Saturday 12 December 2015
Division Bench of Supreme Court splits on the issue of simultaneous deduction u/s 80IB rws 80IA(9) and 80HHC. Where assessee is carrying export business as well as domestic business and is eligible for deduction both u/s 80HHC as well as 80IB, the issue is whether amount of eligible deduction computed u/s 80IB rws 80IA(9) shall be deducted in computing profits of business u/s 80HHC. An example will make position clear. Supposing an assessee has gross total income of Rs. 1,000/- and is entitled to deduction under Sections 80IA and 80HHC and the deduction under Section 80IA is Rs. 300/-, then the department says that gross total income of which deduction under Section 80HHC is to be computed would be Rs. 700/-, and not Rs. 1,000/-. On the other hand, the case of the assessee is that the gross total income would not undergo a change or reduction for the purpose of Section 80HHC [Extracted from Para 15 and 16 of Judgment. The issue has arisen due to language of section 80IA(9). Which reads as “ Where any amount of profits and gains of an (undertaking) or of an enterprise in the case of an Assessee is claimed and allowed under this Section for any assessment year, deduction to the extent of such profits and gains shall not be allowed under any other provisions of this Chapter under the heading "C.-Deductions in respect of certain incomes", and shall in no case exceed the profits and gains of such eligible business of (undertaking) or enterprise, as the case may beSection 80-IA(9) consists of three parts. The second part of section 80-IA(9) provided that the deduction to the extent of profits allowed under section 80-IA(1) shall not be allowed under any other provisions. It obviously means that the deductions that are allowable under other provisions under heading C of Chapter VI-A would be allowed to the extent of profits as reduced by the profits allowed under section 80-IA(1). The second part of section 80-IA(9) does not even remotely refer to the method of computing deduction under other provisions under heading C of Chapter VI-A. Thus, section 80-IA(9) seeks to curtail allowance of deduction and not computability of deduction under any other provisions under heading C of Chatper VI-A of the Act. Matter now referred to larger bench Micro Labs Ltd. [2015] 64 taxmann.com 199 (SC) DECEMBER 10, 2015
Supreme Court on duplication of CD in Oracle Software India Ltd. 320 ITR 546(SC): Commercial duplication cannot be compared to home duplication. Complex technical nuances are required to be kept in mind while deciding issues of the present nature. 8. From the details of Oracle Applications, we find that the software on the master media is an application software. It is not an operating software. It is not a system software. It can be categorized into product line applications, application solutions and industry applications. A commercial duplication process involves four steps. For the said process of commercial duplication, one requires master media , fully operational computer, CD blaster machine (a commercial device used for replication from master media ), blank/unrecorded CD also known as recordable media and printing software/labels. The master media is subjected to a validation and checking process by software engineers by installing and rechecking the integrity of the master media with the help of the software installed in the fully operational computer. After such validation and checking of the master media , the same is inserted in a machine which is called as the CD blaster and a virtual image of the software in the master media is thereafter created in its internal storage device. This virtual image is utilized to replicate the software on the recordable media. 9. What is virtual image ? It is an image that is stored in computer memory but it is too large to be shown on the screen. Therefore, scrolling and panning are used to bring the unseen portions of the image into view. [See Microsoft Computer Dictionary, Fifth Edition, p. 553] According to the same dictionary, burning is a process involved in writing of a data electronically into a programmable read only memory (PROM) chip by using a special programming device known as a PROM programmer, PROM blower, or PROM blaster [See pp. 64, 77 of Microsoft Computer Dictionary, Fifth Edition]
Where One of the arguments advanced on behalf of the Department was that since the software on the master media and the software on the pre-recorded media is the same, there is no manufacture because the end-product is not different from the original product SC in Oracle Software India Ltd. 320 ITR 546(SC) quoted Tata Consultancy Services vs. State of Andhra Pradesh (2004) 192 CTR (SC) 257 : (2004) 137 STC 620 (SC) It was held that a software programme may consist of commands which enable the computer to perform a designated task. The copyright in the programme may remain with the originator of the programme. But, the moment copies are made and marketed, they become goods. It was held that even an intellectual property, once put on to a media, whether it will be in the form of computer discs or cassettes and marketed, it becomes goods. It was further held that there is no difference between a sale of a software programme on a CD/floppy from a sale of music on a cassette/CD. In all such cases the intellectual property is incorporated on a media for purposes of transfer and, therefore, the software and the media cannot be split up. It was further held, in that judgment, that even though the intellectual process is embodied in a media, the logic or the intelligence of the programme remains an intangible property. It was further held that when one buys a software programme, one buys not the original but a copy. It was further held that it is the duplicate copy which is read into the buyer’s computer and copied on memory device [See pp. 630 and 631 of the said judgment]. If one reads the judgment in Tata Consultancy Services (supra), it becomes clear that the intelligence/logic (contents) of a programme do not change. They remain the same, be it in the original or in the copy. The Department needs to take into account the ground realities of the business and sometimes over-simplified tests create confusion, particularly, in modern times when technology grows each day. To say, that contents of the original and the copy are the same and, therefore, there is (sic—no) manufacture would not be a correct proposition. What one needs to examine in each case is the process undertaken by the assessee.[Para 11 of Judgement]
In the case of Gramophone Co. of India Ltd. vs. Collector of Customs 1999 (114) ELT 770 (SC) the question which arose for determination was whether recording of audio cassettes on duplicating music system amounts to manufacture. The answer was in the affirmative. It was held that a blank audio cassette is distinct and different from a pre-recorded audio cassette and the two have different use and name. In Tata Consultancy Services vs. State of Andhra Pradesh (2004) 192 CTR (SC) 257 : (2004) 137 STC 620 (SC) it was held that there is no difference between a sale of software programme on a CD/floppy and a sale of music on a CD/cassette. Held by Supreme Court in Oracle Software India Ltd. 320 ITR 546(SC) Applying that test to the facts of the present case, we hold that a blank CD is different and distinct from a pre-recorded CD. Hence it amounts to manufacture.
Supreme Court on technological advancements in Oracle Software India Ltd. 320 ITR 546(SC) “………Technological advancement in computer science makes knowledge as of today obsolete tomorrow. We need to move with the times.[Para 7]………………………….. “…………..The Department needs to take into account the ground realities of the business and sometimes over-simplified tests create confusion, particularly, in modern times when technology grows each day[Para 11]…………………..”
Delhi High Court in Radio Today Broadcasting Ltd. [2015] 64 taxmann.com 164 (Delhi)on broadcasting radio programmes on FM channel held that for claiming additional depreciatin u/s 32(1)(iia) assessee must be engaged in the business of manufacture or production of any article or thing .'Manufacture' in the context of 'broadcast' it could encompass the processes of producing, recording, editing and making copies of the radio programme followed by its broadcasting. The activity of broadcasting, in the above context, would necessarily envisage all the above incidental activities which are nevertheless integral to the business of broadcasting.[para 32] The production of radio programmes, as explained by the Assessee, involved the processes of recording, editing and making copies prior to broadcasting. When the radio programmes is made there comes into existence a 'thing' which is intangible, and which can be transmitted and even sold by making copies. Therefore, it can definitely be stated that the radio programmes produced by the Assessee is 'thing', if not an 'article.'[para 27] For the purpose of additional depreciation u/s 32(1)(iia).Hence broadcast of radio programmes by FM channel qualifies for additional depreciation u/s 32(1)(iia). Comments: However High Court also held that if Assessee might be only 'broadcasting' the programmes produced by others , it would be arguable whether in the first place it could be said that the Assessee is "engaged in the business of manufacture or production of any article or thing"[Para 25] However , Under number of sections of Income tax law , manufacture has been defined to include recording of programmes on any disc, tape, perforated media or other information storage device. Further in Oracle Developers SC has held that mere commercial duplication of storage device with computer doftware is also manufacture. In case of Gramophone Co., SC has held that recording of sound cassettes is manufacture. Hence broadcasting without production might also tantamount to manufacture
Delhi High Court in para 30 Radio Today Broadcasting Ltd. [2015] 64 taxmann.com 164 (Delhi)on definition of manufacture u/s 2(29BA) held that “………..Although this definition was introduced with effect from 1st April 2009 it must be understood as being clarificatory in nature given the common parlance understanding of the term 'manufacture'………………..”
Advance given by educational institution u/s 10(23C)(iiiad) to another institution existing for educational purposes does not take away the exemption of educational institution Vairams Kindergarten Society [2015] 63 taxmann.com 165 (Chennai - Trib.) FEBRUARY 6, 2015 Madras High Court in the case of V.G.P. Foundation rendered in the context of funds given to a sister concern, which was a private limited company of which the trustees of the assessee were also directors. However, in the instant case, the assessee, being an educational institution, has advanced money to another charitable society registered under section 10(23C)(vi) of the Act and further the recipient society is also an educational institution. Also decision rendered in the case of St. Francis Convent School (P&H) is also not applicable, since the funds were diverted by the assessee therein to the Diocese of Jalandhar.
Delhi High Court in the case of DIT (Exemption) v. ACME Educational Society [2010] 326 ITR 146, held that the amount advanced by one educational society to another educational society cannot be considered as violation of provisions of section 13(1)(d) read with section 11(5) of the Act, since the interest-free loan given by the assessee-society was neither an investment nor a deposit.
The contention of revenue that objects “To foster and develop an active and positive feeling of love and brotherhood for everyone and cultivate a strong sense of patriotism., To ensure an all round development of their personalities through educational social and cultural activities, To foster such education to the poor irrespective of caste, creed and culture” do not fall under with in definition of 'solely for educational purpose held not correct by Uttrakhand High Court in Maharani Luxmi Bai Memorial Educational Society[2015] 64 taxmann.com 44
Where a society is running an educational institution, it can make application under section 10(23C)(vi) on behalf of educational institution and application need not be filed by educational institution itself . Maharani Luxmi Bai Memorial Educational Society[2015] 64 taxmann.com 44 (Uttarakhand) JULY 29, 2015
As per news published in economic times, the service tax department has issued directives to its officers to levy service tax on amount of security deposit of employees forfeited by employers received in lieu of providing service by letting employees to leave ahead of time u/s 66E(e) Declared Service "obligation to refrain from an act, or to tolerate an act or a situation, or to do an act".
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