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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 10TH DAY OF SEPTEMBER 2020
PRESENT
THE HON’BLE MR. JUSTICE ALOK ARADHE
AND
THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD
I.T.A. NO.259 OF 2014 C/W I.T.A. NO.12 OF 2016
I.T.A. NO.259 OF 2014 BETWEEN:
COMMISSIONER OF INCOME TAX-III
CENTRAL REVENUE BUILDINGS
QUEENS ROAD, BANGALORE-560001.
THE DEPUTY COMMISSIONER OF INCOME TAX
CIRCLE-7(1), BANGALORE. ... APPELLANTS (BY SRI. E.I. SANMATHI, ADV.,)
AND:
SHRI. NARENDRA R THAPPETTA NO.158, 1ST PHASE PALM MEADOWS AIRPORT-WHITEFIELD ROAD BANGALORE-560066. ... RESPONDENT (BY SRI. A. SHANKAR, SR. COUNSEL A/W SRI. M. LAVA, ADV.) - - -
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 03.01.2014 PASSED IN ITA NO.426/BANG/2013 FOR THE ASSESSMENT YEAR 2009-10, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT. (I) SET ASIDE THE APPELLATE ORDER DATED 03.01.2014 PASSED BY THE ITAT, ‘B’ BENCH, BANGALORE IN APPEAL PROCEEDINGS NO.ITA NO.426/BANG/2013 FOR ASSESSMENT YEAR 2009-10 AS SOUGHT IN THIS APPEAL.
I.T.A. NO.12 OF 2016
BETWEEN:
PR. COMMISSIONER OF INCOME TAX
CENTRAL REVENUE BUILDINGS
QUEENS ROAD, BANGALORE-560001.
THE INCOME TAX OFFICER
WARD-4(3)(3), BANGALORE. ... APPELLANTS (BY SRI. E.I. SANMATHI, ADV.,)
AND:
SHRI. NARENDRA R THAPPETTA NO.158, 1ST PHASE, PALM MEADOWS AIRPORT-WHITEFIELD ROAD BANGALORE-560066 PAN:ACKPT2378J. ... RESPONDENT (BY SRI. A. SHANKAR, SR. COUNSEL A/W SRI. M. LAVA, ADV.) - - -
THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 07.08.2015 PASSED IN ITA NO.605/BANG/2015 FOR THE ASSESSMENT YEAR 2010-11, PRAYING THAT THIS HON’BLE COURT MAY BE PLEASED TO: (I) DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT.
(I) SET ASIDE THE APPELLATE ORDER DATED 07-08-2015 PASSED BY THE ITAT, ‘A’ BENCH, BENGALURU, IN APPEAL PROCEEDINGS NO.ITA NO.605/BANG/2015 FOR ASSESSMENT YEAR 2010-11, AS SOUGHT FOR IN THIS APPEAL.
THESE ITAs COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:
COMMON JUDGMENT
These appeals under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) have been preferred by the revenue. The subject matter of I.T.A.No.259/2014 pertains to the Assessment year 2009-10, whereas, the subject matter of I.T.A.No.12/2016 pertains to Assessment Year 2010-11.
In both the appeals, the following common substantial questions of law. Arise for consideration:
(i) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was justified in holding that the assessee was entitled to the benefit of deduction under Section 10A of the Income Tax Act, 1961 for the Assessment Year in question?
(ii) Whether the services of the
assessee were limited to drafting of patent application and their submission to the US patent office and as such the assessee was not entitled to claim deduction under Section 10A of the Income Tax Act, 1961?
Since, common questions of law arise for consideration in these appeals; they were heard together and are being decided by this common judgment.
Facts leading to filing of these appeals briefly stated are that the assessee filed the returns of income for the Assessment Year 2009-10 and 2010-11 on 18.09.2009 and 27.09.2010 respectively, by which a claim for deduction under Section 10A of the Act was made for an amount of Rs.3,24,74,124/- and Rs.3,34,41,151/- respectively. The returns of income filed by the assessee were selected for scrutiny. The Assessing Officer in respect of Assessment Years 2009- 10 and 2010-11 by orders dated 12.12.2011 and
26.03.2013 held that Section 10A of the Act applies only in respect of profit and gains derived from export of articles, or things or computer software and therefore, assessee is not entitled for deduction under Section 10A of the Act as the activities of the assessee does not constitute development of computer program as defined under Section 10A of the Act. It was further held that the activities of the assessee do not fall in any of the category as mentioned in Notification No.896 dated 26.09.2010 issued by Central Board of Direct Taxes (CBDT) and rejected the claims of deduction of the assessee under Section 10A of the Act.
The assessee thereupon filed appeals before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) in respect of Assessment Years 2009-10 and 2010-11 by orders dated 19.12.2012 and 20.02.2015 respectively held that respondent is entitled for deduction under Section 10A of the Act in the light of notification issued by CBDT,
which is applicable to the case of the assessee as the services rendered by the assessee can broadly be classified as office operations, data processing, legal databases and same can be termed as information technology enabled services. Being aggrieved, the revenue filed appeals before the Income Tax Appellate Tribunal (hereinafter referred to as 'the Tribunal' for short). The tribunal in respect of Assessment Years 2009-10 and 2010-11 vide orders dated 03.01.2014 and 07.08.2015 inter alia held that activities of the assessee can be categorized as back office operations, data processing, legal databases or even under remote maintenance and the same can be termed as information technology enabled products or services. The tribunal therefore held that the assessee is entitled to claim deduction under Section 10A of the Act. In the result, the appeals preferred by the revenue were dismissed. In the aforesaid factual background, the revenue has filed these appeals.
Learned counsel for the revenue submitted that assessee is an individual and is neither a company nor an undertaking and is also located in Special Economic Zone (SEZ) and the assessee in order to claim the benefit of Section 10A of the Act has to fulfill all the conditions laid therein. Since, the assessee is neither a company nor an undertaking and is also not located in Special Economic Zone, therefore, assessee being an individual is not entitled to the benefit of Section 10A of the Act. While referring to the budget speech of the finance minister, it is contended that the object of Section 10A is to encourage establishment of export oriented industries in Free Trade Zone (FTZ) and to grant incentives for export towards tax payer from an industrial undertaking newly set up in India. It is further submitted that the assessee is engaged in the activity of forwarding of a patent application, which does not amount to back office operations. It is further submitted that the burden was on the assessee to establish ‘what
is back office operation’, which he has failed to discharge. It is also urged that in order to claim the benefit of deduction under Section 10A of the Act, all conditions have to be satisfied. It is also submitted that if there is any ambiguity in the exemption notification, the same should be interpreted strictly and in favour of the revenue. In support of his submissions, learned counsel for the revenue has placed reliance on decisions in ‘M/S L.R.BROTHERS INDO FLORA LIMITED VS. COMMISSIONER OF CENTRAL EXCISE’, CIVIL APPEAL NO.7157/2008 DATED 01.09.2020, ‘RAMNATH & CO. VS. COMMISSIONER OF INCOME- TAX’, (2020) 116 TAXMANN.COM 885 (SC), ‘COMMISSIONER OF INCOME TAX VS. REGENCY CREATIONS LTD.’, (2012) 27 TAXMANN.COM 322 (DELHI), and ‘COMMISSIONER OF CUSTOMS (IMPORT), MUMBAI VS. DILIP KUMAR & COMPANY’, (2018) 69 GST 239 (SC).
On the other hand, learned Senior counsel for the assessee has invited our attention to the definition of the expression ‘assessee’ and has further pointed out that the expression ‘person’ includes an individual as well. It is further submitted that Notification No.890 dated 26.09.2000 was issued to specify the information technology enabled product services as provided under Section 10A of the Act, Explanation 2(i)(b) of the Act. It is also pointed out that it was never the case of the Assessing Officer that assessee is not an undertaking It is also pointed out that assessee is a registered STP unit governed under Directorate of Software Technology Park and the assessee is also recognized to be 100% export oriented unit under STP scheme for IT enabled services viz., back office / remote data entry. It is also pointed out that assessee is also engaged in the transmission of electronic data i.e., patent related data from India to a place outside India as per Explanation 2 to Section 10A of the Act and is entitled to claim deduction under
Notification issued by CBDT dated 26.09.2000. It is further submitted that the assessee by an order dated 27.01.2006 passed by the Assessing Officer was given the benefit of deduction under Section 80HHI of the Act for the Assessment Year 2003-04. It is further submitted that the expression ‘computer software’ is wide enough to embrace diverse activities. It is also pointed out that processing of basic data for consumers on computer machines has been held to be ‘processing of goods’ by division bench of this court in ‘COMMISSIONER OF INCOME TAX VS. Datacons (P) LTD.’, (1985) 155 ITR 66 (KAR). It is also submitted that the issues involved in these appeals are in fact questions of fact and findings of fact are concurrent in nature and therefore, no interference is called for. In support of aforesaid submissions, reliance has been placed on ‘KULWANT KAUR VS. GURDIAL SINGH MANN’, (2001) 4 SCC 262, ‘VIJAY KUMAR TALWAR VS. CIT’, 330 ITR 1 (SC), ‘K.RAINDRANATHAN
NAIR VS. CIT’, 247 ITR 178 (SC), ‘SUDHARSHAN SILKS AND SAREES VS. CIT’, 300 ITR 205 (SC), ‘CBDT NOTIFICATION NO.890(E) DATED 26.09.2000, ‘CIT VS. M.L.OUTSOURCING SERVICES PVT LTD’, 271 CTR 553 (DEL), ‘CIT VS. MS/KIRAN KAPOOR’, 372 ITR 321 (DEL), ‘CIT VS. B.SURESH’, 313 ITR 149 (SC), ‘CIT VS. PEERLESS CONSULTANCY AND SERVICE (P.) LTD.’, (2001) 248 ITR 178 (SC), ‘CIT VS. PEERLESS CONSULTANCY AND SERVICES (P.) LTD.’, (1990) 186 ITR 609 (CALCUTTA), ‘CHILLIES EXPORT HOUSE LIMITD VS. CIT’, (1997) 225 ITR 814 (SC), ‘CIT VS. DATACON (P.) LTD.’, (1985) 155 ITR 766 (KARNATAKA).
We have considered the submissions made by learned counsel for the parties and have perused the record. The singular issue, which arises for consideration in this appeal, is whether the assessee is entitled to benefit of deduction under Section 10A of the Act. The
expression ‘computer software’ defined under Section Explanation 2 to Section 10A of the Act reads as under: ‘Computer software’ means – (a) Any computer program recorded on any disc, tape, perforated media or other information storage device; or (b) Any customized electronic data or any product or service of similar nature, as may be notified by the board, which is transmitted or exported from India to any place outside India by any means.
The assessee is a registered STP unit governed under the Directorate of Software Technology Park and the assessee is recognized to be 100% export oriented unit under STP scheme for IT enabled services (Back Office / Remote Data Entry). The CBDT had issued a Notification No.890 dated 26.09.2008 to specify the information technology enabled product services as provided under Section 10A of the Act, Explanation
2(i)(b) of the Act. The aforesaid Notification is clarificatory in nature and has been issued to clarify the expression viz., ‘computer software’ used in Explanation 2(i)(b) of Section 10A of the Act. The aforesaid Notification specifies that information and technology enabled products or services mentioned in the Notification shall be treated as Information Technology enabled products or services for the purposes of Explanation 2(i)(b) of Section 10A of the Act, which includes Back Office Operations and Data processing as well.
The assessee receives back office work from the legal department of software companies in USA. The companies assign back office work of registering their technology in USA patent office. The applications are prepared, finalized and signatures are obtained in the declaration. For development of work product as patent application, US patent application contains drawings and specification. The drawings are generated
using computer aided design software and specification is written using word processing software. The back office standard requires a level of control over formulation of the editing of the content of the application, which is possible only with the use of Information Technology. The activities of the assessee can be classified as Data Processing, Legal Databases and remote maintenance under the Notification issued by the CBDT. The assessee is transmitting the patent application and related data, which is stored in electronic form and therefore, such data, is customized data and is eligible for deduction under Section 10A of the Act. Therefore, it is evident that assessee is engaged in back office operations, which is prescribed as information technology enabled services in the Notification dated 26.09.2000. It is pertinent to note that the revenue itself has granted the benefit of deduction to the assessee vide order dated 27.01.2006 in respect of Assessment Year 2003-04 under Section 80HHE of the
Act, which is a pari materia to Section 10A of the Act.
It is well settled legal proposition that tribunal is a fact finding authority and decision on facts rendered by the tribunal can be gone into by High Court only if a question is referred to it, which says the finding is perverse [See: SANTHOSH HAZARI VS. PURUSHOTTAM TIWARI’, (2001) 3 SCC 179 and a decision of this court in CIT VS. SOFT BRANDS (P) LTD.’,
(2018) 406 ITR 513, ‘KULWANT KAUR S. GURDIAL SINGH MANN’, (2001) 4 SCC 262, ‘VIJAY KUMAR TALWAR VS. CIT 330 ITR 1 (SC), ‘K.RAVINDRANATHAN NAIR VS. CIT’, 247 ITR 178 (SC) and ‘SUDHARSHAN SILKS AND SAREES VS. CIT’, 300 ITR 205 (SC)]. Even otherwise, concurrent findings of fact recorded by the revenue that assessee is entitled to benefit of deduction under Section 10A of the Act is based on meticulous appreciation of evidence on record. The aforesaid findings, by no stretch of imagination can be said to be perverse. Learned counsel for the revenue was unable to
point out any perversity in the concurrent findings of fact recorded by Commissioner of Income Tax (Appeals) as well as Income Tax Appellate Tribunal. Even the issue of perversity has neither been raised in the memo of appeal nor has been argued before us.
In view of preceding analysis, we hold that no substantial question of law arises for consideration in these appeals, as the matter stands concluded by concurrent findings of fact which are based on based on meticulous appreciation of evidence on record. In the result, we do not find any merit in these appeals. The same fails and are hereby dismissed.
Sd/- JUDGE
Sd/- JUDGE ss