COMMISSIONER OF INCOME TAX-V, NEW DELHI versus M/S. ORACLE SOFTWARE INDIA LTD.

Citation: [2010] 1 S.C.R. 543 · Decided: 13-01-2010 · Supreme Court of India · Bench: S.H. KAPADIA · Disposal: Dismissed
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Judgment (excerpt)

[2010) 1 S.C.R. 543 
COMMISSIONER OF INCOME TAX-V, NEW DELHI 
v. 
MIS. ORACLE SOFTWARE INDIA LTD. 
(Civil Appeal No. 235 of 2010) 
JANUARY 13, 2010 
[S.H. KAPADIA, H.L. DATIU AND SURINDER SINGH 
NIJJAR, JJ.] 
Income Tax Act, 1961: s.801A(1) r.w. s.801A(12)(b): 
A 
B 
Transformation of blank Compact Disc (CD) into software 
C 
loaded disc - Held: Amounts to manufacture/processing of 
goods in terms of s.801A(1) r.w. s.801A(12)(b) - Blank CD is 
an input- By duplicating process, the reco_rdable media which 
is unfit for any specific use gets converted into the programme 
which is embedded in the Master Media and, thus, blank CD 
D 
gets converted into recorded CD by this intricate process -
Duplicating process cfianges the basic character of a blank 
CD, dedicating it to a specific use - Therefore, processing of 
blank CDs constitutes manufacture in terms of s.801A(12)(b) 
r.w. s.33B of the Act. 
E 
The question which arose for consideration in these 
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 801A(1) read with Section 801A(12)(b), 
as it stood then, of the Income Tax Act, 1961. 
Dismissing the appeals, the Court 
F 
HELD: 1. A blank CD is different and distinct from a 
G 
pre-recorded CD. Marketed copies are goods and if they 
are goods then the process by which they become goods 
would certainly fall within the ambit of Section 801A(12)(b) 
read with Section 338 because an industrial undertaking 
543 
H 
544 
SUPREME COURT REPORTS 
[2010] 1 S.C.R. 
A. has been defined in Section 33B to cover manufacture 
or processing of goods. [Para 12] [554-B-C] 
B 
Gramophone Co. of India Ltd. v. Collector of Customs, 
Calcutta 114 ELT 770, relied on. 
2.1. The details of Oracle Applications show that the 
software on the Master Media is an application software. 
It is not an operating software or a system software. It can 
be categorized into Product Line Applications, 
Application Solutions and Industry Applications. A 
C commercial duplication process involves four steps. For 
the said process of commercial duplication, one requires 
Master Media, fully operational computer, CD Blaster 
Machine (a commercial device used for replication from 
Master Media), blank/ unrecorded Compact Disc also 
D known as recordable media and printing software/labels. 
The Master Media is subjected to a validation and 
checking process by software engineers by installing and 
rechecking the integrity of the Master Media with the help 
of the software installed in the fully operational computer. 
E After such validation and checking of the Master Media, 
the same is inserted in a machine which is called as the 
CD Blaster and a virtual image of the software in the 
Master Media is thereafter created in its internal storage 
device. This virtual image is utilized to replicate the 
F software on the recordable media. [Para 8] [550-C-D] 
2.2. Virtual image is an image that is stored in 
computer memory but it is too large to be shown on the 
screen. Therefore, scrolling and panning are used to 
bring the unseen portions of the image into view. The 
G examination of the process shows that commercial 
duplication cannot be compared to home duplication. 
Complex technical nuances are required to be kept in 
mind while deciding such 
issues. The 
term 
"manufacture" implies a change, but, every change is not 
H 
COMMR .OF INCOME TAX-V, NEW DELHI v. MIS. 
545 
ORACLE SOFTWARE INDIA LTD. 
a manufacture, despite the fact that every change in an 
A 
article is the result of a treatment of labour and 
manipulation. 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 said test to the 
B 
facts of 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 a:;sessee, 
the recordable media which is unfit for any specific use c 
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 
D 
processing, blank CDs would be unfit for
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