Shri Rajan M Shah, Ahmedabad v. The Dy. Commissioner of Income Tax Cir.3(1), Ahmedabad

MA 99/AHD/2009 | misc
Pronouncement Date: 30-04-2010 | Result: Dismissed

Appeal Details

RSA Number 9920524 RSA 2009
Assessee PAN TWEEN1985T
Bench Ahmedabad
Appeal Number MA 99/AHD/2009
Duration Of Justice 1 year(s) 1 month(s)
Appellant Shri Rajan M Shah, Ahmedabad
Respondent The Dy. Commissioner of Income Tax Cir.3(1), Ahmedabad
Appeal Type Miscellaneous Application
Pronouncement Date 30-04-2010
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted Not Allotted
Tribunal Order Date 30-04-2010
Assessment Year misc
Appeal Filed On 30-03-2009
Judgment Text
IN THE INCOME TAX APPELLLATE TRIBUNAL AHMEDABAD BENCHES C AHM EDABAD BEFORE S/SHRI MAHAVIR SINGH J.M.& SH RI A.N.PAHUJA A.M M.A.NO.99/AHD/2009 (ARISING OUT ITA NO.36/AHD/2000 ASST.YEAR.1996-97 SHRI RAJAN MANILAL SHAH 23 VASUPUJYA BUNGALOWS NR. RAMDEVNAGAR SATELLITE ROAD AHMEDABAD 380015 PAN NO.AFBP5182K VS. DCIT CIRCLE-3(1) U.C. SHAH BUILDING ASHRAM ROAD AHMEDABAD (APPELLANT) (RESPONDENT) (ORIGINAL RESPONDENT) (ORIGINAL APPELLANT) APPELLANT BY : SHR I SAURABH N SOPARKAR AR RESPONDENT BY: SHR I SHELLY JINDAL CIT-DR ORDER PER MAHAVIR SINGH J.M. BY WAY OF THIS MISCELLANEOUS APPLICATION (MA) THE ASSESSEE HAS REQUESTED FOR AMENDING/RECTIFYING THE ORDER PASSED BY THE TRIBUNAL IN ITA NO.36 / AHD/2000 DATED 26-06-2008. 2. THE BRIEF FACTS ARE THAT THE ASSESSEE IS A CHART ERED ACCOUNTANT AND BACHELOR OF LAW. THE ASSESSEE DERIVES THE SAME UNDE R THE HEADS (I) SALARY FROM M/S. VIRMATI BANKING COMPUTER SERVICES (II) I NCOME FROM PROPRIETORSHIP CONCERN M/S. SOFT NET COMPUTERS AND (III) INCOME F ROM OTHER SOURCES. THE PROPRIETORSHIP CONCERN OF THE ASSESSEE NAMELY SOFT NET COMPUTERS WAS ENGAGED IN THE BUSINESS OF FOLLOWING ACTIVITIES:- A) DATA PROCESSING JOB WORK BETWEEN 1985 TO 1994 ITS CLIENTS FOR DATE PROCESSING INCLUDED VARIOUS TEXTILE MILLS AND MANUF ACTURING UNITS; B) DEVELOPMENT OF PACKAGES LIKE PAY-ROLL SHARE DIV IDEND ETC; AND C) SUPPLY OF FINANCIAL ACCOUNTING SOFTWARE. THE ASSESSEE APPENDED A NOTE IN THE RETURN OF INCOM E FILED ALONG WITH THE COMPUTATION OF TOTAL INCOME AS UNDER:- 2 THE ASSESSEE IS A CHARTERED ACCOUNTANT AND BACHELO R OF LAW HOLDING A RANK IN BOTH THE DEGREES. HE STARTED COMPUTER BUSIN ESS IN 1980. BETWEEN 1983 AND 1987 HE DEVELOPED FIRST VERSION OF COMPUTE R SOFTWARE ON BANKING SECTOR AS HIS SOLE INTELLECTUAL PROPERTY RI GHT. BETWEEN 1988 AND 1991 HE FURTHER KEPT ON IMPROVING UPON THE SAID FI RST VERSION AND FINALLY DEVELOPED A VERY HIGHLY SOPHISTICATED SECOND AND PR ESENT VERSION. DURING THE ABOVE YEAR THE ASSESSEE SOLD THAT INTELLECTUAL PROPERTY RIGHT HIS SELF GENERATED TECHNICAL KNOWHOW TO M/S. VIRMATI BANKING COMPUTER SERVICES AHMEDABAD. AS THE SAID ASSET DOES NOT FALL WITHIN T HE DEFINITION OF ANY OF THE FOUR ASSETS SPECIFIED U/S.55(2) (A) OF THE I.T. ACT CAPITAL GAINS ARISING ON TRANSFER THEREOF HAS BEEN TREATED AS EXEMPT FROM THE LEVY OF CAPITAL GAINS TAX. 3. DURING THE COURSE OF ASSESSMENT THE A.O INDICAT ED THAT THE ASSESSEE WAS IN COMPUTER BUSINESS AND HE HAD SOLD A SOFTWARE PROGRAMME FOR A SUM OF RS.80 LAKH TO VBCS WHICH IN TURN HAD DEBITED THE PURCHASE PRICE OF THE SOFTWARE TO ITS P&L A/C AS REVENUE EXPENDITURE. THE AO ASKED THE ASSESSEE AS TO WHY THIS RECEIPT SHOULD NOT BE TAXED AS REVENUE RECEIPT. THE ASSESSEE PREFERRED AN APPLICATION U/S.144A OF THE ACT BEFORE JCIT REQUESTING TO ISSUE DIRECTIONS ON THIS ISSUE. THE JCIT DIRECTED THE AS SESSING OFFICER TO TREAT THE SALE RECEIPTS AS REVENUE RECEIPTS AS UNDER:- BCS WILL TAKE CARE TO ENSURE ITS RESTRICTED SUPPLY SO THAT IT DOES NOT JEOPARDIZE RMSS PLANS OF SUCH SELF-DEVELOPED KNOW- HOW IN FUTURE BY MAKING CONCEPTS OF THE SOFTWARE CHEAPLY AND COMMONL Y KNOWN TO PUBLIC. THE FOREGOING WOULD SHOW THAT THOUGH THE ASSESSEE H AS TRANSFERRED HIS SOFTWARE TO M/S. VBCS YET HE HAS IMPOSED SO MANY R ESTRICTION ON THE SALE AND FURTHER USE/ALTERATION OF THE PROGRAMME UN DER REFERENCE. INTERESTINGLY THE ALLEGED AGREEMENT IS ONE SIDED I N THE SENSE THAT IT IMPOSES RESTRICTIONS ON THE VBS YET IT DOES NOT R ESTRICT THE ASSESSEE FROM MAKING SUCH PROGRAMME OR SELLING SUCH TYPE OF PROGR AMME TO SIMILAR CUSTOMERS. IN OTHER WORDS THE ASSESSEE IS FREE TO DEVELOP SAME PROGRAMME AND HE COULD MARKET IT IN WHATEVER MANNER HE MAY LIKE. THE OTHER IMPORTANT ASPECT OF THE PROGRAMME IS THAT IT IS NOT PATENTED AND ALSO THE ASSESSEE HAS NOT CLAIMED ANY COPY RIGHT OV ER IT. THE CLOSE ANALYSIS OF THE WHOLE TRANSACTION ONLY RE VEAL THE FACT THAT THE ASSESSEE HAS SOLD A SOFTWARE PROGRAMME TO HIS SISTE R CONCERN NAMELY VBCS WHICH HAS DEBITED THE PURCHASE PRICE OF THE PR OGRAMME IN ITS PROFIT AND LOSS ACCOUNT AS REVENUE EXPENDITURE. THE PURCHA SE ALSO NOT HAVE TREATED THE PROGRAMME AS OF ENDURING IN NATURE. IN THESE CIRCUMSTANCES THE SALE RECEIPTS AMOUNTED TO RS.80.00 LAKHS OF THE PROGRAMME IN QUESTION ARE REQUIRED TO BE TAXED AS REVENUE RECEIPTS. THE A.O MAY TAKE ACTION ACCORDINGLY AND AS PER LAW. 4. ACCORDINGLY THE A.O TREATED THE SUM OF RS.80 LA KHS AS REVENUE RECEIPT AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE CIT(A) WHO ALLOWED THE APPEAL OF THE ASSESSEE HOLDING THAT THE IMPUGNED SOFTWARE WA S CAPITAL ASSET AND SINCE 3 THE COST OF ACQUISITION WAS NOT ASCERTAINABLE AS HE LD BY THE HONBLE SUPREME COURT IN THE CASE OF CIT V. B.C. SHRINIVAS SHETTY (1981) 128 ITR 294 (SC) THE RECEIPT WAS HELD TO BE NOT LIABLE FOR CAPITAL GAINS TAX BY FOLLOWING OBSERVATIONS:- 18. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS MADE ON BEHALF OF BOTH THE SIDES. IN MY VIEW THE Q UESTIONS WHICH NEED TO BE ANSWERED FOR DECIDING THE POINT IN ISSU9E ARE AS UNDER:- (A) WHETHER WHAT WAS SOLD BY THE APPELLANT TO VBCS WAS A CAPITAL ASSET OR NOT; AND (B) IF SO WHETHER THE TRANSACTION WAS ONE OF TRANS FER OF SUCH CAPITAL ASSETS OR MERELY OF ITS EXPLOITATION. TO MY MIND THE OBSERVATIONS OF THE JT. CIT. REGARD ING THE SOFTWARE HAVING NOT BEEN PATENTED AND THE TREATMENT OF THE C OST OF THE SOFTWARE IN THE ACCOUNTS OF THE BUYER ARE WHOLLY IR RELEVANT AND ARE NOT GERMANE TO THE ISSUE AT HAND. 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 AN D CERTAIN SPECIFIED BONDS. THERE CAN BE NO DOUBT ON LE FACTS AND IN THE CIRCUM STANCES OF THE CASE THAT THE APPELLANT WAS THE EXCLUSIVE OWNER OF THE R ELEVANT SOFTWARE ALONG WITH ITS SOURCE AND DOCUMENTATION. THE SOFTWARE WHI CH WAS SOLD BY THE APPELLANT TO VBCS CANNOT BE SAID TO BE PENALTY PROC EEDINGS STOCK-IN- TRADE OR RAW MATERIAL INASMUCH AS THE APPELLANT FAD IN THE PAST NEVER SUPPLIED SOURCE CODE OF ANY SOFTWARE WHETHER OR N OR CONNECTED WITH THE BANKING INDUSTRY TO ANY PARTY. THERE IS THER EFORE NO DOUBT IN MY MIND THAT THE SUBJECT MATTER OF THE AGREEMENT DATED 25 TH DECEMBER 1995 CONSTITUTED A CAPITAL ASSET IN THE HANDS OF THE APP ELLANT. 20. AS STATED ABOVE THE AGREEMENT DESCRIBES THE TR ANSACTION IN QUESTION AS TRANSFER. THE AGREEMENT ALSO GRANTS VBCS THE R IGHT TO FURTHER DEVELOP THE PROGRAMME TO MODIFY AND CUSTOMIZE IT AND TO CO MPILE AND MAKE COPIES THEREOF. VBCS HAS ALSO BEEN AUTHORIZED TO US E THE PROGRAMME A MODEL OR CONCEPT FOR DEVELOPING AND CUSTOMIZING SOF TWARE FOR ITS FUTURE CUSTOMERS. VBCS IS ALSO FREE TO SUPPLY THE PROGRAMM E TO ANY BANK. ON THESE FACTS THE TRANSACTION CANNOT BE REGARDED AS ANYTHING BUT A TRANSFER MERELY BECAUSE THE AGREEMENT LAYS DOWN CERTAIN REST RICTIVE COVENANTS IN ORDER TO ENSURE THAT THE COMPONENTS OF THE SOFTWARE DO NOT BECOME PUBLIC KNOWLEDGE. TRANSFER OF PROPERTY WITH CONDITIONS ATT ACHED ARE NEITHER UNKNOWN NOR UNCOMMON. BOARDS INSTRUCTION N.1964 RE FERRED TO ABOVE ALSO CONTEMPLATES TRANSFERS WITH RESTRICTIVE COVENA NTS AND STIPULATES THAT THIS WOULD NOT AFFECT THE TAXABILITY OF THE COMPENS ATION. AS THE APPELLANT HAS TRANSFERRED TO VBCS THE RIGHTS TO FURTHER DEVEL OP THE PROGRAMME TO MODIFY AND CUSTOMIZE IT AND TO COMPILE AND MAKE COP IES THEREOF TO USE IT AS A MODEL OR CONCEPT FOR ITS FUTURE CUSTOMERS AND TO SELL IT TO ANY BANK THE TRANSACTION IN MY VIEW CANNOT BE REGARDED MER ELY AS ONE OF EXPLOITATION OF THE SOFTWARE. 4 IN VIEW OF THE ABOVE IT HAS TO BE HELD THAT THE SU BJECT MATTER OF THE AGREEMENT DATED 25 TH DECEMBER 1995 WAS A CAPITAL ASSET WHICH WAS TRANSFERRED BY THE APPELLANT FOR SUCH TRANSFER HAS THEREFORE TO BE TREATED A CAPITAL RECEIPT IN HIS HANDS. IN VIEW OF THE SUPR EME COURT DECISION INCOME CIT V. B.C. SHRINIVAS SHETTY REFERRED TO ABOVE THE TRANSFER IN QUESTION HAS TO BE HELD TO BE NOT LIABLE TO CAPITAL GAINS AS THE COST OF THE ACQUISITION OF THE ASSET IN QUESTION WAS NIL AND TH E TIME WHEN IT WAS ACQUIRED WAS NOT ASCERTAINABLE. THE APPLICABILITY O F THE SUPREME COURT DECISION IC B.C. SHRINIVAS SHETY (SUPRA) ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE REMAINS UNAFFECTED BY THE SUBSEQUENT AMENDMENTS IN THE RELEVANT PROVISIONS OF LAW. THIS HAS ALSO BEEN CLARIFIED BY THE CBDT VIDE ITS INSTRUCTIONS NO.1694 DATED 17. 3.1999. 21. IT MAY BE CLARIFIED ONCE AGAIN THAT THE TRANSAC TION IN QUESTION DID NOT TAKE PLACE IN THE COURSE OF APPELLANTS PROPRIETARY BUSINESS WHICH CONSISTED OF DATA PROCESSING JOB WORK DEVELOPMENT OF PACKAGES LIKE PAY- ROLL AND SHARE DIVIDEND AND SUPPLY OF COMPLIED COPI ES OF FINANCIAL ACCOUNTING SOFTWARE. THE APPELLANT HAD NOT DEALT IN OR SUPPLIED THE SOURCE CODE OF ANY SOFTWARE WHETHER OR NOT CONNECTED WIT H BANKING INDUSTRY TO ANY PARTY IN THE PAT. HOWEVER EVEN IF IT IS PRESUM ED FOR THE SAKE OF ARGUMENT THAT THE TRANSACTION IN QUESTION WAS LINKE D TO APPELLANTS PROPRIETARY BUSINESS IT WOULD NOT MAKE ANY DIFFERE NCE AS TO THE NATURE OF THE RECEIPT IN APPELLANTS HANDS. AS STATED ABOVE CAPITAL ASSETS BY DEFINITION MEAN PROPERTY OF ANY KIND HELD BY THE A SSESSEE WHETHER OR NOT CONNECTED WITH HIS BUSINESS OR PROFESSION EXCEPT PR OPERTIES 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 TH E FACT THAT ASSETS SUCH AS GOODWILL OF BUSINESS LOOM HOURS ROUTE PERMITS ETC. WHICH SPRING DIRECTLY FROM BUSINESS ARE TREATED AS CAPITAL ASSET S AND THERE IS NO DISPUTE ABOUT THE FACT THAT THEIR TRANSFER GIVES RISE TO CA PITAL GAINS WHETHER TAXABLE OR NOT. 22. IN VIEW OF THE ABOVE IT IS HELD THAT THE SUM O F RS.80 00 000/- RECEIVED BY THE APPELLANT FOR THE TRANSFER OF HIS SOFTWARE A LONG WITH ITS SOURCE CODE AND DOCUMENTATION CONSTITUTED A CAPITAL ASSET IN HI S HANDS WHICH WAS NOT LIABLE TO CAPITAL GAINS TAX IN VIEW OF THE SUPREME COURT DECISION IN THE CASE OF B.C. SHRINIVAS SHETTY (SUPRA). THE ADDITION MADE BY THE A.O IS THEREFORE DELETED. 5. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE TRIB UNAL. THE TRIBUNAL REVERSED THE ORDER OF CIT(A) AND TREATED THE RECEIP TS AS REVENUE IN NATURE BY GIVING FOLLOWING FINDINGS IN PARA-15 16 & 18 :- 15. WE HAVE HEARD BOTH THE PARTIES AND CONSIDERED R IVAL SUBMISSIONS. `FOLLOWING ISSUES REQUIRED TO BE ADDRESSED PROPERLY IN ORDER TO RESOLVE THE CONTROVERSY (I) WHAT IS THE REAL NATURE OF ASSESS EES BUSINESS ACTIVITIES; (II) WHAT IS THE MODALITY OF ACCOUNTING ADOPTED BY THE ASSESSEE TO BOOK ITS REVENUE AND EXPENDITURE INCURRED FOR OVERALL BUSINE SS ACTIVITIES; AND (III) WHETHER THE ACCOUNTS REFLECTS CONSCIOUS CHOICE OF T HE ASSESSEE TO SEGREGATED THE SOFTWARE IN QUESTION FROM REST OF BU SINESS ACTIVITIES 5 ADDRESSING TO THESE ISSUES AS ADMITTED BY THE ASSE SSEE BY ITS LETTER DATED 12.8.1999 ADDRESSED TO THE CIT(A) THE ASSESSE E WAS ENGAGED IN THE BUSINESS OF FOLLOWING ACTIVITIES VIZ. (I) DATA PROCESSING JOB WORK BETWEEN 1985 TO 1994 ITS CLIENTS FOR DATE PROCESSI NG INCLUDED VARIOUS TEXTILE MILLS AND MANUFACTURING UNITS; (II) DEVELOP MENT OF PACKAGES LIKE PAY-0ROLL SHARE DIVIDEND ETC.; AND (III) SUPPLY O F FINANCIAL ACCOUNTING SOFTWARE. 16. ADMITTEDLY THE ACTIVITY COMPRISED OF DEVELOPME NT OF PACKAGES LIKE PAY-ROLL SHARE DIVIDEND ETC. THIS CLEARLY INDICATE S THAT THE ACTIVITY OF DEVELOPMENT OF PACKAGES WAS NOT CONFINED TO ONE OR TWO ACTIVITIES BUT THE SAME WAS EXTENSIVE ONE. THEREFORE FROM THE AVERMEN TS OF THE ASSESSEE HIMSELF IT IS EVIDENT THAT ONE OF THE IMPORTANT AR EAS OF THE ASSESSEES ACTIVITIES WAS DEVELOPMENT OF SOFTWARE PACKAGES. CO MING TO SECOND ISSUE THE MODALITIES OF ACCOUNTING FOLLOWED BY THE ASSESSEE IS REFLECTED FROM P & L A/C AND BALANCE-SHEET ANNEXED IN THE PAP ER BOOK. IN THE P & L A/C. ASSESSEE SHOWS RECEIPTS OF SOFTWARE CHARGES AN D OTHER ACTIVITIES. AT THE SAME TIMED THE ENTIRE EXPENDITURE IS DEBITED T O P & L A/C. WHICH CLEARLY IMPLIES THAT NO PART OF EXPENDITURE WAS CAP ITALIZED. PERUSAL OF BALANCE-SHEET REVEALS THAT NONE OF THE SOFTWARE IS SPECIFICALLY SHOWN AS STOCK-IN-TRADE. THE ANALYSIS OF THIS TYPE OF ACCOUN TING MODALITY WILL INDICATE THAT THE ASSESSEE WAS CLAIMING ALL THE EXPENDITURE FROM CONSOLIDATED RECEIPTS AND THEREFORE WHATEVER SOFTWARE WERE DEV ELOPED BECOME STOCK- IN-TRADE OF THE ASSESSEE THOUGH SPECIFICALLY NOT C APITALIZED IN BALANCE- SHEET. THE ANALYSIS OF BALANCE-SHEET DOES NOT GIVE ANY INDICATION THAT THE ASSESSEE WANTED TO DIFFERENTIATE BETWEEN THE SOFTWA RE IN QUESTION AND OTHER SOFTWARE DEVELOPED OR OTHERWISE BY THE ASSESS EE. NOWHERE IN THE PLEADINGS IT HAS BEEN INDICATED THAT THE ASSESSEE HAD ANY SEPARATE SET- UP TO DEVELOP THE IMPUGNED BANKING SOFTWARE WHICH C LEARLY IMPLIES THAT THE ASSESSEE DEVELOPED THIS BANKING SOFTWARE WITH T HE EXISTING BUSINESS FACILITIES AND UTILIZING THE EXISTING BUSINESS MACH INERIES AND ASSETS. IT SHALL BE BORNE IN MIND THAT THE ASSESSEE WAS THE PROPRIET OR AND DEVELOPED ALL SOFTWARE IS PART OF ITS BUSINESS ACTIVITIES. AS ADM ITTED BY THE ASSESSEE IT TOOK SEVERAL YEARS AND EFFORTS TO DEVELOP THIS EXCL USIVE SOFTWARE. IN THE ABSENCE OF ANY OTHER SET-UP OR FACILITY TO DEVELOP THE SOFTWARE UNEASCAPABLE CONCLUSION IS THAT THE IMPUGNED SOFTW ARE IS INTEGRAL PART OF ASSESSEES PROPRIETORSHIP BUSINESS ADVENTURE OF DEV ELOPING COMPUTER SOFTWARE. IN THE GIVEN FACTS AND CIRCUMSTANCES WE ARE UNABLE TO SUBSCRIBE THE PLEA OF LD. COUNSEL FOR THE ASSESSEE THAT THE BANKING SOFTWARE IN QUESTION AMOUNTS TO A PERSONAL CAPITAL ASSET OF THE ASSESSEE. BESIDES WE ARE UNABLE TO AGREE THAT THE SOFTWARE I S A SELF-GENERATING ASSET AS THE ASSESSEE TOOK YEARS OF IMPROVISATION. ALL THESE SOFTWARE AND THE EXPENDITURE CAN BE EASILY INFERRED TO HAVE BEEN BOOKED IN THE ACCOUNTS BOOK OF THE ASSESSEE. IN THE ABSENCE OF A NY OTHER FACILITIES AND THE FACT THAT ALL THE EXPENSES HAVE BEEN DEBITED IN P & L A/C. BY NO STRETCH OF IMAGINATION IT CAN BE HELD THAT THE ASST WAS SE LF-GENERATED. IN OUR VIEW THE SOFTWARE IS A BUSINESS ASSET DEVELOPED BY BOOKI NG EXPENDITURE IN THE PROPRIETORSHIP BUSINESS OF THE ASSESSEE THE SAME H AS BEEN RIGHTLY HELD SO AND THE RECEIPT THEREFROM HAS BEEN RIGHTLY TREAT ED AS REVENUE RECEIPT. 18. SINCE BY INTRINSIC NATURE AS IN THE GIVEN FACT S AND CIRCUMSTANCES WE HAVE HELD BANKING SOFTWARE IN QUESTION TO BE PART O F BUSINESS ACTIVITY OF THE ASSESSEE OF DEVELOPING THE SOFTWARE AND ESSENTI ALLY A BUSINESS ASSET THE CASE LAWS CITED BY LD. COUNSEL FOR THE ASSESSEE ARE OF NO AVAIL AS THEY 6 PERTAINED TO CAPITAL ASSET IN CONTRA DISTINCTION TO ASSESSEES BUSINESS ASSETS. IN VIEW OF THE ABOVE OBSERVATIONS AND FINDI NGS WE UPHOLD THE ORDER OF AO AND REVERSE THAT OF THE LD. CIT(A). 6. AGGRIEVED AGAINST THE ORDER OF TRIBUNAL THE AS SESSEE PREFERRED THIS MA AND THE LD. COUNSEL FOR THE ASSESSEE SHRI S.N.SOPA RKAR 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 ALT ER 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 ASSESSE E HAS SOLD SOFTWARE WITH SOURCE CODE & DOCUMENTATION AND RIGHT OF MANUFACTUR E (MODIFY & COPY) AND SELL. THE LD. COUNSEL STATED THAT THE TRIBUNAL CO ULD HAVE EXAMINED THE FACTS WHETHER IT IS SELF GENERATED OR NOT WHETHER THERE W AS FINITY OF TIME OF DEVELOPMENT & FINITY OF COST OF DEVELOPMENT OR NOT. ACCORDING T O THE LD. COUNSEL WHAT IS SOURCE CODE - & HENCE THE APPARENT MISTAKE THEREFO RE 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 WH ICH ALREADY DEFINES THE CAPITAL ASSETS AS INCLUDING THE ASSETS CONNECTED WITH THE B USINESS: WHETHER CONNECTED WITH ASSESSEES BUSINESS OR NOT. HE FURTHER NARRAT ED 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 S PECIFICALLY PROVIDES FOR VARIOUS CLAUSES DEALING WITH BUSINESS ASSETS REFERRED TO E XAMPLE 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) A PPLIES TO IT? HE ARGUED THAT INTRODUCTION OF THE RIGHT TO MANUFACTURE IN CLAUS E 55(2) WITH SUBSEQUENT EFFECT IS CLEARLY TO INCLUDE SUCH BUSINESS ASSETS AS CAPIT AL ASSETS. THE INTENT OF STATUTE IS SO CLEAR AND THE TRIBUNAL HAS APPARENTLY OVERLOO KED AND NOT EXAMINED THIS SUBMISSION OF THE ASSESSEE AND HAS NOT REPLIED THE MATTER. HONBLE TRIBUNAL HAS GONE AGAINST THE CLEAR INTENT OF THE STATUTE/PARLIA MENT AND ALSO CBDT. THE LD.COUNSEL FOR THE ASSESSEE STATED THAT THE OBSERVA TION OF THE TRIBUNAL THAT IF THE 7 ASSET IS DEVELOPED IN COURSE OF BUSINESS IT IS A BU SINESS ASSET AND IT IS A REVENUE RECEIPT IS PRE-SET. HE REFERRED THE EXAMPLE OF LO OM HOUR ROUTE PERMIT ETC. 7. ON THE OTHER HAND THE LD. CIT-DR SHRI SHELLY J INDAL STATED THAT SOURCE CODE IS NOTHING BUT A LOCKING SYSTEM AND IT WORK LIKE PASS WORD. HE STATED THAT THE ASSESSEE IS SEEKING REVIEW OF THE TRIBUNALS ORDER AND NOT RECT IFICATION OF MISTAKE. EVEN OTHERWISE ACCORDING TO THE CIT-DR THE VIEW OF THE TRIBUNAL I S PERFECTLY ALRIGHT AND DESERVES TO BE UPHELD. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE TRIBUNA L HAS TAKEN A VIEW THAT THE BANKING SOFTWARE IN QUESTION IS PART OF THE BUSINESS ACTIVI TY 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 ASSE SSEES 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 POWE R OF REVIEWING ITS ORDER ON MERITS BUT THE TRIBUNAL HAS LIMITED POWER ACTING U/S.254(2) O F 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 EMPOWE RS THE TRIBUNAL TO AMEND ANY ORDER PASSED BY IT U/S.254(1) WITH A VIEW TO RECTIFY A M ISTAKE APPARENT FROM RECORDS AND NOT OTHERWISE. ACCORDINGLY WE FIND NO MISTAKE APPAREN T FROM RECORDS IN THE ORDER OF THE TRIBUNAL AND ACCORDINGLY THIS MA OF THE ASSESSEE IS DISMISSED. 9. IN THE RESULT ASSESSEES MA IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 30/04/2010. SD/- SD/- (A.N.PAHUJA) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE: AHMEDABAD. DATE : 30-04-2010 DKP* COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A)-VI BARODA 5. THE DR ITAT AHMEDABAD 6. GUARD FILE (IN DUPLICATE) /TRUE COPY/ BY ORDER DR / AR ITAT AHMEDABAD