COMMISSIONER OF INCOME TAX-V, NEW DELHI vs. M/S. ORACLE SOFTWARE INDIA LTD.

CIVIL APPEAL No. 235/2010Supreme Court[2010] 1 S.C.R. 54313 January 2010Bench: 3 JudgesAuthor: S.H. KAPADIA, H.L. DATTU, S.S. NIJJAR12 pages
AI SummaryDismissed

What were the facts?

The Supreme Court was considering appeals by the Commissioner of Income Tax-V, New Delhi, against M/s. Oracle Software India Ltd. The assessment years in question were 1995-96 and 1996-97. The assessee, a subsidiary of Oracle Corporation, USA, imported master media of software, duplicated it onto blank compact discs (CDs), packed them, and sold them. The assessee paid a lump sum for the master media and a royalty on licensed products. The assessee claimed deduction under Section 801A of the Income Tax Act, 1961, arguing that the process of converting blank CDs into software-loaded discs constituted 'manufacture or processing of goods'. The Revenue contended that copying the software did not involve manufacture or processing as the content remained unchanged.

What did the Supreme Court hold?

The Supreme Court held that the process of transforming a blank CD into a software-loaded disc constitutes 'manufacture or processing of goods' under Section 801A(1) read with Section 801A(12)(b) of the Income Tax Act, 1961. The Court reasoned that a blank CD is distinct from a pre-recorded CD and has a different use. The duplicating process renders a blank CD, which is unfit for specific use, into a recorded CD dedicated to a specific use, thereby changing its basic character. This process falls within the definition of manufacture. The Court relied on the principle that if an operation renders a commodity fit for a use for which it was otherwise not fit, it constitutes manufacture. The Court also referred to the judgment in Tata Consultancy Services v. State of Andhra Pradesh, which held that marketed software copies are goods, and the process by which they become goods falls within the ambit of manufacture or processing. The appeals filed by the Department were dismissed.

What were the issues?

1. Whether the process of transforming a blank Compact Disc (CD) into a software-loaded disc constitutes 'manufacture or processing of goods' in terms of Section 801A(1) read with Section 801A(12)(b) of the Income Tax Act, 1961, as it stood then? Assessee's Contention: The assessee argued that the process of converting blank CDs into recorded CDs, along with other processes to create a Software Kit, amounted to manufacture or processing of goods. They contended that the blank CD was raw material and the act of making a copy constituted manufacture or processing, entitling them to deduction under Section 801A. Revenue's Contention: The Revenue argued that copying the software did not involve any element of manufacture or processing of goods because the software on the master media and the recorded media remained unchanged. Therefore, the assessee was not entitled to deduction under Section 801A.

Which sections of the Income-tax Act were involved?

Section 33B

AI-generated summary — verify with the full judgment below

[2010) 1 S.C.R. 543 COMMISSIONER OF INCOME TAX-V, NEW DELHI v. MIS. ORACLE SOFTWARE INDIA LTD. (Civil Appeal No. 235 of 2010) JANUARY 13, 2010 [S.H. KAPADIA, H.L. DATIU AND SURINDER SINGH NIJJAR, JJ.] Income Tax Act, 1961: s.801A(1) r.w. s.801A(12)(b): A B Transformation of blank Compact Disc (CD) into software C loaded disc - Held: Amounts to manufacture/processing of goods in terms of s.801A(1) r.w. s.801A(12)(b) - Blank CD is an input- By duplicating process, the reco_rdable media which is unfit for any specific use gets converted into the programme which is embedded in the Master Media and, thus, blank CD D gets converted into recorded CD by this intricate process - Duplicating process cfianges the basic character of a blank CD, dedicating it to a specific use - Therefore, processing of blank CDs constitutes manufacture in terms of s.801A(12)(b) r.w. s.33B of the Act. E The question which arose for consideration in these appeals is whether the process by which a blank Compact Disc (CD) is transformed into software loaded disc constitutes "manufacture or processing of goods" in terms of Section 801A(1) read with Section 801A(12)(b), as it stood then,

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