TaxTMI 
TaxTMI 
2010 (9) TMI 784
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.... of entire export profit. It was seen from the Profit and loss account that the figure of total turnover of the business was depicted at Rs. 40,01,27,763. On being called upon to explain such variation in the figure of total turnover as per Profit and loss account and that for the purposes of computing deduction under section 80HHF, the assessee put forth that it exported programme rights of its various serials, which vested with it, to different clients all over the world at the rate specified in the statement. It was also stated that separate books of account were maintained and consequently a distinct profit and loss account was prepared in respect of export business, as per which the amount of export turnover in respect of telecasting rights was Rs. 11,56,27,047. After reducing some expenses from this amount, the profit derived from export was shown at Rs. 11,53,05,267, which was claimed as deduction under section 80HHF in entirety. Initially the Assessing Officer proposed that deduction under section 80HHF was to be restricted to Rs. 3.33 crores by multiplying export profit of Rs. 11.53 crores with the export turnover of Rs. 11.56 crores as divided by the total business turnov....
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....turnover as discussed above (11,56,27,047 - 4,45,66,915) 7,10,60,132 Total turnover as discussed above (40,01,27,763 - 4,45,66,915) 35,55,60,848 Deduction = Export turnover x Profits of business Total Turnover = 7,10,60,132 x 14,33,37,325 35,55,60,848 = Rs. 2,86,46,487 In this way the claim of deduction under section 80HHF as made by the assessee amounting to Rs. 11.53 crores was condensed by the Assessing Officer to Rs. 2.86 crores. 3. The assessee agitated the reduction in the quantum of deduction made by the Assessing Officer in the first appeal. The submissions made at the assessment stage were reiterated before the ld. first appellate authority advocating justification for the deduction of export profits de hors the domestic business. The ld. CIT(A) noted that the definition of "total turnover" given in section 80HHF was not exhaustive. As the assessee had maintained separate books of account in respect of 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 t....
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.... 4. We have heard the rival submissions at length and perused the relevant material on record in the light of the precedents cited by both sides. The undisputed facts of this case, as reiterated by the ld. AR before us, are that the assessee is engaged in the business of production of T.V. serials etc. and also purchasing such rights. During the year it exported such software or software rights for the consideration of Rs. 11.56 crores. Apart from that it also tied up with Doordarshan for the telecasting of its TV programmes. As per the annual report of the company, placed on record by the learned A.R., it is seen from page 17 that the assessee had its own channel called "SABe TV". In lieu of allowing Doordarshan or other channels to telecast its programme, the assessee was getting some free commercial time, during which advertisements were flashed and the resultant revenue fell to the assessee's kitty. As regards its own channel SABe TV, the revenue from telecasting 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....
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.... has been held that for calculating deduction under section 80HHE, only the turnover of SEEPZ unit is to be considered and not the total turnover of all the units. For the same proposition, he relied on the order passed by the Bangalore Bench of the Tribunal in Wipro Ge Medical Systems Ltd. v. Dy. CIT [2003] 81 TTJ (Bang.) 455. 6. At this stage it would be relevant to note that the Finance Act, 1999 inserted section 80HHF with effect from 1-4-2000 providing deduction in respect of profits and gains from export or transfer of film software etc. Sub-section (1) of section 80HHF provides that where an assessee is engaged in the business of software or software rights there shall, in accordance with and subject to the provisions of this section, be allowed deduction to the extent of the profits referred to in sub-section (1A), derived by the assessee from such business. Sub-section (3) gives meaning to the expression profits derived from the business as referred to sub-section (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-sec....
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....determination in the commercial sense. Rather it has been defined to mean the profits of the business computed under the head "Profits and gains of business or profession" as reduced by the amounts referred to in sub-clauses (A) and (B). It is this amount which when multiplied with the export turnover and then divided by the total turnover of the business, gives the profits derived from the export business of eligible software or software rights, as mentioned in sub-section (1). 8. The claim of the assessee is that the meaning of "total turnover" in clause (j) of Explanation to section 80HHF should be restricted only to the export turnover of the business of exports and not the entire business. A great deal of emphasis was laid on the words "of business" which in the opinion of the learned A.R. referred to only the export business. The whole case of the assessee is that export of eligible software/software rights is a separate business. The expression 'the business' as used in section 80HHF, as per the ld. 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 bu....
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....ion. As we have seen that the only business of the assessee is to produce or purchase TV serials which are thereafter exported or telecast in India through different channels, how and under which circumstances this one indivisible business can be segregated into two businesses is beyond our comprehension. There is one composite business of purchasing and producing TV serials. It is not as if some business alien to that of production and purchase of TV serial is carried on by the assessee in the domestic market, the profit and turnover of which are sought to be clubbed by the revenue for the purposes of deduction under section 80HHF. If the view point of the learned A.R. is taken to a logical conclusion that the export component be considered as separate business then the whole modus operandi as enshrined in sub-section (3) of section 80HHF would become otiose inasmuch as there will remain no need to divide the profits of the business with total turnover and then multiplied with the export turnover as both these 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 th....
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....ears to the total turnover of the business carried on by the assessee. The language of clause (a) of section 80HHC(3) is almost similar to sub-section (3) of section 80HHF and the Assessing Officer has adopted this method in the present case. Then there is clause (b) as per which where the export is of trading goods, the profits derived from such export shall be the export turnover in respect of such trading goods as reduced by the direct cost and indirect cost attributable to such export. This is the method which has been followed by the assessee and approved in the first appeal. Lastly clause (c) of sub-section (3) of section 80HHC is hybrid of clauses (a) and (b) which deals with the mechanism of working out profits of business derived from such export in respect of goods or merchandise manufactured or processed by the assessee as well as that of the trading goods. 11. In the case of Rathore Bros. (supra) and others, relied on by the learned A.R., it has been held that where separate books of account are 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 m....
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.... exporting computer software manufactured in SEEPZ unit and keeping separate account books. The Assessing Officer held that total turnover of entire business was to be considered instead of turnover of only the unit located at SEEPZ. Before the Tribunal it was pleaded on behalf of the assessee that : "where the two separate businesses of an assessee are properly demarcated in terms of location, operations and also where separate books of account are maintained for different units, it should be considered as separate entity and only turnover of SEEPZ unit should have been considered while calculating deduction under section 80HHE". It was in this backdrop of facts that the Tribunal held that only turnover of SEEPZ unit was to be considered while calculating deduction under section 80HHE. This decision does not support the assessee's case for two reasons. Firstly it was in the context of section 80HHE and we are dealing with section 80HHF. Secondly two separate businesses of the assessee were properly demarcated in 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. ....
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.... of producing and purchasing TV serials and then earning income by way of their commercial exploitation whether from export or domestic market inter alia including that from slot charges. 17. In view of our above conclusion the discussion of the ld. CIT(A) in directing to reduce indirect expenses of Rs. 1 crore from the export turnover has become academic. Accordingly ground No. 4 raised by the revenue challenging the allocation of direct and indirect expenses as held by the learned CIT(A) to be reasonable at Rs. 1.03 crore and ground No. 1 of the assessee's appeal assailing that the estimate of Rs. 1 crore towards indirect expenses as made by the learned CIT(A) was higher, are dismissed as having become infructuous. 18. There is one more aspect of this issue which requires adjudication. The Assessing Officer while computing deduction under section 80HHF reduced the sum of Rs. 4.45 crores from export turnover as well as total turnover, representing the amount unrealized by the assessee in convertible foreign exchange 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 cam....
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....elief under section 80HHF in accordance with our above directions after allowing a reasonable opportunity of being heard to the assessee. 20. Ground No. 5 of the Revenue's appeal and ground No. 2 of the assessee's appeal are towards allowing of depreciation on office premises. The facts of these grounds are that the assessee made payment to M/s. Westwind Realtors Private Limited ("WRPL" for short) towards purchase of shares amounting to Rs. 2,76,92,000 and construction contribution (wrongly mentioned by the Assessing Officer as security deposit) amounting to Rs. 1,67,55,000 totaling to Rs. 4,44,47,000. Depreciation was claimed on such amount. On being called upon to justify the claim of depreciation, the assessee stated that such shares were purchased with a view to become owner of floor area, basement parking and terrace of building called Oberoi Chambers from WRPL. Copies of agreement, Memorandum and Articles of association of WRPL were also filed before the Assessing Officer. The Assessing Officer noted that as per 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 b....
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....class D or class E. In order to be eligible for obtaining, occupying and using the property in a specific class, it is incumbent upon the member to purchase requisite number of shares and also deposit non-refundable construction contribution again of the requisite amount. For example for obtaining rights in class A property a person is required to hold 1,05,000 shares for total consideration of Rs. 73,50,000 and also pay non-refundable construction contribution of Rs. 50,00,000. For obtaining such rights in terrace a person required to hold 50,000 shares for a consideration of Rs. 35,00,000 and non-refundable construction contribution at Rs. 15,00,000. Similar is the position regarding parking area for which required shares are 30,600 for a consideration of Rs. 21,40,000 and construction contribution of Rs. 2,50,000. Unless the requisite shares are acquired by a member and construction contribution is made, no person can obtain the right to use and occupy the premises of specific class in Oberoi Chambers. In the instant 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-....
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....by purchasing requisite number of shares and paying the specified non-refundable construction contribution, the assessee became entitled to hold, use and occupy the said premises. Section 32 provides that depreciation shall be allowed when an asset is owned by the assessee which is used for the purpose of its business. The Assessing Officer in the instant case has not disputed that the premises taken by the assessee from WRPL were not used for the purpose of its business. Insofar as the second aspect of being the owner of the property is concerned, we find that by holding the requisite number of shares and giving construction contribution, the assessee got the right to obtain, use and occupy the premises. The situation is somewhat akin to that of a co-operative housing society which is legal owner of building and the members get right to use and occupy the premises by virtue of their shareholding in the society. It can be noticed that the ownership over the premises is attached with the acquisition and holding of requisite shares and contributing towards construction. Further on the transfer of such shares the ownership of the flat automatically gets transferred to the transferee. ....