Indian Kanoon - Search engine for Indian Law

19. Section 2(14) of the Act defines "capital asset as property of any kind held by an assessee, whether or not connected with his business or profession, but does not include any stock-in-trade, consumable stores or raw materials held for the purposes of his business or profession, personal effects, agricultural land of certain Ascription and certain specified Bonds. There can be no doubt on le facts and in the circumstances of the case that the appellant was the exclusive owner of the relevant Software along with its Source and Documentation. The Software which was sold by the appellant to VBCS cannot be said to be penalty proceedings stock-in- trade or raw material inasmuch as the appellant fad in the past never supplied Source Code of any Software - whether or nor connected with the banking industry - to any party. There is, therefore, no doubt in my mind that the subject matter of the agreement dated 25th December, 1995 constituted a capital asset in the hands of the appellant.

21. It may be clarified once again that the transaction in question did not take place in the course of appellant's proprietary business which consisted of data processing job work, development of packages like pay- roll and share dividend and supply of complied copies of financial accounting software. The appellant had not dealt in or supplied the source code of any software - whether or not connected with Banking industry to any party in the pat. However, even if it is presumed for the sake of argument that the transaction in question was linked to appellant's proprietary business, it would not make any difference as to the nature of the receipt in appellant's hands. As stated above, capital assets, by definition, mean property of any kind held by the assessee whether or not connected with his business or profession except properties of certain specified verities. Thus, unless the software sold by the appellant can be regarded as his stock in trade, it would have to be treated as a capital asset in his hand. This would also be clear from the fact that assets such as goodwill of business, loom hours, route permits etc., which spring directly from business are treated as capital assets and there is no dispute about the fact that their transfer gives rise to capital gains - whether taxable or not.

6. Aggrieved, against the order of Tribunal, the assessee preferred this MA and the Ld. counsel for the assessee, Shri S.N.Soparkar emphasized only one issue that the source code of software is a capital asset and he further stated that Why Source code of Software & "Right to Modify, Alter, Customize, Copy & Sell"

is not a Capital Asset & how it is a Business Asset =Stock-in-Trade. According to the Ld. counsel, the apparent mistake is regarding the subject-matter taken "software" as revenue receipts, whereas the assessee has sold "software with source code & documentation and right of manufacture (Modify & Copy) and sell". The Ld. counsel stated that the Tribunal could have examined the facts whether it is self generated or not whether there was finity of time of development & finity of cost of development or not. According to the Ld. counsel - what is source code - & hence, the apparent mistake therefore deserves a review. He further stated that the Tribunal has overlooked and not taken any cognizance of the fact that there was not a single rupee sale of banking software called Banker 123 by the assessee any time prior to or subsequent to this one off transaction. He further referred to Section 2(14) of the Act, which already defines the capital assets as including the assets connected with the business: "whether connected with Assessee's business or not". He further narrated that this point has been referred to in the submissions to CIT (Appeals) and in the order CIT(Appeals) and also in the submissions to the Tribunal and it has not been replied at all. He argued that the chapter dealing with capital gain specifically provides for various clauses dealing with business assets, referred to example of Loom Hours, which get generated in course of business only.. not self-generated as self- happening... not without spending on Looms... then why they are assessed as capital asset and why specifically, section 55(2) applies to it? He argued that introduction of the "Right to Manufacture" in clause 55(2) with subsequent effect, is clearly to include such business assets as capital assets. The intent of statute is so clear and the Tribunal has apparently overlooked and not examined this submission of the assessee and has not replied the matter. Hon'ble Tribunal has gone against the clear intent of the Statute/Parliament and also CBDT. The Ld.counsel for the assessee stated that the observation of the Tribunal, that if the asset is developed in course of business it is a business asset and it is a revenue receipt, is pre-set. He referred the example of Loom hour, route permit etc.

7. On the other hand, the Ld. CIT-DR, Shri Shelly Jindal stated that source code is nothing but a locking system and it work like 'password'. He stated that the assessee is seeking review of the Tribunal's order and not rectification of mistake. Even otherwise, according to the CIT-DR, the view of the Tribunal is perfectly alright and deserves to be upheld.

8. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that the Tribunal has taken a view that the banking software in question is part of the business activity of the assessee of developing the software and essentially this is a business asset. Even developing a source code is also part of banking software, which is part of the assessee's business activity and accordingly related sale is revenue receipt as held by the Tribunal. Even otherwise, it is well-settled that the Tribunal has no inherent power of reviewing its order on merits but the Tribunal has limited power, acting u/s.254(2) of the Act i.e just to rectify the mistake apparent from record. It has not been vested with the review jurisdiction by the statute creating it. Accordingly, Sec. 254(2), only empowers the Tribunal to amend any order passed by it u/s.254(1), with a view to rectify a mistake apparent from records and not otherwise. Accordingly, we find no mistake apparent from records in the order of the Tribunal and accordingly this MA of the assessee is dismissed.