2006 (10) TMI 206 - AT - Income Tax

Summary

Issues Involved:
1. Whether the creation of a website falls within the ambit of section 80-O of the Income-tax Act, 1961.
2. Whether the website creation can be considered as a "design" within the definition of section 80-O.

Summary:

Issue 1: Whether the creation of a website falls within the ambit of section 80-O of the Income-tax Act, 1961.

The assessee, engaged in computer maintenance and services, claimed a deduction u/s 80-O on foreign exchange earned for designing websites. The Assessing Officer disallowed the claim, stating that the consulting work did not constitute 'design' as per section 80-O. The CIT (Appeals) upheld this decision. The assessee argued that the development of websites is a creative work involving graphical user interface design, image editing, and text editing, which should be considered as 'design' under section 80-O. The Departmental Representative relied on the orders of the lower authorities.

Issue 2: Whether the website creation can be considered as a "design" within the definition of section 80-O.

The Tribunal examined the provisions of section 80-O, which allows deductions for income received from foreign enterprises for the use of any patent, invention, design, or registered trademark. The Assessing Officer interpreted 'design' narrowly, stating that the assessee was not the owner of the design or development work. The Tribunal, however, considered the broader definition of 'design' from the Concise Oxford English Dictionary and the technical aspects of web design. It concluded that the creation of a website involves highly specialized and creative work, including state-of-the-art programming, technical writing, imaging, and animation skills. Therefore, the Tribunal held that the creation of a website is indeed a 'design' within the meaning of section 80-O and allowed the assessee's claim for deduction.

Conclusion:

The appeal of the assessee was allowed, and the orders of the lower authorities were set aside, recognizing the creation of a website as a 'design' eligible for deduction u/s 80-O of the Income-tax Act, 1961.