2016 (2) TMI 599 - AT - Income Tax

Deduction u/s 10A denied - whether the assessee has to be treated as rendering service in IT enabled service and hence, eligible for exemption u/s 10A? - whether collection of data and processing the same would amount to IT enabled service or not? - Held that - The majority customers of the assessee are investment banks. The information/data furnished by the assessee is being used in the business activity of the customers, therefore, it is not a mere collection of data as claimed by the Revenue. The Delhi High Court in the case of ML Outsourcing Services (P) Ltd. (2014 (9) TMI 396 - DELHI HIGH COURT ) examined this issue elaborately and after referring to the Circular issued by the CBDT dated 26.9.2000, found that using information technology in scanning data, processing it, conducting online tests for short-listed candidates and analyzing their results would amount to data processing. We have also gone through the Third Member decision in the case of Accurum India (P) Ltd. (2009 (11) TMI 550 - ITAT MADRAS-A). This Tribunal by majority opinion, found that the requirement of sec. 10A is that there should be customized electronic data and such data should be exported outside India. In this case also, the assessee customized the electronic data and it was admittedly exported. This Tribunal is of the considered opinion that processing the data by the assessee would amount to providing IT enabled service, therefore, the assessee is eligible for exemption u/s 10A of the Act. - Decided in favour of assessee

Summary

Issues Involved:
Disallowance of claim made by the assessee u/s 10A of the Act.

Detailed Analysis:

Issue: Disallowance of claim u/s 10A of the Act
The appeal was against the order of the Commissioner of Income-tax (Appeals) pertaining to the assessment year 2007-08. The primary issue was the disallowance of the claim made by the assessee under section 10A of the Income Tax Act. The assessee argued that its business activity of collecting market information and data, processing it, and exporting it in various forms amounted to the development of software. The counsel relied on Circulars issued by the CBDT and judgments of the Delhi High Court to support the claim that the assessee was providing IT-enabled services and hence eligible for exemption under section 10A.

The counsel cited cases where similar activities were considered eligible for exemption under section 10A, emphasizing that the data collected and processed by the assessee qualified as customized electronic data that was exported out of India, meeting the requirements for the deduction. The counsel also argued that the Third Member decision of the Tribunal supported the assessee's claim, stating that the processing of data by the assessee constituted providing IT-enabled services, making the assessee eligible for the exemption under section 10A.

On the other hand, the Departmental Representative contended that the assessee's main activity was collecting market information and presenting it to customers, which did not amount to data processing or IT-enabled services. The representative highlighted that a significant portion of the employees were non-technical individuals, indicating that the services rendered were primarily for data collection rather than processing. The Departmental Representative argued that the remuneration received by the assessee was predominantly for data collection and not for processing, hence not qualifying for exemption under section 10A.

After considering the submissions from both sides and examining the material on record, the Tribunal found that the assessee's activities, involving the collection, processing, and transmission of data, met the criteria for IT-enabled services as per the Circular issued by the CBDT. The Tribunal observed that the data collected and processed by the assessee, which was used by investment banks in their business activities, constituted more than mere data collection. Citing previous judgments and the Third Member decision, the Tribunal concluded that the assessee's processing of data qualified as providing IT-enabled services, making the assessee eligible for exemption under section 10A.

Therefore, the Tribunal set aside the lower authority's order and directed the Assessing Officer to grant exemption to the assessee under section 10A of the Income Tax Act. The appeal of the assessee was allowed, and the stay petition was dismissed accordingly.