2010 (2) TMI 93 - HC - Income Tax

Special Deduction and Business Expenditure under section 80HHE, 40(a) Technical Services The assessee entered into an agreement with KBS, a company based in Ireland, which required the services of software professional towards the fulfillment of its ongoing activities. Under the terms of the agreement, the assessee was to provide through its consultants, software professionals to render services to KBS. In this case Bombay High Court held that the assessee met the requirement of section 80HHE and the tribunal had correctly held that these amounts constituted only reimbursement of for the expenses incurred by the employees at a particular amount and would not form part of the salary in the hands of the recipients. Hence the question of applying section 40(a)(iii) would not arise and the amount paid by the assessee is allowable for deduction. The appeals are accordingly dismissed. Decision in favor of assessee against the revenue

Summary

Issues Involved:
1. Eligibility for deduction under section 80HHE.
2. Deduction of overseas maintenance allowance under section 40(a).

Detailed Analysis:

Issue 1: Eligibility for Deduction under Section 80HHE

Facts and Circumstances:
The primary issue was whether the assessee was eligible for a deduction under section 80HHE of the Income-tax Act, 1961. The assessee entered into an agreement with Kindle Banking Systems Ltd. (KBS) for rendering software development services. The agreement stipulated that the assessee would provide software professionals to KBS to perform tasks such as analysis, programming, and testing of software. The personnel were deputed to Dublin, and the assessee was compensated on a per-employee basis.

Legal Provision:
Section 80HHE allows deductions for:
- Export of computer software.
- Providing technical services outside India in connection with the development or production of computer software.

Tribunal's Findings:
The Tribunal confirmed that:
1. The personnel deputed were technically qualified and were employees of the assessee.
2. The work involved onsite development and maintenance of software, which qualifies as technical services.
3. The nature of the work was integral to the ongoing development of software, which falls under the purview of section 80HHE.

Court's Analysis:
The court observed that the assessee's activities met the requirements of section 80HHE. The personnel were engaged in onsite development and technical services related to software development. The Tribunal's decision was based on substantial evidence, including the technical qualifications of the personnel and the nature of the work performed.

Conclusion:
The court upheld the Tribunal's decision, confirming that the assessee was eligible for a deduction under section 80HHE.

Issue 2: Deduction of Overseas Maintenance Allowance under Section 40(a)

Facts and Circumstances:
The second issue was whether the overseas maintenance allowance paid to the assessee's employees qualified for deduction. The allowance was paid as a subsistence amount for employees deputed to Ireland.

Legal Provision:
Section 40(a) disallows certain expenses unless tax is deducted at source.

Tribunal's Findings:
The Tribunal held that the overseas maintenance allowance was a reimbursement for expenses incurred by employees and did not constitute salary. Therefore, it was not subject to tax deduction at source under section 40(a).

Court's Analysis:
The court agreed with the Tribunal's view that the allowance was a reimbursement and not part of the salary. Consequently, the provisions of section 40(a) were not applicable.

Conclusion:
The court upheld the Tribunal's decision, allowing the deduction of the overseas maintenance allowance.

Final Judgment:
The court dismissed the appeals, confirming that the assessee was eligible for the deductions under section 80HHE and for the overseas maintenance allowance. The Tribunal's findings were based on substantial evidence and correct interpretation of the law, raising no substantial questions of law.