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TMI Blog2021 (4) TMI 1039X X X X Extracts X X X X X X X X Extracts X X X X ..... /2014, 12/2014, - - - Dated:- 9-4-2021 - HON'BLE MR. JUSTICE SATISH CHANDRA SHARMA AND HON'BLE MR. JUSTICE V.SRISHANANDA APPELLANTS (By Sri : K V ARAVIND, ADVOCATE ) RESPONDENT (By Sri : PAWAN SHARMA, ADVOCATE ) JUDGMENT SATISH CHANDRA SHARMA J., Regard being had to the similitude in the controversy involved in all these cases, they were heard analogously together and a common judgment is being delivered. 2. The present appeals are arising out of the orders dated 28.4.2017, 14.12.2017 and 6.9.2013 passed by the Income Tax Appellate Tribunal, in ITA.Nos.560, 561, 1749, 1750/Bang/2013, 1811/Bang/2017, 950/Bang/2011 and 1459/Bang/2012. 3. The facts of ITA.No.725/2017 are narrated as under: The facts of the case reveal that the appellant before this Court is a 100% export oriented undertaking engaged in the business of export of customized electronic data according to the requirements of its customers. The requirement is received in electronic format and it is again delivered in electronic format pertaining to various activities in the field of engineering and design. 4. Appellant-assessee for the assessment year 2009- 2010 filed its retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duction of an article or a thing? 4. Are not the findings of the Tribunal that the Appellant did not furnish any documents in support of claim of deduction under section 10B perverse? 5. Whether, in the facts and in the circumstances of the case, the Tribunal is right in law in denying the deduction under Section 10B when the activity of the Appellant falls within the scope of Support Centres or Back-office Operations or Data Processing as notified by CBDT vide Notification No.890(E) dated 26.09.2000 read with Explanation 2(i)(b) of section 10B of the IT Act? 6. Whether, in the facts and in the circumstances of the case, the Tribunal erred in law in failing to follow the decisions of the co-ordinate bench of the same jurisdiction? 7. Whether, in the facts and in the circumstances of the case, the Tribunal is right in law in upholding the validity of directions by the Additional CIT issued under section 144A without giving opportunity of being heard? The appeal is admitted on the aforesaid questions of law after hearing the parties at length. 7. There are four connected appeals involving the same subject matter and a memo has been preferred by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the export of such articles or things or computer software: Provided also that no deduction under this section shall be allowed to any undertaking for the assessment year beginning on the 1st day of April, 2012 and subsequent years: Provided also that no deduction under this section shall be allowed to an assessee who does not furnish a return of his income on or before the due date specified under sub-section (1) of section 139. (2) This section applies to any undertaking which fulfils all the following conditions, namely:- (i) it manufactures or produces any article or things or computer software; (ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence: Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the reestablishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section: (iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. Explanation -The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry allowance or deduction referred to therein and relating to or allowable for any of the relevant assessment years ending before the 1st day of April, 2001 in relation to any building, machinery, plant or furniture used for the purposes of the business of the undertaking in the previous year relevant to such assessment year or any expenditure incurred for the purposes of such business in such previous year had been given full effect to for that assessment year itself and accordingly sub-section (2) of section 32, clause (ii) of sub-section (3) of section 32A, clause (ii) of sub-section (2) of section 33, sub-section (4) of section 35 or the second proviso to clause (ix) of sub-section (1) of section 36, as the case may be, shall not apply in relation to any such allowance or deduction; (ii) no loss referred to in sub-section (1) of section 72 or subsection (1) or sub-section (3) of section 74, in so far as such loss relates to the business of the undertaking, shall be carried forward or set-off where such loss relates to any of the relevant assessment years ending before the 1st day of April 2001; (iii) no deduction shall be allowed under section 80HH or section 80HHA or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtible foreign exchange for the purposes of the Foreign Exchange Management Act, 1999 (42 of 1999), and any rules made thereunder or any other corresponding law for the time being in force; (iii) export turnover means the consideration in respect of export by the undertaking of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India; (iv) hundred per cent export-oriented undertaking means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) act, 1951 (65 of 1951), and the rules made under that Act; (v) relevant assessment year means any assessment years falling within a period of ten consecutive assessment years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant as noted by lower authorities Page reference Additional Commissioner 17 The assessee company is in the business of understanding and analyzing the requirement, understanding existing systems and coming out with innovative scientific solutions for improving or replacing the existing process of production. .. The outputs are new, innovative and not in any predetermined formats. 19.. . All research outputs are in the form of understandable designs. All the scientific innovations are explained in mathematical/geometrical designs. . The output of the assessee is in the form of descriptive research output as well as in the form of applied scientific drawings. 20. The assessee has also claimed that all its research scientists use computer and most of the work is done on computers. This need not be doubted. These outputs are also delivered and exported through computer and internet. 24. Assessee is in the business of industrial research and development The services rendered by the assessee are in the nature of research and development .. The assessee company has run a design, testing and v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Not engaged in original work, hence cannot be characterized either as computer software or as a IT enabled service provider under engineering and design. 32, 33 and 34 ITAT 7.2 .. it is clear at best the nature of the assessee s business can be considered as a Research collaborator rendering technical services .. 09. .. it is clear that the assessee is merely a (developer) or a collaborator for the Cornelius or its group .. and hence its business can be considered as a Research Collaborator rendering technical services . 23 14. The stand of the assessee is that the lower authorities have taken different and conflicting positions with the only meeting point of denying the deduction under Section 10B of IT Act. 15. It is pertinent to note that under the IT Act a tax holiday was given to certain assessees importing and exporting electronic data and as it was new subject under the Act, the Central Board of Direct Taxes (hereinafter referred to as CBDT) was empowered to notify certain services of customized electronic data or any products or services to mean the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee as Research Collaborator rendering technical services. It has been vehemently argued that the ITAT has assumed the role of an expert in the technical matter without having any expertise in the field. 19. The core issue before this Court is, whether the activities carried out by the appellant falling within clause (v) i.e., Engineering and Design as notified by CBDT vide notification dated 26.9.2000 are eligible for grant of deduction under Section 10 B of the IT Act or not? 20. This Court has carefully gone through the arguments canvassed by the assessee as well as the arguments canvassed by the learned counsel for the Income-tax department. 21. The assesseee is undoubtedly a 100% export oriented undertaking as per the approval issued by the Cochin Special Economic Zone. It is engaged in collaborative and development projects undertaken for its clients and its entire turnover is from the export of collaborative research programmes. The Additional CIT has observed that the assessee does not pass 9 tests for qualifying to be a manufacturer and exporter of computer software, the assessee s activity is only descriptive research and not scientific designs and the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1957 also deals with computer programme and as per Section 2 (ffc) computer programme means, a set of instructions expressed in words, codes, schemes or in any other form, including a machine readable medium, capable of causing a computer to perform a particular task or achieve a particular result. 27. In the considered opinion of this Court, the term computer software means; (a) a set of instructions expressed in words, codes, schemes or in any other form capable of causing a computer to perform a particular task or achieve a particular result; (b) a sequence of instructions written to perform a specified task for a computer. The same programme in its human-readable source code form, from which executable programmes are derived, enables a programmer to study and develop its algorithms; (c) a set of ordered instructions that enable a computer to carry out a specific task; (d) written programmes or procedures or rules and associated documentation pertaining to the operation of a computer system; 28. In the present case the appellant/assessee gets the inputs from its customers. Such inputs are received by it in electronic form. The assessee manipul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustrial research and development ultimately is part of preparing a computer software or customized electronic data, which is exported to its customers. The department on all earlier years has accepted the contentions raised by the assessee and has given the benefit to the assessee. However, for the present assessment year by holding that the activity of the assessee does not fall within the meaning of engineering and design, the department has taken a somersault. The Tribunal has gone to the extent in holding that the assessee has not produced any document to prove that it has manufactured or produced articles or things or computer software. It has also gone to the extent in stating that the assessee has not produced any certificate from any regulatory authority which verifies and certifies in respect of the articles or things as computer software. The documents produced on record makes it very that the assessee is in fact producing computer software and as per Section 10B, no certificate was required from any regulatory authority as claimed by the Tribunal. As stated in the impugned order of the Tribunal, the assessee has certainly exported a computer software and once the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, computer programmes or processing or management of electronic data recorded on any disc, tape, perforated media or other information storage device which is precisely the function carried by the appellant. 36. The notification issued by the CBDT dated 26.9.2000 is a clarificatory circular and it has been issued in exercise of the powers conferred under Section 2(i)(b) of Section 10B of the IT Act. CBDT has notified certain services of customized electronic data or products or services to mean the computer software eligible for deduction. The intention of notification was not to constrain or restrict, but to enable the Board to include several services or products within the ambit of the provisions of Section 10B and this is what has been done precisely by the Board. [See CIT vs. M.L Outsourcing Services (P) Limited, reported in [2015] 228 Taxman 54 (Delhi)]. 37. The Tribunal by giving an erroneous interpretation and explanation has held that the software of computer programme developed by the assessee does not fall within the meaning of Engineering and Design. The Tribunal is not an expert in the field of computer software or Information Technology as held by the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00. Pursuant to the amendment to the Notification, in cases where deduction has been denied and the taxpayer is before the CIT (A) or DRP, the issue may be allowed to be decided by the CIT(A) or DRP in accordance with the law and the Assessing Officers should be directed to either concede the issue or not contest the same further. Pursuant to the amendment to the Notification, in cases where the CIT(A) or ITAT or High Court has decided this issue in favour of the taxpayer, no further appeal should be filed by Revenue. Wherever Revenue has already filed further appeal on this issue before the ITAT, High Court or Supreme Court, as the case may be, the relevant ground of appeal may be withdrawn immediately. 3.22 Issue 6: Deduction under Section 35(2AB) of the Income-tax Act should be extended to computer software. 3.23 Views of the Industry The industry asserted that since a lot of R D activity was carried out in the software segment, it may be clarified that beneficial provisions of Section 35 (2AB) allowing a weighted deduction to the eligible entities, should be extended to the IT sector. 39. The Committee recommended that the services covered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction under Section 80HHE. The Delhi High Court in the aforesaid case, has placed reliance upon a judgment delivered in the case of Commissioner of Income-tax vs. Ms. Kiran Kapoor, [2015] 57 taxmann.com 39 (Delhi). 42. The Delhi High Court in New Delhi Television Ltd s case (supra) in paragraph 24 has held as under; 24. It requires to be noticed that one of the questions that arose in Commissioner of Income Tax v. Kiran Kapoor (supra) was whether the activity of collection, collation, formatting of data and information and its export) fulfils the conditions stipulated in Section 10B (2) of the Act? This Court answered the above question in the affirmative and held as under: The expression computer software is wide enough to embrace diverse activities. To eliminate any doubt, the reference to customised electronic data in the second Explanation to Section 10B (2), Parliament enabled the Board (BCDT) to include (by notification) diverse activities, which involve export of software, etc. The notification relied on in the present case uses the expressions (iii) content development or animation (iv) data processing .... (vii) human resources service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt towards the Circular dated 1.10.2015 issued by the CBDT in No.F.173/338-2015-ITA-I. 48. The aforesaid circular was issued in respect of a query raised in the case of M/s G.E. India Technology Center Pvt. Ltd., and in the Circular, it has been held that unless it is established whether the activities undertaken by the assessee has the characteristics of what has been specified under Explanation 2(i)(b), the applicability of the Circular No.1/2013 dated 17.1.2013 would not be a relevant issue. The aforesaid Circular dated 1.10.2015 does not help the revenue in the present case. 49. The activities undertaken by the assessee do fall within the meaning of Engineering and Design. The assessee is producing customized electronic data. The electronic data is received by the assessee from its clients who are abroad and the same after research and development is sent back as customized electronic data to the assessee s clients and therefore, in the considered opinion of this Court, the assessee is certainly entitled for the benefit of deductions under Section 10A of the IT Act. 50. The Delhi High Court in the case of Commissioner of Income-tax-VIII vs. Ms. Kiran Kapoor, repo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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