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TMI Blog2022 (9) TMI 981X X X X Extracts X X X X X X X X Extracts X X X X ..... to buy the software and the intention of the assessee was to sell the software. It is to be noted that assessee is not a manufacturer or a dealer in hardware. Software will have to be stored/loaded onto a medium for transmission/use. When compared to the cost of software, the cost of hardware is insignificant. Assessee s specific case is, the software and the hardware are inextricably connected. With regard to bifurcation of price in two components, namely consideration for supply of equipments and supply of software, the Delhi High Court has held the payment received by the assessee therein was towards the title and GSM system of which software was an inseparable part incapable of independent use. In the case on hand too, Software could not be exported without loading onto the Hardware. Therefore, in our view software and hardware are inseparable. ITAT has been swayed by its reasoning that sale had been effected by separate invoices and therefore, assessee is not entitled for the benefit u/s 10A. The ratio in Arun Electrics [ 1965 (12) TMI 122 - SUPREME COURT] makes it clear that sale by separate invoices is inconsequential and we are in respectful agreement with that view. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 10A of the Act. This appeal has been admitted to consider the following question of law: "Whether on the facts and in the circumstances of the case, the Honorable ITAT was right in law in excluding Rs. 9,53,10,234/-, being the sale of hardware components, from the export turnover while computing deduction under section 10A of the Income tax Act 1961?" 4. Shri. K.K.Chythanya, learned Senior Advocate for the appellant mainly contended that: • Assessee's case is not a simplicitor case of purchase and sale of hardware. Assessee develops software and installs it in the specified hardware device. What is eventually sold is an indivisible product consisting of software embedded into specified hardware device; • What is delivered to the customer is a distinct product having separate identity and utility. It cannot be identified either as software or hardware in isolation. Assessee has manufactured a distinct marketable article. By loading software into a hardware device, the hardware device as well as software would transform into a new commodity as a distinct and separate commodity. Therefore, the software developed by the assessee and loaded onto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to hardware however essential it may be for functioning of the software. He has further recorded that the question is not how inextricably the hardware components are linked to the software exported, but the question was that hardware was not manufactured by the assessee. 9. The CIT(A), in his order dated 20.10.2010 in ITA No.38/CIT(A)-12(3) CIT(A)-III/2009-10, while dismissing the appeal, has recorded in para 8.4 as follows: "I have heard the ARs and considered the written submissions. The judicial decisions relied on by the appellant were carefully perused. I am of the opinion that meaning of software cannot be interpreted to include hardware however essential it may be for functioning of computer software. Further, the appellant does not manufacture/produce hardware and but only engages in the trade thereof." (Emphasis Supplied) 10. The ITAT, has recorded in para 6 of the impugned order that assessee is not a manufacturer of hardware; that software and hardware were sold separately through different invoices; that on 25.03.2005, software was sold for USD 272,000 and hardware was sold on 19.09.2005 by separate invoice. It has also extracted the purchase order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 10A of the Act is, that the hardware was purchased by the assessee but was not manufactured by it. It is not the case of AO that hardware was not required at all. On the other hand, the reason for denying the benefit is that assessee had not manufactured the software. The view of CIT(A) is also the same. The ITAT considered altogether different points and held that it was not established that software cannot be used without hardware. This was not the question considered by the Assessing Officer and CIT(A). We may reiterate that ITAT has recorded in para 11 that wherever software and hardware are inextricably connected and the software cannot be used without hardware, the sale of hardware would be a part of software. 16. Shri. Chythanya has relied upon following authorities: (a) Sultan Brothers Pvt. Ltd. Vs. CIT (1964) 51 ITR 353(SC). In this case, assessee was the owner of a building. He let it out fully equipped and furnished to run a hotel. He claimed that entire income should be assessed under Section 10 of the Act or in the alternative under Section 12 of the Act. In respect of building, the AO assessed under Section 9 and in respect of hire received from fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stem and used by cellular operators for providing cellular services to it's customers; that there could not be any independent use of such software; and that software merely facilitated the functioning of the equipment and it is an integral part thereof. 18. With regard to bifurcation of price in two components, namely consideration for supply of equipments and supply of software, the Delhi High Court has held the payment received by the assessee therein was towards the title and GSM system of which software was an inseparable part incapable of independent use. 19. In the case on hand too, Software could not be exported without loading onto the Hardware. Therefore, in our view software and hardware are inseparable. (c) Wipro Limited Vs. DCIT (2016) 382 ITR 179 Para 106. 20. In this case, this Court was considering whether the profit derived from the sale of monitor as a part of computer was eligible for benefit under Section 80IB. This Court has held that the monitors which were purchased from outside were used as spare parts in the manufacture of computers sold to customers and the monitor in the computer was not a 'traded commodity' but it was a part of the comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted commodity. (f) Puttur Petro Products Pvt. Ltd. Vs. ACIT (2014) 221 Taxmann. 43 Para 210. In this case, this Court was considering the activity involving in a LPG bottling plant and has held that once the manufacturing process is complete neither the gas nor the cylinder can be regarded as original commodity and it is recognised in the trade as new and distinct commodity namely, as a 'gas cylinder'. This judgment has been affirmed by the Apex Court in CIT-I, Mumbai Vs. Hindustan Petroleum Corporation Ltd. (2017) 396 ITR 696. (g) CIT, New Delhi Vs. Oracle Software India Ltd. (2010) 320 ITR 456 (SC). In this case, the Apex Court has held as follows: "…. The term "manufacture" implies a change, but, every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labour and manipulation. However, this test of manufacture needs to be seen in the context of the above process. If an operation/process renders a commodity or article fit for use for which it is otherwise not fit, the operation/process falls within the meaning of the word "manufacture". Applying the above test to the facts of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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