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TaxTMI 
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TaxTMI 
2022 (9) TMI 981
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....he Act. The AO (Assessing Officer) passed his order on August 31, 2009 under Section 143(3) of the Act. Assessee challenged the same before CIT(A) (Commissioner of Income Tax (Appeals) and the appeal was allowed in part vide order dated October 20, 2010. Assessee challenged CIT(A)'s order before ITAT (Income Tax Appellate Tribunal). By order dated November 13, 2013, in ITA No.1430/Bang/2010, the ITAT has partly allowed the appeal. Assessee is aggrieved by disallowance of deduction of Rs.9,53,10,234/- being the sale of hardware component from export turnover under 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 eve....
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....bove submissions, he prayed for dismissal of this appeal. 7. We have carefully considered rival submissions and perused the records. 8. The specific case of the assessee is, it manufactures software, loads it onto the hardware and exports. The Assessing Officer has recorded in para 4.5 of his order that deduction is allowable only for income derived from export of article/thing/computer software. According to the AO, assessee does not manufacture or produce hardware and hence, meaning of software cannot be stretched 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....
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....on the ground that order for software and hardware were placed separately in the same purchase order for different costs; secondly, on the ground that invoices of software and hardware were raised separately on different dates; thirdly, on the ground that the mode of payment for software and hardware were different and fourthly on the ground that it was not established that the software could not be used without hardware. 15. It is relevant to record that the ground on which the AO has denied the benefit 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,....
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....ctor of Income Tax Vs. Ericsson A.B., Newdelhi (2012)343 ITR 470 DEL (Paras 55, 58 & 61). In this case, Delhi High Court was considering Revenue's appeal against ITAT's finding that it was not permissible for the Revenue to assess the software and the GSM phone supplied by the assessee separately. The Delhi High Court has held that the software that was loaded on the hardware did not have any independent existence; that the software supply was an integral part of GSM Mobile Telephone System 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 softwar....
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....our or machines. If the change made in the article results in a new and different article, then it would amount to manufacturing activity." (Emphasis Supplied) 24. In this case, 'manufacture' has to be understood in common parlance as developing software and loading onto the hardware. Software will be written in binary code and it is intangible. It can be used only when loaded onto a compatible hardware. Therefore, in our view, hardware becomes an integral part of the exported 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 c....