DCIT, CHENNAI vs. MAHATHI INFOTECH PVT LTD., CHENNAI

Shri V. Nandakumar, the Ld. Departmental Representative submitted that the assessee claimed exemption under Section 10A of the Income Tax Act, 1961 (in short “the Act”), on the ground that it was developing software. According to the Ld. D.R., the assessee has not developed any software. In fact, the software was developed by M/s. Easy Design Systems. The assessee purchased the software from M/s. Easy Design Systems and exported the same. The Ld. D.R., further submitted that the source code for the software remains with M/s. Easy Design Systems. Therefore, the assessee is not entitled for exemption under Section 10A of the Act.

On the contrary, ShriT. Banusekar, the Ld. representative for the assessee submitted that the software developed by the assessee is the product of the assessee company. The software was developed under the instruction, control and supervision 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 manufacturer.

We have considered the rival submissions on either side and perused the material available on record. It appears the coding and programming is done through M/s. Easy Design Systems. The assessee claims that the coding was done under its supervisory control. The question arises for consideration, when 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 of the Act. We have carefully gone through the judgment of the Madras 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 Division’ which engaged in the manufacture and sale of grinders. The assessee claimed that the process of assembly was done through two job workers. The assessee has also claimed that manufacturing activity starting from planning, procuring of raw materials, inspection, testing and quality control norms are decided by the assessee.

We have carefully gone the provision of Section 80IA of the Act. The Section 80IA of the Act provides for deduction 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 the assessee itself, this Tribunal is of the considered opinion that the CIT (Appeals) has rightly found that the assessee is manufacturing computer software by placing his reliance on the judgment of the Madras High Court in M/s. Elgi Ultra Industries Limited (Supra).

In this case also, the assessee engaged M/s. Easy 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 software. Therefore, the assessee is eligible for exemption under 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.

In the result, both the appeals of the Revenue stands dismissed.