The Hindu Business Line : Customisation is no easy task

IN THE ISBC Consultancy Services case, the Mumbai ITAT was required to study if there was `manufacture' of software. `The metamorphosis' that standard software had to undergo through the `technique known as customisation' is explained thus:

"The assessee company bought standard software from BaaN, Netherlands. The customisation exercise converts standard software into customised software, rendering the standard software practically operational in a manner that it runs as per the demands of the customer and garners the desired results."

What is done in the customisation process? "The assessee harnesses the development tools and programming platforms embedded in the standard software as `raw materials' and manufactures/produces end usable software applications thereby furnishing to the customer his special and individualistic product."

To comprehend the customisation operation more thoroughly, the learned counsel for the assessee gives an example: "In a typical all embracing customisation operation, a country-level customisation on the said customised software would result in addition of about 1,500 new software programs and customer specific customisation on the same standard software would yield further 800 new programs de hors the 6,000 standard programs already comprised in the standard product and 1,500 new software programs added under country level customisation. In all there would be an aggregate of 8,100 new program at the country level and customer level customisation (6,000 + 1,500 + 600 = 8,100) (standard + country + customer)."

Cooperation lesson

THE Special Bench of the Mumbai ITAT had to explain the principle of cooperation while discussing the case of Walkeshwar Coop Housing Society Ltd. "Let him protect us. May he bless us with bliss of knowledge. Let us exert together," said the Tribunal, quoting from Kathopanishad. "May what we study, be well studied. May we not quarrel with each other."

Again, the ruling refers to the scriptures, this time, the last Sukta of Mandala 10 of Rig Veda. "Oh, men, you should utter the same mantras, you should come together in cooperation, your minds should be one and you should perform your duty together with one thought."

Also, "Oh, men, our prayers should be one, our hearts should unite; we should have one mind and only one thought and we should organise ourselves together."

An ancient lesson in teamwork.

For the removal of doubts

CIRCULAR No 3/2004 from the CBDT clarifies Section 80HHE of the Income-tax Act. People have been asking the Board to explain the `Explanation' given under that section.

The Explanation was inserted by the Finance Act, 2001 w.e.f. April 1, 2001, and it reads: "For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India."

There were doubts about the phrase `for the removal of doubts.' So the recent circular reads: "As pointed out by the Ministry of Law on various occasions, the use of the words `for the removal of doubts' in an Explanation normally implies that the Explanation is only clarificatory in nature."

Do you need any clarification on this `clarificatory' circular?

Book the WIP

THE latest controversy to hit the tax and accountancy worlds in the UK has been the suggestion that professional firms will have to value their year-end work-in-progress at full value for accounts and tax purposes, reports TaxZone.

"Traditionally, smaller firms and sole practitioners have valued work-in-progress at cost, excluding partner or principal time. The calculation has therefore been based on chargeable employee time and a suitable addition for admin time and overheads."

The ICAEW's Tax Faculty is discussing the issue with the Inland Revenue and trying to get clarifications.

F in fraud management

DO YOU have a reliable fraud prevention program? Or is it something as ineffective as a fig leaf? Toby Bishop, the President & CEO of the Association of Certified Fraud Examiners (ACFE) in the US, "the largest anti-fraud association in the world", warns: "If employees perceive their company's fraud controls to be weak or if they think management is only giving lip service to ethical behaviour, fraud is inevitable."

Is the Sarbanes-Oxley Act (SOX) acting as the antidote? No, it is only a basic framework for internal controls, points out Toby. It includes. "There is a definite gap in the standards used to establish fraud prevention controls, if companies use them at all."

AccountingWeb reports: "Over the past 18 months Bishop has taught several thousand participants how to use the ACFE's Fraud Prevention Check-Up, a tool that identifies major gaps in organisations' fraud prevention processes. None of the participants thought their organisation would pass the test, which means they are at significant risk of fraud."

Tailpiece

"Is it true that they want to put up the tax department first and then allow people to colonise the place?"

"Where?"

"On Mars."

Detaxification@thehindu.co.in

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