DUPLICATION OF BLANK CDS May be TERMED AS MANUFACTURE SC, Taxation

DUPLICATION OF BLANK CDS May be TERMED AS MANUFACTURE SC, Taxation

The Supreme Court of India has ruled in favour of Oracle's Indian unit, saying that duplication of CDs of software produced elsewhere is really a manufacturing process. As reported by ChiefOfficers.Net

Adjudicating on the interpretation of The Income Tax Act, s80-1A, the Court found that duplication of disks from a master copy may be a manufacturing activity , although the software were developed elsewhere.

Oracle India pays Oracle US a fixed price for software which it then reproduces, packages and sells, paying an additional royalty to Oracle US on each sale.

The Indian tax authorities saw the risk of improper transfer pricing, royalty was paid on the full retail price even though the software was nearly always sold at a discount; the 30% royalty was therefore often significantly 30% from the actual price obtained in India. The Revenue Department saw this in order of expatriating profits, saying that the actual work completed in India, upon which value added is calculated, was minimal.

The previous law on point the duplication of audio tapes and said that of writing tape doesn't change its substance and is therefore not manufacturing.

The Supreme Court has seemingly reversed that decision.

But there's a major difference: when data is written to an audio tape, the tape may be re-utilized by over-writing the data; but withmost software CDs, they're WORM (write once, read many) disks and their content can't be altered nor the disks re-used.

In the case, Oracle India is granted a tax holiday.