Brief Facts of the case:Assessee is engaged in the activity of collection ,collation ,formatting of data and information and its export.In her return she had claimed exemption under section 10B of IT Act to the tune of Rs 39,32,654/-and she claimed to be software exporter to Netherlands. AO in its assessment disallowed the above claim and finalized the assessment .
Sec “10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee.
(2) This section applies to any undertaking which fulfils all the following conditions, namely :–
(i) it manufactures or produces any articles or things or computer software;
(ii) it is not formed by the splitting up, or the reconstruction, of a
Explanation 2.–For the purposes of this section,–
(i) “computer software” means–
(a) any computer programme recorded on any disc, tape, perforated media or other information storage device; or
(b) any customized electronic data or any product or service of similar nature as may be notified by the Board, which is transmitted or exported from India to any place outside India by any means”
So after reading the above provisions of sec 10B, there should be customization of data and export of the same. CBDT has issued a notification related with the software export. This notification uses the expression (iii) content development or animation (iv)Data Processing (vii)Human resources services.
But the appellant argued that the respondent has just customized the data which was already available and has not at all created new software. There is no transformation of the inputs to consider it to be a manufacture.
Contention of Assessee/Respondent: Assessee has fully narrated the processes involved in her manufacturing
i) Collection of raw material in the form of text and photographs
ii) Design and layout
iii) Scanning and color correction .
Assessee’s contention that the transformation of goods into a new commodity which is saleable in the market that amounts to manufacture and the same was supported by the case law in CIT Vs Lovesh jain 204 Taxman 134 (del).Assessee is involved in the export of the ready to print books which is included in the customization of data because assessee collects the photograph ,refines it making available to be ready to use.
Assessee argues that the word ’manufacture’ should be understood in the common parlance not in a narrower sense which only means that not only transforming raw material into commercial product is manufacturing as decided in case of CIT Vs Ajay printers Pvt Ltd(1965) 58 ITR 811 (guj)
Contention of CIT/Appellant: Assessee has not manufactured a new software because the photographs which she uses in her book were already available, nothing transformation of the photographs has been done.
The book of the assessee is not created from the transformation of the photographs, its been compiled just by collecting the photographs, refining it and making it ready to use.
Held by respective court: Court has taken a wider view of the word’ manufacturing’. Sec 10B uses the word produce which is much wider than manufacture .Court held that if the outcome of the process is different product than the output then it would fall under definition of produce.
As in the case of Deputy commissioner of sales Tax v/s M/s Pio Food packers 1980 Supp. SCC 174-“ Commonly , manufacture is the end result of the one or more processes through which the original commodity is made to pass. The nature of processes may vary from one case to another “
The assessee’s effort of collection, designing, layout, refining the photographs to make the book ready to print out is manufacturing and the same is also exported outside India so exemption u/s 10B cannot be denied.
The court answered the appeal in the favour of assessee.