TaxTMI 
TaxTMI 
2016 (8) TMI 763
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....duction u/s 10(B) of the Act by holding that the assessee, a firm of Advocate & Solicitors engaged in production and export of customized electronic data or legal database is not eligible for deduction. For this, the Revenue has raised identically worded grounds in all the years and grounds raised in ITA No.3066/Mum/2012 for the assessment year 2007- 08 read as under:- 1. "On the facts and the circumstances of the case and in law, the ld. CIT(A) erred in holding that the assessee, a firm of Advocates and Solicitors, was engaged in the production and export of customized electronic data or legal database and was hence eligible for deduction under section 10 B of the Income Tax Act. 2. Ld. CIT(A) failed to appreciate that the assessee was merely rendering client specific legal services to foreign clients in the normal course of profession, using an existing legal database and hence could not be said to be engaged in the production and export of customized electronic data or legal database. 3. Ld. CIT(A) erred in holding that the mere transmission of model agreements, extracts of relevant laws, notifications and forms and such other standard legal documents ....
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....brought in India in convertible foreign exchange. Since, the assessee firm has transferred the customized electronic data to its client therefore it forms part of computer software as per explanation 2 to section 10B of the Act. Further, the grant of registration from the Development Commissioner of EOU for Legal Services and the inclusion of Legal Database is an eligible product and services for the purpose of grant of deduction under section 10B of the Act in view of CBDT's Notification 10 SO 890(E) dated September 26, 2000 wherein the legal database has already been notified by the CBDT for the purpose of computer software and admissibility under section 10B of the Act. On the other hand, the claim of the assessee firm u/s. 10B of the Act was rejected by the AO on the following grounds: "a) The assessee firm itself has claimed that it was engaged in providing legal services to its overseas client. The certificated issued by the Development Commissioner, SEEPZ Form 56G and the Tax Audit report also confirms this fact. Thus, the assessee was engaged in providing legal services to its foreign clients and not engaged in exporting legal database which was one of the items no....
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....te of "commencement of production" (i.e. "custom bonding" of the premises), which was fulfilled by the assessee firm on November 22, 2006. Since, the assessee firm had not compiled with the condition based on which it was granted the status of 100% EOU by the prescribed authority. Therefore, the assessee firm is not eligible to claim deduction under section 10B of the Income Tax Act. Based on the above reasoning, the Assessing Officer has disallowed the claim of the assessee firm regarding deduction claimed u/s. 10B of the I.T. Act for the detailed reasons given in the assessment Order for the A.Y. 2007-08". 4. Aggrieved against the findings of the AO, the assessee preferred appeal before the CIT (A), who allowed the claim of the assessee of deduction u/s 10(B) of the Act by observing as under:- "2.7 After carefully examining the facts and circumstances of the case, I find that the Assessing Officer has not considered the following facts properly in this case, that the prescribed authority i.e. Development Commissioner SEEPZ has already granted the assessee firm registration as 100% EOU under the provision of EXIM Policy 2002-2007 for the item Legal....
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.... data" fails within the expression of "computer software" as per explanation 2(i)(b) to the section 10B of the I.T. Act. Therefore, the assessee firm is entitled to claim deduction u/s. 10B of the I.T. Act in respect of its 100% EOU unit and the Assessing Officer is directed to allow the same in respect of this unit only whereas local unit of the firm would be liable for taxation as per the normal provisions of Income Tax Act. Since the words "customized electronic data" have been used in the definition of computer software is separated by the word "or" and qualifies for deduction u/s. 10B by itself as a general provision of the section, therefore, I do not wish to go in to the alternate argument taken by the assessee firm that legal service rendered by use of legal database were also eligible for deduction u/s. 10B in view of the notification issued by the CBDT vide No. S.O. 890(E) dated September 26, 2000. Consequently, this ground of appeal is decided in the favour of the assessee firm. Aggrieved against the order of the CIT (A), Revenue is in second appeal before the Tribunal. 5. Before us, the learned Counsel for the Assessee Shri Arvind Sonde argued that assessee firm i....
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....such legal services rendered by way of customized electronic data, would fall within the scope of S.10B. As such, any services rendered to a particular client through electronic data would be customized electronic data and, as such, it would be a software for claiming deduction u/s. 10B and, therefore, in my opinion, the Querist's case would squarely fall under the definition of "Computer Software" which is entitled to deduction under the provisions of section 10B of the Act. Under the provisions of section 10B, hundred percent deduction is available in respect of income arising out of export-oriented undertaking." According to Ld. Counsel, based on the above advice, the deduction u/s. 10B of the Act was claimed by the assessee firm. According to him, whether export of legal services by 100% EOU qualifies for deduction under section 10B of the Act or not, and whether it is covered under the expression "computer software" as defined under explanation 2 to section 10B of the Act? He referred to definition of the "Computer Software" which means as under:- a) any computer programme recorded on any disc, tape, perforated media or other information storage device; or ....
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....ry defines the word to be "information prepared for or stored by a computer" (Oxford Advanced Learners Dictionary, 4th edition, page 302) The learned Counsel referred to the provision of the Information Technology Act, 2000 ('the IT Act'). Under the Act, the term 'data' has been defined under Clause (o) to section 2 as under:- Section 2 (o): "Data" means a representation of information, knowledge, facts concepts or instructions which are being prepared or have been prepared in a formalized manner, and it intended to be processed, is being processed or has been processed in a computer system or computer network and may be in any form (including computer printouts magnetic or optical storage media, punched cards, punched tapes) or stored internally in the memory of the computer. The term "information" has been defined under clause (v) of Section 2 of the IT Act as under:- Section 2 (v): "information" includes data, text, images, sound, voice, codes, computer programmes, software and database or micro film or computer generated micro fiche." "Electronic Form" has been defined under clause (R) of Section 2 of the IT Act as under: ....
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....ssessee firm did not furnish any report of the auditors as required u/s. 92E of the Act. In this connection, learned Counsel stated that the assessee firm has no office or associates in foreign countries and consequently the provision of Sec. 92E of the Act was not applicable to it. Hence, if a particular requirement for furnishing of report of the auditors' u/s. 92E of the Act is not applicable, the same is not liable to be filed and cannot be a reason of disallowance of claim under any other section of the Act. According to him, the AO has taken a view that legal database was general in nature whereas legal services rendered by the assessee were individual, personalized and/or client based specific services. According to him, legal database can be used and retrieved by any person having access to that whereas legal services as rendered by the assessee were strictly for a specific client for specific use on confidential basis. He therefore concluded that the assessee did not create any legal database and the legal services rendered by it to its foreign clients through internet, email, etc. did not fulfil the condition prescribed u/s. 10B of the Act. The basis of this objection has....
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....er, SEEPZ-SEZ. (vii) The approval is based on the details furnished by you in your project applicable. (viii) You shall require to entre into a legal Agreement in the Prescribed Form (Appendix 14-IF) with DC SEEPZ-SEZ for fulfilling the terms and conditions mentioned in the Lop. (ix) ......... 9. In response to the above approval letter and the requirements given by the Development Commissioner, the assessee firm submitted the relevant documents and proof vide letter dated August 20, 2003. Also in Para no. 2 of the referred letter, the assessee intimated shift of unit of Free Press House to the Development Commissioner, SEEPZ and requested him to update the records. On November 19, 2003, the assessee submitted signed Legal Agreements in the prescribed form, as required under the Scheme of EOU. Finally, based on this submission the Development Commissioner vide his letter No. SEEPZ/EOU/IAII/121/2002-03/6235 dated December 03, 2003, confirmed the grant of EOU status to the unit and issued Green Card No. 0001191 effective from October 24, 2003 and valid up to March 31, 2006. We may highlight here that the said letter of confirmation of EOU status wa....
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....ia electronic media i.e. via emails and internet facilities, the claim of the assessee for deduction under section 10B of the Act in the light of Explanation 2(i) (b) is fully justified. 11. We have gone through the provision of section 10B of the Act, which allows 100% tax exemption on income derived from exports of articles or things or computer software. The benefits are available to any undertaking (i.e., company, partnership firm, etc.) and the provision does not discriminate undertakings on the basis of type of business or services exported. Explanation 2(i)(b) of the IT Act defines computer software to mean any customized electronic data or any product or service of similar nature as may be specified by the CBDT which is transmitted or exported from India to any place outside India by any means. Over and above, CBDT in its Notification no. 890 dated September 26, 2000 notified "the products or services of Legal Database" as an eligible information technology enabled product or service. Hence, the notification applies to both, legal database products and services rendered through the use of Legal Database. We have also gone through the explanation of Ld. Counsel wherein he....
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.... 16, 2003. Subsequently, approval of EOU status was granted on August 18, 2003. Green card was issued by the DC on October 24, 2003 which was valid up to March 31, 2006. The letter of confirmation was issued by the DC to assessee at its new office address at Free Press House. Accordingly, with the DC's approval, assessee claimed deduction under section 10B of the IT Act. 13. We have gone through the case laws relied on by the assessee in the case of Diljeet Titus v. Alfred A. Adebare, 130 (DLT 330(2006), the Delhi High Court has considered the definition of "computer database" and defined it as "a collection of information stored on computer media." The information may be a list of clients and their addresses or it may be the full text of various documents or it may be a set of co- ordinates relating to a three-dimensional building structure. The range of things which may be included in a computer database is enormous. Based on the above, and the case cited below the requirement of the provision is that there should be customized electronic data and such data should be exported outside India. The data which a customer may require may be gathered either by manual effort or by ele....
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....dertaken the activities of transmission of customized data through the internet to its client abroad and that of data entry processing and claimed deduction under section 80HHE of the IT Act. The Court held that "data entry" was covered by the CBDT notification dated September 26, 2000 as being computer software service and, hence, allowed the deduction. Similarly, Delhi Tribunal in the case of M.L. Outsourcing Services Pvt. Ltd. 104 TTJ 59 (Del) has held that the assessee was engaged in hiring overseas IT consultants (sourcing, screening and interviewing employees) for its US client. The Delhi Tribunal held that once the data is collected and stored in an electronic form, it becomes a customized electronic data, which can be exported to qualify for deduction. 16. We find that Chennai ITAT in the case of ACIT v. Nicronn Engg. Pvt. Ltd (ITA Nos. 1439/Mad/1995 and 1992 & 1993/Mad/1998 held that the term "manufacture" will include any processing or assembling or recording of programs on disc, tape, perforated media or other information storage device and, hence, entitled to investment allowance. 17. We find from the facts of the case that the assessee maintained two separates bo....
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....siness and consequently disallowance of deduction, Hon'ble Delhi High Court in the case of CIT v. Gedore Tools India Pvt. Ltd. (1980) 126 ITR 673 (Del), held that applying the principles of the Supreme Court in the Textile Machinery case, to the present case, it is clear that the new unit has not been formed by the splitting up or reconstruction of the existing business. The second unit has not derived anything from the old unit either by way of equipment or by way of factory buildings. No assets of the old unit have been transferred to the new unit nor has the identity of the first unit been impaired in any way. The mere fact that the second unit manufactures some of the items which were manufactured by the first unit does not make it an integral part of the first unit. It would survive independently of the first unit. 19. In view of the above proposition, the facts of the present case are that on February 28, 2006, as per the EOU procedure, the assessee submitted the green card and the LOP agreement with the DC for renewal. At this stage, the DC by a letter dated March 10, 2006 informed the assessee to submit the Customs certified date of commencement of production. The assess....