Shri Bhavin Arun Shah, Ahmedabad V. The Income tax Officer, Ward-10(3), Ahmedabad

ITA 823/AHD/2007

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9946 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-09-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 08-09-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 21-02-2007
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income
• Section: 234B; 80IB; 10B; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH AHMEDABAD BENCH B BB B BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI BHAVNESH BHAVNESH BHAVNESH BHAVNESH SAINI SAINI SAINI SAINI, , , , JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER AND AND AND AND SHRI SHRI SHRI SHRI N.S.SAINI N.S.SAINI N.S.SAINI N.S.SAINI, , , , ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBER MEMBER MEMBER MEMBER DATE OF HEARING :8-9-10 DRAFTED ON:8-9-201 0 ITA NO. 823 /AHD/ 2007 ASSESSMENT YEAR :2003-04 SHRI BHAV IN ARUN SHAH (PROP. OF M/S. PAM CONSULTANTS), A-2, HIRA PANNA FLATS, NAVRANGPURA,AHMEDABAD. VS. INCOME TAX OFFICER, WARD 10(3), NARAYAN CHAMBERS, ASHRAM ROAD, AHMEDABAD. PAN/GIR NO. : AFUPS 6271 E (A PPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHR I S.N. SOPARKAR, SR. ADV. RESPONDENT BY: SHRI K. MADHUSUDAN, SR. D.R. O R D E R O R D E R O R D E R O R D E R PER N.S.SAINI , ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-XV I, AHMEDABAD DATED 26-12-2006. 2. GROUND NO.1 OF THE APPEAL IS AS UNDER :- 1 (I) THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) GROSSLY ERRED IN LAW AND ON FACTS IN UPHOLDING THE REJECTION OF THE CLAIM FOR DEDUCTION UNDER SECTION 80IB FOR `.26 ,40,619/- BY LEARNED ASSESSING OFFICER WHICH WAS PUT UP BY TH E APPELLANT IN HIS RETURN OF INCOME. IT IS SUBMITTED THAT APPELLANT IS ENGAGED IN THE MANUFACTURE OR PRODUCTI ON OF GOODS, ARTICLES OR THINGS AS ENVISAGED UNDER SECTIO N 80IB AND FULFILLS ALL THE CONDITIONS FOR BEING ELIGIBLE TO G ET SUCH DEDUCTION. IT IS SUBMITTED THAT IT BE SO HELD NOW A ND DEDUCTION UNDER SECTION 80IB AS CLAIMED BY THE APPE LLANT AT `.26,40,619/- BE GRANTED TO HIM. (II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) GROSSLY ERRED IN UPHOLDING REJECTION OF CLAIM FOR D EDUCTION UNDER SECTION 80IB ON IRRELEVANT CONSIDERATIONS AND IN UTTER DISREGARD TO THE DECIDED CASES IN FAVOUR OF THE APP ELLANT PARTICULARLY IN THE CASE OF CIT VS. PROFESSIONAL IN FORMATION - 2 - SYSTEM & MANAGEMENT 274 ITR 242(GUJ.), PEERLESS CONSULTANCY SERVICES (P) LTD., 248 ITR 178(SC) AND SOGHI COMMUNICATION LTD., (2006) 9 SOT 489. (III) THE LEARNED COMMISSIONER OF INCOME TAX (APPEA LS) ERRED IN CONFIRMING REJECTION OF CLAIM UNDER SECTIO N 80IB ON THE BASIS OF DECISION OF HON'BLE SUPREME COURT IN T HE CASE OF TATA CONSULTANCY SERVICES 271 ITR 401 EVEN AFTER HO LDING THAT APPELLANT IS ENGAGED IN THE DEVELOPMENT OF COM PUTER SOFTWARE. YOUR APPELLANT SUBMITS THAT THE SAID DECI SION, ON THE CONTRARY, IS IN FAVOUR OF THE APPELLANT WHEREIN IT IS HELD THAT SOFTWARE IS GOODS. (IV) THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL S) FAILED TO APPRECIATE THAT EVEN LEARNED ASSESSING OF FICER HAD RECORDED A FINDING THAT APPELLANT IS ENGAGED IN THE BUSINESS OF DATA PROCESSING, WHICH ITSELF IS SUFFICIENT TO C OVER THE CASE OF THE APPELLANT IN ITS FAVOUR FOR DEDUCTION UNDER SECTION 80IB FOLLOWING THE DECISION OF JURISDICTIONAL GUJAR AT HIGH COURT IN THE CASE OF PROFESSIONAL INFORMATION SYSTE M AND MANAGEMENT (SUPRA). (V) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN HOLDING THAT APPELLANTS ACTIVITY OF DATA PROCESSING IS ONLY INCIDENTAL BUT THE MAIN ACTIVITY IS GATHERING OF INFORMATION FROM THE FIELD. THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) FAILED TO APPRECIATE THAT TERM S OF THE CONTRACT WITH THE CUSTOMERS WHICH VERY CLEARLY POIN T OUT THAT APPELLANT IS ENGAGED IN THE BUSINESS OF DATA PROCES SING, MAP MAKING AND PROVIDING SOFTWARE FOR GIS SOLUTIONS TO HIS CUSTOMERS WHICH ENTITLE APPELLANT TO GET DEDUCTION UNDER SECTION 80IB OF THE ACT. IT IS SUBMITTED THAT IT B E SO HELD NOW AND DEDUCTION OF `.26,40,619/- AS CLAIMED BY THE AP PELLANT UNDER SECTION 80IB BE GRANTED TO HIM. 3. THE BRIEF FACTS OF THE CASE ARE THAT LEARNED ASS ESSING OFFICER HAS MENTIONED IN THE ASSESSMENT ORDER THAT THE ASSE SSEE IS RUNNING PROPRIETARY CONCERN IN THE NAME OF M/S. PAM CONSULTANCY ENGAGED IN THE BUSINESS OF JOB WORK AND SOFTWARE DE VELOPMENT IN THE FIELD AS GIS APPLICATION, DEVELOPING SOFTWARE A ND APPLICATION AND CUSTOMIZING REQUIREMENTS OF THE CUSTOMERS AS WE LL AS DATA MAP PROCESSING. THE LEARNED ASSESSING OFFICER OBSER VED THAT THE ASSESSEE HAS CLAIMED DEDUCTION UNDER SECTION 80IB A MOUNTING TO `.26,40,619/-. THE LEARNED ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE WAS NOT ENTITLED TO DEDUCTION UNDER SE CTION 80IB SINCE IT DID NOT MANUFACTURE OR PRODUCE ANY ARTICLE OR THING WHICH IS - 3 - A CONDITION FOR CLAIMING DEDUCTION. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED BY THE LEARNED ASSESSING OFFICER, THE ASSESSEE HAD STATED THAT IT IS AN INDUSTRIAL UNDERTAKING ENGAGED IN PROCESSING OF DATA AND DEVELOPMENT OF SOFTWARE FOR GIS SOLUTION. THE ASSESSEE HAS STATED THAT DATA PROCESSING HAS BEEN HELD TO BE MANUFACTURING OF AN ARTICLE OR THING BY THE HON'BLE SUPREME COURT IN THE CASE OF PEERLESS CONSULTANCY SERVICES LTD., 248 ITR 178. TH E ASSESSEE HAS FURTHER STATED THAT GUJARAT HIGH COURT IN THE CASE OF CIT VS. PROFESSIONAL INFORMATION SYSTEM & MANAGEMENT, 274 I TR 242 HELD THAT UNIT ENGAGED IN SUCH DATA PROCESSING IS AN IND USTRIAL UNDERTAKING. BEFORE THE LEARNED ASSESSING OFFICER, THE ASSESSEE HAS STATED THAT IT IS ENGAGED IN THE BUSINESS OF MANUFACTURING/DEVELOPMENT OF SOFTWARE IN THE FIELD OF GEOGRAPHICAL INFORMATION SYSTEM, APPLICATION OF SUCH SYSTEM ON C USTOMIZED REQUIREMENTS AND DIGITIZING, VEETORISING AND THEREB Y PROVIDING MAPS BY PROCESSING DATA GIVEN FOR GEOGRAPHICAL INFO RMATION SYSTEM. THIS IS A COMPUTER BASED INFORMATION SYSTEM USED TO DIGITALLY REPRESENT AND ANALYZE THE GEOGRAPHICAL FE ATURES PRESENT ON THE EARTH SURFACE AND THE EVENTS TAKING PLACE ON IT. THE ACTIVITY OF PREPARATION OF MAPS AND PROVIDING GIS WITH SUPPO RT OF DATA BASE IN THE FORM OF DIGITIZATION AND VEETORISATION OF MA P IS AN ACTIVITY OF PRODUCTION OR MANUFACTURING OF AN ARTICLE OR THING. THE ASSESSEE IS, THEREFORE, AN INDUSTRIAL UNDERTAKING. THE INDUSTRY COMMISSIONER HAS TREATED SUCH UNIT AS SMALL SCALE INDUSTRIAL UNI T WHICH SHOWS THAT THE ASSESSEE IS CARRYING OUT INDUSTRIAL ACTIVI TY. THE LEARNED ASSESSING OFFICER HAS DISCUSSED THE ARGUMENTS OF TH E ASSESSEE PUT BEFORE HIM AND HAS OBSERVED THAT FOR CLAIMING DEDUC TION UNDER SECTION 80IB, CERTAIN CONDITIONS HAVE TO BE SATISFI ED. THIS DEDUCTION IS AVAILABLE TO AN INDUSTRIAL UNDERTAKING WHICH MAN UFACTURES OR PRODUCES A NEW ARTICLE OR THING. THUS, THE CORE ISS UE TO BE DECIDED IN THIS CASE IS WHETHER THE ASSESSEE IS ENGAGED IN MANUFACTURING OR PRODUCING OF AN ARTICLE OR THING OR NOT AND WHETHER IT IS AN INDUSTRIAL UNDERTAKING OR NOT. THE LEARNED ASSESSIN G OFFICER HAS MENTIONED THE TERMS AND CONDITIONS OF THE JOB SPECI FICATION WHICH ARE COMMON IN ALL THE CONTRACTS ON PAGE NOS.6 TO 8 OF THE - 4 - ASSESSMENT ORDER. THE LEARNED ASSESSING OFFICER HAS DISCUSSED THE REPLY OF THE ASSESSEE AND HAS STATED THAT THE FOLLO WING FACTS EMERGE FROM THE ASSESSEES REPLY : (I) THE ASSESSEE HAS DEVELOPED SOFTWARE AS PER THE REQUIREMENTS OF THE CUSTOMER TO SUIT HIS NEEDS; (II) WHILE PREPARING THE SOFTWARE, THE ASSESSEES E MPLOYEES WERE DOING LOT OF STUDIES/SURVEY AND THEN SUCH RESU LT IS FED INTO THE COMPUTER TO PREPARE THE SOFTWARE. THUS, THE ACTIVIT Y OF THE ASSESSEE INVOLVES MANY ACTIONS NOT TAKEN WITH THE H ELP OF THE COMPUTER OR IN THE OFFICE PREMISES; (III) THE PREPARED SOFTWARE IS GIVEN TO THE CLIENTS FOR THEIR PURPOSE; (IV) SUCH SOFTWARE IS NOT MARKETABLE IN GENERAL SIN CE IT WAS PREPARED FOR THE SPECIFIC NEEDS OF THE CLIENTS AND (V) AS PER THE AGREEMENT, THE ASSESSEE IS NOT TO SU PPLY ANY COMPUTER PRINT OUT OR HARD COPIES. THE CLAIM OF THE ASSESSEE THAT COMPUTER PRINT OUTS ARE TO BE SUPPLIED IS NOT CORRE CT. THE SAME HAS BEEN MADE TO FIT HIS OWN CASE WITH SOME DECIDED CAS E-LAWS. 4. ON THE BASIS OF ABOVE FACTS, THE LEARNED ASSESSI NG OFFICER CONCLUDED THAT IT WAS CLEAR THAT THE ASSESSEE WAS O NLY PREPARING SOFTWARE WITH THE HELP OF ITS TECHNICAL MANPOWER AN D SUPPLYING SUCH SOFTWARE TO THE CLIENTS. THIS DOES NOT INVOLVE ANY PRODUCTION OR MANUFACTURE OF ARTICLE OR THING. THE LEARNED ASS ESSING OFFICER HAS FURTHER MENTIONED THAT IN THE AUDIT REPORT ALSO , IT IS MENTIONED THAT THE ASSESSEE IS DOING ONLY CONSULTANCY AND IS ONLY A SERVICE ORGANIZATION AND NOT MANUFACTURING CONCERN. EVEN IN THE COLUMN NO.28 IN THE AUDIT REPORT, THE AUDITOR HAS CERTIFIE D THAT THIS CLAUSE IS NOT APPLICABLE SINCE THE ASSESSEE IS ONLY MANUFA CTURING REPORTS, DATA, AND CUSTOMIZED BLUE PRINTS AND SOFTWARE ON TH E BASIS OF GIVEN DATA. SIMILAR OBSERVATIONS HAVE BEEN MADE BY THE AU DITOR IN COLUMN NO.32. THE LEARNED ASSESSING OFFICER, THEREF ORE, HELD THAT AS OBSERVED BY THE AUDITOR, THE ASSESSEE IS NEITHER MANUFACTURING NOR PRODUCING ANY ARTICLE OR THING BUT RUNNING A SE RVICE ORGANIZATION ONLY. THE LEARNED ASSESSING OFFICER HE LD THAT THE - 5 - ASSESSEES ACTIVITIES CANNOT BE CONSIDERED MANUFACT URING OR PRODUCTION OF ARTICLE OR THING. THE SOFTWARE PRODUC ED BY THE ASSESSEE AND SUPPLIED TO THE CUSTOMERS IS NOT MARKE TABLE SINCE IT IS PREPARED AS PER THE REQUIREMENTS OF THE CUSTOMER S. THE LEARNED ASSESSING OFFICER PLACED RELIANCE ON THE DECISION O F HON'BLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY VS. S TATE OF ANDHRA PRADESH, 249 ITR-99 AND IN 271 ITR 401,IT HAS ENDOR SED THE VIEW OF THE ANDHRA PRADESH HIGH COURT THAT BRANDED CANNED S OFTWARE IS GOODS BUT NOT CUSTOMIZED OR UNCANNED SOFTWARE. 5. THE LEARNED ASSESSING OFFICER ALSO DISTINGUISHED THE DECISION RELIED UPON BY THE ASSESSEE VIZ. THE DECISION OF GU JARAT HIGH COURT IN THE CASE OF CIT VS. PROFESSIONAL INFORMATION SYS TEMS AND MANAGEMENT, 274 ITR 242 AND THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. PEERLESS CONSULTANCY A ND SERVICES PVT. LTD., 248 ITR 178. THE LEARNED ASSESSING OFFICER HA S OBSERVED THAT THE GUJARAT HIGH COURT WAS DEALING WITH THE CLAIM O F INVESTMENT ALLOWANCE AND DEDUCTION UNDER SECTION 32A OF THE AC T. THE LEARNED ASSESSING OFFICER OBSERVED THAT IN THE CITED CASE, THE OUTPUT GENERATED WAS FOUND TO BE ARTICLE OR THING IN THE F ORM OF BALANCE SHEET, ACCOUNTS, ETC., BEING DISTINCT AND DIFFERENT FROM INPUT FED. IN THE CASE OF THE ASSESSEE, NO HARDWARE COPIES OR OUT PUT IS GENERATED AS PER THE AGREEMENT. THE ASSESSEE MADE, CUSTOMIZED SOFTWARE WHICH IS NOT AN ARTICLE OR THING AND HENCE , THIS DECISION IS ON DIFFERENT FACTS AND NOT APPLICABLE TO THE ASSESS EES CLAIM. SIMILARLY, THE DECISION OF HON'BLE SUPREME COURT DE ALS WITH THE CLAIM OF INVESTMENT ALLOWANCE UNDER SECTION 32A. TH IS DECISION IS IN RESPECT OF PROCESSING OF DATA WHICH CANNOT BE CO NSIDERED AS MANUFACTURING OR PRODUCTION OF ARTICLE OR THING. TH E LEARNED ASSESSING OFFICER HAS OBSERVED THAT SECTION 32A WAS APPLICABLE ALSO TO PROCESSING APART FROM MANUFACTURING AND PRO DUCTION WHEREAS SECTION 80IB IS APPLICABLE ONLY WHEN THE AS SESSEE CARRIES OUT MANUFACTURING OR PRODUCTION AND IS THUS NOT APP LICABLE FOR PROCESSING. THE LEARNED ASSESSING OFFICER FURTHER O BSERVED THAT THE INTENTION OF THE LEGISLATURE TO ALLOW DEDUCTION UNDER SECTION - 6 - 32A WAS DIFFERENT FROM THE DEDUCTION ALLOWABLE UNDE R SECTION 80IB. FOR COMPUTER SOFTWARE, SEPARATE PROVISIONS UNDER SE CTION 10A AND 10B ARE MADE TO INCLUDE THEM INTO MANUFACTURING. SI MILARLY, FOR EXPORT OF SOFTWARE, SEPARATE PROVISIONS UNDER SECTI ON 80I II IE HAVE BEEN INCORPORATED. THUS, THE PROVISIONS OF SECTION 80IB ARE NOT FOR COMPUTER SOFTWARE. THE LEARNED ASSESSING OFFICER TH EREFORE, FINALLY CONCLUDED THAT ASSESSEES ACTIVITY IN THE FIELD OF DATA PROCESSING DOES NOT AMOUNT TO EITHER MANUFACTURING OR PRODUCTI ON OF ARTICLE OR THING. AT BEST, ASSESSEES CASE REMAINS TO BE THAT OF PROCESSING OF DATA AND NOT MANUFACTURE OF ARTICLE OR THING. THE L EARNED ASSESSING OFFICER RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF INDIAN HOTELS COMPANY LTD. & OTHERS VS. ITO 245 ITR 538 IN WHICH THE WORD, MANUFACTURE WAS INTERPRETE D TO MEAN THE PRODUCTION OF A NEW ARTICLE OR THING BRINGING INTO EXISTENCE SOME NEW COMMODITY BY AN INDUSTRIAL UNDERTAKING AS DISTI NCT FROM THE PROCESSING ACTIVITIES. THUS, THE PROCESSING CANNOT BE TERMED AS MANUFACTURING OR PRODUCTION IN ANY MANNER WHATSOEVE R. THE LEARNED ASSESSING OFFICER FURTHER RELIED ON THE DEC ISION OF I.T.A.T., MUMBAI, H-BENCH IN THE CASE OF R.S. BHAGWAT VS. ACI T 78 TTJ 641 IN WHICH IT WAS HELD THAT DEDUCTION UNDER SECTION 8 0I IS ALLOWABLE ON BRANDED SOFTWARE PACKAGE. THE LEARNED ASSESSING OFFICER, THEREFORE, DISALLOWED DEDUCTION UNDER SECTION 80IB AMOUNTING TO `.26,40,619/-. 6. IN APPEAL, THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE APPELLANT IS ENGAGED I N THE BUSINESS OF PROVIDING GEOGRAPHICAL INFORMATION SYSTEM SOLUTI ON WHICH COMPRISES OF PROCESSING OF DATA, MANUFACTURE/DEVELO PMENT OF GIS SOFTWARE PACKAGE, APPLICATION OF SUCH SYSTEM ON CUS TOMIZED REQUIREMENTS AS WELL AS DIGITIZING, VEETORISING AND THEREBY PROVIDING MAPS BY PROCESSING DATA GIVEN FOR GEOGRAP HICAL INFORMATION SYSTEM. THE GIS IS A COMPUTER BASED INF ORMATION SYSTEM USED TO DIGITALLY REPRESENT AND ANALYSE THE GEOGRAPHICAL FEATURES PRESENT ON THE EARTH SURFACE AND THE EVENT S TAKING PLACE ON IT. THE ENTIRE GIS PACKAGE IS AN UNIQUELY IDENTI FIED WHICH NOT - 7 - ONLY PROCESS THE DATA BUT ALSO PROVIDES ALL THE REQ UIRED INFORMATION RELATING TO GEOGRAPHICAL FIELD IN THE FORM OF DIGIT IZED MAPS AND THE SAME ARE PROVIDED THROUGH THE USE OF PLOTTER, SCANN ER HAVING INTERFACE WITH THE COMPUTER BY ANALYZING AND PROCES SING THE DATA THAT IS FED INTO THE SYSTEM. THIS IS LARGELY REQUIR ED IN AN ORGANIZATION WHICH USES VOLUMINOUS DATA WHICH COULD ONLY BE ANALYZED WITH GIS. THIS KIND OF ACTIVITIES REQUIRED CONSIDERABLE AMOUNT OF HARDWARE SUPPORT WHICH THE ASSESSEE IS HA VING THEREBY HAVING ALL THE ACTIVITIES OF INDUSTRIAL UNDERTAKING . THE GROSS BLOCK OF FIXED ASSETS STANDS AT `.44.89 LACS AS ON 31-03-03. THE UNIT IS REGISTERED AS A SMALL SCALE INDUSTRIAL UNDERTAKING. THE ASSESSEE HAS BEEN MAINLY DOING THE WORK FOR GUJARAT MUNICIPA L FINANCIAL BOARD, MAHARASHTRA REMOTE SENSING APPLICATION CENTR E AND OTHER ORGANIZATIONS. THE ASSESSEE IS AN INDUSTRIAL UNDERT AKING ENGAGED IN HIGHLY SOPHISTICATED BUSINESS OF DATA PROCESSING, M AP MAKING AND GIS DEVELOPMENT AND HENCE, THE DEDUCTION UNDER SECT ION 80IB IS RIGHTLY CLAIMED. WITH REGARD TO THE OBSERVATIONS OF THE LEARNED ASSESSING OFFICER IN THE ASSESSMENT ORDER FOR NOT A LLOWING DEDUCTION UNDER SECTION 80IB, THE COUNSEL FOR THE A PPELLANT ARGUED THAT FIRSTLY, IT IS NOT CORRECT TO STATE THAT THE A PPELLANT IS NOT BOUND BY THE AGREEMENT WITH THE GOVERNMENT. ORGANIZATIONS FOR SUPPLY OF GIS SOLUTION PACKAGE IN HARD COPIES OR PRINT OUT . THE ENTIRE GIS SOFTWARE COMPRISES OF VARIOUS PARTS WHICH INCLUDE G IS SOFTWARE, HARD COPIES AND PRINT OUT IN THE FORM OF MAPPING SE RVICES. THE PREPARATION OF THE MAP OF MUNICIPALITY FROM THE RAW DATA AVAILABLE FROM THE MUNICIPALITY AND THEN SUSTAINED WITH THE S ATELLITE DATA AND GROUND SURVEYS IS THE FIRST STEP TOWARDS THE IN TRODUCTION OF GIS. THE MAP SO PREPARED IS THEN INTEGRATED INTO SOFTWAR E SOLUTION TO ATTACH FURTHER ATTRIBUTED INFORMATION AND TO PROVID E REPORTS, ANALYTICAL OPTIONS TO THE ADMINISTRATOR OF THE MUNI CIPALITY. WITHOUT MAP, THE GEOGRAPHY DOES NOT COME INTO EFFECT. 7. WITH REGARD TO THE SECOND OBJECTION OF THE LEARN ED ASSESSING OFFICER THAT THE ASSESSEE IS ONLY SUPPLYING CUSTOMI ZED SOFTWARE TO HIS CLIENTS AND IS NOT INVOLVED IN ANY PRODUCTION/M ANUFACTURE OF ARTICLE OR THING, THE COUNSEL FOR THE APPELLANT STA TED THAT THE - 8 - LEARNED ASSESSING OFFICER HAS TRIED TO TAKE SUPPORT FROM THE JUDGEMENT OF THE SUPREME COURT IN TATA CONSULTANCY SERVICES CASE, 271 ITR 401 WHEREIN THE COURT HELD THAT THE S OFTWARES ARE GOODS. EVEN IF SUCH SOFTWARE MANUFACTURE ALONG WITH MAP PREPARATION IS NOT CONSIDERED GOODS, THEY STILL FAL L WITHIN THE WORD, ARTICLE OR THING WHICH APPEAR IN SECTION 80IB. WI TH REGARD TO THE OBJECTION OF THE AUDITOR IN THE AUDIT REPORT, THE C OUNSEL STATED THAT THE NOTES OF THE AUDITOR ARE WITH REFERENCE TO AND IN CONTEXT OF REQUIREMENTS OF SPECIFIC CLAUSE MENTIONED IN THOSE FORMS. IN CLAUSE NO.28, THE REQUIREMENT IS TO GIVE QUANTITY OF GOODS MANUFACTURED OR PROCESSED. THESE GOODS ARE IN THE SENSE WHERE TH EY CAN BE PHYSICALLY COUNTED AND ONLY IN THAT RESPECT, SUCH D ETAILS ARE TO BE GIVEN SINCE IT IS NOT POSSIBLE TO COUNT THE NUMBER OF COPIES OF MAPS PRODUCED WITH GIS AND HENCE, THE NOTE WAS GIVEN BY THE AUDITOR THAT SUCH REQUIREMENT COULD NOT BE GIVEN. THE COUNS EL FURTHER ARGUED THAT THE LEARNED ASSESSING OFFICER HAS WRONG LY APPRECIATED THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CA SE OF CITVS. PROFESSIONAL INFORMATION SYSTEM & MANAGEMENT 274 IT R 242 AND THE DECISION OF HON'BLE SUPREME COURT IN THE CASE O F CIT VS. PEERLESS CONSULTANCY SERVICES PVT. LTD., 248 ITR 17 8 BY STATING THAT THESE DECISIONS WERE GIVEN IN THE CONTEXT OF SECTIO N 32AB AND 32A RESPECTIVELY. THE COUNSEL STATED THAT IT IS SETTLED PRINCIPLE OF INTERPRETATION OF STATUTE THAT IF SOME WORDS ARE AP PEARING AT A PLACE IN THE ACT AND IF THEY ARE ASSIGNED A MEANING BY THE JUDICIAL FORUM, THE SAME MEANING HAS TO BE ASCRIBED TO THOSE WORDS APPEARING ELSEWHERE IN THE ACT UNLESS CONTEXT OTHER WISE REQUIRES. SINCE ALL THESE SECTIONS ARE FOR GRANTING RELIEF TO THE ASSESSEE, THE MEANING GIVEN TO THEM BY THE COURT IN THE CONTEXT O F SECTION 32AB AND 32A HAS TO BE APPLIED EVEN TO THE PROVISIONS OF SECTION 80IB. THE COUNSEL AGAIN RELIED ON THE DECISION OF JURISDI CTIONAL HIGH COURT AND THE SUPREME COURT CITED EARLIER AND ON THE DECI SION OF ITAT, MUMBAI IN THE CASE OF DATAMATIC FINANCIAL SERVICES LTD., 95 TTJ 944. THE COUNSEL STATED THAT IN THE CASE OF CIT VS. PEERLESS CONSULTANCY SERVICES PVT. LTD., IT WAS HELD THAT TH E ASSESSEE IS PROCESSING DATA ON BEHALF OF THE CLIENTS IS AN INDU STRIAL COMPANY - 9 - AND PROCESSING OF DATA IS PROCESSING OF GOODS. IN THE CASE OF CIT VS. PROFESSIONAL INFORMATION SYSTEM AND MANAGEMENT, IT WAS HELD THAT THE ACTIVITY OF DATA PROCESSING THROUGH USE OF COMPUTER IS ONE WHICH WOULD AMOUNT TO BUSINESS OF MANUFACTURE OR PR ODUCTION OF ARTICLE OR THING AND THE UNIT WHICH UNDERTAKES SUCH COMPUTER SERVICE FROM OTHER CONCERNS, WOULD BE AN INDUSTRIAL UNDERTAKING. SIMILARLY, THE ITAT, MUMBAI HELD THAT THE DATA PROC ESSING ACTIVITY CONSTITUTES MANUFACTURE OR PRODUCTION ELIGIBLE FOR DEDUCTION UNDER SECTION 80IB. THE COUNSEL, THEREFORE, ARGUED THAT T HE ASSESSEE IS AN INDUSTRIAL UNDERTAKING ENGAGED IN THE MANUFACTUR E OR PRODUCTION OF AN ARTICLE OR THING WHICH VIEW HAS BE EN SUPPORTED BY THE JURISDICTIONAL HIGH COURT, BOMBAY HIGH COURT AN D THE ITAT, BOMBAY AND THEREFORE, THE ASSESSEE IS ENTITLED TO D EDUCTION UNDER SECTION 80IB. 8. AFTER CONSIDERING THE SUBMISSIONS OF THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE, THE LEARNED COMMISS IONER OF INCOME TAX (APPEALS) OBSERVED AS UNDER :- I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF TH E LEARNED ASSESSING OFFICER IN THE ASSESSMENT ORDER, ARGUMENT S OF THE COUNSEL FOR THE APPELLANT AND THE MATERIAL PRODUCED BY HIM. THE APPELLANT IS ENGAGED IN THE BUSINESS OF JOB WOR K AND SOFTWARE DEVELOPMENT IN THE FIELD OF GIS APPLICATIO N. FOR THIS PURPOSE, THE APPELLANT IS GATHERING INFORMATION FRO M THE FIELD BY WAY OF GROUND SURVEYS BY THE EMPLOYEES FOR PREPA RATION OF MAPS AND ALSO PROVIDING GIS WITH SUPPORT DATA BA SE IN THE FORM OF DIGITIZATION AND VEETORISATION OF MAP. THUS , THE ACTIVITY OF THE APPELLANT INVOLVES COLLECTION OF DA TA BY GATHERING INFORMATION FROM THE FIELD. THIS INFORMAT ION SO GATHERED IS ARRANGED IN AN APPROPRIATE FORMAT BY PR EPARATION OF MAPS AND PROVIDING GIS. TO COMPLETE THE WORK, TH E APPELLANT PROVIDES DATA BASE IN THE FORM OF DIGITIZ ATION AND VEETORISATION OF THE MAPS. FOR THIS PURPOSE, THE AP PELLANT ALSO DEVELOPS SOFTWARE FOR PROVIDING DATA IN A SYST EMATIC MANNER. FROM THE ACTIVITIES OF THE APPELLANT, IT IS CLEAR THAT THE APPELLANT IS NOT ENGAGED IN THE ACTIVITY OF COMPUTERIZATION OR ACTIVITY OF UTILIZING THE COMPUT ERS FOR PRODUCTION OF DOCUMENT LIKE BALANCE SHEET AND OTHER ACCOUNTS, ETC. ALONE. THE MAIN ACTIVITY OF THE APPE LLANT IS COLLECTION/UTILIZATION OF GATHERED INFORMATION FOR PREPARING MAPS AND DEVELOPING COMPUTER SOFTWARE FOR THE SUPPO RT DATA FOR THESE MAPS. THE USE OF THE COMPUTER/SOFTWARE FO R - 10 - PROCESSING THE DATA IS INCIDENTAL. THE MAIN ACTIVIT Y OF THE APPELLANT IS PREPARATION OF THE MAPS. THIS ACTIVITY OF THE APPELLANT CANNOT BE TERMED AS MANUFACTURE/PRODUCTIO N AND THE APPELLANT CANNOT BE CALLED AN INDUSTRIAL UNDERT AKING. MOREOVER, THE APPELLANT PREPARES THE SOFTWARE/DATA WHICH IS CUSTOMERS SPECIFIC. THE PRODUCTION OF THE SOFTWARE IS NOT ON A LARGE SCALE. WHAT IS COMMONLY UNDERSTOOD FROM MANUFACTURE/PRODUCTION IS THAT THE SAME TYPE OF PRO DUCT IN LARGE QUANTITY IS MANUFACTURED WITH THE HELP OF MAC HINES WHICH IS A MARKETABLE COMMODITY. IN THE PRESENT CAS E, THE APPELLANT IS PREPARING CUSTOMER SPECIFIC DATA BASE. THE CASE LAWS RELIED UPON BY THE COUNSEL OF THE APPELLANT AR E ALL PERTAINING TO COMPUTERIZATION. IN THE CITED CASE VI Z. CIT VS. PROFESSIONAL INFORMATION SYSTEM AND MANAGEMENT, 274 ITR 242 (GUJ.), THE ASSESSEE WAS PROVIDING COMPUTER SER VICES TO THE OTHERS. THE HON'BLE HIGH COURT HELD THAT THE AC TIVITY OF DATA PROCESSING THROUGH THE USE OF COMPUTER IS ONE WHICH WOULD AMOUNT TO BUSINESS OF MANUFACTURE OR PRODUCTI ON OR ARTICLES OR THINGS AND THE UNIT WHICH UNDERTAKES SU CH COMPUTERIZED SERVICES FOR OTHER CONCERNS WOULD BE A N INDUSTRIAL UNDERTAKING. IN THE PRESENT CASE, THE AP PELLANT IS DOING THE ACTIVITY OF DATA PROCESSING THROUGH THE U SE OF COMPUTER WHICH IS ONLY INCIDENTAL ACTIVITY BUT THE MAIN ACTIVITY IS GATHERING OF INFORMATION FROM THE FIELD AND DEVELOPMENT OF SOFTWARE. THUS, THIS CASE LAW IS NOT APPLICABLE. FOR THE SAME REASONS THE OTHER CASE-LAW S RELIED UPON BY THE COUNSEL ARE NOT APPLICABLE. THE CASE-LA W RELIED UPON THE LEARNED ASSESSING OFFICER VIZ. TATA CONSUL TANCY SERVICES CASE, 271 ITR 401 (SC) IS APPLICABLE SINCE THE APPELLANT IS SUPPLYING UNCANNED SOFTWARE TO ITS CLI ENTS. IN VIEW OF THESE ARGUMENTS, THE DISALLOWANCE OF DEDUCT ION UNDER SECTION 80IB MADE BY THE LEARNED ASSESSING OF FICER IS UPHELD. THIS GROUND OF APPEAL IS DISMISSED. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF DEV ELOPMENT OF CUSTOMIZED SOFTWARE ON JOB WORK BASIS. THE ASSESSE E CLAIMED DEDUCTION UNDER SECTION 80IB OF THE ACT IN RESPECT OF HIS BUSINESS INCOME. THE LEARNED ASSESSING OFFICER DISALLOWED CL AIM OF DEDUCTION UNDER SECTION 80IB ON THE GROUND THAT THE CUSTOMIZED SOFTWARE DEVELOPED BY THE ASSESSEE WAS NOT MANUFACT URE OF ARTICLES OR THINGS. 10. ON APPEAL, LEARNED COMMISSIONER OF INCOME TAX ( APPEALS) UPHELD THE ORDER OF THE LEARNED ASSESSING OFFICER. - 11 - 11. BEFORE US THE LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE PROCURES MAPS OF A PARTICULAR AREA WHICH IS DIGITIZED AND SUPPLIED TO THE CUSTOMERS IN THE FORM OF SOFTWARE ON WHICH A USER CAN RAISE HIS QUERY AND FIND THE ANSWER. THE SOFTWARE SO DEVELOPED IS MANUFACTU RING AND FOR WHICH CONTENTION HE RELIED UPON THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY VS. STATE OF ANDHRA PRADESH 249 ITR 99,(SC) THE DECISION OF HON'BLE GUJARAT HI GH COURT IN THE CASE OF CIT VS. PROFESSIONAL INFORMATION SYSTEMS & MANAGEMENT 274 ITR 242(GUJ.), THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. PEERLESS CONSULTANCY AND SERVICES P VT. LTD., 248 ITR 178 (SC) AND THE DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF CIT VS. ORACLE SOFTWARE INDIA LTD., (2010) 320 I TR 546 (SC). 12. ON THE OTHER HAND, THE LEARNED DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT THE HON'BLE SUPREME COURT IN THE CASE TATA CONSULTANCY VS. STATE OF ANDHRA PRADESH 2 49 ITR 99,(SC) HAS NOT DECIDED THE ISSUE AS TO WHETHER THE UNCANNE D SOFTWARE IS GOODS OR NOT. FURTHER, IN THE CASE OF CIT VS. PEER LESS CONSULTANCY AND SERVICES PVT. LTD., 248 ITR 178 (SC) THE HON'BL E SUPREME COURT HAS HELD THAT DATA PROCESSING ON COMPUTER AMOUNTS T O MANUFACTURING OF GOODS WHEREAS IN THE INSTANT CASE THE ASSESSEE WAS NOT ENGAGED IN DATA PROCESSING. HE THEREFORE, SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 13. WE FIND THAT IT IS NOT IN DISPUTE THAT THE ASSE SSEE WAS ENGAGED IN DEVELOPMENT OF CUSTOMER SPECIFIC COMPUTE R SOFTWARE. THE ISSUE WHICH REQUIRES OUR ADJUDICATION IS THAT W HETHER SUCH DEVELOPMENT OF CUSTOMER SPECIFIC SOFTWARE BY THE AS SESSEE IS MANUFACTURING OF ARTICLE OR THING WITHIN THE MEANIN G OF SECTION 80IB OF THE ACT OR NOT. 14. THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS . ORACLE SOFTWARE INDIA LTD., (2010) 320 ITR 546 (SC) HELD T HAT IF AN - 12 - OPERATION/PROCESS RENDERED A COMMODITY FIT FOR USE FOR WHICH IT WOULD OTHERWISE NOT BE FIT, THE OPERATION/PROCESS F ELL WITHIN THE MEANING OF THE WORD MANUFACTURE. THUS, A PROCESS OR OPERATION WHICH RENDERS A SOFTWARE USABLE FOR WHICH IT IS OTH ERWISE NOT FIT THE OPERATION/PROCESS CAN BE TERMED AS MANUFACTURE. HOW EVER, WE ARE ALIVE TO THE FACT THAT THE DEVELOPMENT OF A CUSTOMI SED SOFTWARE MAY BE IN THE FORM OF MANUFACTURE OR MAY BE AS A RE SULT OF PROVISION OF SERVICES. 15. IN OUR CONSIDERED OPINION A TRANSACTION RESULTI NG IN THE ACQUISITION OF THE PROPERTY SHOULD BE UNDERSTOOD TO INCLUDE A TRANSACTION WHERE A DIGITAL PRODUCT, WHETHER PROVID ED ON A TANGIBLE MEDIA OR IN THE FORM OF A DIGITAL SIGNAL, IS ACQUIR ED BY A CUSTOMER. IF ONE PARTY ENGAGES ANOTHER PARTY TO CREATE AN ITE M OF PROPERTY THAT THE FIRST PARTY WILL OWN FROM THE MOMENT OF IT S CREATION, THEN NO PROPERTY WILL HAVE BEEN ACQUIRED BY THE FIRST PA RTY FROM THE OTHER AND THE TRANSACTION SHOULD BE CHARACTERIZED A S THE PROVISION OF SERVICES. HOWEVER, IN CASE OF CUSTOMISED SOFTWA RE WHEN THE ORIGINALLY DEVELOPED SOFTWARE IS OWNED BY THE DEVEL OPER AND NOT BY THE RECEIVER OF SUCH SOFTWARE PRIOR TO ITS TRANSMIS SION THEN THE CONSIDERATION PAID BY THE RECEIVER IS TOWARDS THE S OFTWARE AND NOT TOWARDS THE INTELLECTUAL SKILLS EMPLOYED BY THE SOF TWARE DEVELOPER AND IN SUCH CASES THE DEVELOPER CAN BE HELD AS ENGA GED IN MANUFACTURE OF A CUSTOMIZED SOFTWARE. 16. WE FIND THAT IN THE INSTANT CASE, BOTH THE PART IES HAVE BROUGHT NO MATERIAL BEFORE US TO SHOW THE POINT OF TIME AT WHICH THE CUSTOMER OR CLIENT OF THE ASSESSEE ACQUIRED PRO PERTY IN THE SOFTWARE DEVELOPED BY THE ASSESSEE. THE LOWER AUTH ORITIES HAVE ALSO NOT CONSIDERED THE ISSUE FROM THIS ANGLE. THU S, IN OUR CONSIDERED VIEW IT SHALL BE IN THE INTEREST OF THE JUSTICE TO RESTORE THIS ISSUE BACK TO THE FILE OF THE LEARNED ASSESSIN G OFFICER FOR ADJUDICATION AFRESH AFTER PROPER VERIFICATION IN LI GHT OF THE OBSERVATIONS MADE HEREINABOVE. IN OUR CONSIDERED V IEW WHEN THE CUSTOMER OF THE ASSESSEE ACQUIRES PROPERTY IN THE S OFTWARE - 13 - DEVELOPED BY THE ASSESSEE AFTER ITS DEVELOPMENT AND ONLY ON TRANSMISSION OF THE SOFTWARE TO THE CLIENT THEN THE PROFIT DERIVED FROM SUCH TRANSACTION SHOULD BE TREATED AS PROFIT D ERIVED FROM MANUFACTURING OF ARTICLE OR THING AND THE ASSESSEE SHALL BE ENTITLED TO DEDUCTION UNDER SECTION 80IB IN RESPECT OF SUCH PROFIT ONLY. WE THEREFORE, SET ASIDE THE ORDERS OF THE LOWER AUTHOR ITIES AND REMIT THE MATTER BACK TO THE FILE OF THE LEARNED ASSESSIN G OFFICER FOR FRESH ADJUDICATION AFTER ALLOWING REASONABLE OPPORT UNITY OF HEARING TO THE ASSESSEE. 17. GROUND NO.2 OF THE APPEAL IS AS UNDER :- 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE CHARGE OF INTEREST UNDER SEC TION 234B LEVIED BY THE LEARNED ASSESSING OFFICER. IT IS SUBM ITTED THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE, SUCH IN TEREST UNDER SECTION 234B IS NOT CHARGEABLE AT ALL. IT IS SUBMITTED THAT IT BE SO HELD NOW AND INTEREST CHARGED UNDER SECTION 234B BE DELETED. 18. AT THE TIME OF HEARING NO ARGUMENTS WERE MADE B Y LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE ON THE AB OVE GROUNDS OF APPEAL. HENCE, THE SAME IS DISMISSED FOR WANT OF P ROSECUTION. 17. THUS THE APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED FOR STATISTICAL PURPOSE. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 15 TH DAY OF SEPTEMBER, 2010. SD/- SD/- (BHAVNESH SAINI) ( N.S.SAINI ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD: ON THIS 15 TH DAY OF SEPTEMBER, 2010 COMPILED AND COMPARED BY: PATKI - 14 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-XVI, AHMEDABAD. 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD DATE INITIALS 1. DRAFT DICTATED ON 8-9-2010 ---------------- - 2. DRAFT PLACED BEFORE AUTHORITY 9-9-2010 ------- ------------ 3. DRAFT PROPOSED & PLACED 9-9-2010 ---- --------------- JM BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED 13-9-2010 ---------- ----- JM/AM BY SECOND MEMBER 5. APPROVED DRAFT COMES TO P.S 15-9-2010 --------- ----------- 6. KEPT FOR PRONOUNCEMENT ON 15-9-2010 --------- ----------- 7. FILE SENT TO THE BENCH CLERK 15-9-2010 ------ -------------- 8. DATE ON WHICH FILE GOES TO THE ---------------- -------------------- 9. DATE OF DISPATCH OF ORDER ---------------- -- -------------------