DCIT, Chandigarh V. M/S Vertex Infosoft Solutions (P) Ltd,

ITA 1122/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77140 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 23-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 05-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHWIN SINGH
• Assessee Lawyers: D HEERAJ
• Section: 80HHC; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1122/CHD/2013 ASSESSMENT YEARS : 2009-10 D.C.I.T. CIRCLE 4(1) V M/S VERTEX INFOSOFT SOLUTIO NS CHANDIGARH (P) LTD, SCO 273, 2MD FLOOR SECTOR 35B, CHANDIGARH AABCV 6727H (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ASHWIN SINGH RESPONDENT BY: SHRI D HEERAJ DATE OF HEARING 23.6.2014 DATE OF PRONOUNCEMENT 27.6.2014 O R D E R PER T.R. SOOD, A.M THIS APPEAL IS DIRECTED AGAINST THE ORDER DATED 24 .9.2013 OF THE LD CIT(A), CHANDIGARH. 2. IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOW ING GROUNDS: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE BY T HE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF DEDUCTION U/ S 10B BY CONSIDERING THAT AMOUNT CLAIMED AS EXPORT OF SOFTWA RE IS NOT SALE PROCEEDS BUT IS ROYALTY INCOME ON ACCOUNT OF LICEN CE TO USE COMPUTER4 SOFTWARE. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURIN G ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER TREATE D THE RECEIPTS FROM EXPORT OF SOFTWARE NOT AS SALE RECEIP TS BUT AS ROYALTY AND ACCORDINGLY DENIED EXEMPTION U/S10B. 4 ON APPEAL THE LD. CIT(A) DECIDED THIS ISSUE IN FA VOUR OF ASSESSEE BY FOLLOWING HIS PREDECESSORS ORDER. 5 BEFORE US. THE LD. D.R. FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER. 2 7 ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE SUBMITTED THAT THE ISSUE RAISED BY THE REVENUE IS S QUARELY COVERED AGAINST THE REVENUE BY THE ORDER OF THE TRI BUNAL IN ITAS NO. 1023/CHD/2008 AND OTHERS (COPY OF THE ORDE R WAS PLACED ON RECORD). 8 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THIS ISSUE WAS DECIDED VIDE PARA 10 IN ITAS NO. 1023/CHD /2008 AND OTHERS IN ASSESSEES OWN CASE WHICH ARE AS UNDER: 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE F IND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. T HE SOFTWARE IS GENERALLY DEVELOPED BY THE SOFTWARE COMPANY AND THE N THE SAME IS SOLD TO VARIOUS CUSTOMERS. THE NORMAL PROCEDURE FOR SUCH SALE IS THROUGH A LICENSE AGREEMENT BY WHICH THE CUSTOMER GET TO USE THE SOFTWARE. BUT THE SOURCE CODE IS NORMALLY NOT PROVIDED BECAUSE TH AT WILL ENABLE THE CUSTOMER TO MAKE ANY NUMBER OF COPIES AND THE DEVEL OPER WOULD LOOSE THE PREMIUM WHICH IT CAN RECEIVE BY SELLING IT TO V ARIOUS CUSTOMERS. WE ARE OF THE OPINION THAT EXAMPLE OF SELLING OF A BOO K WOULD CLARIFY THE SITUATION. WHENEVER A PERSON BUYS A BOOK, HE GETS THE RIGHT TO READ BUT HE DOES NOT GET THE COPYRIGHT TO PRODUCE THE COPIES OR ANY CONTENT OF SUCH BOOKS WHICH DOES NOT MEAN THAT THE BOOKS SELL ER HAS NOT SOLD THE BOOKS OR CUSTOMERS HAS NOT PURCHASED THE BOOKS. SI MILARLY IT CAN BE SAID ABOUT THE USAGE OF LAW JOURNALS WHICH ARE BEIN G SOLD OR PURCHASED ON LICENSE BASIS. THE HON'BLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY SERVICES V STATE OF ANDHRA PRADESH (SUP RA), WHEREIN THE QUESTION AROSE WHETHER SALE OF INTELLECTUAL PROPERT Y IN CASE OF SOFTWARE THROUGH A LICENSE WOULD AMOUNT TO SALE OF GOODS OR NOT. IN THIS CONNECTION, THE HON'BLE SUPREME COURT OBSERVED AS U NDER:- THE TERM GOODS, FOR THE PURPOSES OF SALES TAX, C ANNOT BE GIVEN A NARROW MEANING. PROPERTIES WHICH ARE CAPABL E OF BEING ABSTRACTED, CONSUMED AND USED AND/OR TRANSMIT TED, TRANSFERRED, DELIVERED, STORED OR POSSESSED, ETC., ARE GOODS FOR THE PURPOSE OF SALES TAX. THE TEST TO A SCERTAIN WHETHER A PROPERTY IS GOODS FOR THE PURPOSES OF S ALES TAX IS NOT WHETHER THE PROPERTY IS TANGIBLE OR INTANGIB LE OR INCORPOREAL. THE TEST IS WHETHER THE CONCERNED ITEM IS CAPABLE OF ABSTRACTION, CONSUMPTION AND USE AND WHE THER IT CAN BE TRANSMITTED, TRANSFERRED, DELIVERED, STORED, POSSESSED, ETC. IN THE CASE OF SOFTWARE, BOTH CANNE D AND UNCANNED, ALL OF THESE ARE POSSIBLE. INTELLECTUAL P ROPERTY WHEN IT IS PUT ON A MEDIA BECOMES GOODS. A SOFTWARE PROGRAMME MAY CONSIST OF VARIOUS COMMANDS WHICH ENA BLE THE COMPUTER TO PERFORM A DESIGNATED TASK. THE COPY RIGHT IN THE PROGRAMME MAY REMAIN WITH THE ORIGINATOR OF THE PROGRAMME. BUT THE MOMENT COPIES ARE MADE AND MARKETED, IT BECOMES GOODS WHICH ARE SUSCEPTIBLE TO SALES TAX. EVEN INTELLECTUAL PROPERTY, ONCE IT IS PUT ON TO A MEDIA, WHETHER IT BE IN THE FORM OF BOOKS OR CANVAS(IN THE CASE OF PAINTING) OR COMPUTER DISCS OR CASSETTES, AND MARKE TED WOULD BECOME GOODS. THERE IS NO DIFFERENCE BETWEE N SALE OF A SOFTWARE PROGRAMME ON A CD/FLOPPY DISC AND SAL E OF MUSIC ON A CASSETTE/CD OR SALE OF A FILM ON A VIDEO CASSETTE/CD. IN ALL SUCH CASES, THE INTELLECTUAL PR OPERTY HAS BEEN INCORPORATED ON A MEDIA FOR PURPOSES OF TRANSF ER. SALE IS NOT JUST OF THE MEDIA WHICH BY ITSELF HAS VERY L ITTLE VALUE. THE SOFTWARE AND THE MEDIA CANNOT BE SPLIT UP. WHAT THE 3 BUYER PURCHASES AND PAYS FOR IS NOT THE DISC OR THE CD. AS IN THE CASE OF PAINTINGS OR BOOKS OR MUSIC OR FILMS THE BUYER IS PURCHASING OR DISC OR CD. A TRANSACTION OF SALE OF COMPUTER SOFTWARE PACKAGE OFF THE SHELF IS CLEARLY A SALE OF GOODS WITHIN THE MEANI NG OF THAT TERM IN SECTION 2(N) OF THE ANDHRA PRADESH GENERAL SALES TAX ACT, 1957. THE TERM ALL MATERIALS, ARTICLES AN D COMMODITIES IN SECTION 2(H) OF THE ACT INCLUDES BO TH TANGIBLE AND INTANGIBLE / INCORPOREAL PROPERTY WHIC H IS CAPABLE OF ABSTRACTION, CONSUMPTION AND USE AND WHI CH CAN BE TRANSMITTED, TRANSFERRED, DELIVERED, STORED, POS SESSED, ETC. THE SOFTWARE PROGRAMMES HAVE ALL THESE ATTRIBU TES. FROM THE ABOVE IT IS CLEAR THAT TRANSFER OF RIGHT T O USE THE SOFTWARE IN MEDIA FORM I.E. IN THE FORM OF C.D. ETC WAS HELD TO BE SA LE OF GOODS. THE HON'BLE SUPREME COURT IN THE CASE OF B. SURESH WHERE THE I SSUE AROSE WHETHER EXPLOITATION OF A FILM RIGHT WHICH WERE TRANSFERRED BY THE ASSESSEE IN INDIA TO ABROAD WOULD CONSTITUTE EXPORT FOR THE PURPOSES OF DEDUCTION U/S 80HHC OF THE ACT, IT WAS OBSERVED AS UNDER; HELD, AFFIRMING THE DECISION OF HIGH COURT, THAT T HE TELECASTING RIGHTS FELL IN THE CATEGORY OF ARTICLES OF TRADE AND COMMERCE AND HENCE WITHIN THE CATEGORY OF MERCHANDISE AND THE TRANSFER OF THE SAID RIGHTS B Y WAY OF LEASE FELL WITHIN THE MEANING SALE AND WOULD ATTR ACT SECTION 80HHC. FOLLOWING THE ABOVE ORDER WE DECIDE THIS ISSUE AGAI NST THE REVENUE. 9. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 27.6.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 27.6.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR