ORDER

1. Delay condoned.

2. Leave granted in Special Leave Petitions.

3. The question which arises for determination in this batch of Civil Appeal(s) is whether the foreign exchange earned by transferring the right of exploitation of the films outside India by way of lease is admissible for deduction under Section 80HHC of the Income Tax Act 1961. According to the Department, movies/films are not goods. They are not merchandise. Hence Section 80HHC is not invokable. Further, according to the Department, there is a difference between "sale" and "lease" hence, the subject transaction will not fall under Section 80HHC.

Facts in Civil Appeal No. 3300/2007:

4. During the relevant Assessment Year 1993-94, the assessee, B. Suresh, transferred feature film rights for exploitation outside India and earned income in foreign exchange. The assessee claimed deduction under Section 80HHC in respect of the said receipts. The Assessment Officer (AO) held that the assessee was not entitled to deduction under Section 80HHC, inter alia, on the ground that the export was not of merchandise or goods as contemplated under Section 80HHC, but was merely an export of "rights" in the film. This decision of the AO was over-ruled by CIT(A). When the matter came before the Tribunal at the instance of the Department, there was already a judgment of the Bombay High Court in the case of Abdulgafar A. Nadiadwala v. Asst. Commr. of Income Tax and Ors. reported in: [2004]267ITR488(Bom) . Following the said decision, in the present case, the Tribunal held that the assessee was entitled to deduction under Section 80HHC, hence, this Civil Appeal by the Department.

Contentions:

5. On behalf of the Revenue, Shri V. Shekhar, learned senior counsel, submitted that the assessee in this case was not engaged in the export of goods and merchandise; that the films recorded on beta-cam tapes did not qualify either as 'goods' or 'merchandise'. In this connection, it was urged that beta-cam tape (cassette) was only a medium of transfer; that, there was no "sale" of the film in beta-cam format and that the assessee had only transferred the right to use for a period of five years and since the title remained with the assessee, the impugned transaction fell outside Section 80HHC. According to the learned Counsel, since the films transferred on beta-cam tapes were given on lease with a right to telecast given to Star TV under the Lease Agreement dated 29th March, 1995 for a period of five years, there was no element of sale so as to attract Section 80HHC. It was further urged that movies are neither "goods" nor "merchandise". In this connection, learned Counsel placed reliance on Dictionaries.

6. Shri Harish N. Salve and Shri S. Ganesh, learned senior counsel appearing on behalf of the assessee, submitted that on a bare reading of Section 80HHC(1), one finds that the deduction/concession is given in cases where an assessee derives profits from the activity of exports and earns foreign exchange. It is pointed out that the said Section is concerned with the Business Profits under the 1961 Act. It is submitted that the word "goods" or "merchandise" must be read as understood in common parlance. Our attention was also invited to the dictionary meaning of the word "merchandise". On the basis of the said meaning, it was submitted that any article of commerce and trade could fall under the meaning of the word "merchandise". It was submitted that one has to read the words "goods" and "merchandise" in the broad sense, keeping in mind the object of the Parliament in enacting Section 80HHC. According to the learned Counsel, the said Section is an incentive provision. Its object to promote earnings in foreign exchange arising from exports, which includes sale of goods and merchandise. If one keeps the object in mind, according to the learned Counsel, movies/films which are made would certainly come within the ambit and meaning of the word "merchandise" as an article of trade and commerce. It is al