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TMI Blog2016 (8) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 to 2005-06 and 2008-09 vide order of common date 07-02-2012, in appeal No.CIT (A)-2/IT/382/2009-10 dated 07-02-2012 and in appeal No.CIT (A)-2/IT/210/2011-12 order dated 23- 08-2012. Assessments were framed by the ACIT-11 (3), Mumbai for the assessment years 2004-05 to 2009-10 vide his orders of different dates u/s 143 (3) read with section 147 of the Income Tax Act, 1961 (hereinafter the Act ). 2. The only common issue in these appeals is in regard to the order of the CIT (A) deleting the addition made by the AO by disallowing deduction u/s 10(B) of the Act by holding that the assessee, a firm of Advocate Solicitors engaged in production and export of customized electronic data or legal database is not eligible for deduction. For this, the Revenue has raised identically worded grounds in all the years and grounds raised in ITA No.3066/Mum/2012 for the assessment year 2007- 08 read as under:- 1. On the facts and the circumstances of the case and in law, the ld. CIT(A) erred in holding that the assessee, a firm of Advocates and Solicitors, was engaged in the production and export of customized electronic data or legal database and was hence eligible for deduction under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee firm regarding deduction claimed u/s. 10B of the Act. During the course of assessment proceedings, it was claimed before the AO that the assessee firm was engaged in the export of Legal Services to its overseas clients by transfer of customized electronic data and it has used its legal database for furnishing the desired information to its clients. The unit of the firm was recognized as a 100% EOU by the Development Commissioner SEZ, SEEPZ and its entire sale proceeds from export of such legal services was brought in India in convertible foreign exchange. Since, the assessee firm has transferred the customized electronic data to its client therefore it forms part of computer software as per explanation 2 to section 10B of the Act. Further, the grant of registration from the Development Commissioner of EOU for Legal Services and the inclusion of Legal Database is an eligible product and services for the purpose of grant of deduction under section 10B of the Act in view of CBDT s Notification 10 SO 890(E) dated September 26, 2000 wherein the legal database has already been notified by the CBDT for the purpose of computer software and admissibility under section 10B of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r dated July 28, 2006. Mere intimation by the assessee that it wants to change its office from Fort to Nariman Point without the approval of the prescribed authority cannot make it eligible to claim deduction u/s. 10B. g) During the course of assessment proceedings a letter was received by the AO from Development Commissioner, SEEPZ dated October 12, 2010 wherein it has been stated that one of the important terms and conditions required by any unit to be recognized as 100% EOU was the date of commencement of production (i.e. custom bonding of the premises), which was fulfilled by the assessee firm on November 22, 2006. Since, the assessee firm had not compiled with the condition based on which it was granted the status of 100% EOU by the prescribed authority. Therefore, the assessee firm is not eligible to claim deduction under section 10B of the Income Tax Act. Based on the above reasoning, the Assessing Officer has disallowed the claim of the assessee firm regarding deduction claimed u/s. 10B of the I.T. Act for the detailed reasons given in the assessment Order for the A.Y. 2007-08 . 4. Aggrieved against the findings of the AO, the assessee preferred appeal bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... import capital goods or raw materials without payment of duty. Whereas, in the present case, the assessee firm has not imported any capital goods or raw material without payment of duty. Therefore, custom bonding procedure by itself cannot be a basis for denying deduction u/s. 10B of the Income Tax Act to the assessee firm. Finally, I am inclined to agree with the views of the authorized representative of the assessee firm that any transmission of customized electronic data fails within the expression of computer software as per explanation 2(i)(b) to the section 10B of the I.T. Act. Therefore, the assessee firm is entitled to claim deduction u/s. 10B of the I.T. Act in respect of its 100% EOU unit and the Assessing Officer is directed to allow the same in respect of this unit only whereas local unit of the firm would be liable for taxation as per the normal provisions of Income Tax Act. Since the words customized electronic data have been used in the definition of computer software is separated by the word or and qualifies for deduction u/s. 10B by itself as a general provision of the section, therefore, I do not wish to go in to the alternate argument taken by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court, for his opinion on various queries for availing benefits under section 10B of the Act by the assessee firm. Shri Vijay H. Patil vide his opinion letter no. OP06-04 dated January 27, 2004 advised for exemption u/s. 10B of the Act to the assessee firm as under:- Under the provision legal services has been notified for the purpose of any customized electronic data or any product or service of similar nature as may be notified by the Board. As such legal services rendered by way of customized electronic data, would fall within the scope of S.10B. As such, any services rendered to a particular client through electronic data would be customized electronic data and, as such, it would be a software for claiming deduction u/s. 10B and, therefore, in my opinion, the Querist s case would squarely fall under the definition of Computer Software which is entitled to deduction under the provisions of section 10B of the Act. Under the provisions of section 10B, hundred percent deduction is available in respect of income arising out of export-oriented undertaking. According to Ld. Counsel, based on the above advice, the deduction u/s. 10B of the Act was claimed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made to orders (Websters Dictionary, 1988 edition, page 237) Electronic: The Oxford Advanced learners dictionary defines the word to mean concerned with electronic apparatus (e.g. Computers): this dictionary is available in electronic form (Oxford Advanced Learners Dictionary, 4th edition, page 389) Data: As per Websters, the word means a known fact . The Oxford Advanced learners dictionary defines the word to be information prepared for or stored by a computer (Oxford Advanced Learners Dictionary, 4th edition, page 302) The learned Counsel referred to the provision of the Information Technology Act, 2000 ( the IT Act ). Under the Act, the term data has been defined under Clause (o) to section 2 as under:- Section 2 (o): Data means a representation of information, knowledge, facts concepts or instructions which are being prepared or have been prepared in a formalized manner, and it intended to be processed, is being processed or has been processed in a computer system or computer network and may be in any form (including computer printouts magnetic or optical storage media, punched cards, punched tapes) or stored internally in the memory of the com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These legal personnel have been paid professional fees which are reflected under the head professional fees in the profit and loss account of the assessee. Additionally, all of this was supervised, organized, controlled and managed by partners of the assessee, who are the key creators of the database. He further explained that the AO was wrong in holding that the assessee firm did not furnish any report of the auditors as required u/s. 92E of the Act. In this connection, learned Counsel stated that the assessee firm has no office or associates in foreign countries and consequently the provision of Sec. 92E of the Act was not applicable to it. Hence, if a particular requirement for furnishing of report of the auditors u/s. 92E of the Act is not applicable, the same is not liable to be filed and cannot be a reason of disallowance of claim under any other section of the Act. According to him, the AO has taken a view that legal database was general in nature whereas legal services rendered by the assessee were individual, personalized and/or client based specific services. According to him, legal database can be used and retrieved by any person having access to that whereas legal serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for 3 years from the date of issue within which you should implement the project and commence production and would automatically lapse if an application for the extension is not made before the end of the said period. Date of commencement of production shall be intimated to the Development Commissioner, SEEPZ-SEZ. (vii) The approval is based on the details furnished by you in your project applicable. (viii) You shall require to entre into a legal Agreement in the Prescribed Form (Appendix 14-IF) with DC SEEPZ-SEZ for fulfilling the terms and conditions mentioned in the Lop. (ix) ......... 9. In response to the above approval letter and the requirements given by the Development Commissioner, the assessee firm submitted the relevant documents and proof vide letter dated August 20, 2003. Also in Para no. 2 of the referred letter, the assessee intimated shift of unit of Free Press House to the Development Commissioner, SEEPZ and requested him to update the records. On November 19, 2003, the assessee submitted signed Legal Agreements in the prescribed form, as required under the Scheme of EOU. Finally, based on this submission the Development Commissioner vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technology enabled services. Explanation 2(i) (b) defines computer software to include inter alia a Customized Electronic Service as notified by the Board . As legal database is notified by the Board for this purpose and the assessee has provided services by using such legal database via electronic media i.e. via emails and internet facilities, the claim of the assessee for deduction under section 10B of the Act in the light of Explanation 2(i) (b) is fully justified. 11. We have gone through the provision of section 10B of the Act, which allows 100% tax exemption on income derived from exports of articles or things or computer software. The benefits are available to any undertaking (i.e., company, partnership firm, etc.) and the provision does not discriminate undertakings on the basis of type of business or services exported. Explanation 2(i)(b) of the IT Act defines computer software to mean any customized electronic data or any product or service of similar nature as may be specified by the CBDT which is transmitted or exported from India to any place outside India by any means. Over and above, CBDT in its Notification no. 890 dated September 26, 2000 notified the prod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses and made an application to the SEEPZ, SEZ Development Commissioner ( DC ) for grant of EOU status on January 14, 2003 for providing legal services which is covered under item IA (a) of Appendix 36 of EXIM Policy 2002-2007. In- principle approval was granted for EOU status on April 16, 2003. Subsequently, approval of EOU status was granted on August 18, 2003. Green card was issued by the DC on October 24, 2003 which was valid up to March 31, 2006. The letter of confirmation was issued by the DC to assessee at its new office address at Free Press House. Accordingly, with the DC s approval, assessee claimed deduction under section 10B of the IT Act. 13. We have gone through the case laws relied on by the assessee in the case of Diljeet Titus v. Alfred A. Adebare, 130 (DLT 330(2006), the Delhi High Court has considered the definition of computer database and defined it as a collection of information stored on computer media. The information may be a list of clients and their addresses or it may be the full text of various documents or it may be a set of co- ordinates relating to a three-dimensional building structure. The range of things which may be included in a computer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustified and against the scheme of the incentive provisions under section 10B of the Act. 15. We have also gone through the case law of the Hon ble Bombay High Court in the case of CIT v. Malhar Information Services (2013) 351 ITR 119 (Bom), wherein it is held that the company had undertaken the activities of transmission of customized data through the internet to its client abroad and that of data entry processing and claimed deduction under section 80HHE of the IT Act. The Court held that data entry was covered by the CBDT notification dated September 26, 2000 as being computer software service and, hence, allowed the deduction. Similarly, Delhi Tribunal in the case of M.L. Outsourcing Services Pvt. Ltd. 104 TTJ 59 (Del) has held that the assessee was engaged in hiring overseas IT consultants (sourcing, screening and interviewing employees) for its US client. The Delhi Tribunal held that once the data is collected and stored in an electronic form, it becomes a customized electronic data, which can be exported to qualify for deduction. 16. We find that Chennai ITAT in the case of ACIT v. Nicronn Engg. Pvt. Ltd (ITA Nos. 1439/Mad/1995 and 1992 1993/Mad/1998 held that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e only when the asset of the old business are transferred substantially to the new undertaking. There is so such transfer of assets. Once the new industrial undertakings are separate and independent production units in the sense that the commodities produced or the results achieved are commercially tangible products and the undertakings can be carried on separately without losing their identity in the old business, they are not to be treated as being formed by reconstruction of the old business. About splitting of business and consequently disallowance of deduction, Hon ble Delhi High Court in the case of CIT v. Gedore Tools India Pvt. Ltd. (1980) 126 ITR 673 (Del), held that applying the principles of the Supreme Court in the Textile Machinery case, to the present case, it is clear that the new unit has not been formed by the splitting up or reconstruction of the existing business. The second unit has not derived anything from the old unit either by way of equipment or by way of factory buildings. No assets of the old unit have been transferred to the new unit nor has the identity of the first unit been impaired in any way. The mere fact that the second unit manufactures some of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon ble Delhi Court in the case of Kiran Kapoor (Supra), we confirm the order of the CIT (A) by holding that the expression Computer Software is wide enough to embrace diverse activities and to eliminate any doubt the reference can be made to Customized Electronic Data as mentioned in Second Explanation to Section 10B (2) of the Act. Further, CBDT issued notification and the notification relied on in the present case uses the expressions (iii) content development or animation (iv) data processing .... (vii) human resources services and (ix) legal data-bases . In the present case also the assessee s facts are similar to the facts before the Hon ble Delhi High Court and the work of the assessee i.e. compiling, editing, data processing and legal data-base is transmitted or exported from India to outside India by any means and lieu earned foreign exchange, which is eligible for deduction u/s 10B of the Act, the CIT (A) rightly allowed the claim of the assessee and we confirm the same. The appeal of the Revenue is dismissed. 21. The facts of the case and the issue involved therein with regard to the other appeals of the Revenue are similar and identical as in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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