9911796707
TMI Blog2015 (2) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... cts of the case that the assesse, an individual, in her return claimed exemption under Section 10B of the Act to the tune of ` 39,32,654. She claimed to be a software exporter to Netherlands. The importer was one Mr. Rolli Janssen B.V. The claim was disallowed by the Assessing Officer (AO) who added back ` 39,32,654/- and finalized the assessment. Dissatisfied by the view of the AO, the assessee appealed to the CIT(A), who confirmed those findings. Aggrieved by the order of the CIT(A) the assessee successfully appealed to the ITAT. The revenue is, therefore, in appeal under Section 260-A of the Act. 3. Mr. Balbir Singh, learned counsel for the revenue argued that the ITAT fell into error on both the questions. Stating that the process deployed by the assessee was neither "manufacture" nor did it amount to creation of software, he supported the orders of the AO and CIT(A). He urged that the asseessee was unable to establish that computer software is manufactured or produced by it. He contended that the conditions specified in Section 10B, Explanation 2 (1) viz, "any customized electronic data or any product or service of similar nature, as may be notified by the CBDT, which is tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Medical Transcription (xi) Payroll (xii) Remote Maintenance (xiii) Revenue Accounting (xiv) Support Centres and (xv) Web-site Services." It was submitted that preparation of data for its ready printing use could not amount to manufacture of software, entitling the assessee to claim benefit of Section 10B. 6. The ITAT noticed that in this case, there are four stages for the completion of the assessee's product. The first stage is where the assessee collects the raw material that goes into making of the final files. This comprises mainly of text and photographs. The providers of these materialsdepending on the subject of the book- are various authors, photographers, photo agencies. The data is sourced from different places including internet. The ITAT cited a specific work of the assessee, a book titled "100 Wonders of India" and noticed that a freelancer, Mr Nirad Grover was engaged for collection of photographs necessary for production of the book. The assessee also relied on an agreement with Mr Nirad Grover and stated that the materials were in an edited state. The next stage in the process is design and layout. Here the designers use the said material to prepare the layo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory of production of "any customized electronic data" as per the definition of computer software defined in Explanation 2 to section 10B of the Act. The above Third Member decision is germane to the issue before us and therefore it clearly supports the case of appellant. In our considered opinion even if it is said that the appellant has merely customized the data, which was already available and has not created altogether new software then too the appellant cannot be deprived of the benefit of deduction. It is pertinent to note that the definition of "produce" is wider than the term manufacture as held by the Hon'ble Supreme Court in a number of decisions (referred to in Lovesh Jain's case above) and does not require to produce or manufacture altogether a new product; but if the outcome of the process is a different product than the input, it would fall under the definition of 'produce'. In our considered view, whatever form the input data is, so long as the end product is in the form of electronic data which is customised by the appellant for the end use of a particular customer, then benefit of deduction u/s 10B of the Act cannot be denied." The ITAT also held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . By whatever means the data is collected, once it is stored in an electronic form, it becomes a customized electronic data which can be exported to qualify for deduction u/s 10A. The process of actually collecting the data need not be IT enabled. What all is required is that the data collected should be in an electronic form. The exact language of sub-clause(b) of clause (1) of Explanation 2 is "any customized electronic data. 20. Thus we find that Assessee‟s business involved export of ready to print books which in the instant case is the "customized electronic data". The nature of activity done by the assessee in the EOU was that of producing designs, drawings, layouts and scanning for the projects of foreign clients on the basis of their parameters and specifications. This activity is done by taking into consideration the data collected by the assessee itself or from clients. Though the steps/stages involved in completion of a particular assignment for the foreign client has been reproduced by the AO at page 2 of the assessment order, still neither the Assessing Officer nor ld CIT(A) have appreciate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead as under:- 2(f). 'Manufacture' includes any process- (i) incidental or ancillary to the completion of a manufactured product; and (ii) which is specified in relation to any goods in the Section or Chapter notes of the Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture". Referring to Anheuser-Busch Brewing Assn. v. United States (1907) 52 L Ed. 336 it was held by the ITAT that the concept of "manufacture" was followed in subsequent American, English and Indian cases. The Supreme Court then held that: "The definition reads as under: Manufacture implies a change, but every change is not manufacture, and yet every change in an article is the result of treatment, labour and manipulation. But something more is necessary." 10. The ITAT also relied upon a Gujarat High Court decision, in CIT v. Ajay Printers Pvt. Ltd: (1965) 58 ITR 811 (Guj) where it was held that "manufacture" has a wider and a narrower connotation: "In the wider sense it simply means to make, or fabricate or bring into existence an article or a product either by physical labour or by power. The word "manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court, the construction placed on the term "manufacture" was a liberal one. The extracts of those decisions are Deputy Commissioner of Sales Tax v. M/s. Pio Food Packers, 1980 Supp. SCC 174: "...commonly manufacture is the end result of one or more processes through which the original commodity is made to pass. The nature and extent of processing may vary from one case to another, and indeed there may be several stages of processing and perhaps a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. But it is only when the change, or a series of changes, take the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place." Again, in Aspinwall & Co. Ltd v Commissioner of Income Tax (2001) 251 ITR 323 it was held as follows: "the word manufacture has not been defined in the Act. In the absence of a definition of the word manufacture it has to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - and ready to be used for printing, (or even e-Book publication) is undoubtedly manufacture or production. 15. The second question is whether assessee's manufacturing activity described earlier results in "computer software". The main thrust of the revenue's contention here was that final product or "thing" does not answer that description because it is not software per se, but mere compilation of data. This court is of opinion that this contention is unpersuasive. The expression "computer software" is wide enough to embrace diverse activities. To eliminate any doubt, the reference to "customized electronic data" in the second Explanation to Section 10B (2), Parliament enabled the Board (CBDT) to include (by notification) diverse activities - which involve export of software, etc. The Notification relied on in the present case uses the expressions "(iii) Content Development or animation (iv) Data Processing... (vii) Human Resources Services" and "(ix) Legal Databases". Here, the very first head "content development or animation" describes the process and is wide enough to cover compilation of material or data and its transformation into a ready to print/ ready to publish book. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
