TMI Blog2011 (5) TMI 594X X X X Extracts X X X X X X X X Extracts X X X X ..... deduction under section 10A. Approval from STP Authority for the Bangalore office on the last date of the accounting year - Held that:- Assessee submitted that it was operating at Gurgaon when it was become unviable then it went to Bangalore and applied for registration with STPI Authority on 23-1-2007. The registration was granted with effect from 31-3-2007. The assessee has started commercial production on this date. According to the assessee in fact, it was carrying out all the activities prior to registration granted by STPI authorities. The assessee has placed on record copy of the lease agreement, list of its employees, details of salary paid, copy of the application made for grant of registration. It was already operating at Gurgaon. Thus on the strength of all these details, it has demonstrated that it was in commercial production. It has applied for the registration. Such registration was granted to it on the last date and it has raised the invoices accordingly. Ultimately, it has received the payment also. Share holding of family members - Assessing Officer has just discussed the share holding patterns of two companies i.e., USA and of Indian Company however, he di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 satisfied with the explanation of the assessee. He issued a fresh query on 30-9-2009 whereby he discussed that assessee claimed itself engaged in human resource services by hiring overseas IT consultants for clients. Service rendered includes sourcing, screening and interviewing employee's IT skills for recruitment on behalf of overseas customers. According to the understanding of Assessing Officer, this description of service is simply similar to that of a recruitment agent. In response to the query of the Assessing Officer, assessee has demonstrated the various steps which were undertaken for collecting the data in respect of eligible employees, who could be employed by the US company. After short listing the qualification, the potentiality of the candidate and other details, assessee transmit those data to its client in USA. In lieu of that services, it received the payment. The assessee has prepared a flow chart exhibiting the various steps taken by it in processing thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 that assessee company is incorporated in India and is engaged in providing out sourced human resource services to Mindlance Inc. USA . Mindlance Inc. is a company incorporated in USA and is engaged in the business of providing manpower to clients who are engaged in development of software in USA. Whenever a client required manpower it contacted with Mindlance Inc. who outsourced the recruitment activity to the assessee in India. It searches candidates in USA from India for US employer. In that activity it conduct online test, preliminary interview then final interview then assessed their eligibility and their potentiality for employment in any software development company. He pointed out that a flow chart exhibiting of all the activities was submitted before the Assessing Officer which is available at page 60 of the paper book. ld. Counsel for the assessee further pointed out that case of the assessee falls within the ambit of section 10A Explanation 2 (b) read with notification No. SO890(F) issued on 26-9-2000. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 registration on 23-1-2007. The registration has been granted on 31-3-2007. According to the assessee, it was carrying out its activity and raised invoice only when registration was received i.e., on the last date of the accounting year. As far as the other observation made by the Assessing Officer in paragraph No. 5.4 at page 8 of the asst. order, he pointed out that assessee is an independent entity duly constituted under the company law of India. It is providing services to independent entity incorporated in US according to the laws of that land. The Assessing Officer had not point out any illegality or irregularity as far as juridical status of the company as such. He has just made passing reference for giving rise to suspicion only. He did not collect any specific material in support of his suspicion. 7. Ld. Counsel for the assessee in the last, submitted that issue in dispute is squarely covered in favour of the assessee by the order of the Third Member Bench Chennai rendered in the case of ITO v. Accurum Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic 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 are of similar nature under sub-clause (b) of Explanation 2, i.e., any customize electronic data is qualified for treatment as a computer software on whose export deduction would be admissible to an assessee. This sub-clause further classify that any other service if notified by the board then those services would also qualify for treatment as computer software. The board by exercising its power has notified 15 services for the purpose of this clause. The notification bearing No. SO890(E) read as under :- "S.O.890(E) - In exercise of the powers conferred by clause (B) of item (i) of Explanation 2 of section 10A, clause (b) of item (i) of Explanation 2 of section 10B and clause (b) Explanation to section 80HHC of the Income-tax Act, 1961 (43 of 1961) the Central Board of Direct Taxes hereby specifies the following Information Technology enabled products or services as the case may be for the purpose of said clauses namely :-- ( i ) Back-Office Operations ( ii ) to ( vi ) ** ** ** (v ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee 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 fall under the items mentioned in section 10A as no article/things/exported by the assessee. l The above business activity is not a service or product similar to customized electronic data. l The appellant's claim that it was exporting computer software is not correct for the above reasons. l The appellants case is not covered by the CBDT notification containing the words 'Human Resource services'. l The said notification was issued by the CBDT only for the purpose of identifying certain areas where services or products similar to customized electronic data would be considered for deduction under section 10A. l The items mentioned in the CBDT notification are subject to all other conditions stipulated in section 10A which are mandatory. l The principle of ejusdem generis is applicable to the words' products or services of similar nature' appearing in Explanation 2(i). 12. Ld. CIT(A) further observed that CBDT notification is always in furtherance to the statutory provisions which empow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d clause (i) gives the meaning of the term "Computer Software". One of the meanings given is "any customised electronic data or any product or service of similar nature, as may be notified by the Board". In other words, if the assessee is engaged in the export of any customised electronic data, then, profit earned from such export would qualify for deduction under section 10A of the Act. It may be noted that whereas sub-clause (a) refers to any computer programme, sub-clause (b) refers to any customised electronic data. Computer programme referred to in sub-clause (a) may or may not be customised and may be useful for general application. On the other hand, the electronic data referred to in sub-clause (b) has necessarily to be customised. By the word "customised" is meant that the data is suitable for a specific customer only. Considering the fact that the expression "customised electronic data" is quite general in nature and also considering the fact that computer applications are fast expanding, one cannot visualise as to what type of products or services will come up in future. Considering this ever-expanding horizon of software products and services, the Board has been given t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee under section 43B is a statutory liability or not and whether it fits into the description of a tax, duty, cess, etc. Similarly, the receipts mentioned in clause (baa) need not be notified by the Board and the revenue authorities will consider whether the receipts are of the nature of brokerage, rent, etc. While deciding these issues, the principle of ejusdem generis will have to be kept in mind. However, so far as services which are Information Technology Enabled are concerned, the assessee can take the benefit of deduction only if they are notified by the Board. If this power of notifying the services was not given to the Board, principle of ejusdem generis would have applied. Since the power is exercised under the specific provision of section 10A, it is pre-supposed that the services in respect of which the assessee is claiming deduction are I.T. enabled. Of course, as a matter of normal precaution taken while making an assessment, the Assessing Officer will satisfy himself as to whether the customised data is in electronic form or not and whether it is electronically transmitted outside India or not. If the data of recruitment and training collected by the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 10A. Similar is the situation in the present case. The assessee invited applications for recruitment through newspapers, carried out interviews, selected them and trained them. It is worthnoting that this exercise was carried out not for namesake but it was a serious and sincere effort which is reflected by the magnitude on which the assessee worked. More than 7,000 applications were received which were vetted and then the process of recruitment was undertaken. All these data were stored in an electronic device and transmitted to US for the use of the parent company. Recruitment can be done online also, but perhaps the scale of operation may not be as huge as it was in the present case. Training can also be carried out online but it cannot be as effective as a classroom training. If the intention of the Legislature was that in order to qualify for deduction under section 10A, every activity should be carried out through electronic means, then the purpose of enacting section 10A would have been totally defeated. The exact language of sub-clause (b) of clause (1) of Explanation 2 is "any customized electronic data". Thus, if the result of the entire exercise of recruitment an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected any data or conducted any survey for gathering information regarding the availability of talent in a specific field. I simply fail to comprehend, considering the voluminous material placed on record as to how can it be said that the assessee has not collected any data. This observation is contrary to the facts on record. Finally, the objection of the Assessing Officer that all the candidates selected were not absorbed by the parent company is of no avail. The obligation of the assessee under the contract was only to recruit and train the candidates. The parent company was under no obligation to absorb all the selected candidates. It is also not a pre-condition for the assessee for claiming deduction under section 10A of the Act. The only condition is that whether it has exported any customized electronic data relating to any of the services specified by the Board or not. We have already observed that the assessee has fulfilled this condition. For whatever reason, the parent company may not have been able to absorb all the selected candidates, but that is neither the concern of the assessee nor the requirement under the item "human resources services". Therefore, this objectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore in effect it be construed that approval was available to the assessee for asst. year 2008-09 i.e., the next financial year. He also expressed his doubt about potentiality of assessee to raise the invoice on the last date of the accounting year for a consideration of Rs. 1,47,28,800. The case of the assessee on the other hand is that it was operating at Gurgaon when it was become unviable then it went to Bangalore and applied for registration with STPI Authority on 23-1-2007. The registration was granted with effect from 31-3-2007. The assessee has started commercial production on this date. According to the assessee in fact, it was carrying out all the activities prior to registration granted by STPI authorities. The assessee has placed on record copy of the lease agreement, list of its employees, details of salary paid, copy of the application made for grant of registration. It was already operating at Gurgaon. Thus on the strength of all these details, it has demonstrated that it was in commercial production. It has applied for the registration. Such registration was granted to it on the last date and it has raised the invoices accordingly. Ultimately, it has received ..... X X X X Extracts X X X X X X X X Extracts X X X X
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