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1B(2) of the IT Act are fulfilled by the assessee, it is entitled for deductions as claimed under Section 80 IB and 80 HHC.

2. Necessary facts for adjudication of the case, as .

emerged from the record, are that respondent-assessee, who is engaged in the manufacture of voice and fax encryption systems, imported the necessary hardware as well as corresponding software from the United States and subsequently imported hardware was integrated at the assessee's premises at Shoghi, District Shimla, Himachal Pradesh and the software was customized and modified before loading it to the hardware. Respondent-assessee claimed deductions under Section 801B and 80 HCC for the assessment purpose, which came to be disallowed by the Assessing Officer vide assessment order under Section 143(3) dated 1.3.2004.

"1. Whether on the facts and in the circumstances of the case, the Hon'ble Tribunal was right in law in holding that the assessee was engaged in the manufacture of encryption software and was hence eligible for the deduction under section 801B of the Income-tax Act, when the assessee was merely importing such software and customizing the same to suit the needs of its customers?

stated that so called integration of software in the assessee's premises at Shogi did not amount to manufacture and as such software could not/ought not be said an article or thing. Mrs.Kuthiala, learned counsel further contended that learned Appellate Tribunal wrongly applied ratio of judgment passed by Hon'ble Supreme Court in case of Tata Consultancy Services vs. State of Andhra Pradesh 271 ITR 401 (SC) because aforesaid decision of Hon'ble Apex Court only implies that software loaded on to a tangible medium would constitute "goods" and it does not deal with issue as to whether customization of software amounts to manufacture.

7. Learned counsel representing the appellant-

department further contended that in the instant case learned Appellate Tribunal has failed to examine the precise .

activity carried on by the assessee because it is evident from the record that encryption hardware and software were imported by the assessee and thereafter the only development stated to have been done was to customize the software in accordance with the needs of the customers. The assessee imported encryption software and sold the same and no change was made in the commercial identity of the commodity being sold and as such the same could not be held to be an article or thing and even if it is presumed that development of new and original software amounts to manufacture, it cannot be said that the assessee carried out any manufacture or production by the mere process of customization. While concluding her arguments, Mrs.Vandana Kuthiala, learned counsel stated that under Copyright Law, the right to modify or customize a copyrighted article has to be specifically transferred. But, in the instant case, there is nothing on record to suggest that whether such right was obtained by the assessee and whether any royalty was paid as consideration for the same.