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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 ..... harge (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the softwares. In connection with receipts from CPC India, the Assessing Officer is of the view that the said receipts were received in connection with the services utilized in India as the name speaks. In other words, the receipts relating to the software development wee 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax enabled services are within the meaning of clause (b) to Explanation to section 80HHE and stated that the receipts received in this regard are entitled for deduction under section 80HHE. Further, relying on the Circular no 3 of 2004 dated 12-2-2004, the assessee submitted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at where new software version has not been released to the Bank clients in the year under consideration, receipts shown under the head maintenance charges and consultancy charges cannot be held as arisen to the appellant company on account of the development of software as 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 abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintenance. In this regard, he brought our notice various bills, which contains the details of the man-hours spent by the computer personnel not software, (ii) add-on-software and (iii) the software developed for the enhancement of the existing software. Further, Ld Counsel 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form, including a means readable medium, capable of causing a computer to perform a particular task or achieve a result." 11. From the above provisions, it is evident that the assessee, who 'is engaged in the business of (i) export out of India of computer software 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) is also of the opinion that the information on the records is scanty. In view of the above, for the purposes of section 80HHE, a rule can be generated by stating that the any activities/services/integrated stages/phages, whatever name called, qualify for definition 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in plethora of decisions in the case of Mysore Minerals v. CIT [1999] 239 ITR 775, where the Hon'ble Supreme Court held that a provision giving deduction 'should be assigned such meaning as would enable the assessee to secure the benefit intended to be given by the legislature. Accordingly, the grounds 1 to 4 are set-aside. 16. Ground 5 relates to decision of CIT(A) in estimating expenditure for earning dividend income at 5 per cent of the total dividend income exempt under section 10(33) of the Act. Relevant discussion is given in para 15 of the impugned order. Assessing Officer estimated the relatable expenditure and determined at 15 per cent on ad hoc basis. The CIT(A) held the same is on high side and determined the same at 5 per cent of the dividend income again on ad hoc basis. During the proceedings before us, both the parties in the appeal have recalled the SB decision in the case of ITO v. Dagao Capital Management (P.) Ltd. [2008] 126 SOT 603 (Mum.)(SB) and stated the matter may be decided in accordance with the said SB decision. Thus, we refer this issue to the files of the Assessing Officer to decide the issue based on the said SB decision after giving rea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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