2005 (1) TMI 608 - AT - Income Tax

Summary

Issues Involved:
1. Whether the assessee has the choice to claim deduction under section 80HHE or 80-O.
2. Validity of the order passed under section 263 of the Income-tax Act by the Commissioner of Income-tax.

Issue-wise Detailed Analysis:

1. Choice of Deduction under Section 80HHE or 80-O:
- The revenue contended that the CIT(A) erred in holding that the assessee has a choice to claim the deduction under section 80HHE or 80-O. They argued that section 80HHE was specifically introduced to provide fiscal incentives to the Software Industry, and the principle of 'Specialibus Non Derogant' should apply.
- The assessee claimed deduction under section 80-O for providing technical and professional services to persons outside India. The Assessing Officer, however, allowed the deduction under section 80HHE, asserting that the assessee was primarily engaged in the export of computer software.
- The CIT(A) concluded that there was no bar in section 80HHE preventing the assessee from claiming deduction under section 80-O, as both sections were still part of the statute.
- The Tribunal found force in the assessee's contention, noting that section 80-O was available for income from royalties, commissions, fees, or similar payments for technical or professional services rendered outside India. The Tribunal referenced the Supreme Court's decision in Continental Construction Ltd. v. CIT, which clarified that once approval for agreements is granted, the Assessing Officer cannot question the maintainability of the deduction under section 80-O.
- The Tribunal emphasized that subsection (5) of section 80HHE only restricts further deductions if a deduction has already been claimed under section 80HHE. Thus, the assessee had the liberty to choose between section 80-O and 80HHE, as both provisions were available in the Act. Consequently, the Tribunal confirmed the CIT(A)'s order, dismissing the revenue's appeal.

2. Validity of the Order under Section 263:
- The assessee challenged the order passed under section 263 by the Commissioner of Income-tax, which questioned the deduction claimed under section 80-O and suggested that the deduction should be under section 80HHE.
- The Tribunal observed that the CIT was not certain about the error in the assessment order, as indicated by the CIT's statement that the aspects could only be verified after examining the agreements. This uncertainty indicated that the CIT was not sure whether the assessment order was erroneous.
- The Tribunal referenced the Supreme Court's ruling in Malabar Industrial Co. Ltd. v. CIT, which stated that the power of revision under section 263 cannot be exercised unless the order is found to be erroneous and prejudicial to the interests of the revenue.
- On the merits, the Tribunal reiterated its earlier decision favoring the assessee's right to choose the deduction under section 80-O. Consequently, the Tribunal quashed the CIT's order under section 263, allowing the assessee's appeals.

Conclusion:
- The Tribunal dismissed the revenue's appeals and allowed the assessee's appeals, affirming the assessee's right to claim deduction under section 80-O and quashing the order passed under section 263 by the Commissioner of Income-tax.