TMI Blog2005 (11) TMI 367X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer had not issued any notice u/s 143 of the Act and the only way to bring the income escaping the tax is by taking recourse to section 148 of the Act. Thus, the reassessment proceedings have been validly initiated and we decline to interfere. Deduction u/s 10B - We are unable to accept the departmental view that the assessee cannot considered as engaged in the business of manufacture of production of articles or things within the meaning of sections 10B and 10BB of the Act in respect of the profits and gains arising out of this agreement. The denial of such relief, in our view, is on a wrong reasoning that export of articles and things under this agreement with Unisys did not exceed 75% of the total sales. It only results in the miscarriage of justice if such a proposition of the department were to be accepted. We, therefore, direct the Assessing Officer to allow deduction u/s 10B of the Act. The relief u/s 80HHE, in the facts and circumstances of the case, as an alternative prayer, becomes academic. Agreement No. 3 with CTE-BNP - We do not agree with the stand of the revenue that the assessee is not entitled for relief under section 10B of the Act in respect of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g its claim for relief u/s 10B of the Act. We, therefore, in the light of all these discussions, accept the claim of the assessee for relief u/s 10B of the Act. As a result of this, the revenue may have to withdraw the relief granted u/s 80HHE of the Act as a consequence of this order. As regards the claim of deduction u/s 10B on interest income, in the light of the fact that we have held that the assessee is entitled to relief u/s 10B of the Act, the assessee is naturally entitled for relief u/s 10B of the Act in respect of the interest income also, which is admittedly a part of business income. In the result, both the appeals are partly allowed. - HON'BLE G.E. VEERABHADRAPPA, VICE PRESIDENT SALIL KAPOOR, JUDICIAL MEMBER For the Appellant : F.V. Irani and Yogesh Thar For the Respondent : R.N. Dash ORDER G.E. Veerabhadrappa, Vice President. 1. These cross-appeals arise out of the order dated 29-3-2004 of the CIT(A)-VIII, Mumbai for the assessment year 2000-01. 2. The first ground in the assessee s appeal questions the validity of the assessment framed under section 147 of the Income-tax Act. We have heard both the sides and have carefully gone through the records. The return ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the assessee-company have been carried on the basis of the agreement, it had entered into with various parties working in the realm of software development. The assessee-company, for the purpose of its activities, has entered into agreements with the following parties for the business of computer software and has received amounts stated against each of them: S. No. Name of the party Amount received 1. Unisys 1,86,02,140 2. Cresere Inc 9,37,77,900 3. CTE-BNP 2,03,63,736 4. CIC-e-worker 4,54,61,550 5. SAP Arabia 17,05,698 6. Geotronics-UK 8,54,322 7. Veritema-Sweden 52,43,718 CIC-ATC 8. New agreement 1,81,41,900 9. Old agreement 64,48,200 10. Various-Domestic 38,18,539 11. CIC-Recruitment Training 3,78,47,679 12. CIC-Others 2,04,262 Total 25,24,69,644 The above receipts have been claimed to be the profits and gains derived by it as 100% EOU. Accordingly, the assessee claimed deduction under section 10B of the Act or in the alternative deduction under section 80HHE of the Act in respect of the profits derived by it on development of software. The Assessing Officer, while framing the assessment, was of the view that the assessee did not satisfy the conditions for exemption under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om only the aforesaid agreements. The learned counsel for the assessee also agreed that in respect of these agreements the view of the Tribunal is expressly in favour of the department and wants us to confirm the decision of the lower authorities in respect of the business income as arising out of these agreements. The learned Departmental Representative, on the other hand, strongly relied upon the order of the Tribunal on the issue covering the very same agreement. 5. We have carefully considered the submissions in relation to these agreements, which are admittedly covered in favour of the revenue by the order of the Tribunal referred to above. We, therefore, confirm the findings of the CIT(A) on this issue, wherein in relation to CIC-ATC agreement, domestic agreement, the benefit of exemption under section 10B or deduction under section 80HHE has been totally denied as these are basically agreements not involving eligible exports under section 10B of the Act. In relation to the agreement relating to CIC-recruitment and training and CIC-others, the CIT(A) denied the benefit of exemption under section 10B of the Act but allowed only 10% of the business income as covered and eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h this section applies shall not be included in the total income of the assessee. (2) This section applies to any undertaking which fulfils all the following conditions, namely: ( i ) it manufactures or produces any article or thing; ( i )( a ) in relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1994, its exports of such articles and things are not less than seventy-five per cent of the total sales thereof during the previous year; [Emphasis supplied] He drew our attention to the discussion in para 50 of the aforementioned order of the Tribunal, which discusses this issue. The said paragraph is reproduced below : As far as the services rendered by the assessee-company to Unisys are concerned, we, still find that the situation is not different. As already discussed and mentioned in the order, the CIT(A) has granted relief under section 80HHE to the assessee-company with reference to its receipts from Unisys. The grounds proposed to be raised by the revenue objecting to the above relief have not been admitted by the Tribunal. Therefore, as pointed out by the learned counsel appearing for the assessee, it is, to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned counsel for the assessee, has only resulted in the miscarriage of justice. He, therefore, vehemently pleaded that the order of the Tribunal in relation to relief under section 10B of the Act should be considered in the light of the facts existing in each of the agreement vis-a-vis the requirement of the statute under section 10B of the Act. He pointed out that, in any event, the agreement at Sr. Nos. 2, 4, 5, 6, 7 and 8 mentioned in para 3 above are all contracts that were entered into after 31st March, 1999 and, therefore, there is no question of applying the ratio of the decision of the Tribunal for the earlier years to the facts emerging out of these agreements. 7. The learned Departmental Representative, on the other hand, pleaded that the contentions of the assessee have been rejected by the Tribunal while considering the assessee s claim for relief under section 10B of the Act in the earlier years and that order, according to him, we hold the field in favour of the department. According to him, the order of the Tribunal has concluded the matter in relation to the assessee s claim for relief under section 10B of the Act and the assessee should not be permitted to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... client should exceed 75 per cent. Therefore, the decision rendered by the Tribunal in the earlier years in relation to these issues, in our humble opinion, cannot be applied to the facts of this case in the light of the express provisions of the Act. Moreover the Tribunal appears to have lost sight of the provisions of section 10BB, wherein computer programmes have been given an extended meaning. It reads as under : The profits and gains derived by an undertaking from the production of computer programmes under section 10B, as it stood prior to its substitution by section 7 of the Finance Act, 2000 (10 of 2000), shall be construed as if for the words computer programmes , the words computer programmes or processing or management of electronic data had been substituted in that section. The term manufacture or produce used in the aforesaid section has been explained by the provisions of section 10B reproduced above. In the light of the aforesaid provision, in our view, the relief under section 10B of the Act cannot be denied to the assessee on the ground that export of such software to each of the parties was not atleast 75 per cent of the total sales. 9. We now take up the agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will be identified and outlined in the transition plan Bombay India office : (off-shore continuation engineering) Eight full development systems, at least one server configuration, and one XE system within the test beds. Specific configurations and details will be outlined in the transition plan (2) will provide direct contact to the customer environment needed to demonstrate the problem. CyberTech will be provided access to network connections including TCP/IP, BNet, SNA and OSI. (3) provide access to and license to use source and object code for all CTOS products and the Compilers and Utilities required for development, system generation and configuration management. Written. . . . . . . . . any object code for each supported release level must be established and agreed between Unisys and CyberTech. If special system configurations are required to test any specific release, Unisys will provide access to either Unisys or Customer equipment for this testing. (4) provide CyberTech with complete documentation of all CTOS products, including product specifications, user documentation, release notes, patch listings, release status reports and statistics for each release level to be su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set forth in Addendum B of the Agreement for the time of such personnel and reimburse CyberTech for travel and living expenses in accordance with Addendum C. However, CyberTech will not be entitled to any such payment if the problem is negligently caused by CyberTech. For maintaining brevity we have extracted the relevant portions, but going through the copies of the agreement as also the several addendums, it does not, in any way, lead to the conclusion that the assessee has been paid so much of money just for recruiting the employees or for imparting training of the employees for and on behalf of Unisys. In our view, it is taking too a narrow view of the matter if the agreement were to be construed as agreement for recruitment of personnel. In any event, the CIT(A) himself granted both in the earlier years as also in the assessment year under consideration relief under section 80HHE of the Act. The Tribunal has confirmed the order of the CIT(A) giving deduction under section 80HHE of the Act in the earlier years. But appreciating the facts of the case in the light of the agreement provided, we are unable to accept the departmental view that the assessee cannot considered as enga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interfaces, or other date-related functions (including without limitation, calculating, comparing and sequencing such functions). Article 11 Consulting Services ( a ) Consultant shall provide Consulting Services to Customer in accordance with the terms and conditions of this Agreement, together with the SOW attached hereto as Exhibit A . The specific scope of any work and details of particular Consulting Services including proposed time and materials cost estimates, fixed price, or Not To Exceed amounts, shall be set forth in the Statement of Work or any other document that references the appropriate Statement of Work to be jointly prepared by Customer and Consultant and approved by Customer prior to the start of any work. Consultant shall not be bound to perform and Customer shall not be required to pay for, any Consulting Services not contained in the Statement of Work or associated documents, unless accompanied by a Change Order as set forth in section 2.2. ( b ) Consultant will ensure that all personnel assigned shall have the skills necessary to complete the tasks set forth in the Statement of Work. ( c ) Any work request shall be via a Statement of Work issued in accordance w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be allowed. 11. In relation to agreement No. 3 with CTE-BNP, the CIT(A) has granted 100% deduction under section 80HHE of the Act in the earlier years and that has become final. The only ground on which relief under section 10B was denied is that the assessee s export to this client did not exceed 75% of the assessee s total sales. In the light of the discussions elsewhere in this order, we do not agree with the stand of the revenue that the assessee is not entitled for relief under section 10B of the Act in respect of the exports made to this client. Accordingly, we direct the Assessing Officer to allow relief under section 10B of the Act in respect of the profits and gains derived as admittedly the agreement is an old agreement and on which the revenue has already granted relief under section 80HHE of the Act, which is directed to be withdrawn. 12. Now we take up the agreement No. 4 with CIC e-worker. This agreement is newly entered into during the year under consideration. Although the assessee was to recruit and train software professionals, but in that process it develops a software of its own. Agreement in this case is entered into for development of e-worker software. A copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady spelt out in paragraph 8 hereinbefore. We may mention that the scope of the work as detailed in para 9 above does not show that the payment of so much of contracted amount was just for recruitment of employees or for training them. In our opinion, having regard to the terms of the agreement, it was clearly for manufacture or production of articles or things within the meaning of section 10B and its extended meaning as spelt out in section 10BB of the Act. We may also mention that merely because the payment is based on the man-hour spent on the job or the employees provided, it does not mean that the assessee was not engaged in the activity of manufacture or production of articles or things within the meaning of the provisions stated above. The complex and highly technical activities in the field of computer software, in our opinion, truly is an act of manufacture or production of articles or things as spelt out in the aforesaid provision. 13. Now coming to the agreement with SAP Arabia, the contract itself provides for carrying on the work of software development relief/processing /maintenance of electronic data for which software professional were deputed to customers locatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard to all these, it cannot be said that the assessee is only a recruiting and training agent while considering its claim for relief under section 10B of the Act. We, therefore, in the light of all these discussions, accept the claim of the assessee for relief under section 10B of the Act. As a result of this, the revenue may have to withdraw the relief granted under section 80HHE of the Act as a consequence of this order. 16. As regards the claim of deduction under section 10B on interest income, in the light of the fact that we have held that the assessee is entitled to relief under section 10B of the Act, the assessee is naturally entitled for relief under section 10B of the Act in respect of the interest income also, which is admittedly a part of business income. 17. The next ground relates to the levy of interest under sections 234C and 234D of the Act. The learned counsel for the assessee submitted that the department has levied interest on excess refund under section 234D of the Act disregarding the fact that the said section itself has come into force on 1st June, 2003 by way of insertion by the Finance Act, 2003. We agree with the contention of the learned counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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