CIT vs. Oracle Software India (Supreme Court)

DATE: (Date of pronouncement)
DATE: January 25, 2010 (Date of publication)

Click here to download the judgement (oracle_manufacture_80IA.pdf)

Copying software onto blank discs is “manufacture” for s. 80-IA

The assessee imported Master Media of software from Oracle Corporation which was duplicated on blank discs, packed and sold in the market. The question arose whether the activity of copying the discs amounted to manufacture or processing of goods for purposes of s. 80IA. HELD, deciding in favour of the assessee:

(i) In interpreting the expression “manufacture or processing of goods”, one has to move with the times and bear in mind that technological advancement in computer science makes knowledge as of today obsolete tomorrow. Therefore where the issue arises for determination, the Department should study the actual process undertaken by the assessee to decide whether there is manufacture or processing.

(ii) The term “manufacture” implies a change, but, every change is not a manufacture, despite the fact that every change in an article is the result of a treatment of labour and manipulation. However, this test of manufacture needs to be seen in the context of the process adopted by the assessee for duplication of software. If an operation/ process renders a commodity or article fit for use for which it is otherwise not fit, the operation/ process falls within the meaning of the word “manufacture”. Applying this test, as the assessee has undertaken an operation which renders a blank CD fit for use for which it was otherwise not fit, the duplicating process constitutes ‘manufacture’ u/s 80IA(12)(b).

(iii) The argument of the revenue 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 is over-simplified and does not take into account the ground realities of business in modern times. In Tata Consultancy Services v. State of AP 271 ITR 401 (SC) it was held that a software programme put in media for transferring or marketing is “goods”. When one buys a software programme, one buys not the original but a copy. Accordingly, to say that the contents of the original and the copy are the same is not correct.