decision of the Privy Council in Dilworth v. Commissioner of Stamps[1899] A.C. 99. an analogous question arose. In the Charitable Gifts Duties Exemption Act, 1883, the term "charitable purposes" was defined as "including devices, bequests and legacies of real or personal property..........." The question arose as to what was meant by this definition. The judicial Committee observed (at pages 105 and 106): "It is not said in terms that 'charitable bequest' shall mean one or the other of the things which are enumerated, but that it shall 'include' them. The word 'include' is very generally used in interpretation clauses in order to enlarge the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference to certain other provisions. In the Government of India Act, section 137 provided for terminal taxes on goods carried by railway or air. Section 297 enacted a prohibition against discrimination between goods manufactured in a Province and similar goods not so manufactured. The Constitution also refers to goods in Article 269 in providing for the levy of terminal taxes on goods carried by railway, sea or air, or taxes on the sale or purchase of goods, and by Article 304 to prohibition on restriction of trade in respect of goods manufactured within or without the State. The relevant schedules, the Seventh Schedule of the Government of India Act and the Seventh Schedule of the Constitution, in providing for matters in respect of which the Union or the State may make laws, refer to goods and in the context in which that expression is used, it is the contention of the learned counsel that only concrete goods could have been under contemplation. For instance, in List I of the Seventh Schedule to the Constitution, entry 30 deals with carriage of goods by railway, sea or air, entry 84 with duties of excise on goods manufactured; entry 89 with terminal taxes on goods carried by rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ords have, in law, acquired a definite and precise sense and that, accordingly, the Legislature must be taken to have intended that they should be understood in that sense. In interpreting an expression used in a legal sense, therefore, we have only to ascertain the precise connotation which it possesses in law." They accordingly repelled the contention that it was open to the legislating authority to include in the expression "sale of goods" an agreement of sale relating to one kind of property and a sale as regards another, which in effect was the extended definition of "sale" occurring in the Sales Tax Acts, whereby "sale" was defined so as to include materials used in the construction, fitting out, improvement or repair of immovable property. But the more important part of this decision is, in so far as the arguments of the petitioner are concerned, that when Parliament enacts a statute it should be deemed to have employed an expression in that statute which has acquired a legal as well as a settled meaning in law. The same argument is advanced as regards the meaning of the word "goods". The learned Advocate-General urges that the word "includes" in the definition sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tively defined and to comprise only materials, commodities and articles, that is to say, concrete goods. We would require far stronger reasons before we can accept the contention that the Constitution has imposed a restriction on the power to legislate in respect of sales of one class of movable property. In so far as the argument purports to establish that the definition of goods In the Madras General Sales Tax Act as meaning all kinds of movable property goes beyond the meaning of the expression given to it by the Constitution and for that reason the legislation in respect of sale or purchase of goods other than concrete goods is ultra vires, we are unable to agree with that contention. What appears to us to be a more vital part of the argument is whether even assuming that the transaction in question amounts to a transfer of some kind of property, it nevertheless comes within the scope of the definition of "sale of goods" under the Madras General Sales Tax Act. In order to examine this contention, we have firstly to refer to the arrangement entered into between the assessee (lessor) and the lessee, with whom the agreement was entered into. We have to scrutinise the terms of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian of the lessee free of any charge for keeping custody and it is expressly understood that the producer cannot during the continuance of this agreement make use of the negative in any manner whatsoever other than for the purpose of taking out extra prints as and when required by the lessee against its paying the producer the entire charges for such prints or supplying the requisite raw film and paying charges for taking the prints as the producer may ask at the time." It is seen from this clause that the negative of the film from which positives are made for the purpose of projection in the cinemas is kept with the producer. That the property in the negative vests in the lessee during the continuance of the lease is made clear herein, for the producer maintains custody of the negative only as the agent and the custodian of the lessee and is prohibited from making use of the negative except for certain stated purposes. There is also the obligation cast upon the lessee to return to the lessor on the determination of the lease "all the positive prints then remaining with it". It also appears from this clause that notwithstanding the lessee's ownership of the negative during the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the declared cost of production of the film plus 15 per cent. thereon as profit to the producer subject to a minimum also, indicates that it was an outright sale that was contemplated and not only a lease. Before examining these contentions, we feel it necessary to examine the rights which the producer of a film gets under the law. It is well recognised that such rights in relation to cinematograph productions are governed by the statute at the present time, in whatever manner they may have been characterised in the past. Section 2(d)(v) of the Copyright Act (14 of 1957) defines "author" to mean in relation to a cinematograph film the owner of the film at the time of its completion. A cinematograph film Includes the sound track. The further parts of this section define what an "exclusive licensee", and an "infringing copy" or a "performance" mean in relation to cinematograph films. Under section 13 of the Act, "copyright" is declared to exist throughout India in works such as cinematograph films and records. Section 14 lays down what is meant by copyright. It means in the case of literary, dramatical or musical work the exclusive right by virtue of the provisions of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ights includes something more than the mere exhibition of the film to the public is apparent from section 14, which states that in the case of a cinematograph film, the expression "copyright" includes the right to make a copy of the film, to cause the film to be seen in public and to be heard in public, to make a record embodying the recording in any part of the sound track associated with the film by utilising such sound track, to communicate the film by radio diffusion; and in the case of a record, whether made originally or as part of the right included in the making of the cinematograph film, to make any other record embodying the same recording, to cause the recording embodied in the record to be heard in the public and to communicate the recording embodied in the record by radio diffusion. It will be seen that out of this bundle of rights, the conferment of a lease for the purpose of the distribution, which is what is contemplated in the leases in the present cases, covers only one part of the several rights which the owner has. Notwithstanding the lease that has been granted in these cases, it would be open to the owner to make a separate record of the sound track in the fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt to conceive. Instead of the owner or the proprietor exhibiting the film himself, he confers that right of exhibition upon another party. If the matter stood there, there can be no dispute that no sale of any goods is involved notwithstanding that for the purpose of enabling exhibition of the film, positive prints of the film would have to be provided by the proprietor to the exhibitor. It is obvious that a contract of that description would call for the supply of positive prints and it is here that the department claims that what is really a sale takes place and not a mere lease of the right to exhibit. The contention is advanced in this manner based upon certain clauses of the agreement. For the consideration of the lease of the entire world negative rights, the distributor agrees to abide by the following conditions. One is that "the positive prints of the film shall throughout the period of the lease be the property of the lessee and it agrees to use them only in the manner authorised expressly or impliedly by this agreement and the lessee agrees to return at the determination of the lease to the producer all the concerned positive prints then remaining with it in their then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of fulfilling the terms of the agreement and the further fact that this part of the clause is also expressly intended to operate only during the lease period indicates to our minds that the property in the film regarded as goods did not stand transferred to the lessee. This clause only reiterates the scope of the respective rights, the right of the lessee to demand and obtain positive prints as and when he requires and the prohibition upon the lessor not to deal with the negative of the film in any manner whatsoever except for the purpose of providing the lessee with copies of the positive films during the currency of the lease. It is also not denied by the department that a positive print of a film when used for the purpose of exhibition in the theatres has a very short span of life and after the film has run for a certain number of times, it is worn out and has to be replaced, and it is to secure such number of copies as the lessee may require on payment of the charges that this clause has been introduced. It does not to our minds connote the sale of the negative at all. That after the expiry of the lease period the lessee will have no further rights even with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oducer obtains the necessary censor certificate, the lessee is enabled as from the date of the agreement itself to enter into agreements or contracts of sub-lease, distribution etc., with third parties. It is in the light of these provisions that the clause extracted earlier has to be understood. The failure of the lessor or the lessee in carrying out the agreement cannot obviously endanger the other contracts which the lessee might have entered into with third parties for the purpose of distribution and it is only in order to Safeguard such third parties' rights that the above clause lays down that solely for the reason that the lessee might have failed to pay an instalment of the consideration or on account of some other failure, the producer cannot back out of the contract and obtain possession of the positive copies or the copy of the negative. The producer accordingly agrees that he will restrict his right to the recovery of the guaranteed minimum consideration and shall not interfere with any other arrangements which the lessee might in the usual course of his business have entered into. This clause is again related to an earlier clause, which states: "It is hereby expressl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition to the cost that went into the making of the film, can one say on that ground alone that what was intended was a sale of the film itself? We are not satisfied that this view pressed before us by the department is a reasonable interpretation to place upon a transaction of this kind. In buttressing this argument that what is really contemplated Is not a lease of a right to exploit but an outright sale of the copyright in the production regarded as incorporeal movable property, reliance is placed by the department upon its assertion that what may be called the marketable value of the film becomes nil at the end of three years. In the counter-affidavit, it is said that "the value of a film is completely wiped out by exhibition in the course of ten years or so". The impugned order says that the normal life of a film is less than three years. If the film as an exploitable commodity has no value beyond a period of three years, the apparent tenor of the transaction as a lease to exploit the right of the owner of the copyright is in substance only an outright sale of all such rights of the owner-so it is argued. In support of this argument, reliance is placed upon the fact that unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... department has done is to impose a tax on the basis of the entry in the First Schedule to Act 1 of 1959 at the rate of 10 per cent. Brief reference to certain provisions of the Act is necessary in order to appreciate the contention. Under section 3 of the Act, levy of tax on the turnover of sales or purchases of dealers is provided for in respect of the general mass of goods at 2 per cent. (since raised to 2 per cent.) of the total turnover of an assessee, which is not less than Rs. 10,000. The levy of tax provided under section 3(1) of the Act as above is a multiple point levy, that is to say, on every occasion when the same goods suffers sale or purchase at the hands of a dealer, tax is leviable on the turnover, subject to a certain minimum turnover which stands exempted. Section 3(2) of the Act, however, specifies a class of particular goods in respect of which the tax is leviable from the dealer only at a single point and at the rate specified in the First Schedule to the Act. The rate of tax in the case of these goods is higher, standing at present after the latest amendment at 11 per cent. of the turnover. The contention advanced by the petitioner in these cases is that pho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herewith." Entry No. 7 reads: "Photographic and other cameras and enlargers, lenses, films, plates, paper, cloth and other parts and accessories required for use therewith." It is difficult, we have to concede, to draw any inference of a conclusive nature from the contents of the two entries. In entry No. 7, where the word "films" is used in connection with photographic and other cameras, one may well feel that the word "film" herein might sensibly denote the raw film. But when the word "film" is used along with the expression "cinematographic equipment including cameras and projectors" it may equally denote the positive print of a film which is required to be exhibited by means of the cinematographic equipment. The learned Advocate-General presses this view for our acceptance. According to him, the raw film is entirely different from the exposed film and is a different commodity altogether, but nevertheless it continues to be a film. The raw film may be taxable under the single point system as a film. The positive film also would continue to be a film and would still fall within one or the other of the two entries. But it is no longer the same film that had undergone tax earlier, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nematographic, photographic and other cameras, projectors etc., and films, plates, paper and cloth required for use therewith and noted: "These commodities are now taxed at multi-point with an additional single point at 2 per cent. The dealers in this commodity could be located easily. Hence these could be brought under the single point system. There are about ten wholesale dealers, and importers in these goods in the State." It is urged by Mr. V.K. Thiruvenkatachari that when the law was amended on the basis of the recommendations contained in this report, it was obviously intended that the articles suggested for single point levy should suffer tax at the hands of wholesale dealers or importers when they sold the goods and 'thereafter be free of any tax in respect of any subsequent transaction. If we could have any assurance that the recommendations made by the learned expert were followed without any deviation, this argument would no doubt be sound. We are however unable to hold either on the basis of that report or on the basis of the actual form which the legislation took with regard to films that an exposed film was not intended to be taxed solely for the reason that the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penalty not exceeding 1 times the amount of tax due on such undisclosed turnover may be imposed. This provision accordingly requires the assessing authority to determine the quantum of the turnover that was not so disclosed by the assessee. Turning now to section 16 of the Act, which deals with assessment of escaped turnover, certain vital differences are seen to exist therein. Under sub-section (1), where any turnover in whole or in part has escaped assessment or has been assessed at a rate lower than that at which it is assessable, the assessing authority has jurisdiction to assess the tax payable after service of notice on the dealer and after making such enquiry as is necessary. That he could do within a period of five years from the expiry of the year to which the tax relates. Sub-section (2) provides for the imposition of a penalty and a penalty not exceeding 1 times the tax so assessed is leviable in case the assessing authority is satisfied that the escape from assessment is due to wilful non-disclosure of assessable turnover by the dealer. The mere fact that the turnover has escaped assessment does not invite the imposition of the penalty. Under this provision, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion that arrangements of that kind contemplated In substance an assignment of incorporeal rights "and that the portion of it, if any, relating to the transfer of movable property for valuable consideration is relatively very insignificant". It is common ground that subsequent to the decision of the Tribunal, the department has not been bringing to tax literally hundreds of transactions of this nature. The Sales Tax Appellate Tribunal is a body constituted under the Sales Tax Act and its appellate powers are outlined in section 36 of the Act. It is the competent authority which determines appeals arising from the subordinate taxing authorities. Sub-section (9) of section 36 states that every order passed by the Appellate Tribunal under sub-section (3) shall, subject to the provisions of sub-section (6) of section 38, be final. Section 38 provides for a revision to the High Court on a question of law from the order of the Appellate Tribunal and in the absence of such revision, the law expressly confers finality upon an order of the Appellate Tribunal. We are not saying that solely for the reason that the Appellate Tribunal took a certain view in certain appeals before it in 1956, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a routine act on the part of the assessing authority but one which invites the exercise of a proper judicial discretion on his part. When we look at the circumstances in which the assessing authority imposed the penalty or has issued notice to show cause why penalty should not be imposed in these cases, we find in the background the undeniable fact that turnovers relating to transactions of this kind were not being included in the several preceding years, obviously due to the decision of the Sales Tax Appellate Tribunal, and it is further seen that the Sales Tax Authorities did not in the preceding years insist upon the inclusion of such turnovers. In these circumstances, we have no doubt at all in our minds that the action under section 12(3) of the Act is wholly unjustified. In any event since we have held that no sales turnover is involved, no scope for levy of penalty at all exists. It follows that the petitioner is entitled to succeed in so far as the turnovers relating to these lease transactions are concerned, as also the imposition of the penalty. To that extent, the rule will be made absolute in W.P. No. 782 of 1966. There will be a writ of prohibition in W.P. No. 78 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
