2/17/22, 9:54 AM TATA Consultancy Services v.

State of Andhra Pradesh [2006 (33) PTC 652 (SC)]

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INDIA
Issues:
27 March 2007 TATA Consultancy Services v. State of Andhra Pradesh [2006 (33) PTC
20 March 2007 652 (SC)]
13 March 2007
06 March 2007 FACTS:

Back Issues Tata Consultancy Services (Hereinafter referred to as TCS) provide consultancy services

including computer consultancy services. As a part of their business, TCS prepare and
Articles Indexed load on the customers' computer custom made software or uncanned software and also
by: sell Computer Software packages off the shelf or canned software. The canned software
Country packages are of the ownership of companies/persons, who have developed these

software. TCS are licensees with permission to sub-license these packages to others.
Contributors
In respect of these canned software, the Commercial Tax Officer, Hyderabad, passed a

provisional Order of Assessment under the provisions of the Andhra Pradesh General
Indian Case
Sales Tax Act, 1957 (Hereinafter referred to as the said Act), holding that the software
Laws
were goods and accordingly levied sales tax on this software. The Appellate Deputy
Commissioner of Commercial Taxes also held that software were goods and liable to tax.
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Further appeal was filed by TCS before the Sales Tax Appellate Tribunal, which was
Click to subscribe subsequently dismissed. Thereafter TCS filed a Tax Revision case at the Andhra Pradesh
to High Court which was also dismissed. The matter was then appealed before the Supreme
WPTN Weekly Court.
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ISSUE:

The issue raised before the Supreme Court was whether the canned software sold by TCS
Other IP News can be termed as “Goods” and as such assessable to Sales Tax under the said Act.
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ARGUMENTS:
- IP Talk
For TCS (Appellants):

Mr. Soli Sorabjee, advocate for TCS submitted that Goods include only tangible moveable
property. Though the floppy disc, CD-ROM and the hard disc are each tangible
commodities that could be sold and resold the software that are embedded in the media
are intangible and fall into a different category. There are several ways in which the
information contained in the software programs can be introduced into the user's
computer and the tangible devices such as floppy discs etc. are merely one of those
methods. Therefore even though the intellectual process is embodied in a tangible and
physical manner the logic or the intellignece of the program remains intangible property.

Finally, Mr. Sorabjee submitted that merely because the methods of transmission is by
means of a tape or disc, it does not constitute purchase of tangible personal property and
the same remains intangible personal property.

For the State:

Mr. Dwivedi, advocate for the State submitted that when stored on a magnetic tape, disc
or computer chip the software is manifested in a machine readable form by arranging
electrons, use of electric current to create either a magnetized or an unmagnetized
space. This machine readable language or code is the physical manifestation of the
insformation in the binary form. There exists at least three program copies in a software
transaction: a) an original b) a dupplicate c)the buyer's final copy on a memory device.

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2/17/22, 9:54 AM TATA Consultancy Services v. State of Andhra Pradesh [2006 (33) PTC 652 (SC)]

Mr. Dwivedi further submitted software is not merely knowledge, but a knowledge
recorded in a physical form having a physical existence, taking up space on a tape, disc,
or hard drive, making physical things happen and can be percieved by senses. In
addition, this arrangement of matter recorded on a tangible medium constitutes a
corporeal body. Software gets intertwined with the corporeal object upon which it is
recorded.

The State finally concluded by submitting that the sale of software is therefore similar to
that of any other recordable information. Therefore the term “Goods” can include even
incorporeal and /or intangible properties.

DECISION OF THE COURT:

The Supreme Court while deciding on the issue held that the sale of software is similar to
the the sale of a book or music etc. The Court stated that the fact that the information
can be transferred and then physically recorded on another medium does not make a
software any different from any other recorded information.

In the sale of a software, the incorporeal right, to the software is not transferred. The
incorporeal right remains with the originator and what is sold is a copy. The original
copyright version is not the one which operates the computer of the customer but a
physical copy of the of the software which has been transferred to the buyer.

Finally the Supreme Court decided that sale of software can be likened to the sale of any
other information that is capable of being recorded on a tangible device and transferred.
Therefore the sale of software is an act of sale within the said Act and software is
deemed to be covered under the definition of “Goods”.

. D.P.AHUJA & CO. RESEARCH DEPARTMENT

©2001-2011 D.P. Ahuja & Co., India

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