Supplying back ground sound audio to film is manufacture u/s 80-IB of the Income Tax Act. Providing audio Software to Video already shot amounts to manufacture– High Court
ABCAUS Case Law Citation:
ABCAUS 2024 (2017) (08) HC
Whether the activity of the assessee in editing of supplying the audio of the back ground sound to the film already shot by the customers would amount to manufacture of processing of goods in terms of Section 80-IB of the Income Tax Act, 1961?
Important Case Laws Cited/relied upon by the parties:
The Gramophone Co. of India Ltd. Vs. The Collector of Customs, Calcutta, (2000) 1 SCC 54
Commissioner of the Income Tax Vs. Oracle Software India Ltd, (2010) 320 ITR 0546
Brief Facts of the Case:
The appellant was involved in the activity of the Video Software Generation. He was engaged in the editing of supplying of audio of the back ground sound to the film already shot by the customers.
The Assessing Officer (AO) inter alia held that the assessee was bringing into an existence a video film and his role being limited to that of editing of supplying the audio/back ground sound. It was further held that there was no article or thing having been manufactured by the assessee as required by the provision of 80-IB of the Act. The claim of the assessee was, thus, disallowed.
Being aggrieved, the assessee preferred an appeal before the Commissioner Income Tax appeals who affirmed the order passed by the Assessing Officer. Being aggrieved the assessee preferred an appeal before the Income Tax Appellate Tribunal (ITAT). The Tribunal by taking into account the fact that similar issue has been decided in the assessee’s case in respect of earlier assessment year by the Tribunal itself, dismissed the appeal preferred by the appellant.
Aggrieved by the order of the ITAT, the assessee had filed the appeal in the High Court.
Contention of the Appellant Assessee:
It was submitted that the ITAT grossly erred in dismissing the appeal merely by placing the reliance on an order of assessment passed in respect of the assessee. It is further submitted that it ought to have been appreciated that the order for the earlier assessment year was passed on the ground that assessee was not able to explain that scope of activity undertaken by it and, therefore, the claim of the assessee was disallowed.
Observations made by the High Court:
The Hon’ble High Court observed that the issue involved in this appeal was no longer res-integra and had already been dealt by the Supreme Court in the case of Oracle Software.
The Hon’ble High Court noted the following passage from the the aforesaid decision of the Apex Court which was relevant for the controversy involved in the appeal:
In our view, if one examines the above process in the light of the details given hereinabove, 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. 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 above process. 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 the above test to the facts of the present case, we are of the view that, in the present case, the assessee has undertaken an operation which renders a blank CD fit for use for which it was otherwise not fit. The blank CD is an input. By the duplicating process undertaken by the assessee, the recordable media which is unfit for any specific use gets converted into the programme which is embedded in the master media and, thus, blank CD gets converted into the programme which is embedded in the master media, and, thus, blank CD gets converted into recorded CD by the afore-stated intricate process. The duplicating process changes the basic character of a blank CD, dedicating it to a specific use. Without such processing, blank CDs would be unfit for their intended purpose. Therefore, processing of blank CDs, dedicating them to a specific use, constitutes a manufacture in terms of s. 80- IA(12)(b) r/w s. 33B of the IT Act.
Apart from the above enunciation of Law, the Hon’ble High Court also observed that the activity of Video Software Generation had been recognized as Small Scale Industries by Government of India, Ministry of Industry vide order dated 04.03.1993, as well as 03.11.1993.
The Hon’ble High Court opined that by providing the Audio Software to the Video already shot makes an article fit for use which in turn amounts to manufacture, in view of the Law laid down by the Supreme Court in the case of Oracle Software.
It was held that the activity of the petitioner in supplying the audio of the back ground sound to the film already shot by the customers, amounts to manufacture within the meaning of Section 80-IB of the Income Tax Act.