M/s. Subex Ltd., Bangalore V. DCIT, Bangalore

ITA 1430/BANG/2010

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9459 (ITAT-BANGALORE)
• Duration Of Justice: 5 year(s) 7 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 25-05-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 13-12-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR G MANOJ KUMAR
• Assessee Lawyers: CHYTHANYA K K
• Section: 80IB; 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ITA NO.1430/BANG/2010 ASSESSMENT YEAR : 2006-07 M/S. SUBEX LIMITED, ADARSH TECH PARK, OUTER RING ROAD, DEVARABEESANAHALLI, BANGALORE 560 037. PAN: AABCS 9255R VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 12(3), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI CHYTHANYA K.K., ADVOCATE RESPONDENT BY : DR. G. MANOJ KUMAR, ADDL. CIT(DR) DATE OF HEARING : 25.05.2016 DATE OF PRONOUNCEMENT : 12.08.2016 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL PREFERRED BY THE ASSESSEE ON DIFFERENT GROUNDS AGAINST THE ORDER OF CIT(APPEALS)-III, BANGALORE DATED 20.1 0.2010 WAS DISPOSED OF BY THE TRIBUNAL VIDE ITS ORDER DATED 13.11.2013 RES TORING CERTAIN ISSUES TO THE LOWER AUTHORITIES. AGAINST THIS ORDER OF THE T RIBUNAL, THE ASSESSEE FILED AN APPEAL BEFORE THE HON'BLE HIGH COURT OF KARNATAK A AND THE HON'BLE ITA NO.1430/BANG/2010 PAGE 2 OF 18 JURISDICTIONAL HIGH COURT VIDE ITS JUDGMENT DATED 1 6.9.2014 REMANDED THE MATTER BACK TO THE TRIBUNAL WITH A DIRECTION TO ADJ UDICATE THE QUESTIONS OF LAW RAISED BEFORE IT, BESIDES THE TRIBUNAL WAS ALSO DIRECTED TO GO INTO SUCH OTHER QUESTIONS OF LAW WHICH MAY BE RAISED BY THE A SSESSEE ON SUCH REMAND. THE QUESTIONS OF LAW RAISED BEFORE THE HO N'BLE HIGH COURT OF KARNATAKA ARE AS UNDER:- A. WHETHER THE TELECOMMUNICATION EXPENSES, INSURAN CE CHARGES, PERSONNEL EXPENSES, PROFESSIONAL EXPENSES, BRANCH OFFICE EXPENSES AND OTHER EXPENSES INCURRED IN FORE IGN EXCHANGE SHOULD NOT BE EXCLUDED FROM THE EXPORT TUR NOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTIO N 10B OF THE INCOME TAX ACT, 1961? B. IF THE SAID EXPENSES ARE TO BE EXCLUDED FROM THE EXPORT TURNOVER, THEN THE SAME SHOULD ALSO BE EXCLUDED FRO M THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTI ON UNDER SECTION 10B OF THE INCOME TAX ACT, 1961? 2. IN THE MAIN APPEAL, THE ASSESSEE HAS ALSO RAISE D GROUND NO.1 IN ITS GROUNDS OF APPEAL THAT THE CIT(APPEALS) IS NOT JUST IFIED IN HOLDING THE EXCLUSION OF AN AMOUNT OF RS.9.53,10,234 BEING THE SALE OF HARDWARE COMPONENTS, FROM THE EXPORT TURNOVER FOR THE PURPOS E OF COMPUTING THE DEDUCTION UNDER SECTION 10A OF THE ACT. THE LD. CO UNSEL FOR THE ASSESSEE HAS CONTENDED THAT THOUGH THIS GROUND WAS RAISED BE FORE THE TRIBUNAL, BUT THE TRIBUNAL DID NOT ADJUDICATE THIS GROUND AND HAS CONSIDERED THE ALTERNATIVE CONTENTIONS OF THE ASSESSEE THAT IF IT IS EXCLUDED FROM THE EXPORT TURNOVER, IT WILL ALSO BE EXCLUDED FROM THE TOTAL T URNOVER, FOLLOWING THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT V. TATA ITA NO.1430/BANG/2010 PAGE 3 OF 18 ELXSI LTD. & ORS. THEREFORE, THE TRIBUNAL IS REQUIRED TO ADJUDICATE THE FOLLOWING THREE ISSUES:- (1) WHETHER THE CIT(APPEALS) IS JUSTIFIED IN UPHOLD ING THE EXCLUSION OF AN AMOUNT OF RS.9,53,10,234 BEING THE SALE OF HARDWARE COMPONENTS FROM THE EXPORT TURNOVER FOR TH E PURPOSE OF COMPUTING DEDUCTION U/S. 10A OF THE ACT? (2) WHETHER THE TELECOMMUNICATION EXPENSES, INSURAN CE CHARGES, PERSONNEL EXPENSES, PROFESSIONAL EXPENSES, BRANCH O FFICE EXPENSES AND OTHER EXPENSES INCURRED IN FOREIGN EXC HANGE SHOULD NOT BE EXCLUDED FROM THE EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION UNDER SECTION 10B OF THE INCOME TAX ACT, 1961? (3) IF THE SAID EXPENSES ARE TO BE EXCLUDED FROM TH E EXPORT TURNOVER, THEN THE SAME SHOULD ALSO BE EXCLUDED FRO M THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTI ON UNDER SECTION 10B/10A OF THE INCOME TAX ACT, 1961? 3. ACCORDINGLY ARGUMENTS WERE HEARD ON ALL THE ISSU ES. WITH REGARD TO GROUND NO.1, THE LD. COUNSEL FOR THE ASSESSEE HAS C ONTENDED THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS SOFTWAR E PRODUCT, DEVELOPMENT OF SOFTWARE SERVICES AND TELECOM SOLUTI ONS. DURING THE IMPUGNED FINANCIAL YEAR, THE ASSESSEE COMPANY HAS D ERIVED INCOME FROM HARDWARE SALES OF RS.7,38,17,250 AND RS.2,14,92,984 ATTRIBUTABLE TO THE INDIA AND UK OPERATIONS RESPECTIVELY. THIS SALE OF HARDWARE COMPONENTS ARE INEXTRICABLY LINKED TO THE SALE OF SOFTWARE. T YPICALLY, THE SALE PERTAINING TO SALE OF CERTAIN SOFTWARE PRODUCTS PERTAINING TO REVENUE MAXIMISATION SOLUTIONS (RMS) PROVIDED BY THE ASSESSEE WHICH ES SENTIALLY REQUIRE CERTAIN HARDWARE COMPONENTS, IN THE ABSENCE OF WHIC H THE SOFTWARE DOES ITA NO.1430/BANG/2010 PAGE 4 OF 18 NOT FUNCTION. BASED ON CUSTOMERS REQUESTS, AS A PA RT OF THE OVERALL SALE OF SOFTWARE PRODUCTS, THE ASSESSEE COMPANY PROCURES TH E REQUIRED HARDWARE AND ONWARD SELLS THEM AFTER INTEGRATING THE SOFTWAR E INTO THEM AS A PART OF SALE OF SOFTWARE. THE HARDWARE IS IN THE NATURE OF SERVERS THAT HAVE BEEN PROCURED, AS ONLY WITH THESE SERVERS, THE SOFTWARE PRODUCTS SOLD BY THE ASSESSEE COMPANY OPERATE, AND HENCE IT IS A COMPOSI TE CONTRACT AND THE ASSESSEE WAS REQUIRED TO SUPPLY THE SAID SOFTWARE A LONG WITH THE HARDWARE. THE LD. COUNSEL FOR THE ASSESSEE HAS AL SO INVITED OUR ATTENTION TO THE WRITE-UP SUBMITTED BEFORE THE AO WHICH HAS B EEN EXTRACTED AT PAGES 4 TO 6 IN THE ASSESSMENT ORDER. THE LD. COUNSEL FO R THE ASSESSEE FURTHER CONTENDED THAT SINCE THE HARDWARE IS INEXTRICABLY L INKED WITH THE SOFTWARE WHICH MAY NOT FUNCTION WITHOUT THE HARDWARE, THE SA LE OF HARDWARE IS A PART OF EXPORT TURNOVER. IN SUPPORT OF HIS CONTENTIONS, THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE UPON THE FOLLOWING JUD GMENTS:- (I) HINDUSTAN SHIPYARD LTD. V. STATE OF ANDHRA PRAD ESH, 119 STC 533 (II) WIPRO LTD. V. CIT, [2015] 62 TAXMANN.COM 26 (K ARNATAKA) (III) GALATEA LTD. V. DCIT (IT), [2016] 67 TAXMANN. COM 190 (MUMBAI-TRIB.) (IV) TATA ELXSI LTD. V, ACIT, ITA NO.398, 1074 & 1410/BANG/2012, ORDER DATED 20.03.2015. (V) SULTAN BROTHERS (P) LTD. V. CIT (1964) 51 ITR 3 53 (SC) (VI) GOODRICKE GROUP LTD. V. CIT, 2011-TIOL-262-HC- KOL-IT (VII) CIT V. GEM PLUS JEWELLERY INDIA LTD. [2010] 1 94 TAXMAN 192 (BOM) 4. THE LD. DR, BESIDES PLACING RELIANCE UPON THE OR DER OF THE AO AND THE CIT(APPEALS), HAS CONTENDED THAT THE ASSESSEE D OES NOT MANUFACTURE ITA NO.1430/BANG/2010 PAGE 5 OF 18 OR PRODUCE HARDWARE AND THE MEANING OF SOFTWARE CAN NOT BE STRETCHED TO HARDWARE, HOWEVER ESSENTIAL IT MAY BE FOR FUNCTIONI NG OF THE COMPUTER SOFTWARE. HE HAS ALSO INVITED OUR ATTENTION TO EXP LANATION 2 OF SECTION 10A IN WHICH THE WORD COMPUTER SOFTWARE HAS BEEN DEFI NED, ACCORDING TO WHICH, COMPUTER SOFTWARE MEANS ANY COMPUTER PROGRAM ME RECORDED ON ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATI ON STORAGE DEVICE, OR ANY CUSTOMIZED ELECTRONIC DATA OR ANY PRODUCT OR SERVIC E OF SIMILAR NATURE, AS MAY BE NOTIFIED BY THE BOARD. HARDWARE DOES NOT FA LL WITHIN THE DEFINITION OF COMPUTER SOFTWARE. THEREFORE, THE MEANING OF SOFTWARE SHOULD NOT BE STRETCHED TOO FAR AS IT WAS NOT THE INTENTION OF TH E LEGISLATURE. 5. THE LD. DR HAS ALSO INVITED OUR ATTENTION TO THE PURCHASE ORDER AND THE SALE INVOICES WITH THE SUBMISSION THAT IN THE P URCHASE ORDER, THE HARDWARE WAS SEPARATELY MENTIONED UNDER THE HEAD I TEM DESCRIPTION AND ITS COST WAS ALSO SEPARATELY MENTIONED, BESIDES THE NUMBER OF QUANTITIES. SIMILARLY, SOFTWARE AND HARDWARE WAS SEPARATELY SOL D BY RAISING INVOICES ON DIFFERENT DATES. COPY OF THE PURCHASE ORDERS AND I NVOICES ARE AVAILABLE AT PAGE NOS.1 AND 5 TO 8 OF THE COMPILATION OF THE ASS ESSEE FILED ON 24.5.2016. UNDISPUTEDLY THE ASSESSEE DID NOT MANUF ACTURE THE HARDWARE AND THE HARDWARE PURCHASED FROM OUTSIDE WERE ALSO D IRECTLY SOLD SEPARATELY TO THE BUYER. THEREFORE, THE SALE PROCE EDS OF THE HARDWARE CANNOT BE INCLUDED IN THE EXPORT TURNOVER FOR THE P URPOSE OF COMPUTING DEDUCTION U/S. 10A OF THE ACT. ITA NO.1430/BANG/2010 PAGE 6 OF 18 6. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER AU THORITIES IN THE LIGHT OF RIVAL SUBMISSIONS AND THE JUDGMENTS REFERRED TO BY THE PARTIES, WE FIND THAT UNDISPUTEDLY THE ASSESSEE IS NOT A MANUFACTURE R OF THE HARDWARE. THE HARDWARE WAS PURCHASED FROM THE MARKET AND WAS SOLD TO ITS BUYER. THE LD. COUNSEL FOR THE ASSESSEE HAS PUT AN EMPHASIS DU RING THE COURSE OF HEARING THAT THE ASSESSEE PROCURED THE HARDWARE AND INTEGRATED IT WITH THE SOFTWARE AND SOLD AS A PART OF SOFTWARE. IT WAS AL SO CONTENDED THAT THE SALE PERTAINING TO SALE OF CERTAIN SOFTWARE PRODUCTS PER TAINING TO THE REVENUE MAXIMISATION SOLUTIONS (RMS) PROVIDED BY THE ASSESS EE WHICH ESSENTIALLY REQUIRES CERTAIN HARDWARE COMPONENTS AND IN ITS ABS ENCE, THE SOFTWARE DOES NOT FUNCTION. BASED ON THE CUSTOMERS REQUEST AS A PART OF OVERALL SALE OF SOFTWARE PRODUCTS, THE ASSESSEE PROCURED TH E REQUIRED HARDWARE AND SOLD IT AFTER INTEGRATING THE SOFTWARE INTO THE M AS PART OF SOFTWARE. BUT FROM A CAREFUL PERUSAL OF THE PURCHASE ORDER APPEAR ING AT PAGE 1 OF THE ASSESSEES COMPILATION, WE FIND THAT THE ASSESSEE W AS NOT REQUIRED TO SELL ONE COMPOSITE SOFTWARE. EVEN IN THE PURCHASE ORDER , THE SOFTWARE AND THE HARDWARE WERE MENTIONED SEPARATELY ALONG WITH THEIR RESPECTIVE COST. SIMILARLY, SOFTWARE AND HARDWARE WERE SOLD SEPARATE LY THROUGH DIFFERENT INVOICES APPEARING AT PAGES 5 TO 8 OF THE COMPILATI ON OF THE ASSESSEE FILED ON 24.05.2016. FROM THE INVOICES, IT IS EVIDENT TH AT THE SOFTWARE WAS SOLD ON 25.3.2005 FOR A VALUE OF USD 272,000 AND THE HAR DWARE WAS SOLD ON 19.9.2005 BY SEPARATE INVOICE. FOR THE SAKE OF REF ERENCE, WE EXTRACT THE PURCHASE ORDER AS WELL AS INVOICE ISSUED BY THE ASS ESSEE:- ITA NO.1430/BANG/2010 PAGE 7 OF 18 ITA NO.1430/BANG/2010 PAGE 8 OF 18 ITA NO.1430/BANG/2010 PAGE 9 OF 18 ITA NO.1430/BANG/2010 PAGE 10 OF 18 ITA NO.1430/BANG/2010 PAGE 11 OF 18 ITA NO.1430/BANG/2010 PAGE 12 OF 18 ITA NO.1430/BANG/2010 PAGE 13 OF 18 7. FROM THE ABOVE DETAILS, IT IS ABUNDANTLY CLEAR THAT THE ASSESSEE HAS GOT THE ORDER OF HARDWARE AND SOFTWARE SEPARATELY F OR DIFFERENT COSTS AND WAS ALSO SOLD BY RAISING INVOICES ON DIFFERENT DATE S. IT IS ALSO EVIDENT THAT THE BUYER HAD PLACED SEPARATE ORDER FOR THE SOFTWAR E AND HARDWARE. THE SOFTWARE KNOWN AS RANGER FRAUD MANAGEMENT SYSTEM IN CLUDES FRAUD DETECTION, SUBSCRIBER PRE-CHECK, PRE-PAID AND CREDI T MANAGEMENT MODULES AND ITS COST WAS SPECIFIED AT USD 272,000. A SEPAR ATE ORDER WAS PLACED FOR THE HARDWARE FOR USD 132,500. THE DETAILS OF H ARDWARE HAS ALSO BEEN MENTIONED SEPARATELY IN THE ORDER. FURTHER, IT IS ALSO NOTICED FROM THE PAYMENT TERMS THAT DIFFERENT SCHEDULE OF PAYMENT WA S LAID DOWN FOR SOFTWARE AND HARDWARE. THE WARRANTY SERVICES FOR T HE SOFTWARE WAS VALID FOR A PERIOD OF SIX MONTHS, WHEREAS NO WARRANTY WAS STIPULATED FOR THE HARDWARE. THEREFORE, IN THE ORDER ITSELF, SOFTWARE AND HARDWARE ARE TREATED DIFFERENTLY. SUPPLY OF SOFTWARE AND HARDWARE ARE A LSO DIFFERENT. IF THE ASSESSEE CONTENDS THAT SOFTWARE WAS SOLD ALONG WITH HARDWARE AND SOFTWARE CANNOT BE USED WITHOUT THE HARDWARE SPECIF IED IN THE ORDER, THE ONUS IS UPON THE ASSESSEE TO ESTABLISH THESE FACTS; WHEREAS FROM THE AFORESAID DOCUMENTS THE FACT APPEARS TO BE DIFFEREN T. 8. WE HAVE CAREFULLY PERUSED THE JUDGMENTS OF THE H ON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF WIPRO LTD. V. DCIT (SUPRA) IN WHICH THE ISSUE IN DISPUTE WAS, WHETHER MONITORS SOLD ALO NG WITH COMPUTERS WERE ITA NO.1430/BANG/2010 PAGE 14 OF 18 A PART OF THE COMPUTER? IN THAT CASE, THEIR LORDSH IPS HAVE HELD THAT WHEREVER THE MONITORS ARE SOLD SEPARATELY, THEY ARE NOT PART OF THE COMPUTER, BUT WHEREVER THEY ARE SOLD ALONG WITH THE COMPUTERS, IT WOULD BE A PART OF COMPUTER AS THE COMPUTER CANNOT BE USED W ITHOUT THE MONITOR. THE RELEVANT OBSERVATIONS OF THE HON'BLE JURISDICTI ONAL HIGH COURT IN THIS REGARD ARE AS UNDER:- 106. AFTER THE AFORESAID INFORMATION WAS FURNISHE D, THE ASSESSING AUTHORITY PROCEEDED WITH THE ASSESSMENT O RDER HOLDING THAT THE ASSESSEE HAS FURNISHED INCOMPLETE DETAILS, ONLY VALUE OF MONITORS WHICH HAVE BEEN SOLD SEPARATELY ARE GIVEN AND DETAILS OF MONITORS SOLD AS A COMPONENT WITH THE COMPUTER HAS NOT BEEN FURNISHED. THEREFORE, HE TOOK THE AVERAGE VALUE ON THE BASIS OF THE FURNISHED FILED IN ANNEXURE AND DID NOT EXTEND THE BENEFIT OF SECTION 80IB IN RESPECT OF THE MONITORS WHICH WERE SOLD AS A PART OF THE COMPUTER. IN THE AFORESAID TABULAR COLUMN, I T IS SHOWN THAT THE ASSESSEE HAS SOLD 25,681 MONITORS, I.E., THEY A RE PURCHASED AND SOLD AS MONITORS AND THE VALUE OF THE SAME IS G IVEN AND THE ASSESSEE HAS NOT CLAIMED BENEFIT UNDER SECTION 80IB IN RESPECT OF THE SAID AMOUNT. HE HAS ALSO GIVEN THE PARTICULARS OF THE MONITORS SOLD ALONG WITH THE COMPUTERS. 27,736 MONITORS WERE SOLD AS A PART OF THE COMPUTER. THE ASSESSEE HAS PLEADED ITS INABILITY TO GIVE THE VALUE OF THE SAID MONITOR BECAUSE THE SAID MONITOR WAS SOLD AS A PART OF THE COMPOSITE VALUE OF THE COMPUT ERS AND THE ASSESSEE IS CLAIMING BENEFIT UNDER SECTION 80IB IN RESPECT OF THE TOTAL CONSIDERATION. AS SET OUT EARLIER THE ASSESSE E IS CARRYING ON THE MANUFACTURING OF COMPUTERS AND SALE OF COMPUTER S. HE HAS SATISFIED ALL THE REQUIREMENTS STIPULATED IN SUB-SE CTION (2) OF SECTION 80IB AND HE IS ELIGIBLE FOR THE SAID EXEMPT ION. THE MONITORS WHICH HE HAS PURCHASED FROM OUTSIDE IS USE D AS A SPARE PART IN THE MANUFACTURE OF COMPUTER AND IT IS SOLD TO THE CUSTOMERS AS SUCH. IN OTHER WORDS, THOSE MONITORS W HICH ARE USED IN THE COMPUTERS ARE NOT THE TRADED COMMODITIES. TH EREFORE, IT IS A PART OF THE COMPUTER AND THE TOTAL CONSIDERATION OF THE COMPUTER INCLUDES THE VALUE OF THIS MONITOR. THE PROFIT DERI VED FROM THE SAID COMPUTER INCLUDES THE SALE OF THE MONITOR WHIC H IS A PART OF THE SAID COMPUTER WHICH FALLS WITHIN THE FIRST DEGR EE. IN VIEW OF ITA NO.1430/BANG/2010 PAGE 15 OF 18 THE AFORESAID JUDGMENTS THE PROFIT DERIVED FROM THE SAID SALE OF MONITOR AS A PART OF THE COMPUTER IS ALSO ELIGIBLE FOR BENEFIT UNDER SECTION 80IB. HOWEVER, IT IS MADE CLEAR THE ASSESSE E IS NOT ENTITLED TO THE BENEFIT OF SECTION 80IB IN RESPECT OF MONITORS WHICH ARE PURCHASED AND SOLD SEPARATELY AS A TRADED COMMODITY. IN FACT, THE ASSESSEE HAS NOT CLAIMED ANY BENEFIT I N RESPECT OF THOSE MONITORS. THEREFORE, THE FINDING RECORDED BY THE AUTHORITIES THAT THE ASSESSEE IS NOT ENTITLED TO THE BENEFIT OF DEDUCTION UNDER SECTION 80IB IN RESPECT OF THE MONITORS WHICH FORM PART OF THE COMPUTER IS HEREBY SET ASIDE. BOTH THE SUBSTANTIAL QUESTIONS ARE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 9. FROM A PERUSAL OF THE JUDGMENT OF THE HONBLE SU PREME COURT IN THE CASE OF HINDUSTAN SHIPYARD LTD. (SUPRA) , WE FIND THAT THEIR LORDSHIPS OF THE APEX COURT HAVE EXAMINED THE WORD SALE FOR THE PU RPOSE OF SALE OF GOODS ACT AND THEIR LORDSHIPS HAVE HELD THAT WHERE THE BULK OF MATERIAL USED IN CONSTRUCTION BELONGS TO MANUFACTURER WHO SE LLS THE END-PRODUCT FOR A PRICE, THEN IT IS A STRONG POINTER TO A CONCLUSIO N THAT THE CONTRACT IS IN SUBSTANCE ONE FOR THE SALE OF GOODS AND NOT ONE FOR WORK AND LABOUR. HOWEVER, THE TEST IS NOT DECISIVE. IT IS NOT THE B ULK OF THE MATERIAL ALONE BUT THE RELATIVE IMPORTANCE OF THE MATERIAL QUA THE WOR K, SKILL AND LABOUR OF THE PAYEE WHICH HAVE TO BE WEIGHTED. IF THE MAJOR COMP ONENT OF THE END- PRODUCT IS THE MATERIAL CONSUMED IN PRODUCING THE C HATTEL TO BE DELIVERED AND THE SKILL AND LABOUR ARE EMPLOYED FOR CONVERTIN G THE MAIN COMPONENTS INTO THE END-PRODUCTS, THE SKILL AND LABOUR ARE ONL Y INCIDENTALLY USED AND HENCE THE DELIVERY OF THE END-PRODUCT BY THE SELLER TO THE BUYER WOULD CONSTITUTE A SALE. ON THE OTHER HAND, IF THE MAIN OBJECT OF THE CONTRACT IS TO AVAIL THE SKILL AND LABOUR OF THE SELLER THOUGH SOM E MATERIAL OR COMPONENTS ITA NO.1430/BANG/2010 PAGE 16 OF 18 MAY BE INCIDENTALLY USED DURING THE PROCESS OF THE END-PRODUCT BEING BROUGHT INTO EXISTENCE BY THE INVESTMENT OF SKILL A ND LABOUR OF THE SUPPLIER, THE TRANSACTION WOULD BE A CONTRACT FOR WORK AND LA BOUR. 10. AGAIN IN THE CASE OF HINDUSTAN AERONAUTICS LTD. V. STATE OF KARNATAKA (1984) 55 STC 314 (SC) , THEIR LORDSHIPS HAVE OBSERVED THAT IT IS WELL SETTLED THAT THE DIFFERENCE BETWEEN THE CON TRACT OF SERVICE AND CONTRACT OF SALE OF GOODS IS THAT IN THE FORMER, TH E PERSON PERFORMING THE WORK OR RENDERING SERVICES, NO PROPERTY IN THE THIN GS PRODUCED AS A WHOLE, NOTWITHSTANDING THAT A PART OR EVEN THE WHOLE OF MA TERIALS USED BY HIM HAD BEEN HIS PROPERTY. IN THE CASE OF CONTRACT FOR SAL E, THE THING PRODUCED AS A WHOLE HAS INDIVIDUAL EXISTENCE AS THE SOLE PROPERTY OF THE PARTY WHO PRODUCED IT SOMETIME BEFORE DELIVERY AND THE PROPER TY THEREIN PASSES ONLY UNDER THE CONTRACT RELATING THERETO TO THE OTHER PA RTY FOR A PRICE. 11. WE HAVE ALSO CAREFULLY EXAMINED THE OTHER JUDGM ENTS REFERRED TO BY THE ASSESSEE, BUT THEY ARE ALL ON DIFFERENT ISSUES. BUT FROM CAREFUL PERUSAL OF THOSE JUDGMENTS, IT HAS EMERGED THAT WHEREVER SO FTWARE AND HARDWARE ARE INEXTRICABLY CONNECTED OR LINKED AND THE SOFTWA RE CANNOT BE USED WITHOUT HARDWARE, SALE OF HARDWARE WOULD BE A PART OF SALE OF SOFTWARE. 12. IN THE INSTANT CASE, THE ORDER FOR SOFTWARE AND HARDWARE ARE PLACED SEPARATELY, THOUGH IN THE SAME ORDER, FOR DIFFERENT COSTS. THE SALE INVOICE OF SOFTWARE AND HARDWARE WAS ALSO RAISED SEPARATELY ON DIFFERENT DATES. THE MODE OF PAYMENT IS ALSO DIFFERENT FOR SOFTWARE AND HARDWARE. ITA NO.1430/BANG/2010 PAGE 17 OF 18 MOREOVER, THE ORDER WAS NOT PLACED FOR SUPPLY OF PA RTICULAR HARDWARE AND SOFTWARE ONLY. THE ORDER WAS PLACED FOR THE SUPPLY OF SOFTWARE AS WELL AS HARDWARE AND NOTHING HAS BEEN ESTABLISHED ON RECORD THAT THE SAID SOFTWARE CANNOT BE USED WITHOUT HARDWARE. IN LIGHT OF THESE FACTS, WE ARE OF THE CONSIDERED OPINION THAT SALE OF HARDWARE CAN NOT BE A PART OF SOFTWARE EXPORTED BY THE ASSESSEE. THUS, WE HAVE N O HESITATION IN HOLDING THAT SALE OF HARDWARE CANNOT BE A PART OF EXPORT TU RNOVER. 13. SO FAR AS THE OTHER ASPECT IS CONCERNED, WE ARE OF THE VIEW THAT THE TRIBUNAL HAS ALREADY TAKEN A VIEW IN THE EARLIER OR DER THAT ONCE A SALE OF PARTICULAR ITEM IS NOT CONSIDERED TO BE PART OF EXP ORT TURNOVER, IT CANNOT BE CONSIDERED AS PART OF TOTAL TURNOVER IN LIGHT OF TH E DECISION OF TATA ELXSI LTD. (SUPRA) AND THE DECISION OF THE SPECIAL BENCH IN THE CASE OF ITO V. SAK SOFT LTD. [2009] 30 SOT 55) IN WHICH IT HAS BEEN HELD THAT WHATEVER HAS BEEN EXCLUDED FROM THE EXPORT TURNOVER HAD TO BE EX CLUDED FROM THE TOTAL TURNOVER ALSO, SINCE TOTAL TURNOVER INCLUDES EXPORT TURNOVER AS WELL. IN LIGHT OF THESE FINDINGS, WE UPHOLD THE ORDER OF THE CIT(A PPEALS) THAT SALE OF HARDWARE COMPONENT WOULD BE EXCLUDED FROM THE EXPOR T TURNOVER AND FOR THE RECOMPUTATION OF DEDUCTION U/S. 10A, THE MATTER IS RESTORED TO THE ASSESSING OFFICER IN THE TERMS INDICATED ABOVE. ITA NO.1430/BANG/2010 PAGE 18 OF 18 14. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 12 TH DAY OF AUGUST, 2016. SD/- SD/- ( ABRAHAM P. GEORGE ) (SUNIL KUMAR YA DAV ) ACCOUNTANT MEMBER JUDIC IAL MEMBER BANGALORE, DATED, THE 12 TH AUGUST, 2016. /D S/ COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.