2007 (5) TMI 204 - HC - Income Tax

Royalty Payments Deductions and Software Duplication as Manufacturing Upheld; Appeals Dismissed.

Commissioner of Income-Tax Versus Oracle Software India Limited.

Commissioner of Income-Tax Versus Oracle Software India Limited. - [2007] 293 ITR 353, 211 CTR 60, 164 TAXMANN 478 Issues:1. Disallowance of royalty paid by the assessee to Oracle Corporation, USA due to non-payment of TDS in the relevant previous year.2. Allowability of a deduction under section 80-IA of the Income-tax Act, 1961.Issue 1: Disallowance of Royalty:The case involved the disallowance of royalty paid by the assessee to Oracle Corporation, USA due to non-payment of TDS in the relevant previous year. The Assessing Officer contended that as per section 40(a)(i) of the Income-tax Act, the assessee was not entitled to a deduction for royalty payment to Oracle Corporation, USA since tax was not only required to be deducted but also paid within the relevant previous year. The Commissioner of Income-tax (Appeals) relied on a Rajasthan High Court decision, but the Tribunal noted that tax was indeed deducted during the relevant year. The Tribunal held that as long as tax was deducted within the year, the assessee should be entitled to the benefit, even if the payment was made in the subsequent financial year. The Tribunal's decision was upheld, stating no substantial question of law arose for consideration.Issue 2: Allowability of Deduction under Section 80-IA:The second issue revolved around whether the assessee's activities amounted to manufacturing under section 80-IA of the Act. The Assessing Officer and the Commissioner of Income-tax (Appeals) argued that duplicating software onto blank discs did not constitute manufacturing. However, the Tribunal found that the conversion of blank discs into software-loaded discs by the assessee was a manufacturing activity. The Tribunal referred to a Supreme Court decision regarding the meaning of 'manufacture' in a different context, emphasizing that the conversion of raw material into a distinct commercial product qualified as manufacturing. The Tribunal's interpretation was upheld, stating that the assessee was entitled to the benefit of section 80-IA as it engaged in a manufacturing activity.In conclusion, both issues were analyzed in detail, with the Tribunal's decisions being upheld, and no substantial questions of law were found to warrant further consideration. The appeals were dismissed based on the comprehensive analysis of the legal provisions and precedents cited in the judgment.