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2014 (5) TMI 548
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....(A)and the Assessing Officer are void ab initio and bad in law." 3. Ground No. 1 and 2 are same therefore it is adjudicated together. 4. Apropos disallowance on deduction u/s 10B(2)(i) of the Income Tax Act, 1961 (herein after "the Act"). 5. The brief facts of the case are as follows. The assessee is an individual, who filed her return declaring an income of Rs. 6,34,607/-. Subsequently a notice u/s 143(2) was issued by the Assessing Officer, which culminated in an order u/s 143(3) dated 24.12.2008. During the assessment proceedings, the Assessing Officer found that the assessee had claimed exemption u/s 10B of the Act to the tune of Rs. 39,32,654/-. Assessee has claimed to be a software exporter to Netherland to one Mr. Rolli Jansen B. V. and had claimed deduction u/s 10B, which has been disallowed by the Assessing Officer. During the assessment proceedings the Assessing Officer sent a notice dated 05.12.2008 to the assessee which reads as under:- "In your return you have shown exempt income u/s 10B of the Income Tax Act, 1961 amounting Rs. 39,32,653/-. While examining the details and documents filed on record it came to my knowledge you have shown exemption on account....
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....en parameter and specifications of their clients. The materials need to be designed and laid out in a manner which fits the size and number of pages given for the particular book. According to the Sr. counsel, this stage is a specialized stage and the assessee's book designers are experts in the field of making layouts that are unique and user friendly. After designing and laying out of the materials in the manner prescribed by their customer"s, comes the next stage. The third stage is the scanning and color correction. For that the images which are used in the book need to be of a good print quality; and they have to go though a stage that is known as "scanning and color correction". Here each photograph is scanned (which is provided to them in a hard format) and the color correction happens on the digital format. According to the Sr. counsel, experts in this field uses application in software"s like Acrobat Reader and QuarkX Press, tweak the date, photographs and colours and remove blemishes so as to make the final product i.e. the book appearing to the eyes of the client and customers. A hard copy of the "Book 100 Wonders of India" was also shown to us to demonstrate the entire ....
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....ed as under:- "13.2 The Notification, referred to in clause (b) of Explanation 2(i) above, issued by the Central Board of Direct Taxes dated 26-9-2000, is as under: "S.O.890(E) - In exercise of the powers conferred by clause (b) of item (l) of Explanation 2 of section lOA. Clause (b) of item (l) of Explanation 2 to section lOB and clause (b) to Explanation to section 80HHC of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby specifies the following Information Technology enabled products or services as the case may be for the purpose of said clauses namely :- (l) Back-Office Operations (ii) Call Centres (iii) Content Development or animation (iv) Data Processing (v) Engineering and Design (vi) Geographic Information System Services (vii) Human Resources Services (viii) Insurance claim processing (ix) Legal Databases (x) Medical Transcription (Xl) Payroll (xii) Remote Maintenance (xiil) Revenue Accounting (xiv) Support Centres and (xv) Web-site Services 9. It was submitted by Shri Syali that as stated before Section 10B grants a benefit for "manufactures or produces any articles or things or computer....
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....exported by the appellant are tailor made to meet the requirements of a particular client / customer. It was submitted that after collecting data and pictures from various sources, the designing of the entire content is done as per the client"s specific requirements. To thrust his point further it was submitted by the Senior Counsel that e-prints of book "100 wonders of India" was a project which was undertaken by the appellant in many foreign languages including English. Lastly it was submitted by Shri Syali that the above interpretation of phrase "customized electronic data" has now been well settled by the following co-ordinate bench decisions: Accurum India Pvt Limited reported in 126 ITD 69(Del)(TM) M.L Outsourcing Services Pvt Limited 104 TTJ 59(Del)(URO) Cybertech Systems & Software Limited reported in 149 TTJ 17(Mum) Amadeus India (P.) Ltd.79 ITD 407 (Delhi) 13. In reply the ld Senior DR on the other hand supported the orders passed by Assessing Officer and ld CIT(A). It was submitted by the ld Sr DR that the appellant has not been able to clearly demonstrate the computer software, which it manufactures or produces. The ld Sr. DR argued that the conditions gi....
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.... considered opinion the meaning of a phrase or word has to be seen in the framework of the context in which it has been used. Phrase "Manufacture or produce" will have a different contextual meaning when it is read in a statute let us say for e.g. the Excise law, since the parliamentary intention there will be to attract levy of tax, however in the present case we are called upon to interpret this phrase as applicable to a statute granting benefit of an exemption / deduction from taxable total income. In the instant case the intention of legislature is to provide benefit of deduction to enterprises which are not simply engaged in manufacture or produce any article or thing, but even to those assesses whose end product is any customized electronics data. Benefit of deduction u/s 10B of the Act, is also available on rendering of any of the services as notified by the Board like the item (ii) in the notification (supra) wherein even call centers, animation, etc which are brought in the sweep of any product or services stated in clause (b) of item (i) of Explanation 2 to Section 10B. Therefore we find merit in the submissions made by ld Sr Advocate Shri Syali that the restricted scope ....
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....9;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". 12A. Clause (f) gives an inclusive definition of the term 'manufacture'. According to the dictionary, the term 'manufacture' means a process which results in an alteration or change in the goods which are subjected to the process of manufacturing leading to the production of a commercially new article. In determining what constitutes 'manufacture' no hard and fast rule can be applied and each case must be decided on its own facts having regard to the context in which the term is used in the provision under consideration. 13. The term manufacture has been defined by the Black Law Dictionary (5th Edition) as under: 'Manufacture : The process or operation of making goods or any material produced by hand, by machinery or by other agency; anything made from raw materials by the hand, by machinery, or by art. The production of articles for use from raw or prepared mater....
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....he most generic meaning in its application to industry or industrial undertaking or establishments. (2) There is also another more limited meaning which is found referred to in the authorities as meaning the transforming of raw material into a commercial commodity or a finished product which has a separate identity (Commissioner of Income tax v. Ajay Printery Pvt. Ltd.(1)). This shade of meaning is more appropriately used in the past participle "manufactured". See Oxford Dictionary, Vol. 6, at page 143, sense No. 1, where the meaning is "fabricated from raw material". In Aswathanarayana v. Dy Commercial Tax Officer (1) at page 801 one finds a useful compilation of meaning attached to the word "manufacture" from various dictionaries and other sources. Similarly, the word "produce" with reference to its meaning in industry or political economy has two different senses. In vol. 8 of the Oxford Dictionary, at page 1422, the two meaning are given as follows: "To bring forth, bring into being or existence (a) generally to bring (a thing) into existence from its raw materials or elements or as the result of a process" and "(d) To compose or bring out by mental or physical labour (a wor....
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....se of Accurum India (sura) has elaborately discussed the same. In this judgment it has been held by the Ld Third Member as under: "7. Let us consider the above role of the Circulars in the context of sub-clause (b) of clause (i) of Explanation 2 to section 10A of the Act. The said clause (i) gives the meaning of the term "Computer Software". One of the meanings given is "any customised electronic data or any product or service of similar nature, as may be notified by the Board". In other words, if the assessee is engaged in the export of any customised electronic data, then, profit earned from such export would qualify for deduction under section 10A of the Act. It may be noted that whereas sub-clause (a) refers to any computer programme, sub-clause (b) refers to any customised electronic data. Computer programme referred to in sub-clause (a) may or may not be customised and may be useful for general application. On the other hand, the electronic data referred to in sub-clause (b) has necessarily to be customised. By the word "customised" is meant that the data is suitable for a specific customer only. Considering the fact that the expression "customised electronic data" is quit....
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....garment shops in the locality, the economic strata to which the population residing in that locality belongs, the spending habits of the people residing in the locality, etc. All these activities will have to be carried out manually and once the data is collected, it may be collated and analyzed and may be stored in an electronic device. This becomes the IT enabled customized electronic data. If this data is exported outside India, the consulting firm will be eligible for deduction under section 10A. Similar is the situation in the present case. The assessee invited applications for recruitment through newspapers, carried out interviews, selected them and trained them. It is worthnoting that this exercise was carried out not for namesake but it was a serious and sincere effort which is reflected by the magnitude on which the assessee worked. More than 7,000 applications were received which were vetted and then the process of recruitment was undertaken. All these data were stored in an electronic device and transmitted to US for the use of the parent company. Recruitment can be done online also, but perhaps the scale of operation may not be as huge as it was in the present case. Tra....
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....m 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. And there is no dispute that the final product of the assessee was in electronic form. We may also refer here another co-ordinate bench decision in case of Cybertech Systems & Software (supra) wherein it has been held by a co-ordinate bench as under: "14.1 Thus it is clear that when the process of customisation involve addition, modification and creation of new programmes as per the requirement of the individual clients by utilising the foundation of standard programme and such exercise involves human expertise and intellectual process to bring the end result a different product or thing and fit into the definition of term produce. Further, in the case of Amadeus India (P.) Ltd. (supra) the coordinate Bench of the Tribunal has considered and decided a similar question in para 35 as under: "35. The assessee which occupies a position mid-way between the two fulfils, it will be clear from the facts stated above, the functions of a programme exporter, it does ....
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....ed electronic data". The difference is that old section 10B requires that input data must necessarily be in electronic form where as in new section 10B this requirement is done away with. This interpretation has found favour by ITAT in Accurum"s case (Supra) were in at para 9 (of Third Member order) it has been held that "The data which a customer may require, may be gathered either by manual effort or by electronic means, as for example, through internet. 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". 19. The requirement of the provision (Section 10B) is that there should be a customized electronic data and such data should be exported outside India. The data which a customer may require may be gathered either by manual effort or by electronic means, as for example, through internet. 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....