Subex Limited Vs DCIT (Karnataka High Court)
we are of the considered view that the Assessing Officer framed an incorrect question for his consideration that whether sale of Hardware which is not manufactured by the assessee could be considered as part of export. The CIT(A) also committed the same error. We say so because:
- firstly, the entire case is with regard to eligibility of benefit under Section 10A of the Act towards export of software. The purchase order for the software is, for a total sum of USD 591,164. Out of the said value, the hardware component in USD 132,500. It is not in dispute that software is developed in various computer languages in the binary format. The software requires a medium for its transmission. Therefore, it needs to be installed on a hardware. India has been a premier exporter of software for more than two to three decades. In Ericsson A.B. relied upon by the assessee, Delhi High Court has held as back as in 2012 that software supply is an integral part of the GSM Mobile Telephone and there could not be any independent use of such software. This judgment has been accepted by the Revenue. In that case software was embedded in the system and it would not be used independently. Cases of similar nature must have come for consideration before various Courts. Revenue having accepted the principle in Ericson A.B that software embodied in a hardware cannot be utilized independently, have taken a strange stand in this case that the benefit of Section 10A is not available on hardware component on the fallacious ground that hardware was not manufactured by the assessee;
- secondly, we can take a judicial note of the fact that the software, unless loaded onto a hardware, cannot be used;
- thirdly, it would be incongruous to construe that software can be exported without the hardware because hardware is the medium and therefore forms an integral part of the export;
- fourthly, it is not Revenue’s case that export has not taken place. It is also not in dispute that benefit of Section 10A has been extended for software component.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
This is a classic case of denial of a legitimate claim of benefit under Section 10A of the Income Tax Act, 19611.
2. We have heard Shri. K.K.Chythanya, learned Senior Advocate for the appellant-assessee and K.V. Aravind, learned Senior Standing Counsel for the respondent-Revenue.
3. Brief facts of the case are, assessee is a public limited company in the business of development and export of software for communication industry. One of it’s business units is registered as a Software Technology Park. Assessee filed it’s return of income for A.Y2. 2006-07 declaring a total income of Rs.2,58,72,868/- and claimed a deduction of Rs.42,79,82,899/- under Section 10-A of the Act. The AO3 passed his order on August 31, 2009 under Section 143(3) of the Act. Assessee challenged the same before CIT(A)4 and the appeal was allowed in part vide order dated October 20, 2010. Assessee challenged CIT(A)’s order before ITAT5. 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 1 0A of the Income tax Act 1961 ?”
4. Shri. K.K.Chythanya, learned Senior Advocate for the appellant mainly contended that:
