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S.H. KAPADIA, J.

1. Leave granted.

2. A short question which arises for determination in this batch of civil 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 80IA(1) read with Section 80IA(12)(b), as it stood then, of the Income Tax Act, 1961?

3. For the sake of convenience, we may refer to bare facts mentioned in Civil Appeal @ SLP (C) No. 6847 of 2008. In this appeal, we are concerned with the Assessment Years 1995-96 and 1996-97.

4. Assessee is 100% subsidiary of Oracle Corporation, USA. It is incorporated with the object of developing, designing, improving, producing, marketing, distributing, buying, selling and importing of computers softwares. Assessee is entitled to sub-licence the software developed by Oracle Corporation, USA. Assessee imports Master Media of the software from Oracle Corporation, USA which is duplicated on blank discs, packed and sold in the market along with relevant brouchers. Assessee pays a lump-sum amount to Oracle Corporation, USA for the import of Master Media. In addition thereto, assessee also pays royalty at the rate of 30% of the price of the licensed product. The only right which the assessee has is to replicate or duplicate the software. They do not have any right to vary, amend or make value addition to the software embedded in the Master Media. According to the assessee, it uses machinery to convert blank CDs into recorded CDs which along with other processes become a Software Kit. According to the assessee, it is the blank CD in the present case which constitutes raw-material. According to the assessee, Master Media cannot be conveyed as it is. In order to sub-licence, a copy thereof has to be made and it is the making of this copy which constitutes manufacture or processing of goods in terms of Section 80IA and consequently assessee is entitled to deduction under that Section. On the other hand, according to the Department, in the process of copying, there is no element of manufacture or processing of goods. According to the Department, since the software on the Master Media and the software on the recorded media remains unchanged, there is no manufacture or processing of goods involved in the activity of copying or duplicating, hence, the assessee was not entitled to deduction under Section 80IA. According to the Department, when the Master Media is made from what is lodged into the computer, it is a clone of the software in the computer and if one compares the contents of the Master Media with what is there in the computer/ data bank, there is no difference, hence, according to the Department, there is no change in the use, character or name of the CDs even after the impugned process is undertaken by the assessee.

6. Section 80IA occurs in Chapter VIA which deals with Deductions in respect of certain Incomes. Where the gross total income of an assessee includes any profits derived from any business of an industrial undertaking to which Section 80IA applies, there shall in accordance with and subject to the provisions of Section 80IA, be allowed, in computing the total income of the assessee, a deduction from such profits and gains of an amount equal to a specified percentage for such number of assessment years as specified in Section 80IA. For deciding the present controversy, it would be sufficient to notice that the gross total income of an assessee must include profits derived from any business (eligible) of an industrial undertaking which in terms of Section 80IA(12)(b) is given the same meaning as is assigned to that expression vide Explanation to Section 33B. As can be seen from the Explanation to Section 33B, an industrial undertaking inter alia has been defined to mean any undertaking which is engaged inter alia in the manufacture or processing of goods.

7. At the outset, we may state that Section 80IA comes in Chapter VIA. That Chapter, in a way, is a code by itself. It provides for special deductions. Broadly, these special deductions are incentives provided for setting up industrial undertakings in backward areas, for earning profits in foreign exchange, for setting up hotels, etc. It is in this background that one has to interpret the meaning of the expression "manufacture or processing of goods". One more aspect needs to be highlighted. Technological advancement in computer science makes knowledge as of today obsolete tomorrow. We need to move with the times. At the same time, one needs to take note of the fact that unlimited deductions are not permissible under Chapter VIA. Therefore, in each case, where an issue of this nature arises for determination, the Department should study the actual process undertaken by the assessee. Duplication can certainly take place at home, however, one needs to draw a line between duplication done at home and commercial duplication. Even a pirated copy of a CD is a duplication but that does not mean that commercial duplication as is undertaken in this case should be compared with home duplication which may result in pirated copy of a CD. The point to be noted by the Department in each of such cases is to study the actual process undertaken by the licensee who claims deduction under Section 80IA of the Income Tax Act, 1961. At this stage, we may clarify that in this case we are concerned with the Income Tax Act, 1961, as it stood during the relevant Assessment Years.