TMI Blog2009 (7) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... Sr. No Project Name Maintenance/support charge ( 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 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer did not consider the following allowable export receipt. They are: ( i ) Rs 13,80,78,635 relating to maintenance/support charges; ( ii ) Rs. 1,65,64,862 relating to consultancy charges; ( iii ) Rs. 81,91,691 relating to CPC India Receipts. As per the Assessing Officer, the maintenance and support charges and consultancy charges are not covered by the provisions of section 80HHE as they are spent in connection only with the changes in 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 wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of services rendered, project-wise particulars etc. Further, the assessee also relied on the CBDT Notification No. SO 890/E dated 26-9-2000 for the proposition that the services rendered by the assessee are covered by said notification in general and the information technology enabled services in particular and the said notification has retrospective application. In short, assessee s alternative claim is that the services rendered by the assessee are notified Income-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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant amounts to on account of the production and development of software and not on account of its maintenance or for providing consultancy in the course of day to day application. This applies also to the documents contained in the two annexures submitted and referred to by the appellant s representative in the submissions. Therefore, the claim that the development is continuous and an ongoing process cannot be accepted. 8. Therefore, the contention of the Assessing Officer that 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 fallin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sustaining the disallowance by the Assessing Officer partly, the assessee filed an appeal. 8. During the proceedings before us, Shri Arvind Sondhe, the Learned Counsel for the assessee outlined the facts of the case and took us through the relevant orders of the revenue. Taking us through the contents of the paper book, Ld Counsel highlighted the fact that all these receipts whether maintenance or consultancy or support charges, are received in connection with the software development and 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 pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a ) ** ** ** ( b ) computer software means, ( i )any computer programme recorded on any disc, r\tape, perforated, media or other information storage device; or ( ii )any constomised electronic data or any product or services of similar nature as may be notified by the Board, which is transmitted or exported from India to a place outside India by any means; 10. Further, it is found that section 2( ffc ) of the Copyrights Act, 1957 defines the "computer programme" and it 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." 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 instructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... queries to the Assessing Officer. 13. In this regard, we find that the assessee affirmed that the activities of testing, support and implementation do involve the writing of computer programme, but assessee failed to evidence the same. At the same time, the Assessing Officer has simply rejected the submission of the assessee without investigating into the said submissions of the assessee and also without giving a finding on whether those stages or relevant technical services provided in connection with the development or production of computer software involve computer programmes or not. The 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the Assessing Officer that the assessee provided the said technical services abroad and they are in connection with the production or development of computer software or programmes within the meaning of definition of section 2 ( ffc ) of the Copyright Act, 1957, the Assessing Officer is directed to allow deduction on entire receipts. Date of release of the software is not relevant so long as the income is accrued to the assessee as per the set principles of accounting. In any case, the beneficial provisions have to be interpreted liberally, reasonably and in favour of the assessee as ruled by the Hon ble 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 impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X
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