Section 10A deduction cannot be denied for Hardware used in Export of Software

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;

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