Kiran Kapoor, New Delhi V. ITO, New Delhi

ITA 3911/DEL/2009

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6347 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-05-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 13-02-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 17-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S N BHATIA
• Assessee Lawyers: HARKUND SINGH
• Keywords: Earning of tax free income
• Section: 143(3); 80HHC; 234B; 10B; 12

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI S.V. MEHROTRA , ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 3911 /DEL/ 2009 (ASSESSMENT YEAR: 2006 - 07 ) KIRAN KAPOOR W - 23, GREATER KAILASH, NEW DELHI 110048 VS. ITO WA RD - 23(2) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : SR. ADV. M. S. SY ALI , TARANDEEP SINGH AND HARKUND SINGH RESPONDENT BY: S. N. BHATIA, SR. DR O R D E R PER A. T. VARKEY , JUDICIAL MEMBER THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) - XXII , NEW DELHI DATED 20 - 08 - 2009 FOR THE ASSESSMENT YEAR 2006 - 07 . 2. THE GROUNDS OF APPEAL ARE AS FOLLOWS: - 1. THAT ON THE FACTS AND IN LAW THE COMMISSIONER OF INCOME TAX (APPEALS) (HEREINAFTER REFERRED TO AS THE CIT(A)) ERRED IN UPHOLDING THE DISALLOWANCE OF DEDUCTION U/S 10B OF THE INCOME TAX ACT (HEREINAFTER REFERRED TO AS THE ACT) 2. THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN HOLDING THAT CONDITION ST IPULATED BY SECTION 10B(2)(I) IS NOT SATISFIED. 3. THAT ON FACTS AND IN LAW THE CIT(A) ERRED IN UPHOLDING THE LEVY OF INTEREST U/S 234B AND 234D OF THE ACT. 4. THAT ON THE FACTS AND IN LAW THE ORDERS PASSED BY BOTH THE CIT(A)AND THE ASSESSING OFFICER ARE VOID AB INITIO AND BAD IN LAW. 3. GROUND NO. 1 AND 2 ARE SAME THEREFORE IT IS ADJUDICATED TOGETHER. 4. APROPOS DISALLOWANCE ON DEDUCTION U/S 10B(2)(I) OF THE INCOME TAX ACT, 1961 (HEREIN AFTER THE ACT). 5. THE BRIEF FACTS OF THE CASE ARE AS FOLLOWS. THE ASSESSEE IS AN INDIVIDUAL, WHO FILED HER RETURN DECLARING AN INCOME OF RS. 6,34,607/ - . SUBSEQUENTLY A NOTICE U/S 143(2) WAS ISSUED BY THE ASSESSING OFFICER , WHICH CULMINATED IN AN ORDER U/S 143(3) DATED 24.12.2008. DURING THE ASSESSMENT PROCEEDINGS , T HE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD CLAIMED EXEMPTION U/S 10B OF THE PAGE NO. 2 ACT TO THE TUNE OF RS. 39,32,65 4/ - . ASSESSEE H A S CLAIMED TO BE A SOFTWARE EXPORTER TO NETHERLAND TO ONE MR. ROLLI JANSEN B. V. AND HAD CLAIMED DEDUCTION U/S 10B, WHICH HAS BE EN DISALLOWED BY THE ASSESSING OFFICER. DURING THE ASSESSMENT PROCEEDING S THE ASSESSING OFFICER SENT A NOTICE DATED 05.12.2008 TO THE ASSESSEE WHICH READS AS UNDER: - IN YOUR RETURN YOU HAVE SHOWN EXEMPT INCOME U/S 10B OF THE INCOME TAX ACT, 1961 AMOUNTING RS. 39,32,653/ - . WHILE EXAMINING THE DETAILS AND DOCUMENTS FILED ON RECORD IT CAME TO MY KNOWLEDGE YOU HAVE SHOWN EXEMPTION ON ACCOUNT OF DESIGN LAYOUT FORMATION AND SCANNING OF BOOKS 6. AFTER REPRODUCING THE REPLY OF THE ASSESSEE IN THE ASSESSMENT OR DER THE ASSESSING OFFICER HAS OBSERVED WHILE DISALLOW ING THE CLAIM MADE U/S 10(B) AS UNDER: - REPLY OF THE ASSESSEE IS NOT AS PER ACT DEFINITION HENCE ADDITION OF RS. 39,32,654/ - IS BEING MADE. IN VIEW OF THE ABOVE FACTS AND MATERIAL AVAILABLE ON RECORDS, THE INCOME OF THE ASSESSEE IS COMPUTED AS UNDER: - INCOME RETURNED RS. 6,34,607.12 (AS PER COMPUTATION) ADDITION ON ACCOUNT OF SECTION 10B(2)(I) AS DISCUSSED ABOVE RS. 39,32,654.00 NET TAXABLE INCOME RS. 45,67,261.13 NET TAXABLE INCOME ROUNDED OFF RS. 45,67,260.00 7. AGGRIEVED BY THE SAID ORDER OF THE ASSESSING OFFICER THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) , WHO WAS PLEASED TO DISMISS THE SAME. AGGRIEVED BY THE SAID ORDER OF THE LD CIT(A) THE ASSESSEE IS BEFOR E US. 8. LD SR. ADVOCATE SHRI M. S . SY ALI APPEARING FOR THE ASSESSEE STATED THAT THE ASSESSEES BUSINESS INVOLVED THE EXPORT OF SOFTWARE OF READY TO PRINT BOOKS. THE TERM SOFTWARE MEANS READY TO PRINT FILES FOR ILLUSTRATED BOOKS WHICH THEIR CLIENT HAVE TO FORWARD TO THEIR RESPECTIVE PRINTERS TO GET THE FINISHED PHYSICAL PRODUCTS. ACCORDING TO THE LD SR. COUNSEL THERE ARE FOUR STAGES FOR THE COMPLETION OF THEIR PRODUCTS AND POINTED OUR ATTENTION TO PAGE 58 OF THE PAPER BOOK. THE FIRST STAGE IS THE COLLECT ION OF MATERIAL, WHERE THE ASSESSEE HAS TO COLLECT THE RAW MATERIAL THAT GOES INTO MAKING OF THE FINAL FILES. THIS RAW MATERIAL COMPRISES MAINLY OF TEXT AND PHOTOGRAPHS. VARIOUS AUTHORS, PHOTOGRAPHS, PHOTO AGENCIES ARE THE PROVIDERS OF THIS MATERIAL DEPEND ING ON THE SUBJECT OF PAGE NO. 3 THE BOOK. IT WAS STATED THAT THIS IS DONE BY COLLECTING DATA FROM VARIOUS SOURCES INCLUDING INTERNET. REFERRING TO A SPECIFIC WORK CONDUCTED BY THE APPELLANT IN A BOOK TITLED 100 WONDERS OF INDIA IT WAS SUBMITTED THAT THE APPELLANT HAD ENGAGED A FREELANCE MR NIRAD GROVER FOR COLLECTION OF PHOTOGRAPHS NECESSARY FOR PRODUCTION OF THE BOOK. THE SENIOR COUNSEL ALSO SPECIFICALLY REFERRED TO COPY OF AGREEMENT WITH MR NIRAD GROVER ENCLOSED AT PAGES 63 64 OF THE PAPER BOOK . THUS, ALL THIS MA TERIAL S COLLECTED BY THE ASSESSEE WILL BE I N AN EDITED STATE . WHEN THIS EXERCISE IS OVER, THEN IT PROCEEDS TO THE NEXT STAGE OF DESIGN AND LAYOUT. HERE THE DESIGNERS TAKE THE RAW MATERIAL AND USE IT TO MAKE THE LAYOUT OF THE BOOK WITHIN THE GIVEN PARAMETER AND SPECIFICATIONS OF THEIR CLIENTS. THE MATERIAL S NEED TO BE DESIGNED AND LAID OUT IN A MANNER WHICH FITS THE SIZE AND NUMBER OF PAGES GIVEN FOR THE PARTICULAR BOOK. ACCORDING TO THE SR. COUNSEL , THIS STAGE IS A SPECIALIZED STAGE AND THE ASSESSEE S BOOK DESIGNERS ARE EXPERTS IN THE FIELD OF MAKING LAYOUTS THAT ARE UNIQUE AND USER FRIENDLY. AFTER DESIGNING AND LAYING OUT OF THE MATERIALS IN THE MANNER PRESCRIBED BY THEIR CUSTOMERS , COMES THE NEXT STAGE. THE THIRD STAGE IS THE SCANNING AND COLOR CORRECTION . FOR THAT THE IMAGES WHICH ARE USED IN THE BOOK NEED TO BE OF A GOOD PRINT QUALITY ; AND THEY HAVE TO GO THOUGH A STAGE THAT IS KNOWN AS S CANNING AND COLOR CORRECTION . HERE EACH PHOTOGRAPH IS SCANNE D ( WHICH IS PROVIDED TO THEM IN A H ARD FORMAT) AND THE C OLOR CORRECTION HAPPENS ON THE DIGITAL FORMAT. ACCORDING TO THE SR . COUNSEL , EXPERTS IN THIS FIELD USES APPLICATION IN SOFTWARES LIKE ACROBAT READER AND QUARKX PRESS, TWEAK THE DATE, PHOTOGRAPHS AND COLOURS AND REMOVE BLEMISHES SO AS TO MAKE THE FINAL PRO DUCT I.E. THE BOOK APPEA R ING TO THE EYES OF THE CLIENT AND CUSTOMERS. A HARD COPY OF THE BOOK 100 WONDERS OF INDIA WAS ALSO SHOWN TO US TO DEMONSTRATE THE ENTIRE TRANSFORMATION PROCESS, SO THAT THE BEST RESULTS CAN BE SEEN IN THE FINAL PRODUCT. AFTER THI S STAGE FINISHES , THE NEXT STAGE I.E STAGE FOUR , THEN HAS TO EMBED THE HIGH RESOLUTION COLOR CORRECTED IMAG ES INTO THE LAY OUT AND PREPARE THE FINAL FILES (SOFTWARE) THAT ARE READY TO BE EXPORTED ON A CD OR ELECTRONICALLY ONTO THE SERVERS O F THEIR CLIENT. THESE FILES, ACCORDING TO THE SR . COUNSEL ARE THE FINAL DESIGNED AND LAID OUT FILES WHICH HAVE THE HIGH RESOLUTION IMAGES EMBEDDED IN IT ; AND ACCORDING TO HIM, SATISFI E S THE DEFINITION OF SOFTWARE AS PER SECTION 10( B ) OF THE ACT ; AND ALSO IT FALLS UNDER TH E NOTIFICATION ISSUED BY THE CBDT AND RELIED PAGE NO. 4 UPON THE JUDGEMENT OF CHENNAI BENCH OF ITAT IN THE CASE OF THE ITO, CH ENNAI VS. ACCURUM INDIA (P) LTD; AND THE LD SR. COUNSEL CONTENDED THAT SUB - CLAUSE (B) OF CLAUSE (I) OF EXPLANATION 2 TO SECTION 10A GIVES THE MEANING OF THE TERM COMPUTER SOFTWARE. ONE OF THE MEANING GIVEN IS ANY CUSTOMIZED ELECTRONIC DATA OR ANY PRODUCT OR SERVICE OF SIMILAR NATURE, AS MAY BE NOTIFIED BY THE BOARD. IN OTHER WORDS, IF AN ASSESSEE IS ENGAGED IN THE EXPORT OF ANY CUSTOMIZED ELE CTRONIC DATA, THEN, PROFIT EARNED FROM SUCH EXPORT WOULD QUALIFY FOR DEDUCTION U/S 10A. LD SR. COUNSEL POINTED OUT THAT SUB - CLAUSE (A) REFERS TO ANY COMPUTER PROGRAMME, SUB - CLAUSE (B) REFERS TO ANY CUSTOMIZED ELECTRONIC DATA. ACCORDING TO THE SR. COUNSEL, THE COMPUTER PROGRAMME REFERRED TO IN SUB - CLAUSE (A) MAY OR MAY NOT BE CUSTOMIZED AND MAY BE USEFUL FOR GENERAL APPLICATION. THEREFORE, THE LD SR. COUNSEL EMPHASIZED THAT THE ELECTRONIC DATA REFERRED TO IN SUB - CLAUSE (B) NECESSARILY HAS TO BE CUSTOMIZED. THE WORD CUSTOMIZED MEANS THAT THE DATA IS SUITABLE FOR A SPECIFIC CUSTOMER ONLY ; AND HE ADDED THAT SINCE THE EXPRESSION CUSTOMIZED ELECTRONIC DATA IS QUITE GENERAL IN NATURE AND ALSO CONSIDERING THE FACT THAT THE COMPUTER APPLICATIONS ARE FAST EXPANDING , ONE CANNOT VISUALIZE AS TO WHAT TYPE OF PRODUCTS OR SERVICES WILL COME UP IN FUTURE , THAT THE PARLIAMENT IN ITS WISDOM HAS DELEGATED THIS POWER TO CBDT TO ISSUE NECESSARY NOTIFICATION IN THIS REGARD. TAKING INTO CONSIDERATION THIS ASPECT THE CBDT HAS EXE RCISED ITS DELEGATED POWER TO SPECIFY INFORMATION TECHNOLOGY ENABLED PRODUCTS OR SERVICES AS PER CLAUSE (B) OF (1) OF EXPLANATION TO SECTION 10B AND HAS NOTIFIED THE SAME. THE SR. COUNSEL DREW OU R ATTENTION TO THE SAID NOTIFICATION OF THE CBDT WHICH IS RE PRODUCED AS UNDER: - 13.2 THE NOTIFICATION, REFERRED TO IN CLAUSE (B) OF EXPLANATION 2(I) ABOVE, ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES DATED 26 - 9 - 2000, IS AS UNDER: 'S.O.890(E) - IN EXERCISE OF THE POWERS CONFERRED BY CLAUSE (B) OF ITEM (L) OF EXPLA NATION 2 OF SECTION LOA. CLAUSE (B) OF ITEM (L) OF EXPLANATION 2 TO SECTION LOB AND CLAUSE (B) TO EXPLANATION TO SECTION 80HHC OF THE INCOME - TAX ACT, 1961 (43 OF 1961), THE CENTRAL BOARD OF DIRECT TAXES HEREBY SPECIFIES THE FOLLOWING INFORMATION TECHNOLOGY ENABLED PRODUCTS OR SERVICES AS THE CASE MAY BE FOR THE PURPOSE OF SAID CLAUSES NAMELY : - (L) BACK - OFFICE OPERATIONS (II) CALL CENTRES (IIL) CONTENT DEVELOPMENT OR ANIMATION (IV) DATA PROCESSING (V) ENGINEERING AND DESIGN PAGE NO. 5 (VI) GEOGRAPHIC INFORMATION SYSTEM SERVICES (VII) HUMAN RESOURCES SERVICES (VIIL) INSURANCE CLAIM PROCESSING (IX) LEGAL DATABASES (X) MEDICAL TRANSCRIPTION (XL) PAYROLL (XII) REMOTE MAINTENANCE (XIIL) REVENUE ACCOUNTING (XIV) SUPPORT CENTRES AND (XV) WEB - SITE SERVICES 9 . I T WAS SUBMITTED BY SHRI SYALI THAT AS STATED BEFORE SECTION 10B GRANTS A BENEFIT FOR MANUFACTURES OR PRODUCES ANY ARTICLES OR THINGS OR COMPUTER SOFTWARES . THE TERMS COMPUTER SOFTWARE HAS THEREAFTER BEEN DEFINED IN EXPLANATION 2 TO INCLUDE AS UNDER: - ( A) ANY COMPUTER PROGRAMME RECORDED ON ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE; OR (B) ANY CUSTOMIZED ELECTRONIC DATA (C) ANY PRODUCT OR SERVICE OF SIMILAR NATURE AS MAY BE NOTIFIED BY THE BOARD. 10 . RELYING UPON THE ABOVE STAT UTORY PROVISIONS IT WAS SUBMITTED BY SHRI SYALI THAT A STATUTE GRANTING EXEMPTION HAS TO BE INTERPRETED LIBERALLY AND IN A BENEFICIAL MANNER. FURTHER HE SUBMITTED THAT THE PHRASE MANUFACTURE OR PRODUCE HAS TO BE GIVEN A CONTEXTUAL INTERPRETATION. IT WAS SUBMITTED THAT THE WAY CIT(A) HAS INTERPRETED THIS PHRASE WOULD MAKE THE PROVISIONS OF THIS SECTION OTIOSE AS REGARDS THE SERVICES NOTIFIED BY CBDT. BY RELYING UPON THE DECISION OF APEX COURT IN CASE OF SULTANA BEGUM V. PREM CHAND JAIN [1997] 1 SCC 373 IT WAS CONTEND THAT THE STATUTE HAS TO BE READ AS A WHOLE TO FIND OUT THE REAL INTENTION OF THE LEGISLATURE. IT WAS FURTHER SUBMITTED BY THE LD SR. ADVOCATE THAT THE NATURE OF ACTIVITIES CARRIED OUT BY THE APPELLANT NEED TO BE CONSIDERED IN THE CONTEXTUAL REQ UIREMENTS AND DEFINITELY IT WOULD TANTAMOUNT TO PRODUCTION IF NOT MANUFACTURE SINCE THE LATER IS LARGER IN MAGNITUDE AND IS MORE EXPANSIVE AND LIBERAL THAN THE TERM MANUFACTURE. IN SUPPORT OF THIS PROPOSITION SHRI SYALI RELIED UPON THE DECISION OF J URISDICTIONAL HIGH COURT IN CASE OF CIT VS. LOVESH JAIN REPORTED IN 204 TAXMAN 134(DEL). PAGE NO. 6 11 . DURING THE COURSE OF HEARING AN EXAMPLE OF LEGAL DATABASE WAS GIVEN BY THE SENIOR COUNSEL. IN REGARD TO THIS HE CITED EXAMPLE OF ITRS O N CD AND TAXMANN ON CD . ACCORDING TO HIM, T HESE SOFTWARES HELP IN CUSTOMIZING ALREADY EXISTING COURT JUDGMENTS (WHICH ARE EASILY AVAILABLE IN PUBLIC DOMAIN) IN AN ELECTRONIC FORM SO THAT THEY CAN BE EASILY VIE WED AND RUMMAGED. LIKEWISE IT WAS SUBMITTED THAT THE ACTIVITIES CARRIE D ON BY THE ASSESSEE ARE ALSO MORE AKIN TO THE CONTENT DEVELOPMENT OR ANIMATION SERVICE, DATA PROCESSING SERVICE OR BACK - OFFICE OPERATION NOTIFIED BY CBDT UNDER EXPLANATION2 CLAUSE (1) SUB - CLAUSE(B) TO SECTION 10B. 12 . IT WAS FINALLY CONTENDED BY SHRI SY ALI THAT THE NATURE OF ACTIVITIES CARRIED OUT BY THE APPELLANT IN THE INSTANT CASE WOULD UNDISTINGUISHABLY BE CUSTOMIZED ELECTRONIC DATA WHICH DOES QUALIFY FOR DEDUCTION U/S 10B. IT WAS SUBMITTED THAT THE READY TO PRINT E - BOOKS EXPORTED BY THE APPELLANT ARE TAILOR MADE TO MEET THE REQUIREMENTS OF A PARTICULAR CLIENT / CUSTOMER. IT WAS SUBMITTED THAT AFTER COLLECTING DATA AND PICTURES FROM VARIOUS SOURCES , THE DESIGNING OF THE ENTIRE CONTENT IS DONE AS PER THE CLIENT S SPECIFIC REQUIREMENTS. TO THRUST HIS POINT FURTHER IT WAS SUBMITTED BY THE SENIOR COUNSEL THAT E - PRINTS OF BOOK 100 WONDERS OF INDIA WAS A PROJECT WHICH WAS UNDERTAKEN BY THE APPELLANT IN MANY FOREIGN LANGUAGES INCLUDING ENGLISH. LASTLY IT WAS SUBMITTED BY SHRI SYALI THAT THE ABOVE INTERPRE TATION OF PHRASE CUSTOMIZED ELECTRONIC DATA HAS NOW BEEN WELL SETTLED BY THE FOLLOWING CO - ORDINATE BENCH DECISIONS: ACCURUM INDIA PVT LIMITED REPORTED IN 126 ITD 69(DEL)(TM) M.L OUTSOURCING SERVICES PVT LIMITED 104 TTJ 59(DEL)(URO) CYBERTECH SYSTEMS & SO FTWARE LIMITED REPORTED IN 149 TTJ 17(MUM) AMADEUS INDIA (P.) LTD. 79 ITD 407 (DELHI) 13 . IN REPLY THE LD SENIOR DR ON THE OTHER HAND SUPPORTED THE ORDERS PASSED BY ASSESS ING OFFICER AND LD CIT(A). IT WAS SUBMITTED BY THE LD SR DR THAT THE APPELLANT HAS NOT BEEN ABLE TO CLEARLY DEMONSTRATE THE COMPUTER SOFTWARE, WHICH IT MANUFACTURES OR PRODUCES. THE LD SR. DR ARGUED THAT THE CONDITIONS GIVEN IN CLAUSE (B) OF EXPLANATION 2( 1), NAMELY, ANY CUSTOMIZED ELECTRONIC DATA OR ANY PRODUCT OR SERVICE OF SIMILAR NATURE, AS MAY BE NOTIFIED BY THE PAGE NO. 7 CBDT, WHICH IS TRANSMITTED OR EXPORTED FROM INDIA TO ANY PLACE OUTSIDE INDIA BY ANY MEANS, HAD TO BE FULFILLED, BEFORE A CLAIM COULD BE ALLOW ED U/S 10A OF THE ACT. IT WAS THEREFORE SUBMITTED BY THE LD SR DR THAT BOTH THE AUTHORITIES BELOW HAVE RIGHTLY REJECTED THE CLAIM MADE BY THE APPELLANT AND THEREFORE THE CONCURRENT FINDING OF THE AUTHORI TIES BELOW MAY NOT BE DISTURBED. 14 . WE HAVE CAREFUL LY CONSIDERED THE SUBMISSIONS MADE BY BOTH THE PARTIES A ND MATERIAL AVAILABLE ON RECORD AND HAS GONE THROUGH THE CASE LAWS CITED BY BOTH THE PARTIES. SINCE THE DISPUTE CENTERS ON APPLICABILITY OF PROVISIONS OF SECTION 10B OF THE ACT, TO THE FACTS OF THE CA SE IT WILL BE APPOSITE TO FIRST CONSIDER THE RELEVANT STATUTORY PROVISIONS. SECTION 10B PROVIDES AS UNDER: 10B. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY A HUNDRED PER CENT EXPORT - ORIENTED UNDER TAKING FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE ASSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE ARTICLES OR THINGS OR COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSE E . .. (2) THIS SECTION APPLIES TO ANY UNDERTAKING WHICH FULFILLS ALL THE FOLLOWING CONDITIONS, NAMELY : (I) IT MANUFACTURES OR PRODUCES ANY ARTICLES OR THIN GS OR COMPUTER SOFTWARE; (II) IT IS NOT FORMED BY THE SPLITTING UP, OR THE RECONSTRUCTION, OF A BUSINESS ALREADY IN EXISTENCE : .. EXPLANATION 2. FOR THE PURPOSES OF THIS SECTION, (I) 'COMPUTER SOFTWARE' MEANS (A) ANY COMPUTER PROGRAMME RECORDED ON ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE; OR (B) ANY CUSTOMIZED ELECTRONIC DATA OR ANY PRODUCT OR SERVICE OF SIMILAR NATURE AS MAY BE NOTIFIEDBY THE BOARD, WHICH IS TRANSMITTED OR EXPORTED FROM INDIA TO ANY PLACE OUTSIDE IND IA BY ANY MEANS 15 . BARRING APPLICABILITY OF SECTION 10B(2)(I) OF THE ACT, WHICH IS THE SUBJECT MATTER OF DISPUTE IN THE INSTANT CASE IT IS ADMITTED BY BOTH THE PARTIES THAT ALL OTHER CONDITIONS RELEVANT TO APPLICABILITY OF SECTION 10B ARE BEING SATISFIED BY THE TAXPAYER. IN OUR CONSIDERED OPINION THE MEANING OF A PHRASE OR WORD HAS TO BE SEEN IN THE FRAMEWORK OF THE CONTEXT IN WHICH IT HAS BEEN USED. PHRASE MANUFACTURE OR PRODUCE WILL HAVE A DIFFERENT CONTEXTUAL MEANING WHEN IT IS PAGE NO. 8 READ IN A STATUTE LE T US SAY FOR E . G. THE EXCISE LAW, SINCE THE PARLIAMENTARY INTENTION THERE WILL BE TO ATTRACT LEVY OF TAX, HOWEVER IN THE PRESENT CASE WE ARE CALLED UPON TO INTERPRET THIS PHRASE AS APPLICABLE TO A STATUTE GRANTING BENEFIT OF AN EXEMPTION / DEDUCTION FROM T AXABLE TOTAL INCOME. IN THE INSTANT CASE THE INTENTION OF LEGISLATURE IS TO PROVIDE BENEFIT OF DEDUCTION TO ENTERPRISES WHICH ARE NOT SIMPLY ENGAGED IN MANUFACTURE OR PRODUCE ANY ARTICLE OR THING, BUT EVEN TO THOSE ASSESSES WHOSE END PRODUCT IS ANY CUSTOMI ZED ELECTRONICS DATA. BENEFIT OF DEDUCTION U/S 10B OF THE ACT, IS ALSO AVAILABLE ON RENDERING OF ANY OF THE SERVICES AS NOTIFIED BY THE BOARD LIKE THE ITEM (II) IN THE NOTIFICATION (SUPRA) WHEREIN EVEN CALL CENTERS, ANIMATION, ETC WHICH ARE BROUGHT IN THE SWEEP OF ANY PRODUCT OR SERVICES STATED IN CLAUSE (B) OF ITEM (I) OF EXPLANATION 2 TO SECTION 10B. THEREFORE WE FIND MERIT IN THE SUBMISSIONS MADE BY LD SR ADVOCATE SHRI SYALI THAT THE RESTRICTED SCOPE OF THE MEANING OF THIS PHRASE AS NARRATED BY THE LD CI T(A) IN ITS ORDER WOULD RESULT IN DIFFUSING AND DILUTING THE REAL LEGISLATIVE INTENTION AND THEREFORE MERITS REJECTION. SUPPORT IN THIS REGARD CAN BE DRAWN FROM THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN CASE OF LOVESH JAIN (SUPRA) RELIED UPON BY SHRI SYALI. IN THIS CASE IT HAS BEEN HELD BY THE HONBLE HIGH COURT AS UNDER: 10. THE WORD 'MANUFACTURE' CAN BE GIVEN, BOTH A WIDER AS WELL AS A NARROWER CONNOTATION. IN WIDER SENSE, IT SIMPLY MEANS TO MAKE, FABRICATE OR BRING INTO EXISTENCE AN ARTICLE O R PRODUCT EITHER BY PHYSICAL LABOUR OR BY MECHANICAL POWER. GIVEN A NARROWER CONNOTATION IT MEANS TRANSFORMING OF THE RAW MATERIAL INTO A COMMERCIAL PRODUCT/COMMODITY OR FINISHED PRODUCT WHICH HAS A NEW, SEPARATE ENTITY BUT THIS DOES NOT NECESSARILY MEAN T HAT THE MATERIAL BY WHICH THE COMMODITY IS MANUFACTURED MUST LOSE ITS IDENTITY. THE LATTER CONNOTATION HAS BEEN ACCEPTED AND APPLIED WITH SOME MODERATION/CLARIFICATION IN SEVERAL DECISIONS, KEEPING IN VIEW THE CONTEXT IN WHICH THE WORD 'MANUFACTURE' HAS BE EN USED. THE SUPREME COURT IN GRAPHIC COMPANY INDIA LTD. V. COLLECTOR OF CUSTOMS [2001] 1 SCC 549 AND UNION OF INDIA V. DELHI CLOTH AND GENERAL MILLS COMPANY LIMITED AIR 1963 SC 791 HAS HELD THAT MANUFACTURE HAS TO BE UNDERSTOOD TO MEAN TRANSFORMATION OF G OODS INTO A NEW COMMODITY COMMERCIALLY DISTINCT AND SEPARATE, AND HAVING ITS OWN CHARACTER, USE AND NAME WHETHER IT BE THE RESULT OF ONE OR SEVERAL PROCESSES. HOWEVER, EVERY CHANGE DOES NOT RESULT IN 'MANUFACTURE' THOUGH EVERY CHANGE IN AN ARTICLE MAY BE A RESULT OF TREATMENT OR MANIPULATION BY LABOUR OR/AND MACHINES. IF AN OPERATION OR PROCESS THAT RENDERS A COMMODITY OR ARTICLE FIT FOR USE, WHICH IT IS OTHERWISE NOT FIT, THE CHANGE/PROCESS FALLS WITHIN THE MEANING OF THE WORD 'MANUFACTURE'. PAGE NO. 9 11. WE MAY REF ER WITH PROFIT TO THE SUPREME COURT'S ELUCIDATION IN CIT V. TARA AGENCIES [2007] 292 ITR 444 / 162 TAXMAN 337 (SC). HEREIN THE SUPREME COURT HAS TURNED TO THE DEFINITION PROVIDED IN THE CENTRAL EXCISE ACT, 1944 AMONG OTHER RELEVANT DEFINITIONS. THE RELEVANT PARAGRAPHS OF THIS DECISION ARE REPRODUCED BELOW: '11. THE TERM MANUFACTURE HAS NOT BEEN DEFINED IN THE INCOME - TAX ACT, 1961. 12. THE TERM MANUFACTURE HAS BEEN DEFINED IN SECTION 2(F) OF THE CENTRAL EXCISE ACT, 1944. PARTS (I) AND (II) OF SECTION 2(F) READ AS UNDER: - 2(F). 'MANUFACTURE' INCLUDES ANY PROCESS - (I) INCIDENTAL OR ANCILLARY TO THE COMPLETION OF A MANUFACTURED PRODUCT; AND (II) WHICH IS SPECIFIED IN RELATION TO ANY GOODS IN THE SECTION OR CHAPTER NOTES OF THE SCHEDULE TO THE CENTRAL EXCISE TARIFF ACT, 1985 AS AMOUNTING TO MANUFACTURE'. 12A. CLAUSE (F) GIVES AN INCLUSIVE DEFINITI ON OF THE TERM 'MANUFACTURE'. ACCORDING TO THE DICTIONARY, THE TERM 'MANUFACTURE' MEANS A PROCESS WHICH RESULTS IN AN ALTERATION OR CHANGE IN THE GOODS WHICH ARE SUBJECTED TO THE PROCESS OF MANUFACTURING LEADING TO THE PRODUCTION OF A COMMERCIALLY NEW ARTI CLE. IN DETERMINING WHAT CONSTITUTES 'MANUFACTURE' NO HARD AND FAST RULE CAN BE APPLIED AND EACH CASE MUST BE DECIDED ON ITS OWN FACTS HAVING REGARD TO THE CONTEXT IN WHICH THE TERM IS USED IN THE PROVISION UNDER CONSIDERATION. 13. THE TERM MANUFACTURE HAS BEEN DEFINED BY THE BLACK LAW DICTIONARY (5TH EDITION) AS UNDER: 'MANUFACTURE : THE PROCESS OR OPERATION OF MAKING GOODS OR ANY MATERIAL PRODUCED BY HAND, BY MACHINERY OR BY OTHER AGENCY; ANYTHING MADE FROM RAW MATERIALS BY THE HAND, BY MACHINERY, OR BY A RT. THE PRODUCTION OF ARTICLES FOR USE FROM RAW OR PREPARED MATERIALS BY GIVING SUCH MATERIALS NEW FORMS, QUALITIES, PROPERTIES OR COMBINATIONS, WHETHER BY HAND LABOR OR MACHINE. 14. THE WORD 'MANUFACTURE' HAS BEEN DEFINED IN HALSBURY'S LAWS OF ENGLAND, 3R D ED. VOL. 29 P.23 AS UNDER: - 'MANUFACTURE HAS BEEN DEFINED AS A MANNER OF ADAPTING NATURAL MATERIALS BY THE HANDS OF MAN OR BY MAN - MADE DEVICES OR MACHINERY AND AS THE MAKING OF AN ARTICLE OR MATERIAL BY PHYSICAL LABOUR OR APPLIED POWER'; BUT THE PRACTICE IS TO ACCEPT AS 'MANUFACTURE' A WIDER RANGE OF INDUSTRIAL ACTIVITIES THAN SUCH A DEFINITION WOULD SUGGEST. IT INCLUDES ARTICLES MADE IN SITU AS WELL AS ARTICLES MADE IN A FACTORY. 15. THE SUPREME COURT OF THE UNITED STATES OF AMERICA HAS DEFINED THE TERM 'MANUFACTURE' A CENTURY AGO IN ANHEUSER - BUSCH BREWING ASSN. V. UNITED STATES (1907) 52 L ED. 336. THE DEFINITION HAS BEEN FOLLOWED IN SUBSEQUENT AMERICAN, ENGLISH AND INDIAN CASES. THE DEFINITION READS AS UNDER: MANUFACTURE IMPLIES A CHANGE, BUT EVERY CHAN GE IS NOT MANUFACTURE, AND YET EVERY CHANGE IN AN ARTICLE IS THE RESULT OF TREATMENT, LABOUR AND MANIPULATION. BUT SOMETHING MORE IS NECESSARY. PAGE NO. 10 ..THERE MUST BE TRANSFORMATION; A NEW AND DIFFERENT ARTICLE MUST EMERGE, .HAVING A DISTINCTIVE NAME, CHARACTER O R USE.' 12. AS NOTICED ABOVE, SECTION 10A/10B IS APPLICABLE WHEN AN UNDERTAKING MANUFACTURES, OR IS ENGAGED IN PRODUCTION OF ARTICLES OR THINGS. THE TERM 'PRODUCTION' HAS A LARGER MAGNITUDE AND IS MORE EXPANSIVE AND LIBERAL THAN THE TERM 'MANUFACTURE'. THE TERMS MANUFACTURE AND PRODUCE WERE INTERPRETED IN THE CIT V. TATA LOCOMOTIVE & ENGINEERING CO. LTD. [1968] 68 ITR 325 (BOM.), AND IT WAS HELD: - 'IN ITS ROOTS THE WORD 'MA NUFACTURE' COMES FROM THE LATIN WORD 'MANUS' WHICH MEANS 'HAND' (AND 'MANU' IS THE ABLATIVE OF THE WORD 'MANUS') AND THE WORD 'FACERE' WHICH MEANS 'TO MAKE'. IN ORIGIN, THEREFORE, THE WORD IMPLIED THE MAKING OF ANYTHING BY HAND, BY WITH THE PASSING OF TIME AND IN THE CONTEXT OF INDUSTRIAL DEVELOPMENT THE WORD HAS ACQUIRED A NUMBER OF SHADES OF MEANING. IN CONNECTION WITH INDUSTRY OR IN INDUSTRIAL UNDERTAKING, TWO SHADES OF MEANING ARE IMPORTANT. IN THE OXFORD DICTIONARY, VOL. 6, THE TWO SHADES OF MEANING AR E GIVEN AS FOLLOWS : (1) THE FIRST IS 'THE ACTION OR PROCESS OF MAKING ARTICLES OR MATERIAL (IN MODERN USE, ON A LARGE SCALE) BY THE APPLICATION OF PHYSICAL LABOUR OR MECHANICAL POWER.' THIS IS THE MOST GENERIC MEANING IN ITS APPLICATION TO INDUSTRY OR IND USTRIAL UNDERTAKING OR ESTABLISHMENTS. (2) THERE IS ALSO ANOTHER MORE LIMITED MEANING WHICH IS FOUND REFERRED TO IN THE AUTHORITIES AS MEANING THE TRANSFORMING OF RAW MATERIAL INTO A COMMERCIAL COMMODITY OR A FINISHED PRODUCT WHICH HAS A SEPARATE IDENTITY (COMMISSIONER OF INCOME TAX V. AJAY PRINTERY PVT. LTD.(1)). THIS SHADE OF MEANING IS MORE APPROPRIATELY USED IN THE PAST PARTICIPLE 'MANUFACTURED'. SEE OXFORD DICTIONARY, VOL. 6, AT PAGE 143, SENSE NO. 1, WHERE THE MEANING IS 'FABRICATED FROM RAW MATERIAL' . IN ASWATHANARAYANA V. DY COMMERCIAL TAX OFFICER (1) AT PAGE 801 ONE FINDS A USEFUL COMPILATION OF MEANING ATTACHED TO THE WORD 'MANUFACTURE' FROM VARIOUS DICTIONARIES AND OTHER SOURCES. SIMILARLY, THE WORD 'PRODUCE' WITH REFERENCE TO ITS MEANING IN INDUS TRY OR POLITICAL ECONOMY HAS TWO DIFFERENT SENSES. IN VOL. 8 OF THE OXFORD DICTIONARY, AT PAGE 1422, THE TWO MEANING ARE GIVEN AS FOLLOWS: 'TO BRING FORTH, BRING INTO BEING OR EXISTENCE (A) GENERALLY TO BRING (A THING) INTO EXISTENCE FROM ITS RAW MATERIALS OR ELEMENTS OR AS THE RESULT OF A PROCESS' AND '(D) TO COMPOSE OR BRING OUT BY MENTAL OR PHYSICAL LABOUR (A WORK OF LITERATURE OF ART); TO WORK UP FROM RAW MATERIAL, FABRICATE, MAKE, MANUFACTURE (MATERIAL OBJECT)'. IN THE AJAY PRINTER'S CASE, A DIVISION B ENCH OF THE GUJARAT HIGH COURT POINTED OUT THAT THE WORD 'MANUFACTURE' HAS A WIDER AND A NARROWER CONNOTATION. IN THE WIDER SENSE IT SIMPLY MEANS TO MAKE, OR FABRICATE OR BRING INTO EXISTENCE AN ARTICLE OR A PRODUCT EITHER BY PHYSICAL LABOUR OR BY POWER. T HE WORD 'MANUFACTURE' IN ORDINARY PARLANCE WOULD MEAN A PERSON WHO MAKES, FABRICATES OR BRINGS INTO EXISTENCE A PRODUCT OR AN ARTICLE BY PHYSICAL LABOUR OR POWER. THE OTHER SHADE OF MEANING WHICH IS THE NARROWER MEANING IMPLIES TRANSFORMING RAW MATERIALS I NTO A COMMERCIAL COMMODITY OR A FINISHED PRODUCT WHICH HAS AN ENTITY BY PAGE NO. 11 ITSELF, BUT THIS DOES NOT NECESSARILY MEAN THAT THE MATERIALS WITH WHICH THE COMMODITY IS SO MANUFACTURED MUST LOSE THEIR IDENTITY. THUS BOTH THE WORDS 'MANUFACTURE' AND 'PRODUCE' APPL Y AS WELL TO THE BRINGING INTO EXISTENCE OF SOMETHING WHICH IS DIFFERENT FROM ITS COMPONENTS. ONE MANUFACTURES OR PRODUCES AN ARTICLE WHICH IS NECESSARILY DIFFERENT FROM ITS COMPONENTS.' 13. THE DIFFERENCE IN THE WORDS 'MANUFACTURE', 'PRODUCTION (TO PRODUC E)' AND 'PROCESS' WAS EXAMINED BY THE SUPREME COURT IN TARA AGENCIES'S CASE (SUPRA). ON THE QUESTION OF WHAT IS MEANT BY THE TERM 'PRODUCTION', IT HAS BEEN ELUCIDATED AND EXPLAINED AS UNDER: - '16. IN BLACK'S LAW DICTIONARY (5TH EDN.), THE TERM 'PRODUCTION' HAS BEEN DEFINED AS UNDER: 'PRODUCTION. PROCESS OR ACT OF PRODUCING. THAT WHICH IS PRODUCED OR MADE; I.E. GOODS. FRUIT OF LABOR, AS THE PRODUCTIONS OF THE EARTH, COMPREHENDING ALL VEGETABLES AND FRUITS; THE PRODUCTIONS OF INTELLECT, OR GENIUS, AS POEMS AN D PROSE COMPOSITIONS; THE PRODUCTIONS OF ART, AS MANUFACTURES OF EVERY KIND.' 17. THE TERM 'PRODUCE', AS DEFINED IN NEW WEBSTER'S DICTIONARY OF THE ENGLISH LANGUAGE (DELUXE ENCYCLOPAEDIC EDITION), IS AS FOLLOWS: 'PRODUCE. TO BRING FORTH INTO EXISTENCE; TO BRING ABOUT; TO CAUSE OR EFFECT, ESP. INTELLECTUALLY OR CREATIVELY; TO GIVE BIRTH TO; TO BEAR, FURNISH, YIELD; TO MAKE ACCRUE; TO BRING ABOUT THE PERFORMANCE OF, AS A MOVIE OR PLAY; TO EXTEND, AS A LINE. TO BRING FORTH OR YIELD APPROPRIATE OFFSPRING, PRODU CTS, OR CONSEQUENCES.' 16 . MEANING OF PHRASE CUSTOMIZED ELECTRONIC DATA NEED NOT DETAIN US LONGER. RECENTLY A THIRD MEMBER DECISION IN CASE OF ACCURUM INDIA (SURA) HAS ELABORATELY DISCUSSED THE SAME. IN THIS JUDGMENT IT HAS BEEN HELD BY THE LD THIRD MEMB ER AS UNDER: 7. LET US CONSIDER THE ABOVE ROLE OF THE CIRCULARS IN THE CONTEXT OF SUB - CLAUSE (B) OF CLAUSE (I) OF EXPLANATION 2 TO SECTION 10A OF THE ACT. THE SAID CLAUSE (I) GIVES THE MEANING OF THE TERM 'COMPUTER SOFTWARE'. ONE OF THE MEANINGS GIVEN IS 'ANY CUSTOMISED ELECTRONIC DATA OR ANY PRODUCT OR SERVICE OF SIMILAR NATURE, AS MAY BE NOTIFIED BY THE BOARD'. IN OTHER WORDS, IF THE ASSESSEE IS ENGAGED IN THE EXPORT OF ANY CUSTOMISED ELECTRONIC DATA, THEN, PROFIT EARNED FROM SUCH EXPORT WOULD QUALIFY FO R DEDUCTION UNDER SECTION 10A OF THE ACT. IT MAY BE NOTED THAT WHEREAS SUB - CLAUSE (A) REFERS TO ANY COMPUTER PROGRAMME, SUB - CLAUSE (B) REFERS TO ANY CUSTOMISED ELECTRONIC DATA. COMPUTER PROGRAMME REFERRED TO IN SUB - CLAUSE (A) MAY OR MAY NOT BE CUSTOMISED A ND MAY BE USEFUL FOR GENERAL APPLICATION. ON THE OTHER HAND, THE ELECTRONIC DATA REFERRED TO IN SUB - CLAUSE (B) HAS NECESSARILY TO BE CUSTOMISED. BY THE WORD 'CUSTOMISED' IS MEANT THAT THE DATA IS SUITABLE FOR A SPECIFIC CUSTOMER ONLY. CONSIDERING PAGE NO. 12 THE FACT THAT THE EXPRESSION 'CUSTOMISED ELECTRONIC DATA' IS QUITE GENERAL IN NATURE AND ALSO CONSIDERING THE FACT THAT COMPUTER APPLICATIONS ARE FAST EXPANDING, ONE CANNOT VISUALISE AS TO WHAT TYPE OF PRODUCTS OR SERVICES WILL COME UP IN FUTURE. CONSIDERING THIS E VER - EXPANDING HORIZON OF SOFTWARE PRODUCTS AND SERVICES, THE BOARD HAS BEEN GIVEN THE POWER TO NOTIFY SUCH PRODUCTS AND SERVICES WHICH IN ITS OPINION SHOULD QUALIFY FOR DEDUCTION UNDER SECTION 10A. IN OTHER WORDS, THIS POWER OF THE BOARD WHEN EXERCISED, IT WILL ENSURE PROPER ADMINISTRATION OF THE FISCAL STATUTE AS OBSERVED BY THE SUPREME COURT IN UCO BANKS CASE (SUPRA). IT IS IN THIS SENSE THE LD. A.M. HAS OBSERVED THAT THE BOARDS CIRCULAR HAS MADE THE JOB OF THE ASSESSING OFFICER QUITE SIMPLE. THUS, IT I S THIS ROLE, AS EXPLAINED BY THE SUPREME COURT, WHICH IS PLAYED BY THE BOARD BY ISSUING THE CIRCULAR, DATED 26 - 9 - 2000. .. 9. THE LD. JM IS RIGHT IN MENTIONING THAT SOFTWARE IS NOT MERELY KNOWLEDGE BUT, RATHER IS KNOWLEDGE RECORDED IN A PHYSICAL FORM HAV ING A PHYSICAL EXISTENCE, TAKING UP SPACE ON A TAPE, DISC OR HARD DRIVE, MAKING PHYSICAL THINGS HAPPEN AND CAN BE PERCEIVED SENSES. HOWEVER, HE MISDIRECTED HIMSELF BY MISUNDERSTANDING THAT SINCE THE RECRUITMENT AND TRAINING OF THE PERSONNEL WAS BY ITSELF N OT I.T. ENABLED, THE PROFIT EARNED BY THE ASSESSED IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. THE REQUIREMENT OF THE PROVISION IS THAT THERE SHOULD BE A CUSTOMIZED ELECTRONIC DATA AND SUCH DATA SHOULD BE EXPORTED OUTSIDE INDIA. THE DATA WH ICH A CUSTOMER MAY REQUIRE, MAY BE GATHERED EITHER BY MANUAL EFFORT OR BY ELECTRONIC MEANS, AS FOR EXAMPLE, THROUGH INTERNET. BY WHATEVER MEANS THE DATA IS COLLECTED, ONCE IT IS STORED IN AN ELECTRONIC FORM, IT BECOMES A CUSTOMIZED ELECTRONIC DATA WHICH CA N BE EXPORTED TO QUALIFY FOR DEDUCTION UNDER SECTION 10A. THE PROCESS OF ACTUALLY COLLECTING THE DATA NEED NOT BE IT ENABLED. WHAT ALL IS REQUIRED IS THAT THE DATA COLLECTED SHOULD BE IN AN ELECTRONIC FORM. IF ONE WERE TO GO BY THE UNDERSTANDING OF THE LD. JM, THEN PERHAPS THE PURPOSE OF GIVING IMPETUS TO SOFTWARE INDUSTRY OR TO THE COMPUTERIZATION AS A WHOLE, WOULD BE DEFEATED. AS AN ILLUSTRATION, IF A PERSON WANTS TO OPEN A GARMENT SHOP IN A PARTICULAR LOCALITY, IT MAY APPROACH A CONSULTING FIRM TO EXPLOR E THE MARKET POTENTIALITY OF THAT AREA. IN THAT CASE, THE CONSULTING FIRM WILL HAVE TO INITIALLY WORK MANUALLY TO COLLECT DATA LIKE,NUMBER OF GARMENT SHOPS IN THE LOCALITY, THE ECONOMIC STRATA TO WHICH THE POPULATION RESIDING IN THAT LOCALITY BELONGS, THE SPENDING HABITS OF THE PEOPLE RESIDING IN THE LOCALITY, ETC. ALL THESE ACTIVITIES WILL HAVE TO BE CARRIED OUT MANUALLY AND ONCE THE DATA IS COLLECTED, IT MAY BE COLLATED AND ANALYZED AND MAY BE STORED IN AN ELECTRONIC DEVICE. THIS BECOMES THE IT ENABLED CU STOMIZED ELECTRONIC DATA. IF THIS DATA IS EXPORTED OUTSIDE INDIA, THE CONSULTING FIRM WILL BE PAGE NO. 13 ELIGIBLE FOR DEDUCTION UNDER SECTION 10A. SIMILAR IS THE SITUATION IN THE PRESENT CASE. THE ASSESSEE INVITED APPLICATIONS FOR RECRUITMENT THROUGH NEWSPAPERS, CARR IED OUT INTERVIEWS, SELECTED THEM AND TRAINED THEM. IT IS WORTHNOTING THAT THIS EXERCISE WAS CARRIED OUT NOT FOR NAMESAKE BUT IT WAS A SERIOUS AND SINCERE EFFORT WHICH IS REFLECTED BY THE MAGNITUDE ON WHICH THE ASSESSEE WORKED. MORE THAN 7,000 APPLICATIONS WERE RECEIVED WHICH WERE VETTED AND THEN THE PROCESS OF RECRUITMENT WAS UNDERTAKEN. ALL THESE DATA WERE STORED IN AN ELECTRONIC DEVICE AND TRANSMITTED TO US FOR THE USE OF THE PARENT COMPANY. RECRUITMENT CAN BE DONE ONLINE ALSO, BUT PERHAPS THE SCALE OF O PERATION MAY NOT BE AS HUGE AS IT WAS IN THE PRESENT CASE. TRAINING CAN ALSO BE CARRIED OUT ONLINE BUT IT CANNOT BE AS EFFECTIVE AS A CLASSROOM TRAINING. IF THE INTENTION OF THE LEGISLATURE WAS THAT IN ORDER TO QUALIFY FOR DEDUCTION UNDER SECTION 10A, EVER Y ACTIVITY SHOULD BE CARRIED OUT THROUGH ELECTRONIC MEANS, THEN THE PURPOSE OF ENACTING SECTION 10A WOULD HAVE BEEN TOTALLY DEFEATED. THE EXACT LANGUAGE OF SUB - CLAUSE (B) OF CLAUSE (1) OF EXPLANATION 2 IS 'ANY CUSTOMIZED ELECTRONIC DATA'. THUS, IF THE RESU LT OF THE ENTIRE EXERCISE OF RECRUITMENT AND TRAINING IS STORED IN AN ELECTRONIC DEVICE, IT IS NOT POSSIBLE TO SAY THAT IT IS NOT A CUSTOMIZED ELECTRONIC DATA. IF THE DATA IS IN A FORM OTHER THAN ELECTRONIC, THEN THE EXPORT THEREOF WILL NOT QUALIFY FOR THE DEDUCTION. THIS ASPECT, AS MENTIONED EARLIER, HAS TO BE EXAMINED BY THE ASSESSING OFFICER IN THE COURSE OF THE ASSESSMENT AND WHICH IN THIS CASE, THERE IS NO DISPUTE THAT THE DATA WAS IN THE ELECTRONIC FORM. 17 . IN THE INSTANT CASE WE FIND THAT THE APPEL LANT AFTER COLLECTING RAW DATA AND PICTURES HAS UTILIZED ITS EXPERT DESIGNING SKILLS IN PRODUCING A READY TO PRINT E - BOOK. SHRI SYALI IN HIS SUBMISSIONS HAS NEATLY NARRATED THE ENTIRE SEQUENCE OF ACTIVITIES CARRIED ON BY THE APPELLANT. THE SAMPLES PRODUCED BEFORE US WERE ALSO SHOWN TO THE AO, HOWEVER HE HAS CONVENIENTLY CHOSEN TO REMAIN QUITE ON THIS ASPECT. THE FINAL PRODUCT IS INTENDED FOR USE OF A PARTICULAR CUSTOMER AND THEREFORE THE CASE UNDER CONSIDERATION DOES FIT IN THE CATEGORY OFPRODUCTION OFANY CUSTOMIZED ELECTRONIC DATA AS PER THE DEFINITION OF COMPUTER SOFTWARE DEFINED IN EXPLANATION 2 TO SECTION 10B OF THE ACT. THE ABOVE THIRD MEMBER DECISION IS GERMANE TO THE ISSUE BEFORE US AND THEREFORE IT CLEARLY SUPPORTS THE CASE OF APPELLANT. IN OUR CON SIDERED OPINION EVEN IF IT IS SAID THAT THE APPELLANT HAS MERELY CUSTOMIZED THE DATA, WHICH WAS ALREADY AVAILABLE AND HAS NOT CREATED ALTOGETHER NEW SOFTWARE THEN TOO THE APPELLANT CANNOT BE DEPRIVED OF THE BENEFIT OF DEDUCTION. IT IS PERTINENT TO NOTE THA T THE DEFINITION OF 'PRODUCE' IS WIDER TH A N THE TERM MANUFACTURE AS HELD BY THE HON'BLE SUPREME PAGE NO. 14 COURT IN A NUMBER OF DECISIONS (REFERRED TO IN LOVESH JAINS CASE ABOVE) AND DOES NOT REQUIRE TO PRODUCE OR MANUFACTURE ALTOGETHER A NEW PRODUCT; BUT IF THE OUT COME OF THE PROCESS IS A DIFFERENT PRODUCT THAN THE INPUT , IT WOULD FALL UNDER THE DEFINITION OF 'PRODUCE'.IN OUR CONSIDERED VIEW, WHATEVER FORM THE INPUT DATA IS, SO LONG AS THE END PRO DUCT IS IN THE FORM OF ELECTRONIC DATA WHICH IS CUSTOMISED BY THE APPE LLANT FOR THE END USE OF A PARTICULAR CUSTOMER , THEN BENEFIT OF DEDUCTION U/S 10B OF THE ACT CANNOT BE DENIED. AND THERE IS NO DISPUTE THAT THE FINAL PRODUCT OF THE ASSESSEE WAS IN ELECTRONIC FORM. WE MAY ALSO REFER HERE ANOTHER CO - ORDINATE BENCH DECISION IN CASE OF CYBERTECH SYSTEMS & SOFTWARE (SUPRA) WHEREIN IT HAS BEEN HELD BY A CO - ORDINATE BENCH AS UNDER: 14.1 THUS IT IS CLEAR THAT WHEN THE PROCESS OF CUSTOMISATION INVOLVE ADDITION, MODIFICATION AND CREATION OF NEW PROGRAMMES AS PER THE REQUIREMENT OF THE INDIVIDUAL CLIENTS BY UTILISING THE FOUNDATION OF STANDARD PROGRAMME AND SUCH EXERCISE INVOLVES HUMAN EXPERTISE AND INTELLECTUAL PROCESS TO BRING THE END RESULT A DIFFERENT PRODUCT OR THING AND FIT INTO THE DEFINITION OF TERM PRODUCE. FURTHER, IN THE C ASE OF AMADEUS INDIA (P.) LTD. (SUPRA) THE COORDINATE BENCH OF THE TRIBUNAL HAS CONSIDERED AND DECIDED A SIMILAR QUESTION IN PARA 35 AS UNDER: '35. THE ASSESSEE WHICH OCCUPIES A POSITION MID - WAY BETWEEN THE TWO FULFILS, IT WILL BE CLEAR FROM THE FACTS STA TED ABOVE, THE FUNCTIONS OF A PROGRAMME EXPORTER, IT DOES NOT ADD MERE ENTRIES TO THE DATABASE AS DONE BY THE TRAVEL AGENT. IN FACT IT HAS NO DIRECT INTEREST IN ADDING TO, OR DRAWING EXTRACTS FROM THE DATABASE BUILT INTO THE COMPUTER LIKE THE SEVERAL OPERA TORS ALL THE WORLD OVER. WHAT IT DOES ACTUALLY IS TO SUPPLEMENT THE FUNCTIONS OF THE AMADEUS GROUP BY PREPARING AND TRANSMITTING PROGRAMMES TO THE LATTER FOR INCORPORATION INTO PORTIONS OR 'PARTITIONS' IN ITS MEGA - COMPUTER AT ERDING IN GERMANY, SO AS TO EN ABLE THE TRAVEL AGENTS IN ITS MARKETING REGION DRAW ON THE AVAILABLE INFORMATION FOR THEIR BENEFIT. ITS ACTIVITIES ARE TO ISSUE INSTRUCTIONS TO THE MASTER - COMPUTER TO RECOGNISE THE OPERATORS, IDENTIFY THEM AND PROVIDE THEM ACCESS TO SPECIFIC PORTIONS OF TH E DATABASE. THERE CAN BE NO DOUBT WHATEVER, FOR THE REASONS DISCUSSED ABOVE, THAT THE ASSESSEE MANUFACTURES, PRODUCES AND EXPORTS SOFTWARE WITHIN THE MEANING OF THE THREE SPECIFIED SECTIONS OF THE ACT. IT IS OPEN TO IT TO CLAIM EXEMPTION UNDER ANYONE OF TH ESE SECTIONS AND AS IS WELL ESTABLISHED BY PERTAINING TO INTERPRETATION OF TAXING STATUTES IS ENTITLED TO CHOOSE THAT ONE WHICH IS MOST FAVOURABLE TO IT IN ANY PARTICULAR ASSESSMENT YEAR.' 18. WE FIND THAT THE LD CIT(A) HAS ERRED IN CONSIDERING THE DEFINI TION OF COMPUTER SOFTWARE AS PER CLAUSE (I) OF EXPLANATION 2 TO SECTION 10B IN A PAGE NO. 15 CONJUNCTIVE MANNER AND NOT DISJUNCTIVE MANNER WITHOUT CONSIDERING THAT WORD USED IN BETWEEN SUB - CLAUSES (A) AND (B) IS OR. THE LD CIT(A) HAS ERRED IN COMPARING THE WORK DO NE BY THE ASSESSEE WITH COMPUTER PROGRAMME. HERE IT IS TO NOTED THAT IT IS NOT ASSESSEES CASE THAT ITS CASE FALLS UNDER SUB - CLAUSE (A) OF CLAUSE (I) TO EXPLANATION 2 TO SECTION 10B. IT IS THE CONSISTENT STAND ASSESSEE THAT ITS CASE FALLS UNDER SUB CLAUS E (B) OF CLAUSE (I) TO EXPLANATION 2 TO SECTION 10B. HERE IT IS TO BE SEEN THAT WHETHER THE ASSESSEE IS ENGAGED IN ANY CUSTOMIZATION OF ELECTRONIC DATA. WE FIND THAT LD CIT(A) HAS NOT RECORDED ANY FINDING IN THIS RESPECT IN HIS ORDER. WE FIND ALSO THAT LD CIT(A) HAS TESTED ASSESSEES CASE U/S 10BB. HOWEVER WE FIND THAT COUNSEL FOR THE ASSESSEE HAD SUBMITTED THAT SCOPE OF SECTION 10BB IS LIMITED IN SCOPE AS COMPARED TO THE NEW DEFINITION IN NEW SECTION 10B. IN THIS REGARD IT IS TO BE TAKEN NOTE THAT POST AME NDMENT OLD SECTION 10B REQUIRES PROCESSING OR MANAGEMENT OF ELECTRONIC DATA WHEREAS NEW SECTION 10B IS LARGER IN SCOPE AND ONLY REQUIRES ANY CUSTOMIZED ELECTRONIC DATA. THE DIFFERENCE IS THAT OLD SECTION 10B REQUIRES THAT INPUT DATA MUST NECESSARILY BE IN ELECTRONIC FORM WHERE AS IN NEW SECTION 10B THIS REQUIREMENT IS DONE A WAY WITH. THIS INTERPRETATION HAS FOUND FAVOUR BY ITAT IN ACCURUMS CASE (SUPRA) WERE IN AT PARA 9 (OF THIRD MEMBER ORDER) IT HAS BEEN HELD THAT THE DATA WHICH A CUSTOMER MAY REQUIR E, MAY BE GATHERED EITHER BY MANUAL EFFORT OR BY ELECTRONIC MEANS, AS FOR EXAMPLE, THROUGH INTERNET. BY WHATEVER MEANS THE DATA IS COLLECTED, ONCE IT IS STORED IN AN ELECTRONIC FORM, IT BECOMES A CUSTOMIZED ELECTRONIC DATA WHICH CAN BE EXPORTED TO QUALIFY FOR DEDUCTION U/S 10A. 19. THE REQUIREMENT OF THE PROVISION (SECTION 10B ) IS THAT THERE SHOULD BE A CUSTOMIZED ELECTRONIC DATA AND SUCH DATA SHOULD BE EXPORTED OUTSIDE INDIA. THE DATA WHICH A CUSTOMER MAY REQUIRE MAY BE GATHERED EITHER BY MANUAL EFFORT OR BY ELECTRONIC MEANS, AS FOR EXAMPLE, THROUGH INTERNET. BY WHATEVER MEANS THE DATA IS COLLECTED, ONCE IT IS STORED IN AN ELECTRONIC FORM, IT BECOMES A CUSTOMIZED ELECTRONIC DATA WHICH CAN BE EXPORTED TO QUALIFY FOR DEDUCTION U/S 10A. THE PROCESS OF ACTUA LLY COLLECTING THE DATA NEED NOT BE IT ENABLED. WHAT ALL IS REQUIRED IS THAT THE DATA COLLECTED SHOULD BE IN AN ELECTRONIC FORM. PAGE NO. 16 THE EXACT LANGUAGE OF SUB - CLAUSE(B) OF CLAUSE (1) OF EXPLANATION 2 IS ANY CUSTOMIZED ELECTRONIC DATA . 20. THUS WE FIND THAT AS SESSEES BUSINESS INVOLVED EXPORT OF READY TO PRINT BOOKS WHICH IN THE INSTANT CASE IS THE CUSTOMIZED ELECTRONIC DATA. THE NATURE OF ACTIVITY DONE BY THE ASSESSEE IN THE EOU WAS THAT OF PRODUCING DESIGNS, DRAWINGS, LAYOUTS AND SCANNING FOR THE PROJECTS O F FOREIGN CLIENTS ON THE BASIS OF THEIR PARAMETERS AND SPECIFICATIONS. THIS ACTIVITY IS DONE BY TAKING INTO CONSIDERATION THE DATA COLLECTED BY THE ASSESSEE ITSELF OR FROM CLIENTS. THOUGH THE STEPS/STAGES INVOLVED IN COMPLETION OF A PARTICULAR ASSIGNMENT F OR THE FOREIGN CLIENT HAS BEEN REPRODUCED BY THE AO AT PAGE 2 OF THE ASSESSMENT ORDER, STILL NEITHER THE ASSESSING OFFICER NOR LD CIT(A) HAVE APPRECIATED THESE ASPECTS IN THE RIGHT PERSPECTIVE. 21 . IN THE LIGHT OF THE DECISIONS OF LD THIRD MEMBER IN THE C ASE OF ACCURUM INDIA LIMITED AND CO - ORDINATE BENCH DECISION IN CASE OF CYBERTECH SYSTEMS (SUPRA), WE FIND THAT THE APPELLANT MERITS TO SUCCEED IN ITS CLAIM FOR DEDUCTION U/S 10B OF THE ACT . WE HOLD THAT THE READY TO PRINT BOOKS EXPORTED BY THE APPELLANT IN THE FOR M OF A CD OR E - MAIL ARE CUSTOMISED ELECTRONIC DATA ELIGIBLE FOR CLAIMING BENEFIT OF DEDUCTION AS PER LAW. THEREFORE THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AND THE AO IS DIRECTED TO ALLOW DEDUCT ION U/S 10B OF THE ACT IN ACCORDANCE TO LAW . 22 . IN THE RESULT THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07 . 05 .2014. - SD/ - - SD/ - ( S.V. MEHROTRA ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED :07 / 05 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI