2012 (11) TMI 848 - HC - Income Tax

Deduction u/s 80O or 80HHE - development or production of computer software - Manpower deputation to foreign customers Export of software Technical service rendered outside India - Also utilised for rendering services in computer software even in India Held that - When the specific provision u/s 80HHE is concerned about technical services rendered in connection with software development, we do not approve of the line of reasoning of the Tribunal. - one cannot make Section 80-O as an alternate to an allowability of the deduction under Section 80HHE for the purpose of better tax deduction. - Decided in favor of revenue.

Issues Involved:
1. Eligibility for deduction under Section 80-O vs. Section 80HHE of the Income Tax Act.
2. Jurisdiction and correctness of the Commissioner of Income Tax's order under Section 263.
3. Interpretation and application of Section 80HHE(5) and Section 80-O.

Issue-wise Detailed Analysis:

1. Eligibility for Deduction under Section 80-O vs. Section 80HHE:
The primary issue was whether the assessee was eligible for deductions under Section 80-O or Section 80HHE. The Assessing Officer initially granted relief under Section 80-O for the assessment years 1993-94 and 1994-95. However, the Commissioner of Income Tax, exercising jurisdiction under Section 263, directed a reassessment, arguing that the Assessing Officer had not properly scrutinized the eligibility for Section 80-O. The Commissioner contended that with the introduction of Section 80HHE, specific to income earned from software development and technical services outside India, the deduction should be considered under Section 80HHE instead of Section 80-O.

The Tribunal initially allowed the assessee's appeal, stating that some services might overlap between software export and technical services, thus sustaining the relief under Section 80-O. However, the High Court disagreed, emphasizing that Section 80HHE, being a specific provision for software export and related technical services, should prevail over the general provision of Section 80-O.

2. Jurisdiction and Correctness of the Commissioner of Income Tax's Order under Section 263:
The Commissioner of Income Tax invoked Section 263 to revise the assessment orders for the years 1993-94 and 1994-95, arguing that the relief granted under Section 80-O was erroneous and prejudicial to the interests of the Revenue. The Commissioner directed the Assessing Officer to reassess the eligibility under the appropriate section, considering the specific provision of Section 80HHE.

The High Court upheld the Commissioner's jurisdiction under Section 263, agreeing that the Assessing Officer had not properly verified the materials to decide on the issue. The Court emphasized the need for a detailed examination of contracts, bills, and the Articles of Association to determine the real nature of the transactions and the appropriate section for deduction.

3. Interpretation and Application of Section 80HHE(5) and Section 80-O:
The High Court analyzed the provisions of Section 80-O and Section 80HHE, noting that Section 80HHE was introduced specifically to deal with income from software development and related technical services. Section 80HHE(5) states that if a deduction is claimed under this section, no further deduction can be allowed under any other provision for the same profits.

The Court concluded that Section 80HHE, being a specific provision, excludes the general provision of Section 80-O for income derived from software-related technical services. The Court rejected the argument that the assessee could choose between Section 80-O and Section 80HHE based on what was more beneficial. The Court held that the specific nature of Section 80HHE for software-related services must prevail over the general provision of Section 80-O.

Conclusion:
The High Court set aside the Tribunal's order and upheld the Commissioner's directive to reassess the deduction under Section 80HHE. The Court emphasized that specific provisions like Section 80HHE should prevail over general provisions like Section 80-O when dealing with income from software development and related technical services. The appeals filed by the Revenue were allowed, and the Tribunal's reasoning was not approved.

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