TaxTMI 
TaxTMI 
2005 (11) TMI 367
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.... there was a finding that the assessee is not eligible for deduction under section 10B of the Act. Accordingly, reassessment proceedings were initiated by issue of notice under section 148 of the Act on the ground that the income had escaped assessment in terms of Explanation 2 to section 147 of the Act. In respect of this action, the main contention of the assessee before us is that there was no omission on the part of the assessee with regard to the claim made in the return of income filed. All the details relating to the claim were available in the return. In the light of the same it cannot be said that there had been any escapement of income for assessment. According to him there existed no prima facie material for coming to such a conclusion. The contention of the assessee, as we see in the light of the discussions in the impugned order, the reassessment has no legs to stand. Prima facie the Assessing Officer had no reason to arrive at the conclusion that the income had, in fact, escaped assessment. Moreover, the income was only determined under section 143(1) of the Act and the Assessing Officer had not issued any notice under section 143 of the Act and the only way to bring ....
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....uction either under section 10B or under section 80HHE of the Act. 4. The learned counsel for the assessee reiterated the contentions that were raised before the revenue authorities in relation to the assessee's claim for exemption under section 10B of the Act or the alternative claim of deduction under section 80HHE of the Act in respect of the income in question derived by virtue of the agreements, which the assessee had entered into with its clients. The learned counsel for the assessee explained each of these agreements. All the disputed agreements are part of the paper-book. The assessee has also supported its claim on the basis of the sample invoices, filed again as part of the paper book. Reference to the agreements and sample invoices was made during the course of hearing. The assessee has also furnished the percentage of its total sales in each of such clients to the total sales of the whole concern. The assessee has also filed details of the decision taken by the CIT(A). The order of the Tribunal for the assessee's own case for assessment years 1997-98, 1998-99 and 1999-2000 in ITA Nos. 2781, 2782 & 2863/Mum./2003, dated 7th April, 2005, has also been filed. The learne....
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....lly denied both reliefs in relation to these two agreements. Therefore, considering 10 per cent of the business profits as covered under section 80HHE, as was done by the CIT(A), in the light of the order of the Tribunal is incorrect. Accordingly, we set aside the impugned order in relation to these agreements by restoring the order of the Assessing Officer on this issue. The ground raised by the revenue in its appeal on this part of the issue is to be treated as allowed in the light of our own order, cited supra, for the earlier assessment years. 6. Now we take up the agreement with other clients, which are subject-matter of determination of relief under section 10B as well as under section 80HHE of the Act. The first agreement for our consideration is the one with Unisys. The learned counsel for the assessee pointed out that exemption under section 10B of the Act was denied by the Tribunal in the earlier years on the reasoning that sales to Unisys was less than 75 per cent of the assessee's total sales. The learned counsel submitted that there appears to be an obvious and inadvertent error in the abovementioned order of the Tribunal because, according to him, what is to be see....
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....tion under section 80HHE. But, that fact alone does not qualify the assessee-company to seek exemption under section 10B mainly for the reasons that the exports of such services to Unisys were less than 75 per cent of the total sales of the assessee-company and therefore, does not satisfy the condition laid down in section 10B(2)(ia)." The other major fatal mistake in the order, according to the learned counsel for the assessee, is that the Tribunal did not consider the provisions of section 10BB of the Act inserted by the Finance Act, 1999 with effect from 10-4-1999. The non-consideration of this provision by the Tribunal has lead to miscarriage of justice. The third point on which the learned counsel for the assessee stressed our attention is that in the earlier years the Tribunal considered the sequence of the events carried on by the assessee-company in respect of CIC-USA, wherein it has come to a conclusion that such activity carried on was that of professional recruiting agency. In the opinion of the Tribunal the value added service provided by the assessee-company is that the recruits are trained in a specific software programme viz., SAP Software, Imparting of such....
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....l in relation to the denial of relief under section 10B of the Act. 8. We have anxiously considered the rival contentions and have gone through the record. The relevant provision of section 10B extracted in para 6 above relates to special provision in respect of 100 per cent export-oriented undertaking. It provides that any profits and gains derived by such an undertaking shall not to be included in the total income of the assessee. In other words, the exemption is total and complete. Clause (i)( a) of sub-section (2) provides for a relief where the undertaking exports such articles or things and such exports are not less than 75 per cent of the total sales thereof during the previous year. The plain and simple meaning of this provision is that it should be either 100 per cent EOU or at least its export should be not less than 75 per cent of the total sales. In other words, the Act itself envisages the relief where such exports are at least in excess of 75 per cent of the total sales. This provision enables an assessee to claim such relief even its major manufactured articles or things are exported to a large extent as explained earlier. In the case before us, the assessee has a....
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....as only acted as a recruitment agent or the assessee has engaged itself in manufacture or production of articles or things in the form of computer programme, which is also a part of 'manufacture' as explained by the statute and has specifically given an extended meaning to the provisions of section 10BB already extracted hereinbefore. The agreement with Unisys is placed at pages 87 to 119 of the paper-book. This is a technical service agreement between Unisys Corporation and the assessee. The technical agreement No. 10063 and the statement of the work have been placed at pages 89 to 121 of the paper-book. We may refer to the statement of work placed at pages 101 to 108 of the paper-book. Relevant portion of which is reproduced below : "CyberTech International has available and will provide to Unisys Corporation the manpower, technical expertise, and product knowledge required to completely support all CTOS Software products as specified herein. CyberTech will make every effort to support the products within the Unisys Support Policy as outlined in the Technical Services Agreement. CyberTech will maintain the same interface with external Unisys support organizations as prev....
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....atus reports and statistics for each release level to be supported. (5) will provide active on-line, update access to the Unisys PRIMUS Database, the MAPPER Database for tracking escalated problems by WALERTs and CSRs, and the Internet Web Pages and PatchNet System. Cyber Tech will additionally need CTOS OFIS Mail connections with the San Jose (and thus all other Unisys sites) Electronic Mail service for both Yardley and Bombay. CyberTech will : (1) provide Technical expertise for the following : CTOS Operating System Design and Development Microsoft Windows and Windows NT Integration CTOS Compilers, Linkers and Standard Software CTOS Data Communications Products CTOS OFIS Mail, BNet, OFIS Products CTOS Hardware Products Unisys Software product development and support cycles (2) make every effort to analyze and respond to all UCFs within Unisys response guidelines listed below. When necessary, CyberTech will develop and distribute a fixed product to the affected client within the guidelines for the priority of the problem. When a fix is unnecessary or a work around is established, Cyb....
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....f the CIT(A) giving deduction under section 80HHE of the Act in the earlier years. But appreciating the facts of the case in the light of the agreement provided, we are unable to accept the departmental view that the assessee cannot considered as engaged in the business of manufacture of production of articles or things within the meaning of sections 10B and 10BB of the Act in respect of the profits and gains arising out of this agreement. The denial of such relief, in our view, is on a wrong reasoning that export of articles and things under this agreement with Unisys did not exceed 75% of the total sales. It only results in the miscarriage of justice if such a proposition of the department were to be accepted. We, therefore, direct the Assessing Officer to allow deduction under section 10B of the Act. The relief under section 80HHE, in the facts and circumstances of the case, as an alternative prayer, becomes academic. 10. Coming to second agreement, which is placed at pages 36 to 44 of the paper-book, the same is entered into on 1-7-1999 Cressese Inc. Yardley. The statement of work placed at page 37 of the paper-book is as under : "'State of Work' or 'SOW' shall mean....
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.... unless accompanied by a Change Order as set forth in section 2.2. (b) Consultant will ensure that all personnel assigned shall have the skills necessary to complete the tasks set forth in the Statement of Work. (c) Any work request shall be via a Statement of Work issued in accordance with this section 2.1. Nothing in this Agreement shall preclude Customer from obtaining the same or similar services from any other source at any time. Nothing in this Agreement shall preclude Consultant from providing similar services to another company, provided Consultant maintains the confidentiality of Customer's proprietary information." In this agreement it is provided that the assessee had the expertise in area related to the business of customer and for the business of providing professional services with regard to those areas of expertise. The details of this agreement in the form of work statement are placed at page 45 of the paper-book for the following services : "This is a Work Statement under the Master Consulting Services Agreement between Customer and Consultant. 1. Period of Work Date of Commencement of Work Statement 15th July, 199....
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....fits and gains derived as admittedly the agreement is an old agreement and on which the revenue has already granted relief under section 80HHE of the Act, which is directed to be withdrawn. 12. Now we take up the agreement No. 4 with CIC e-worker. This agreement is newly entered into during the year under consideration. Although the assessee was to recruit and train software professionals, but in that process it develops a software of its own. Agreement in this case is entered into for development of e-worker software. A copy of the manual involving the development and supply of the software is placed at pages 138 to 541 of the paper-book. It may be pointed out that the revenue authorities have considered only 10% of the profits as eligible for deduction under section 80HHE of the Act on the reasoning that it was mainly in the nature of recruitment and training contract. The contract itself is placed at pages 55 to 67 of the paper-book. The contract also contains the scope of the work at page 65 of the paper-book, which reads as under : "This is a Work Statement under the Master Consulting Services Agreement between Customer and Consultant. 1. Period of Work ....
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....its extended meaning as spelt out in section 10BB of the Act. We may also mention that merely because the payment is based on the man-hour spent on the job or the employees provided, it does not mean that the assessee was not engaged in the activity of manufacture or production of articles or things within the meaning of the provisions stated above. The complex and highly technical activities in the field of computer software, in our opinion, truly is an act of manufacture or production of articles or things as spelt out in the aforesaid provision. 13. Now coming to the agreement with SAP Arabia, the contract itself provides for carrying on the work of software development relief/processing /maintenance of electronic data for which software professional were deputed to customers locations on-site. The scope of the work is clearly covered by the provisions of section 10B read with section 10BB as construed by the Board vide its Circular No. 694, dated 23-11-1994. This is not a case where the assessee has only to do recruitment or training of personnel, but the assessee is engaged in the on-site software development. In this contract with SAP-Arabia the software professionals rema....
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....aw the relief granted under section 80HHE of the Act as a consequence of this order. 16. As regards the claim of deduction under section 10B on interest income, in the light of the fact that we have held that the assessee is entitled to relief under section 10B of the Act, the assessee is naturally entitled for relief under section 10B of the Act in respect of the interest income also, which is admittedly a part of business income. 17. The next ground relates to the levy of interest under sections 234C and 234D of the Act. The learned counsel for the assessee submitted that the department has levied interest on excess refund under section 234D of the Act disregarding the fact that the said section itself has come into force on 1st June, 2003 by way of insertion by the Finance Act, 2003. We agree with the contention of the learned counsel for the assessee and hold that the assessee is not liable to pay any interest under section 234D of the Act, which has admittedly come into force on 1st June, 2003 and is not applicable to the assessment year under consideration, as interpreted by the Delhi Bench of the Tribunal in its decision reported at 97 TTJ 108. As regard the levy of in....