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TMI Blog2011 (5) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... untants appeared before the Assessing Officer and filed the requisite details. 3. On scrutiny of the accounts, it revealed to the Assessing Officer that assessee had declared a net profit of Rs. 88,49,972. In the tax audit report it has claimed that assessee is involved in the business of export of IT enabled services and therefore, it is entitled for exemption under section 10A at the rate of 100 per cent . After claiming the alleged exemption under section 10A assessee has declared NIL income. Ld. Assessing Officer had issued a show-cause notice vide questionnaire dated 30-7-2009, whereby assessee was asked to justify its claim for exemption under section 10A of the Act. In response to the query of Assessing Officer, it was contended by the assessee that it is a 100 per cent export oriented unit registered under STPI. It was pointed out to the Assessing Officer that assessee was engaged in hiring overseas IT consultants for its clients Mindlance Inc. USA. The assessee has pointed out that its activities falls within the ambit of sub-clause (b) of Explanation 2 attached with section 10A read with notification bearing No. SO890(E) issued by the CBDT. The Assessing Officer was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racking Software called CATS (e) Managing the workflow of the candidate using the same CATS application All the above steps involve ITES tools like interest, VOIP phone, proprietary software and subscription-based best sites." 4. The Assessing Officer did not accept the contention. He primarily held that assessee is not carrying out any activity which comes within the ambit of eligibility criteria provided in section 10A. Apart from the non-fulfilment of the main criteria, the Assessing Officer had made a reference to two peripheral circumstances. In the first peripheral circumstances, he raised the suspicion with regard to its potentiality for providing such services at its Bangalore operations. In the second circumstance, he made a reference about constitution of the assessee company and he has a suspicion that amount has been transferred by the family members of the assessee working in USA. 5. Dissatisfied with the order of Assessing Officer, assessee carried the matter in appeal before ld. CIT(A). But the appeal did not bring any relief to the assessee. 6. Ld. Counsel for the assessee apprised us with the activities carried out by the assessee. He pointed out t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he product/service exported by the assessee which enable it to claim deduction under section 10A of the Income-tax Act with regard to the other objections pointed out by the Assessing Officer. He submitted that Assessing Officer has raised an objection about its operation at Bangalore. He submitted that assessee had started its operation from Gurgaon on STPI. It has taken registration for STPI Noida as well as Gurgaon for carrying out IT and IT enabled export service from Gurgaon office. The assessee was facing difficulty for handling assignments from the foreign clients. It has decided to shift its operation from Gurgaon to Bangalore, where there is a large pool of skilled professionals available. The assessee was having 11 employees in the month of August 2006 who were increased to 22 till the month of March, 2007. It has paid salary of Rs. 45.28 lakhs during this period. The assessee has also placed on record copy of the purchase orders for development of software. It took the building on rent vide agreement executed in the month of August, 2006 at Bangalore from M/s. S J R Infrastructure Pvt. Ltd. The assessee has made an application to the STPI Bangalore authorities for regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software, as the case may be shall be allowed from the total income of the appellant. ** ** ** (2) This section applies to any undertaking which fulfils all the following conditions, namely :-- (i) It has begun or begins to manufacture or produce articles or things or computer software during the previous year relevant to the assessment year: (a) commencing on or after the 1st day of April, 1981 in any free trade zone; or (b) commencing on or after the 1st day of April, 1994 in any electronic hardware technology park, or as the case may be, software technology park (c) ** ** ** Explanation 2.-Computer software means- (a) Any computer programme recorded on any disc, tape, perforated media or other information storage device; or (b) Any customized electronic data or any product or service of a similar nature, as may be notified by the Board". 10. The board was supposed to notify certain product or services which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation 2. The ld. First Appellate Authority is of the opinion that sub-clause (b) is having two parts. The first part represent any customize electronic data and second part any product or service of similar nature as may be notified by the board. According to the ld. CIT(A) the principle of ejusdem generis is applicable to the second part of sub-clause (b) of clause (i) of Explanation 2. He observed that the board has notified 15 products or services in this respect. The board has specified the Information Technology Enabled (ITE) product or services as the case may be for the purpose of the said clause. Therefore, according to the ld. CIT(A) products of services referred to in the notification have to the information technology enabled, which is a pre-condition for the product or service for the purpose of sub-clause (b) of Explanation 2. Ld. CIT(A) further explained the meaning of human resources and thereafter rejected the case of assessee by summarizing following reasons :-- l The assessee was engaged in the business of transmitting data base for recruitment of man power to a company in USA. l The above activity of the assessee did not f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fair enforcement of its provisions, by issuing Circulars in exercise of its statutory powers under section 119 of the Act, which are binding on the authorities in the administration of the Act. It is also observed on the same page that the power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Again, at page 898 of the report, it is observed that the task of interpretation of the laws is the exclusive domain of the Courts. However, the Board has the statutory power under section 119 to tone down the rigour of the law for the benefit of the assessee by issuing Circulars to ensure a proper administration of the fiscal statute and such Circulars would be binding on the authorities administering the Act. 7. Let us consider the above role of the Circulars in the context of sub-clause (b) of clause (i) of Explanation 2 to section 10A of the Act. The said clause (i) gives the meaning of the term "Computer Software". One of the meanings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, shall be allowed as deduction in the previous year in which such sum is actually paid. Here, while determining whether a particular payment falls within the expression "by whatever name called", the principle of ejusdem generis will apply. Similarly the said principle will apply while determining whether a particular receipt is analogous to brokerage, commission, interest, rent, charges mentioned in clause (baa) of the Explanation to section 80HHC. On the other hand, so far as customised electronic data is concerned, or a service of similar nature is concerned, deduction under section 10A in respect of profits therefrom will not be allowed unless the service is notified by the Board. To reiterate, statutory liabilities by whatever name called in section 43B(a) or receipts of similar nature mentioned in clause (baa) of the Explanation to section 80HHC need not be notified by the Board. In those cases, the revenue authorities have to see whether the liability claimed by the assessee under section 43B is a statutory liability or not and whether it fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under section 10A. The process of actually collecting the data need not be IT enabled. What all is required is that the data collected should be in an electronic form. If one were to go by the understanding of the ld. JM, then perhaps the purpose of giving impetus to software industry or to the computerization as a whole, would be defeated. As an illustration, if a person wants to open a garment shop in a particular locality, it may approach a consulting firm to explore the market potentiality of that area. In that case, the consulting firm will have to initially work manually to collect data like, number of garment shops in the locality, the economic strata to which the population residing in that locality belongs, the spending habits of the people residing in the locality, etc. All these activities will have to be carried out manually and once the data is collected, it may be collated and analyzed and may be stored in an electronic device. This becomes the IT enabled customized electronic data. If this data is exported outside India, the consulting firm will be eligible for deduction under section 10A. Similar is the situation in the present case. The assessee invited applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y virtue of it being a call centre, it will be eligible for deduction under section 10A. Here also there was merely a communication between the parties over a telephone and nothing beyond that. One may raise a question that if there is no use of computer then why should it be included in the list of IT enabled services. It needs to be appreciated that in majority of the cases, the use of computer would be there. If a person in US has invested monies in India through a financial consultant in India, and if the US investor wants some information about his investments, the information so supplied through the call centre will be an export of customized electronic data. The information may have been given either on telephone or through e-mail. Thus, how the information is transmitted is not material, what is material is that some customized electronic data is transmitted. Therefore, the exercise carried out by the assessee cannot be over simplified by stating that it was merely an exchange of correspondence through e-mails. The ld. JM has mentioned that this is not a case where the assessee has collected any data or conducted any survey for gathering information regarding the availabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the order of the ld. Third Member extracted supra at the time of hearing. The only disparity of facts between both these cases is that in the case of Accurum India (P.) Ltd., assessee was giving training also to the eligible candidates. In the present case, assessee has not given any training. For grant of deduction under section 10A, training is an immaterial part. Deduction is admissible to the assessee because it has prepared the customized data of eligible candidates for employment in IT Industry. It is transmitting the data of those eligible candidates for employment in software industry. This export of customized electronic data would make the assessee eligible to claim deduction under section 10A. As far as this part of service is concerned, there is no disparity on facts between these cases. 15. The other objections pointed out by the ld. Assessing Officer is that assessee has got approval from STP Authority for the Bangalore office on the last date of the accounting year. He was of the opinion that assessee has made the payment of certain fees in the month of May, 2007 and therefore in effect it be construed that approval was available to the assessee for asst. y ..... X X X X Extracts X X X X X X X X Extracts X X X X
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