2017 (9) TMI 118 - HC - Income Tax

Court upholds deduction for Assessee's news software as 'computer software' under Section 80HHE

The Court affirmed the ITAT's decision that the Assessee's television news software qualified as 'customized electronic data' eligible for deduction under ... Eligibility for deduction under Section 80HHE - television news software produced and exported by the Assessee outside the country - whether it is customized electronic data eligible for deduction under Section 80 HHE - Held that:- . The expression ‘any customized electronic data’ is preceded by the disjunctive ‘or’ which clearly indicates that any customized electronic data would also be considered to be ‘computer software’ under the inclusive part of the definition. The principle of ejusdem generis will not apply in the instant case particularly in the context under which this provision was introduced. Circular No. 772 dated 23rd December 1998 explained the rationale behind introduction of these words. It acknowledged that “software exports have grown exponentially in recent years” and there was need to increase India’s market share in the international arena. Therefore, the expression ‘any customized electronic data’ requires a liberal interpretation. The amendment to clause (b) of the Explanation makes it more explicit. Section 80HHF (1) now envisages computer software including television news software. Therefore, the position for the AY 2000-01 onwards is not in doubt. Assessee has been able to demonstrate that the television news software produced by it for the AY in question was indeed ‘customized electronic data’ which was exported from India to a place outside India. The entire process of making the programmes was to meet the requirement of STAR TV during the AY in question and the use of several software programmes for such production was sufficient to enable the ITAT to conclude in favour of the Assessee. - Decided in favour of the Assessee and against the Revenue Issues Involved:1. Whether the television news software produced and exported by the Assessee was customized electronic data eligible for deduction under Section 80HHE of the Income Tax Act, 1961.Issue-wise Detailed Analysis:Background Facts:The Assessee, engaged in the production of news software television programs, entered into an agreement with NTVI to produce 24-hour Indian news channel software for broadcasting via STAR TV. For the Assessment Year (AY) 1999-2000, the Assessee filed a return declaring an income of Rs. 3,15,03,570 and claimed a deduction of Rs. 15,76,17,840 under Section 80HHE of the Income Tax Act. The Assessing Officer (AO) disallowed the deduction, stating that the production of news software did not qualify as computer software under Section 80HHE.Assessment Order:The AO concluded that the production of news software could not be described as computer software and disallowed the deduction under Section 80HHE. The AO also noted that the Assessee was not engaged in the export of computer software but in the production of news programs handed over to NTVI for uplinking and onward transmission.Clause (b) of the Explanation to Section 80HHE:Section 80HHE provided for deductions in respect of profits from the export of computer software. The definition of 'computer software' included any computer program recorded on any disc, tape, or other information storage device and any customized electronic data transmitted from India to a place outside India. This inclusion of 'customized electronic data' was effective from 1st April 1999, applicable to the AY in question.Order of the CIT (A):The CIT (A) upheld the AO's decision, concluding that the Assessee was not engaged in the business of computer programs or customized electronic data. The CIT (A) held that the Assessee was producing a final product, i.e., news software, which did not qualify as data.Order of the ITAT:The ITAT reversed the CIT (A)'s order, holding that the Assessee was entitled to the deduction under Section 80HHE. However, the ITAT erroneously relied on a clause effective from 1st April 2001, which was not applicable to the AY in question.Submissions of Counsel for the Revenue:The Revenue argued that the ITAT's reliance on the inapplicable clause was an error and requested a remand for fresh adjudication. The Revenue also contended that the Assessee's approach to proving its entitlement to the deduction was faulty.Submissions of Counsel for the Assessee:The Assessee opposed the remand, arguing that sufficient material existed to conclude the entitlement to the deduction. The Assessee referred to the decision in Commissioner of Income Tax v. Kiran Kapoor, asserting that the facts demonstrated the export of television news software.Analysis and Reasons:The Court noted that the issue was whether the television news software produced and exported by the Assessee was 'customized electronic data' eligible for deduction under Section 80HHE. The Court referred to the decision in Commissioner of Income Tax v. Kiran Kapoor, which held that the expression 'computer software' was wide enough to include diverse activities, including customized electronic data. The Court disagreed with the Revenue's contention that 'customized electronic data' must take color from the main part of the definition. The Court emphasized that the inclusive definition of 'computer software' covered any customized electronic data.Conclusion:The Court found that the Assessee demonstrated that the television news software produced for the AY in question was indeed 'customized electronic data' exported from India. The ITAT's factual findings were not shown to be perverse. Although the ITAT erred in relying on an inapplicable clause, remanding the matter would only delay it further. The Assessee discharged its onus of proving that the television programs produced qualified as 'computer software' under Section 80HHE. The Court affirmed the ITAT's conclusion but for different reasons, answering the question in favor of the Assessee and against the Revenue.Final Judgment:The appeal was dismissed with no orders as to costs, affirming the ITAT's conclusion that the Assessee was entitled to the deduction under Section 80HHE.