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2021 (4) TMI 1039
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.... of the case reveal that the appellant before this Court is a 100% export oriented undertaking engaged in the business of export of customized electronic data according to the requirements of its customers. The requirement is received in electronic format and it is again delivered in electronic format pertaining to various activities in the field of engineering and design. 4. Appellant-assessee for the assessment year 2009- 2010 filed its return of income on 26.9.2009 declaring 'nil' income after claiming deduction of Rs. 1,80,27,563/- under Section 10B of the Income Tax Act, 1961 (hereinafter referred to as IT Act). The case of the appellant was selected by the assessing officer for scrutiny by issuing notices under Sections 141(1) and 143(2) of the IT Act. The Additional Commissioner of Income-tax (Addl. CIT) suo moto selected the case of the appellant-assessee under Section 144A of the IT Act and issued draft directions to the appellant-assessee on 5.8.2011. The assessee in response to the said draft directions filed a detailed reply on 26.8.2011. The Additional CIT issued final directions under Section 144A to the assessing officer on 26.8.2011. The appellant-assessee also f....
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....ordinate bench of the same jurisdiction? 7. Whether, in the facts and in the circumstances of the case, the Tribunal is right in law in upholding the validity of directions by the Additional CIT issued under section 144A without giving opportunity of being heard? The appeal is admitted on the aforesaid questions of law after hearing the parties at length. 7. There are four connected appeals involving the same subject matter and a memo has been preferred by the assessee-appellant stating categorically that he is not pressing certain questions of law and permission has been sought to withdraw the same. The details of the appeals and the questions which are not being pressed are reproduced as under;- "1) In ITA No.725/2017 - Question No.VII 2) In ITA No.726/2017 - Question No.I and VIII 3) In ITA No.727/2017 - Question No.VII 4) In ITA No.728/2017 - Question No.VII 5) In ITA No.206/2018 - Question No.VI" 8. The facts of the case reveal that the appellant is engaged in the business of exporting of collaborative research customized data largely on Computer Aided Design (CAD) platform which falls within t....
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.... the period specified in that section: (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation-The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (3) This section applies to the undertaking, if the sale proceeds of articles or things or computer software exported out of India are received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, within such further period as the competent authority may allow in this behalf. Explanation 1 - For the purposes of this sub-section, the expression "competent authority" means the Reserve Bank of India or such other authority as is authorized under any law for the time being in force for regulating payments and dealings in foreign exchange. Explanation 2 - The sale proceeds referred to in this subsection shall be deemed to have been received in India where such sale proceeds are cr....
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....arried forward or set-off where such loss relates to any of the relevant assessment years ending before the 1st day of April 2001; (iii) no deduction shall be allowed under section 80HH or section 80HHA or section 80-I or section 80IA or section 80-IB in relation to the profits and gains of the undertaking; and (iv) in computing the depreciation allowance under section 32, the written down value of any asset used for the purposes of the business of the undertaking shall be computed as if the assessee had claimed and been actually allowed the deduction in respect of depreciation for each of the relevant assessment years. (7) The provisions of sub-section (8) and sub-section (10) of section 80IA shall, so far as may be, apply in relation to the undertaking referred to in this section as they apply for the purposes of the undertaking referred to in section 80-IA. (7A) Where any undertaking of an Indian company which is entitled to the deduction under this section is transferred, before the expiry of the period specified in this section, to another Indian company in a scheme of amalgamation or demerger - (a) no deduction shall be ad....
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....vernment in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) act, 1951 (65 of 1951), and the rules made under that Act; (v) 'relevant assessment year' means any assessment years falling within a period of ten consecutive assessment years, referred to in this section. Explanation 3 - 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. Explanation 4 - For the purposes of this section, 'manufacture or produce' shall include the cutting and polishing of precious and semi-precious stones." 10. The activity of the appellant includes computer programming, processing and management of electronic data and any customized electronic data, engineering and design. Section 10B of the IT Act provides for a tax holiday in respect of 100% Export Oriented Undertaking from the export of articles or things or computer software. 11. It is not a matter of dispute that the appellant is a....
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....ugh computer and internet. 24. Assessee is in the business of industrial research and development ...... The services rendered by the assessee are in the nature of research and development..... The assessee company has run a design, testing and validation laboratory. ..... In fact, these are in the nature of product design and product simulation testing...... Assessment Order - 14 and 15 Commissioner (Appeals) 3.10 ..... Whereas, the appellant itself stated that it provides redesign, improvised design, fine tune the existing design, bench mark testing of existing design, manufacturer support and testing, CAD support, design and development, CAD and concept design, design support and CAD support etc. .... Thus there is no original work involved in the above activities. 32 ITAT 7.2 ...... it is clear that the assessee was doing collaborative research for its principal....... For which, the input came in the form of specification document, the assessee might have carried out the testing, validation etc and gave its output i.e summarized report with recommendations ...... 17 13. Another point is that the appellant has been characterized by the various a....
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.... in exercise of powers conferred under Explanation 2(i)(b) of Section 10B has notified certain information technology enabled products or services vide notification dated 26.9.2000 and they are reproduced as under; 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; viii) Insurance Claim Processing; ix) Legal Databases; x) Medical Transcription; xi) Payroll; xii) Remote Maintenance; xiii) Revenue Accounting; xiv) Support Centres, and; xv) Web-site Services. 16. Engineering and Design finds place in the CBDT notification dated 26.9.2000 and the term Engineering and Design is not defined under the IT Act and on this ground as it is not defined under the IT Act, the assistance was sought by the assessee from various Dictionaries and Information Technology Act to explain what is Engineering and Design actually means. 17. Section 65 of the Information Technology Act, 2000 reads as under; ....
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....c designs and the assessee's claim of development of computer progamme is different from development of computer software. 22. Another important aspect of the case is that in respect of the eligibility of claim of deduction under Section 10B, in respect of the same assessee, it has been accepted by the department for the assessment years 2006-2007 to 2008-2009. The predecessors to the present assessing officer have accepted the similar claim of the assessee for deduction under Section 10B in similar facts and circumstances however, in respect of the present and the subsequent assessment years which are subject matter of connected appeals, the department has now taken altogether a different stand. 23. From the documents on record, it can be safely gathered that the appellant is engaged in the activity of engineering designs, redesigns, testing, modifying, prototyping and validation of concept. The assessee is also engaged in the activity of providing manufacturing support and CAD support to its group companies. The assessee captures the resultant research of the above activity in a customized data both in CAD and other software platforms and for the purposes of carrying the ab....
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.... are received by it in electronic form. The assessee manipulates the inputs in the desired manner and generates output for being sent back to the customer. The output that goes to the customer is again in the electronic form and therefore, the output generated by the assessee has to be treated as customized electronic data. The activities of the assesseee certainly fall within the meaning of the phrase "processing or management of electronic data" and therefore, the same has to be regarded as computer software keeping in view the ambit of Explanation 2(i)(a) to Section 10B of the IT Act. [See: ITO v. E-Infochips Ltd., (2009) 124 TTJ (Ahmedabad) 176; DCIT vs. Tecnimont ICB (P) Ltd., (2009) 123 TTJ (Mumbai) 680/ (2010) 2 ITR (Trib) 480 (Mumbai); Cybertech Systems & Software Ltd., vs. ACIT (2006) 7 SOT 230 (Mum.) ]. 29. The activities carried out by the assessee like analyzing/duplicating the reported problems, developing and building, testing products, carrying out tests, design and development are to be treated as falling within the scope of Section 10B with or without the aid of Section 10BB of the IT Act. Thus, the assessee is certainly eligible for deduction under Section 10B ....
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....tainly exported a computer software and once the assessee has exported a computer software, keeping in view Section 10B r/w notification dated 26.9.2000, the assessee was certainly entitled for deduction. 33. Another important aspect of the case is that the tax holiday for which the assessee was entitled and was given to him earlier has been denied mainly on the ground that the R & D activities were not eligible. The R & D activities are IT (information and technology) enabled services are covered under the term customized electronic data and also in the products and services notified by the CBDT vide notification dated 26.9.2000. 34. In the Memorandum explaining the provisions of the Finance Bill 2001, the purpose of Section 10BB was explained as follows: "Insertion of provisions of Section 10BB of the Income-tax Act. Under Section 10B of the Income-tax Act, newly established hundred per cent export oriented undertakings are entitled to a 100% deduction of export profits. Prior to its substitution, section 10B has been operative from 1.4.1989. With a view to enlarging the scope of the tax holiday to hundred per cent EOUs approved by the prescribed authority....
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....n the field of computer software or Information Technology as held by the Hon'ble Supreme Court (See Commissioner of Income-tax, Delhi vs. Bharthi Cellular Ltd, reported in [2011] 330 ITR 239 (SC). 38. In the matter of grant of deduction under Section 10B of the IT Act, there was a debate relating to tax incentives not available to R & D activities/denial of tax holiday under Section 10A and a Committee was constituted to review Taxation of Development Centres and the IT Sector headed by N.Rangachari, Chairman of CBDT. A report was submitted on 14.9.2012 and the extracts of the report are reproduced as under; "3.10 Views of the Industry 3.19.1 The stakeholders from industry pointed out that tax holidays, once again, should not be denied midcourse on the ground that R & D activities were not eligible, as it created uncertainty and sent out negative signals. Their argument is that R & D activities are IT enabled services covered under the term 'customised electronic data' and also under the products and services notified by the CBDT in Notification No.890(E), dated 26.9.2000. 3.19.2 They requested that it should be clarified that R&D centres set-up as ST....
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....e eligible entities, should be extended to the IT sector." 39. The Committee recommended that the services covered by the Notification dated 26.9.2000, namely Engineering and Design include R & D activities. Based upon the recommendations of Rangachari Committee a Circular was issued on 17.1.2013 by the CBDT. The CBDT vide clarificatory circular has held that research and development activities pertaining to software development would be covered under the definition of computer software stipulated under Explanation 2 to Section 10A and 10B of the IT Act. Relevant extract of the circular is reproduced as under; "(iii) Whether Research and development (R & D) Activities pertaining to Software Development would be covered under the Definition of "Computer Software" stipulated under Explanation 2 to sections 10A and 10B. The definition of 'computer software' stipulated under Explanation 2 to sections 10A and 10B includes "any customized electronic data or any product or service of similar nature, as may be notified by the Board, ...." The CBDT had already issued Notification No.890(E), dated 26.9.2000 specifying such items. The notification includes Engineering and Design b....
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....in the present case uses the expressions (iii) content development or animation (iv) data processing .... (vii) human resources services and (ix) legal data bases. Here, the very first head "content development or animation" describes the process and is wide enough to cover compilation of material or data and its transformation into a ready to print/ready to publish book. It is also a "legal database." In the aforesaid case, the expression 'computer software' has been dealt with and it has got a wider meaning than understood by the taxing authorities. 43. The Bombay High Court in the case of Commissioner of Income-tax vs. Malhar Information Services, reported in [2013] 351 ITR 119 (Bombay) was dealing with the deductions under Section 80HHE and in the aforesaid case, the assessee was engaged in the business of transmitting customized electronic data from various sources to its clients abroad. The Bombay High Court has held that the assessee was entitled to deduction under Section 80HHE of the Act. 44. The most important aspect of the case is that the taxing authorities have granted exemption to the same assessee in the earlier years and the benefit of deduction un....
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....ection 10A of the IT Act. 50. The Delhi High Court in the case of Commissioner of Income-tax-VIII vs. Ms. Kiran Kapoor, reported in [2015] 57 taxman.com 39, while dealing with the Circular dated 26.9.2000, in paragraphs 15 and 16 has held as under; "15. The second question is whether assessee's manufacturing activity described earlier results in "computer software". The main thrust of the revenue's contention here was that final product or "thing" does not answer that description because it is not software per se, but mere compilation of data. This court is of opinion that this contention is unpersuasive. The expression "computer software" is wide enough to embrace diverse activities. To eliminate any doubt, the reference to "customized electronic data" in the second Explanation to Section 10B (2), Parliament enabled the Board (CBDT) to include (by notification) diverse activities - which involve export of software, etc. The Notification relied on in the present case uses the expressions"(iii) Content Development or animation (iv) Data Processing... (vii) Human Resources Services" and "(ix) Legal Databases". Here, the very first head "content development or anima....