2018 (2) TMI 443 - HC - Income Tax

Deduction claimed by the assessee/respondent u/s 10A - foreign inward remittances received were held not to constitute income qualifying for deduction under Section 10A - Held that - It is quite apparent that customized electronic data or product or service clearly falls within the description of an activity that qualifies for deduction under Section 10A. The lower authorities, we also note this, have relied upon certain other decisions, which take the extended or enlarged meaning of the expression service so as to imply not mere manufacture or production of articles or goods but other services. This view is reflected by the Court s judgment in Commissioner of Income Tax v. Kiran Kapoor (2015 (2) TMI 20 - DELHI HIGH COURT). Having regard to the nature of the services, and, furthermore, that the STPI clearances were granted for the particular activity i.e. call centre, the Court is of the opinion that there is no error of law, calling for interference.

Summary

Issues:
1. Denial of deduction claimed under Section 10A of the Income Tax Act, 1961 for A.Y. 2007-08.
2. Interpretation of the term "computer software" under Section 10A.
3. Consideration of services provided by the assessee as call centers for eligibility of deduction.
4. Application of previous judgments and Circular of the CBDT in determining eligibility for deduction.

Analysis:

1. The Assessing Officer denied the deduction claimed by the assessee under Section 10A, stating that the assessee failed to establish engagement in software manufacture and export, as transactions were with the parent company, not independent parties. The High Court noted the CIT(A) accepted the contention after detailed analysis, concluding that since the assessee provided services akin to call centers, the requirement of establishing software export or manufacture did not apply.

2. Section 10A defines "computer software" to include computer programs on various storage devices and customized electronic data or similar products. The Court observed that customized electronic data or services fall within the scope of activities qualifying for deduction under Section 10A. Previous decisions and the judgment in Commissioner of Income Tax v. Kiran Kapoor were cited to support this interpretation.

3. The Court emphasized that the nature of services provided by the assessee, coupled with STPI clearances granted for call center activities, warranted no legal error for interference. The judgment highlighted the expanded meaning of "service" beyond mere manufacture or production of goods, aligning with the assessee's activities qualifying for deduction under Section 10A.

4. Considering the precedent set by previous judgments and the Circular of the CBDT, the Court dismissed the appeal, affirming the lower authorities' findings on the eligibility of the assessee for deduction under Section 10A. The judgment underscored the importance of interpreting the term "service" broadly to encompass activities beyond traditional manufacturing or production, aligning with the evolving landscape of technological services in the digital era.