2020 (11) TMI 963 - HC - Income Tax

Deduction u/s 10A - assessee's activity of human resources services are IT enabled services - As per revenue the assessee was only making available the data base of qualified IT personnel - HELD THAT - The assessee admittedly is involved in providing human resource services and from the perusal of the order passed by the Assessing Officer, it is evident that if the nature of activity of the assessee is maintenance of computerized database with regard to various types of qualified Information Technology personnel available in India and the company provides the customers with information to potential candidates, which would meet the requirements on the customers. Role of the company is to create an electronic database of qualified personnel and transmit data through electronic means to the client. The Commissioner of Income Tax (Appeals) has also found that the assessee is in the business of supply of manpower from India to its Foreign clients after their recruitment in India. Thus, irrespective of the fact whether or not the assessee provides training to its employees or to the employees who are recruited by its clients, since, the assessee is engaged in providing human resource services, its case is squarely covered by Notification dated 26.09.2000. Therefore, the assessee is entitled to the benefit of deduction under Section 10A - Decided in favour of the assessee

Summary

Issues:
1. Interpretation of whether human resources services provided by the assessee qualify as IT enabled services for deduction under Section 10A of the Income Tax Act, 1961.
2. Application of relevant legal provisions and notifications to determine eligibility for deduction under Section 10A.
3. Consideration of factual background and previous decisions to support the interpretation of the nature of services provided by the assessee.

Issue 1:
The primary issue in this case revolves around whether the human resources services offered by the assessee can be considered as IT enabled services for the purpose of claiming a deduction under Section 10A of the Income Tax Act, 1961. The tribunal held that the act of transmitting data of qualified IT personnel constitutes human resource services and falls under the category of Information Technology enabled services. This interpretation was supported by the factual finding that the assessee was engaged in creating an electronic database of qualified personnel and providing this information to clients. The assessee's involvement in supplying manpower to foreign clients after recruitment in India further reinforced the classification of its services as human resource services, making it eligible for the deduction under Section 10A.

Issue 2:
The application of legal provisions and notifications played a crucial role in determining the eligibility of the assessee for the deduction under Section 10A. The Central Board of Direct Taxes issued a notification specifying various IT enabled products and services, including human resources services, for the purpose of claiming deductions under the relevant clauses of the Income Tax Act. The notification aimed to promote the outsourcing service industry in India, generating employment and foreign exchange earnings. By aligning the nature of the assessee's services with the categories mentioned in the notification, it was established that the assessee's activities fell within the scope of human resource services as defined by the Board. This alignment with the notification further supported the assessee's entitlement to the deduction under Section 10A.

Issue 3:
In considering the factual background and previous decisions, the court analyzed the nature of the assessee's activities and the interpretations provided by the Assessing Officer, Commissioner of Income Tax (Appeals), and the tribunal. The tribunal's reliance on previous decisions and the Chennai Bench's ruling regarding the treatment of income reduced from export turnover in the total turnover was also taken into account. The Delhi High Court's interpretation of what constitutes human resource services was referenced to support the assessee's position. Additionally, the court examined the assessee's submissions, including references to relevant circulars and legal precedents, to strengthen the argument that the nature of the services provided aligned with the criteria for claiming the deduction under Section 10A. Ultimately, the court concluded that the substantial questions of law framed against the revenue were answered in favor of the assessee, leading to the dismissal of the appeal.

This detailed analysis of the judgment highlights the key issues, legal interpretations, and factual considerations that influenced the court's decision in favor of the assessee regarding the eligibility for deduction under Section 10A of the Income Tax Act, 1961.