High Court Of Andhra Pradesh
CIT Vs. Ajay Automation (P.) Ltd.
Assessment Year : 1989-90
Section : 80HHE
Madan B. Lokur, CJ.And Sanjay Kumar, J.
IT Appeal No. 42 Of 1999
January 2, 2012
JUDGMENT
Madan B. Lokur, CJ. – This appeal under section 260A of the Income-tax Act, 1961 (for short, “the Act”) has been admitted on the following two substantial questions of law :
“1. Whether the Appellate Tribunal is justified in holding that development of software amounts to manufacture of an article or goods and the export of such goods secure the benefit of deduction to the assessee under section 80HHC of the Income-tax Act ?
2. Whether the Appellate Tribunal is justified in not holding that the insertion of section 80HHE of the Income-tax Act, with effect from April 1, 1991, providing for grant of deduction on software development only with effect from April 1, 1991, militates against grant of such deduction under section 80HHC for the anterior period ?”
2. The assessee carries on the business of developing computer software. For the relevant assessment year 1989-90, it claimed a deduction to the extent of Rs. 21.55 crores under section 80HHC of the Act.
3. The Assessing Officer accepted the claim made by the assessee, but the Commissioner of Income-tax, exercising powers under section 263 of the Act, revised the order of the Assessing Officer on the ground that computer software recorded on magnetic tapes cannot be considered as “goods” for the purposes of section 80HHC of the Act. The Commissioner also took note of the fact that section 80HHE was introduced in the Income-tax Act with effect from April 1, 1991, and that section specifically intended to cover exports of computer software.
4. The Commissioner was, therefore, of the view that first of all computer software recorded on magnetic tapes was not “goods” within the meaning of section 80HHC of the Act and in any event, in view of the introduction of section 80HHE in the Act, the view that he had taken that computer software recorded in magnetic tapes was not covered under section 80HHC of the Act was fortified. Accordingly, the order of the Assessing Officer was set aside.
5. Feeling aggrieved, the assessee preferred an appeal before the Income-tax Appellate Tribunal (for short, “the Tribunal”) and the appeal was allowed. This has led to the filing of the present appeal under section 260A of the Act.
6. For the sake of convenience, section 80HHC(1) of the Act, which is relevant, is extracted below :
“80HHC. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of export out of India of any goods or merchandise to which this section applies, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of profits, referred to in sub-section (1B), derived by the assessee from the export of such goods or merchandise :”
7. The first question that arises in this regard is whether the computer software recorded on magnetic tapes is goods or not ?
8. Learned counsel for the Revenue very frankly states that in view of the decision of the Supreme Court in Tata Consultancy Services v. State of Andhra Pradhesh [2004] 271 ITR 401/141 Taxman 132 , it must now be held that computer software, if it is recorded on magnetic tapes or otherwise and is marketable, it becomes “goods” susceptible to sales tax. Learned counsel for the Revenue also frankly states that in view of the decision of the Supreme Court in Bharat Sanchar Nigam Ltd. v. Union of India [2006] 282 ITR 273/152 Taxman 135/3 STT 245, the question is no longer res integra. It is submitted that marketable computer software is goods because of its utility, capability of being bought and sold and its capability of being transmitted, transferred, delivered, stored and possessed.
9. On a reading of the aforesaid two judgments of the Supreme Court, it is frankly stated by learned counsel for the Revenue that marketable computer software has the attributes of goods for the purposes of sales tax and also for the purposes of the Income-tax Act, particularly section 80HHC thereof.
This view has also been taken by the Madras High Court in CIT v. Superstar Music [2007] 291 ITR 8.
10. We see no error in the concession given by learned counsel for the Revenue inasmuch as it is quite clear that for the purposes of section 80HHC (1) of the Act, computer software recorded on magnetic tapes or floppies, discs or CDs, etc., would amount to goods or merchandise.
11. Under these circumstances, the first substantial question of law raised in this appeal must be answered in the affirmative, in favour of the assessee and against the Revenue.
12. In so far as the insertion of section 80HHE of the Act is concerned, the relevant provision is section 80HHE(1), which reads as follows :
“80HHE. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of,—
(i) export out of India of computer software or its transmission from India to a place outside India by any means ;
(ii) providing technical services outside India in connection with the development or production of computer software,
there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction to the extent of the profits, referred to in sub-section (1B), derived by the assessee from such business :”
13. It is quite clear that on a comparison of the provisions of section 80HHC(1) and section 80HHE(1) of the Act, there is no substantial or material difference.
14. At this stage, it is necessary to note that a similar provision was introduced in the Income-tax Act with regard to export or transfer of film software under section 80HHF of the Act. While interpreting section 80HHF, the Madras High Court relied upon an earlier decision of the Bombay High Court in Abdulgafar A. Nadiadwala v. Asstt. CIT [2004] 267 ITR 488/137 Taxman 112 and held that despite a specific provision having been introduced in the Income-tax Act (section 80HHF) for the purposes of export or transfer of film software, that did not exclude the provisions of section 80HHC of the Act prior to the introduction of section 80HHF. All that transpired was that so far as the assessee is concerned, it could specifically claim a deduction under section 80HHF of the Act instead of having to fall back on the general provision of section 80HHC thereof.
15. In our opinion, this rationale would apply to the interpretation of section 80HHE of the Act. Merely because section 80HHE specifically deals with the export of computer software with effect from April 1, 1991, it does not mean that the operation of section 80HHC of the Act is excluded prior to April 1, 1991. The provisions of section 80HHC(1) are more general in nature while section 80HHE(1) of the Act are more specific, but since the latter provisions operate with effect from April 1, 1991, the provisions of the former would continue to operate until then.
16. As mentioned above, we are concerned with the assessment year 1989-90. Since the assessment year we are concerned which is prior to introduction of section 80HHE of the Act, we are of the opinion that the Tribunal was right in coming to the conclusion that the assessee was entitled to the benefit of section 80HHC of the Act for the purposes of claiming a deduction for export of computer software.
17. Under the circumstances, the second substantial question of law is also answered in the affirmative, in favour of the assessee and against the Revenue.
18. The appeal is disposed of on the above terms.
[Citation : 341 ITR 577]