2020 (11) TMI 653 - HC - Income Tax

Deduction u/s.10A - assessee's activity of human resources services are IT enabled services - whether assessee was only making available the data base of qualified IT personnel and entitled to deduction u/s. 10A? - HELD THAT - Section 10A of the Act deals with special provision in respect of newly established undertaking in Free Trade Zone (FTZ) and provides for deduction. The assessee admittedly is involved in providing human resource services and from the perusal of the order passed by the AO 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. CIT (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 of the Act. - Decided in favour of assessee. In view of preceding analysis, the substantial questions of law framed by a bench of this court answered against the revenue

Summary

Issues:
1. Interpretation of human resource services as IT enabled services for deduction under Section 10A of the Income Tax Act, 1961.
2. Application of Notification dated 26.09.2000 by the Central Board of Direct Taxes regarding eligible services for deduction under Section 10A.

Issue 1: Interpretation of Human Resource Services as IT Enabled Services:

The case involved an appeal under Section 260A of the Income Tax Act, 1961 regarding the eligibility of a private limited company for deduction under Section 10A for the Assessment Year 2007-08. The primary issue was whether the company's activity of human resources services, specifically providing a database of qualified IT personnel, qualified as IT enabled services for deduction under Section 10A. The Assessing Officer initially re-computed the deduction by reducing recruitment fees from export turnover, leading to an appeal before the Commissioner of Income Tax (Appeals). The tribunal, considering the company's role in transmitting data of qualified IT personnel, held that the services provided were indeed IT enabled services, allowing the appeal by the assessee and dismissing the revenue's appeal.

Issue 2: Application of Notification dated 26.09.2000:

The Notification dated 26.09.2000 by the Central Board of Direct Taxes specified various information technology enabled products or services eligible for deduction under Section 10A, including human resources services. The court analyzed the nature of the company's activities, which involved maintaining a database of qualified IT personnel and providing relevant data to clients for recruitment. The court noted that the company's role in supplying manpower to foreign clients after recruitment in India aligned with the definition of human resources services as per the Notification. Consequently, the court found that the company's services fell within the scope of human resources services as specified in the Notification, making it eligible for the deduction under Section 10A.

In conclusion, the court ruled in favor of the assessee, determining that the company's provision of human resource services, particularly in maintaining a database of qualified IT personnel and facilitating recruitment, qualified as IT enabled services under Section 10A. The court's decision was supported by the Notification dated 26.09.2000, which included human resources services as eligible for deduction. As a result, the court dismissed the revenue's appeal, upholding the assessee's entitlement to the deduction under Section 10A of the Income Tax Act, 1961 for the Assessment Year 2007-08.