TMI Blog2010 (2) TMI 93X X X X Extracts X X X X X X X X Extracts X X X X ..... S. E. Dastur with Niraj Sheth and Rajesh Poojari, instructed by Mint and Confreres, for the respondent. JUDGMENT The judgment of the court was delivered by 1. DR. D. Y. CHANDRACHUD J. — These appeals by the Revenue under section 260A of the Income-tax Act, 1961 have raised similar questions of law. For convenience of reference, it would be appropriate to set out the questions of law which have been formulated in one of the two appeals which are as follows: "(a) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the Commissioner of Income-tax (Appeals), in holding that the assessee is eligible for deduction under section 80HHE of Rs.1.56 crores, disregarding the fact that supply of qualified manpower services to any person out- side India does not amount to rendering any technical services as contemplated under section 80HHE? (b) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in upholding the order of the Commissioner of Income-tax (Appeals) in deleting the addition of overseas maintenance allowance of Rs.75.18 lakhs, disallowed on the ground that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, under the contract, on the basis of a payment quantified at US $ 3750 for each employee. In addition, the assessee provided to each of the employees deputed to Ireland, a subsistence allowance of IEP 50 for every calendar day of work Though several agreements were entered into between the assessee and KBS, broadly the terms of these agreements were similar and embodied the salient terms which have been adverted to hereinabove. 6. The claim of the assessee to a deduction under section 80HHE was rejected by the Assessing Officer. During the course of the proceedings for the assessment year 2000-01, the Commissioner of Income-tax (Appeals) allowed the benefit of the deduction under section 80HHE. The decision of the Commissioner of Income-tax (Appeals) was carded in appeal by the Revenue to the Income-tax Appellate Tribunal. For the assessment year 1998- 99, the assessment was sought to be reopened by the Revenue under section 148. The Commissioner of Income-tax (Appeals), for the assessment year 1998-99 held against the assessee against which the assessee carded the matter in appeal before the Tribunal. The Income-tax Appellate Tribunal, in respect of the assessment year 2000- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides technical services outside India in connection with the development or production of computer software. The Explanation to the provision was inserted with effect from April 1, 2001, by the Finance Act of 2001. The Explanation evidently is clarificatory in nature since it is prefaced by the words "for the removal of doubts." The Explanation was intended to clarify that the profits or gains which may be derived from onsite development of computer software outside India, including services for development of software, shall be deemed to be profits and gains derived from the export of computer software outside India. The deeming fiction under the Explanation, qualifies the scope and ambit of clause (i) which deals with the export out India of computer software. Consequently, where an assessee is engaged in the onsite development of computer software outside India, or in the provision of services for the development of software, that would be deemed to be the export of computer software for the purposes of the provision. The fact that the Explanation is clarificatory, is elucidated in a circular issued by the Central Board of Direct Taxes on February 12, 2004 [Circular No. 3 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt. The bank master software was stated to have a number of operational modules and a continuous process of monitoring and upgradations was stated to be required. The copyright in all programme modules of the software was held by KBS. 13. The Commissioner of Income-tax (Appeals), while allowing the deduction, took note of the fact that the assessee was not permitted to retain specific details of several similar tasks undertaken by its technical personnel onsite and that it was not possible to identify each item of work and bill accordingly. Consequently, the only feasible option for fair billing was adopting a manhour basis. Time sheets maintained by the assessee's employees were verified and certified by KBS and at the end of each month, KBS would fax these time sheets to the assessee. Upon verification, the assessee raised its invoices and received remittances. As a matter of business expediency and to obviate any dispute, the contracting parties agreed that the scope of work, duration and the rate per month be determined. On this basis, the agreement in question was drafted and signed by the assessee and KBS. 14. The Tribunal, on a review of the record held thus (i) The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... programming, BBMIOI, training, investigation, survey, self-study, MICR support/delivery, walkthroughs, testing, statements programme MICR coding, etc. The employees examined by the Assessing Officer stated that they were developing new functionalities into the banking software of KBS and maintaining the software. Placing reliance on a publication entitled Information System Audit Reference Book of the Institute of Chartered Accountants of India, the Tribunal held that in the context of software, maintenance was nothing but a process of ongoing development which would continue until the system is replaced or discontinued. In this sense, the work which was being done by the employees of the assessee was integral to the ongoing development of software. 16. Counsel appearing on behalf of the Revenue submitted that KBS had a software of its own and that consequently, the work which was being rendered cannot be regarded as amounting to the export of computer software or for that matter, provision of technical services. The submission which has been urged on behalf of the Revenue cannot be accepted. Section 80HHE contemplates a deduction where an Indian company or a person resident i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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