TaxTMI 
TaxTMI 
2014 (4) TMI 738
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.... be deemed to be the profits and gains derived from the export of computer software outside India, the appellant is eligible for exemption u/s 10A of the Income-tax Act as was reported by the Assessing Officer in his remand report sent to the CIT(A)-III, Hyderabad, for A.Y. 2008-09 in the appellant's case. (3) Since the CIT(A) satisfied and deleted the addition of Rs. 1,11,46,514/- being amount of charges paid to the knowledge-partners for onsite development of computer software abroad, it is not proper and justified not to allow the exemption u/s 10A of the Income-tax Act, to the appellant-company. (4) The appellant-company, therefore prays the Honourable Income-tax Appellate Tribunal to allow the exemption u/s. 10A of the Income-tax Act and delete the addition of Rs. 27,11,899/- made by the Assessing Officer and sustained by the CIT(A), for A.Y. 2008-09, considering the facts and circumstances of the appellant's case. 3. Brief facts of the case are that the assessee a company engaged in the business of software development filed its return of income for the A.Y. 2007-08 on 30.9.2008 declaring nil income. The AO complete....
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....ction u/s. 10A is rejected for the reasons discussed above and the income is taxed as business income. Addition Rs. 27,11,899/-" 6. The AR submitted that the assessee had an agreement with the Swedish company for development of telecom billing software. This has been done by the assessee company. Thereafter it deployed trained manpower in Sweden for running the software, installing and debugging it. It was also contended by the AR that there were circulars of the CBDT wherein the specific services rendered by the assessee were mentioned. Accordingly, it was argued by the AR that the said exemption should be allowed u/s. 10A of the Act. 7. The AR submitted that with regard to the claim of exemption u/s. 10A of the Act in respect of the net income of Rs. 27,11,889/- for the A.Y. 2008-09, the AO's version is that the assessee did not manufacture or develop any computer software but only supplied manpower to Seavus, Sweden during the year relevant to the A.Y. 2008-09 is not correct and justifiable and it is only AO's presumption when actually there is apparent material evidence supporting the factual position that the assessee company, in fact, developed computer software....
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....ops computer software on telecom billing. 10. Further the AR submitted that: (i) On the basis of the assessee-company's application for 100% Export Oriented Unit under STP Scheme the Director of Software Technology Parks of India (an autonomous Society under Department of Information Technology Ministry of Communication & Information Technology, Govt. of India in their letter STPH/MSC/05- 06/1411/4907 dated 11-11-2005 accorded permission and approval to the assessee- company, to produce and export Computer Software for a period of five years. As per the agreement dated 1-6-2006 between the appellant- company and Seavus, Sweden, the assessee- company has to provide software development solutions to Seavus, Sweden. (ii) The assessee-company sent nine bills to Seavus AB, Sweden during the period 1-4-2007 to 31-3- 2008 in respect of "Telecom Billing Software Development charges" for a total amount in Euros 5,14,502-47 (equivalent to Rs. 2,89,27,296) and the Seavus made payments to the assessee- company the above said amounts through the assessee-company's Citibank A/c (70% thereof credited in Euros A/c and 30% thereof credited in I....
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....; Circular : No. 694, dated 23-11-1994. 157. Free trade zones specified for the purposes of section 10A under Explanation (i) thereto - Effective from assessment year 1988-89 onwards In exercise of the powers conferred by clause (i) of the Explanation to section 10A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specify the following free trade zones for the purposes of the said section for the assessment years commencing on or after the 1st day of April, 1988: (i) Falta Export Processing Zone in West Bengal; (ii) Madras Export Processing Zone in Tamil Nadu; (iii) Cochin Export Processing Zone in Kerala; (iv) Noida Export Processing Zone at Noida in Uttar Pradesh. Notification : No. SO 3231, dated 29-9-1987. 158. Software Technology Parks Scheme 1.0 Attention is invited to the Ministry of Commerce Notification No. 33/(RE)/ 92-97, dated 22nd March, 1994, notifying the above Scheme. In exercise of the powers conferred in sub-section (1) of section 3 of ....
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.... goods on loan from clients for specified periods for executing specified projects. 2.5 The STP unit will be a duty-free custom-bonded area. The normal procedure applicable for custom bonding will be followed. 13. The AR further drew our attention to the MOU entered by the assessee with the customer placed at Paper Book Nos. 66-70, 71-73, 74-76 and 77-79 specifically to show all the services provided by the assessee and also details of invoices: Nature of services provided by software developers: (a) Perform onsite technical feasibility analysis. (b) Assist in effort estimation and scheduling. (c) Prepare the software development project plans. (d) Write technical specification requirements. (e) Write high level and detailed level design documents. (f) System analysis. (g) Software design, programming and coding. (h) Software testing. (i) Software documentation. (j) Periodic review and approval of the deliverables. &....
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....which "is not formed by the splitting up, or the reconstruction of, the business already in existence". The expression "splitting up" and "reconstruction" have to be read along with the word "business". What Parliament seems to have intended here is that the setting up of unit should not be a device in order to secure deduction. This Court here notices that there is a certain stringency in the Section 10A; approval is to be given by a prescribed authority in terms of Section 10A (Explanation 2 clause (vii) to Section 10A). In this case it is not disputed that such approval was given and the unit, set up in the special economic zone termed as a Software Technology Park. Having regard to these essential conditions, the assumption of the Assessing Officer that the existing Section 80HHE unit was in fact split up for the formation of a unit in Chennai which claimed STP benefit was unfounded on facts. 11. The third limb of this question is as to whether the assessee in fact engaged itself in the manufacture of computer software defined in Explanation 2 to Section 10A of the Act. The Assessing Officer had inquired as to what the assessee meant by "programme manageme....
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....ons or that they have not been fulfilled by the assessee under Section 10A. The relevant discussion is at page 36 of the paper-book: - "Therefore, both the names, i.e. the name of EDS Electronic Data System (India) Private Limited and Electronic Data Systems (India) Private Limited are being used interchangeably and otherwise also are immaterial as far as the claim of exemption u/s 10A is concerned which is in respect of the undertaking of the assessee qualifying the conditions prescribed in the Section. In view of the above facts, the AO is directed to allow the exemption claimed by the appellant. This ground of appeal is allowed." 13. The above reasoning was upheld by the ITAT. This Court is of the opinion that the view taken by the Assessing Officer, that the nature of services rendered or extended by the assessee were not "computer software", is contrary to the record. The Assessing Officer's order has alluded to the CBDT Circular dated 26.09.2000 which extends or explains the services as including back-office; operations; call centres; content development or animation; data processing engineering and design; g....
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....xport of computer software for which deduction u/s 10A must be given. 17. According to the DR, the above order is not applicable to the assessee's case. That order is pertaining to assessment years 1998-99 and 1999-2000. The Tribunal has stated clearly that with effect from 1st April, 2001 subsection (2) of section 10A was amended and now only such profit which is derived from the export of articles or things or computer software was to be allowed as deduction. However, prior to this amendment the entire profit of such undertaking was to be excluded. Therefore, there is no direct application of the aforementioned decision to the present case. He also submitted that notification number 890(E) dated 26th September 2000 by the CBDT specifies 15 information technology enabled products and services with regard to explanation to section 10A of the Income-tax Act. However, it has to be understood that this notification does not override the section itself. It only goes on to actually clarify the scope of the term "computer software". The assessee has claimed that item number 7 on the list of this notification pertains to human resources services. It has stated that it provided such....
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....nd Serbia. As per the assessee, it had a tie-up with this European partner to develop telecom billing software. Once the system was ready, the employees of the assessee would move to Europe and integrate and install this system into the European company. In this regard it is to be seen that the income earned by the assessee is not with respect to any export of software but with respect to export of its manpower to its European partner. The assessee has absolutely given no details as to when was the software developed, what was the scope of the software and its nature of integration into the system of the European partner. The DR submitted that the personnel of the assessee company who had been sent to the European partner were sent for a period of 3 years. 19. The DR submitted that there is absolutely no scope and no detail mentioned regarding any development of software. Euros 275 per day are to be paid to the assessee for 40 working hours per week with respect to this person. Identical contracts are there with respect to other people. By no stretch of imagination is this a contract for software development. It is clearly a contract for services rendered by personnel. No detail....
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....ually running the BPO is not covered under the aforementioned section as this is not the objective of the section. The objective is clearly the development of software industry and not of BPO personnel. In the present case the manpower contracts, as already discussed do not pertain to the development of software. These are clearly outside the scope of section 10A of the Income Tax Act. Accordingly, he submitted that the action of the AO as confirmed by the CIT(A) is to be upheld. 23. We have considered rival submissions. The dispute before us is with regard to treatment of receipt received by the assessee from M/s. Seavus Group vide agreement dated 1st June, 2006 and entitlement of deduction u/s. 10A of the Act. The assessee has entered into agreement with M/s. Seavus Group on 1st June, 2006 and the said agreement was subject to amendment on the same day. These agreements are placed on record at page Nos. 66 to 73 of the Paper Book. By these agreements, the assessee is required to carry on the following activities: 1. Purpose and Scope of this Agreement This Agreement is between Seavus and Company. Company will provide the telecom Bill....
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....ocument, creation of training document in addition to the activities mentioned in clauses (2) and (3) of the agreement. Further as per clause No. 6 the assessee has to do the following activities: Telecom Billing Software development work would be tracked by Man Days (each man-day consists of 8 working hours per day). Apart from Company full-time Indian employees deployed for developing the telecom billing solution to Seavus, Company will engage senior most telecom billing experts/Telecom software development firms (Non-Indian firms) as knowledge partners for JVH Solutions to be based out of Europe to interact with Seavus/Seavus Clients for smooth facilitation of development of Telecom billing software solution for Seavus Company and Seavus will equally share all the expenses of the company deployed personnel's related to accommodation, Utilities, Travel, Visa Fees, Referral fees, Transfer fees, Flight Charges and food expenses. 25. Further apart from the assessee-company's Indian employees deployed for developing billing solutions to Seavus, the assessee-company will engage senior most telecom billing experts/ telecom developm....
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.... supplied manpower to Seavus Group, Sweden and the assessee has not exported any article or thing or computer software outside India. 29. In our opinion, as per the agreement, the assessee has to provide services at the place assigned by the Seavus Group and that the payment is to be made as per man-hours spent by the professionals. On that reason it is not possible to hold that the assessee has not exported any article or thing or computer software. 30. Section 10A and Explanation 2 after section 10A(9A) read as under: 10A. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee : Provided that where in computing the total income of the undertaking for any assessment year, its profits and gains had not been included by applic....
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....nition of computer software any customised electronic data or any product or services of similar nature as notified by the Board which is transmitted or exported from India to any place outside by any means. 32. Further, the CBDT notified the products and service for the purpose of clause (i) of Explanation 2 vide notification dated 26.9.2000 as under: "S.O. 890(E) - In exercise of the powers conferred by clause (b) of item (i) of Explanation 2 of section 10A. Clause (b) of item (i) of Explanation 2 to section 10B and clause (b) to Explanation to section 80HHC of the Income tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby specifies the following Information Techno-logy enabled products or services as the case may be for the purpose of said clauses namely :- (i) Back-Office Operations (ii) Call Centres (iii) Content Development or animation (iv) Data Processing (v) Engineering and Design (vi) Geographic Information System Services (vii) Human Resources Services (vii....
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.... therefore, the assessee's activity of engaging the analyst/programmer/ personnel for imparting training is well within the main object of the assessee as envisaged in the agreement. 36. In view of these facts, raising of bill on the basis of man-hour further supports the case of the assessee that the assessee is carryout the customization work of software and development of programme as per the specific requirement of clients. Therefore, this method of invoice cannot be the basis of rejection of the claim of the assessee. In any case, when the assessee has been collected the customised data, stored and transmitted the same through electronic media, then this activity of the assessee falls under the definition of computer programme as provided under sec. 10A as well as under Explanation 2 of sub.sec. 10A thereby the definition of software has been expended as customised electronic data or any product or service of similar nature as may be notified by the Board. The assessee definitely engaged in the export of customised electronic data as recorded by the Assessing Officer in his order. 37. It is clear from the above that the Assessing Officer has not disputed the fact that th....