DCIT, CHENNAI V. Mahathi Infotech Pvt Ltd., CHENNAI

ITA 1944/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7895 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 29-12-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 27-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V NANDA KUMAR
• Assessee Lawyers: T BANUSEKAR

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . . , BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO. 1943 & 1944/MDS/2016 / ASSESSMENT YEAR : 2010-11 & 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(1), CHENNAI. V. M/S. MAHATI INFOTECH PVT. LTD., NO.52, FIRST MAIN ROAD, NANGANALLUR, CHENNAI 600 061. PAN: AAFCM5458G ( /APPELLANT) ( !' /RESPONDENT) # /APPELLANT BY : SHRI V. NANDAKUMAR, JCIT !' # /RESPONDENT BY : SHRI T. BANUSEKAR, CA # /DATE OF HEARING : 29.12.2016 # /DATE OF PRONOUNCEMENT : 31.01.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGAI NST THE RESPECTIVE ORDER OF COMMISSIONER OF INCOME TAX (APP EALS) 8 DATED 31.03.2016 AND PERTAIN TO THE ASSESSMENT YEAR 2010-11 & 2011-12. SINCE, COMMON ISSUE ARISES FOR CONSIDERAT ION IN BOTH APPEALS WE HEARD THE SAME TOGETHER AND DISPOSING OF F THE SAME BY THIS COMMON ORDER. 2 I.T.A. NO. 1943 & 1944/MDS/2016 2. SHRI V. NANDAKUMAR, THE LD. DEPARTMENTAL REPRESE NTATIVE SUBMITTED THAT THE ASSESSEE CLAIMED EXEMPTION UNDER SECTION 10A OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT), O N THE GROUND THAT IT WAS DEVELOPING SOFTWARE. ACCORDING TO THE LD. D .R., THE ASSESSEE HAS NOT DEVELOPED ANY SOFTWARE. IN FACT, THE SOFTW ARE WAS DEVELOPED BY M/S. EASY DESIGN SYSTEMS. THE ASSESSE E PURCHASED THE SOFTWARE FROM M/S. EASY DESIGN SYSTEMS AND EXPO RTED THE SAME. THE LD. D.R., FURTHER SUBMITTED THAT THE SOU RCE CODE FOR THE SOFTWARE REMAINS WITH M/S. EASY DESIGN SYSTEMS. TH EREFORE, THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION UNDER SECTIO N 10A OF THE ACT. REFERRING TO SECTION 10A OF THE ACT, THE LD. D.R., SUBMITTED THAT SECTION 10(A) IS APPLICABLE ONLY IN RESPECT OF THE ASSESSEE WHO MANUFACTURE OR PRODUCE COMPUTER SOFTWARE AND NOT FO R PURCHASERS OF THE COMPUTER SOFTWARE. REFERRING TO THE JUDGMEN T OF THE MADRAS HIGH COURT IN ELGI ULTRA INDUSTRIES LIMITED (2012) 25 TAXMANN.COM 561 (MAD), THE LD. D.R., SUBMITTED THAT THE REVENUE HAS FILED A SPECIAL LEAVE PETITION BEFORE THE SUPREME COURT AND THE SAME IS PENDING. THE LD. D.R., PLACED HIS RELIANCE ON THE JUDGMENT IN THE GUJARAT HIGH COURT IN THE CASE OF DEEPKIRAN FOODS ( P) LTD V ACIT (2014) 46 TAXMANN.COM 415 AND SUBMITTED THAT WHEN T HE COMPUTER 3 I.T.A. NO. 1943 & 1944/MDS/2016 SOFTWARE WERE MANUFACTURED BY OTHER COMPANIES, THE ASSESSEE IS NOT ENTITLED FOR EXEMPTION UNDER SECTION 10A OF THE ACT. ACCORDING TO THE LD. D.R., THE CIT (APPEALS) OUGHT NOT TO HAV E FOLLOWED THE JUDGMENT OF THE MADRAS HIGH COURT IN M/S. ELGI ULTR A INDUSTRIES LIMITED ( SUPRA) . 3. ON THE CONTRARY, SHRIT. BANUSEKAR, THE LD. REPRE SENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE SOFTWARE DEVELOPED BY THE ASSESSEE IS THE PRODUCT OF THE ASSESSEE COMPANY. T HE SOFTWARE WAS DEVELOPED UNDER THE INSTRUCTION, CONTROL AND SU PERVISION OF THE ASSESSEE. MERELY BECAUSE THE ASSESSEE OUT SOURCED THE DEVELOPMENT OF SOFTWARE IT DOES NOT DISENTITLE THE ASSESSEE FOR CLAIMING EXEMPTION UNDER SECTION 10A OF THE ACT. M /S. EASY DESIGN SYSTEMS ALSO HAS NOT MADE ANY CLAIM AS SUPPORTING M ANUFACTURER. ACCORDING TO THE LD. REPRESENTATIVE THE SOURCE CODE REMAINS WITH THE ASSESSEE AND THE ASSESSEE REMAINS TO BE THE OWN ER OF THE SOFTWARE. ON AN IDENTICAL STATE OF FACTS, THE MADR AS HIGH COURT IN M/S. ELGI ULTRA INDUSTRIES LIMITED ( SUPRA) EXAMINED THE ISSUE AND FOUND THAT AS LONG AS THE EFFECTIVE INVOLVEMENT OF THE ASSESSEE IS THERE IN THE FORM OF QUALITY CONTROL, SUPPLY OF MAT ERIAL, ETC., EVEN IF IT WAS OUTSOURCED THE ASSESSEE IS ENTITLED FOR EXEMPTI ON UNDER 4 I.T.A. NO. 1943 & 1944/MDS/2016 SECTION 10A OF THE ACT. THEREFORE THE CIT (APPEAL S) BY RIGHTLY PLACING HIS RELIANCE IN THE ORDER OF THE MADRAS HIG H COURT IN M/S. ELGI ULTRA INDUSTRIES LIMITED ALLOWED THE CLAIM OF THE ASSESSEE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT APPE ARS THE CODING AND PROGRAMMING IS DONE THROUGH M/S. EASY DESIGN SY STEMS. THE ASSESSEE CLAIMS THAT THE CODING WAS DONE UNDER ITS SUPERVISORY CONTROL. THE QUESTION ARISES FOR CONSIDERATION, WH EN THE SOFTWARE WAS DEVELOPED BY M/S. EASY DESIGN SYSTEMS UNDER THE SUPERVISORY CONTROL OF THE ASSESSEE, WHETHER IT WOULD AMOUNT TO MANUFACTURE OF SOFTWARE FOR CLAIMING DEDUCTION UNDER SECTION 10A O F THE ACT. WE HAVE CAREFULLY GONE THROUGH THE JUDGMENT OF THE MAD RAS HIGH COURT IN M/S. ELGI ULTRA INDUSTRIES LIMITED. IN THE CASE BEFORE MADRAS HIGH COURT, THE ASSESSEE CLAIMED DEDUCTION UNDER SECTION 80IA OF THE ACT IN RESPECT OF A NEW DIVISION CALLED ULTRA DIVI SION WHICH ENGAGED IN THE MANUFACTURE AND SALE OF GRINDERS. T HE ASSESSEE CLAIMED THAT THE PROCESS OF ASSEMBLY WAS DONE THROU GH TWO JOB WORKERS. THE ASSESSEE HAS ALSO CLAIMED THAT MANUFA CTURING ACTIVITY STARTING FROM PLANNING, PROCURING OF RAW MATERIALS, INSPECTION, TESTING AND QUALITY CONTROL NORMS ARE DECIDED BY TH E ASSESSEE. 5 I.T.A. NO. 1943 & 1944/MDS/2016 THOUGH THE ASSEMBLY WAS DONE THOUGH JOB WORKERS, TH E FINANCE, PLANNING, ADVERTISEMENT, INSPECTION ETC., ARE UNDER TAKEN BY THE ASSESSEE. IN THESE FACTUAL CIRCUMSTANCES, THE MADR AS HIGH COURT FOUND THAT THE QUESTION AS TO WHETHER THE ASSESSEE WAS ENGAGED IN THE MANUFACTURING PROCESS OR NOT HAS TO BE SEEN IN THE CONTEXT OF CONTROL EXERCISED BY THE ASSESSEE. THE HIGH COURT FOUND THAT SINCE THE ASSESSEE WAS EXERCISING CONTROL IN THE DEVELOPM ENT OF THE PRODUCT, THE ASSESSEE IS ENTITLED FOR DEDUCTION UND ER SECTION 80IA OF THE ACT. 5. WE HAVE CAREFULLY GONE THE PROVISION OF SECTION 80IA OF THE ACT. THE SECTION 80IA OF THE ACT PROVIDES FOR DEDU CTION OF THE PROFITS DERIVED FROM ANY BUSINESS OF MANUFACTURING OR PRODUCING ANY ARTICLE OR THING. SINCE THE HIGH COURT FOUND THAT ON THE IDENTICAL SET OF FACTS THAT THE MANUFACTURING OF GOODS UNDER THE DIRECT SUPERVISORY CONTROL WOULD AMOUNT TO MANUFACTURING ACTIVITY OF T HE ASSESSEE ITSELF, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT (APPEALS) HAS RIGHTLY FOUND THAT THE ASSESSEE IS MA NUFACTURING COMPUTER SOFTWARE BY PLACING HIS RELIANCE ON THE JU DGMENT OF THE MADRAS HIGH COURT IN M/S. ELGI ULTRA INDUSTRIES LIM ITED (SUPRA). 6 I.T.A. NO. 1943 & 1944/MDS/2016 6. IN THIS CASE ALSO, THE ASSESSEE ENGAGED M/S. EAS Y DESIGN SYSTEMS FOR CODING OR WRITING PROGRAM. THE FINANCE , SUPERVISORY CONTROL REMAINS WITH THE ASSESSEE. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION, WHEN THE SOFTWARE WAS DEVELOPED UNDER THE DIRECT SUPERVISION OF THE ASSESSEE BY INVESTING ITS OWN FUNDS, IT HAS TO BE CONSTRUED AS THE ASSESSEE IS DEVELOPING THE S OFTWARE. THEREFORE, THE ASSESSEE IS ELIGIBLE FOR EXEMPTION U NDER SECTION 10A OF THE ACT. IN VIEW OF THE ABOVE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY. ACCORDINGLY, THE SAME IS CONFIRMED. 7. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED ON 31 ST JANUARY, 2017 AT CHENNAI. SD/- SD/- (.. ) (... ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) /ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, /DATED, THE 31 ST JANUARY, 2017. 7 I.T.A. NO. 1943 & 1944/MDS/2016 # ! $ % $ /COPY TO: 1. /APPELLANT 2. !' /RESPONDENT 3. &' ( )/CIT(A)-8, CHENNAI 4. &' /CIT 5. ! $ /DR 6. () /GF.