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TMI Blog2009 (7) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... E of the Act :-- Sr. No Project Name Maintenance/support charge (i) Domestic Disbursement 39,48,199 (ii) Fultron 8,97,592 (iii) HP Cosmos 74,34,309 (iv) Latino OBS/Prime 17,15,979 (v) Sesam 31,26,931 (vi) Trims Mum/Hyd 1,86,55,695 (vii) Citi Safe 89,58,369 Total 4,47,37,074 Consultancy charges (i) CMM Training 42,996 (ii) Cyber branch study 1,28,592 (iii) Data Modelling 74,34,266 (iv) Latino OBS/Prime 16,15,039 (v) SEPG 9,24,320 (vi) TCM 25,40,216 (vii) Flexi ledger 18,88,808 (viii) X border 4,00,921 (ix) FTN 15,89,704 Total 1,65,64,862 3. Without prejudice to above, the learned Commissioner of Income-tax (Appeals) has , erred in holding that information technology enabled products and services do not fall within the definition of computer software as defined in clause (b) of Explanation to section 80HHE of the Act and further by holding that Notification No. SO 890(E) dated 2-9-2000 does not have retrospective effect although the said notification is clarificatory in nature and does have a retrospective effect. 4. On the facts and in the circumstances of the case and in law, the learned Commissioner of Income-tax (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alone considered by the Assessing Officer for allowing deduction under section 80HHE. The other receipt; earned connection with (ii ) maintenance of the software, (iii) enhanced otherwise add-on-software and (iv) the software for the purpose of India were considered ineligible for the purposes of computing the allowable deduction under section 80HHC of the Act. 3. Aggrieved with the same, the assessee filed an appeal before the CIT(A). The assessee's submissions were enumerated at page 2 to 6 of the impugned order. In brief, the life cycle of the software is very short and different products have to be developed to meet the requirements of the customers in the markets. For this, ( i) enhancements in the software and creation of a add-on-software is a must; (ii) bug fixing is a continuous process, for this a software has to be developed continuously to meet the threats; (iii) the provisions under section 80HHE does not distinguish the exported software and it should not be used outside India and therefore, there is no law for denying a deduction in respect of the receipts relatable to the software used in India (CPC India); (iv) the changes in the software is a continuous process a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tted that the said Explanation to section 80HHE(1) introduced by the Finance Act, 2001 is applicable for the assessment year 2001-02 only and thus it is not applicable to the instant assessment year. Further, the assessee submitted that the software development is a continuous process and there should not be any distinction between the new software and existing software for the purpose of deduction under section 80HHE. Thus, as per the assessee, the CIT(A) erred in allowing the deduction only in respect of the new software. 5. On considering the above submissions, the CIT(A) rejected the same of the contentions of the assessee. They are detailed in paras 6 & 7 of the impugned order, which are as under :-- "6. The submission made by the appellants representative in this respect has been considered. He has in his submission claimed that all the areas of activities of the appellant company are required to be taken as for the development of computer software. Since the section provides for deduction in respect of the amount of profits derived not only for the production but also for the development of software, even if services provided by the appellant company cannot be strictly tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis. At the same time, since the development of software cannot be said to have taken place at one point of time and its utilization and application is required to be exercised over a period of time, any receipt shown against the maintenance in the year under consideration where the software has been released in the year is required to be held as part of the receipts on account of development of software. Such receipts whether falling with in the head maintenance charges or consultancy charges is required to be taken as on account of the development of software making the appellant eligible for deduction on the profits therefrom in terms of section 80HHE of the Act." [Emphasis supplied] 6. Thus, the CIT(A) analysed the concept of 'development of software' and rejected the claim that the development is continuous and an ongoing process. However, as summed up in para 8 above of impugned order reproduced above, CIT(A) grouped all the receipts into two types i.e., (i) receipts relatable to released new software versions and the receipts of the maintenance charges of the year in which the software was released; and (ii) the receipts relating to the 'unreleased' new software and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el for the assessee relied on the decision in the case of Direction Software Solutions v. ITO [2008] 116 TTJ (Mum.) 841 for the proposition that the software developed for the proper functioning of the existing software and in connection with the corrections of losses in software and for corrections of bugs in the software etc., are eligible for exemption. In other words, the maintenance of software being inherent part of development of software, the relevant proceeds qualify for the exemption under section 10A of the Act. Learned CIT-DR and Ld Sr AR for the revenue relied on the orders of the revenue authorities and argued stating that the assessee is entitled to deduction only when he fulfills the conditions specified in the provisions of section 80HHE. Further, the counsel relied on the decision of Delhi bench Tribunal in the case of Virage Login International v. Dy. DIT [2008] 13 SOT 271 and argued that the assessee is entitled to deduction under section 80HHE in all the receipts. 9. We have heard the rival submission and perused the orders of the lower authorities and paper books filed before us. At the end of the first appellate proceedings, the assessee is aggrieved vide th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or its transmission from India to a place outside India by any means; ( ii) providing technical services outside India in connection with the development or production of computer software, shall be entitled to deduction. The 'computer software' is defined to mean any "computer programme", which is again defined to means 'a set of instructions' expressed in words, codes, schemes or in any form, including a means readable medium, capable of causing a computer to perform a particular task or achieve a result. From the above, the writing 'set of instructions' and providing of the technical services in this regard are the deciding factor in adjudicating the present appeal. Of course, it is subjected to the set principle relating to the accrual basis of accounting. In other words, the receipts earned from the providing technical services unconnected to the development or production without involving the writing of 'set of instructions computer programme, are not derived from the business and therefore, the deduction is not available in respect of such receipts. We have also perused the case law relied on by the Ld counsel. Considering the above scope of the provisions, we now proceed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of development or production of computer software or providing technical services in connection with such software, if such activities/services/integrated stages/phages, involve or in connection with the computer programming. Further, it is also noticed from the orders of Assessing Officer and there is no finding whether the stages, which Assessing Officer considered ineligible for deduction under section 80HHE, does not involve writing of computer programme or otherwise. Assessing Officer has also not given finding if those terminal stages such as maintenance and consultancy involve any providing of nontechnical services such as professional services or hardware services or consultancy services etc. Assessee has not furnished any extra information before us, which was not filed before the lower authorities. From the grounds and discussion above, the assessee's grievance is restricted to denial of deduction under section 80HHE in respect of the receipts in connection with (i) the unreleased software versions; and (ii) the maintenance and consultancy charges unrelated to released software versions in the years outside the year under consideration, we are of the opinion that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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