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of <h1>Converting blank recordable CDs into software-loaded pre-recorded CDs is 'manufacture/processing' under Section 80IA(1), 80IA(12)(b) and Section 33B</h1> <h3>COMMR. OF INCOME TAX-V, NEW DELHI Versus M/s ORACLE SOFTWARE INDIA LTD.</h3> COMMR. OF INCOME TAX-V, NEW DELHI Versus M/s ORACLE SOFTWARE INDIA LTD. - 2010 (250) E.L.T. 161 ( SC), [2010] 320 ITR 546 ( SC), 2010 (1) SCR 543, 2010 ... Issues Involved:1. Whether the transformation of a blank Compact Disc (CD) into a software-loaded disc constitutes 'manufacture or processing of goods' under Section 80IA(1) read with Section 80IA(12)(b) of the Income Tax Act, 1961.2. The interpretation of relevant provisions of Sections 80IA(1), 80IA(12)(b), and the Explanation to Section 33B of the Income Tax Act.3. The applicability of the judgment in Tata Consultancy Services v. State of Andhra Pradesh and Gramophone Co. of India Ltd. v. Collector of Customs, Calcutta to the present case.Issue-wise Detailed Analysis:1. Transformation of Blank CD into Software-loaded Disc:The primary issue is whether converting a blank CD into a software-loaded disc qualifies as 'manufacture or processing of goods' under the Income Tax Act. The assessee argued that this process involves using machinery to convert blank CDs into recorded CDs, which, along with other processes, become a Software Kit. They contended that the blank CD constitutes raw material and that making a copy of the Master Media constitutes manufacture or processing of goods, entitling them to a deduction under Section 80IA. Conversely, the Department argued that since the software on the Master Media and the recorded media remains unchanged, there is no manufacture or processing of goods involved in the activity of copying or duplicating.2. Interpretation of Relevant Provisions:The court examined Sections 80IA(1), 80IA(12)(b), and the Explanation to Section 33B of the Income Tax Act. Section 80IA provides deductions for profits derived from industrial undertakings engaged in the manufacture or processing of goods. The court noted that the term 'manufacture' implies a change, but not every change constitutes manufacture. The court emphasized that if an operation renders a commodity fit for use for which it was otherwise not fit, the operation falls within the meaning of 'manufacture.' Applying this test, the court concluded that the process undertaken by the assessee rendered blank CDs fit for use as software-loaded discs, thereby constituting manufacture.3. Applicability of Judgments:The court referred to the judgment in Tata Consultancy Services v. State of Andhra Pradesh, which held that a software program, once put on media and marketed, becomes goods. The court also referred to Gramophone Co. of India Ltd. v. Collector of Customs, Calcutta, which held that recording audio cassettes on a duplicating music system amounts to manufacture because a blank audio cassette is distinct and different from a pre-recorded audio cassette. Applying these judgments, the court held that a blank CD is distinct and different from a pre-recorded CD, and the process of converting blank CDs into recorded CDs constitutes manufacture.Conclusion:The court dismissed the Civil Appeals filed by the Department, holding that the process of converting blank CDs into software-loaded discs constitutes 'manufacture or processing of goods' under Section 80IA(1) read with Section 80IA(12)(b) of the Income Tax Act. The court affirmed that the assessee is entitled to the deduction under Section 80IA.
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