2014 (9) TMI 396 - HC - Income Tax

Exemption u/s 10A - Nature of services rendered by assessee - assessee was rendering services as an employment agent, like any other employment agency, and merely forwarded list of shortlisted candidate to their overseas clients - Whether the Tribunal was right in holding that the services provided by the assessee are covered by Section 10A of the Income Tax Act, 1961 read with Notification bearing No. SO 890(E) dated 26th September, 2000 Held that - The assessee was not providing recruitment services, as are normally and generally undertaken by the hiring agents - assessee was using information technology in scanning the data, processing it, conducting online tests for shortlisted candidates, and analysing their results there was no merit in the submissions made by the Revenue that the activities were not covered under the Notification S.O. 890(E), i.e. human resource service. The Tribunal was rightly of the view that assessee had placed on record a list of employees, details of salary paid, a copy of the application made for registration and on the basis of the details, was satisfied that the respondent-assessee on factual basis had undertaken the activities - the Revenue had not stated that no such or actually no activities were performed or carried out by the respondent-assessee at Bangalore - the total business income as declared was accepted as the business receipts of the respondent-assessee - This included the amount for invoices raised by Bangalore units and by the Gurgaon unit - If the invoices issued by the Bangalore unit is excluded, then this figure cannot be added or included as the income or receipts Thus, the order of the Tribunal is upheld Decided against revenue.

Issues Involved:
1. Applicability of Section 10A of the Income Tax Act, 1961.
2. Nature of services provided by the respondent-assessee.
3. Interpretation of "human resource services" under Notification No. S.O. 890(E).
4. Compliance with STPI conditions.
5. Allegation of factual perversity.

Detailed Analysis:

1. Applicability of Section 10A of the Income Tax Act, 1961:
The primary issue was whether the services provided by the respondent-assessee qualified for exemption under Section 10A of the Income Tax Act, 1961. The Tribunal had allowed the exemption, but the Revenue challenged this decision, arguing that the services did not meet the criteria specified under Section 10A read with Notification No. S.O. 890(E).

2. Nature of Services Provided by the Respondent-Assessee:
The Assessing Officer (AO) disallowed the claim under Section 10A, asserting that the respondent-assessee acted merely as an employment agent, forwarding lists of shortlisted candidates to overseas clients with minimal use of information technology. However, the Tribunal found that the respondent-assessee was a 100% export-oriented unit registered under STPI, engaged in hiring overseas IT consultants for a U.S.-based company. The services included sourcing, screening, and interviewing candidates using various IT-enabled tools and software, which was deemed to be a significant use of information technology.

3. Interpretation of "Human Resource Services" under Notification No. S.O. 890(E):
The Tribunal and the High Court examined whether the services provided fell under "human resource services" as per the Notification. The Court noted that the term "human resource services" was broad and included activities such as recruitment and staffing, which were IT-enabled. The Court emphasized that the Board's notification aimed to promote the outsourcing service industry in India, which generates employment and foreign exchange. Therefore, the services provided by the respondent-assessee were deemed to fall under the category of "human resource services."

4. Compliance with STPI Conditions:
The Revenue raised concerns about compliance with STPI conditions, noting that invoices were raised on the last day of the financial year and questioning the validity of the STPI registration. The Court found that the respondent-assessee had complied with all necessary conditions, including substantial investment in computers and an increase in the number of employees. The approval from STPI was granted, and the conditions were met, thus validating the respondent-assessee's claim.

5. Allegation of Factual Perversity:
The Revenue argued that the Tribunal's findings were perverse, particularly concerning the timing of the invoices and the STPI registration. However, the Court found no merit in this argument, noting that the Tribunal had thoroughly examined the factual evidence, including employee details, salary payments, and the application for STPI registration. The Court concluded that the Tribunal's decision was not perverse and upheld the exemption under Section 10A.

Conclusion:
The High Court dismissed the appeal, ruling in favor of the respondent-assessee. The Court held that the services provided by the respondent-assessee qualified as "human resource services" under the relevant notification and were eligible for exemption under Section 10A of the Income Tax Act, 1961. The Court also found no merit in the Revenue's arguments regarding compliance with STPI conditions or allegations of factual perversity.

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