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Income Tax Appellate Tribunal, DELHI BENCH “C” NEW DELHI
Before: SHRI I.C. SUDHIR & SHRI PRASHANT MAHARISHI
ORDER
PER I.C. SUDHIR: JUDICIAL MEMBER The Revenue has questioned first appellate order in all the above appeals solely on the ground that the Learned CIT(Appeals) has erred in deleting the addition (of Rs.27,83,45,741 in assessment year 2007-08, Rs.90,53,50,969 in assessment year 2008-09, Rs. 70,35,36,948 in assessment year 2009-10 and Rs.98,56,91,361 in assessment year 2010-11) made on account of disallowance of deduction claimed under sec. 10AA of the Income-tax Act, 1961.
2 2. Heard and considered the arguments advanced by the parties in view of orders of the authorities below, material available on record and the decisions relied upon.
Since facts of all the appeals for the four assessment years are same with difference in figure only, we take facts of assessment year 2007-08 to discuss the issue. As per the assessment order, the facts in brief are that assessee company is engaged in the business of software development and providing information technology enabled services namely data processing and it exports from SEZ Unit located at DSF No. D-5, 2nd Floor, Noida SEA, Noida. The assessee claimed deduction under sec. 10AA of the Income-tax Act, 1961, which was denied by the Assessing Officer on the basis that majority of invoices were addressed to the assessee with the address mentioned being of Mumbai, Gurgaon etc. and very few were bearing the Noida SEZ address. The Assessing Officer was of the view that under the provisions of sec. 10AA of the Act, the source of data processing exports has to be the manufacturing unit established in SEZ area. He noted that number of employees at Noida SEZ is having only 38 and the value of computers installed is Rs.31,63,899. The Assessing Officer observed that the assessee is nothing but a distributor of the Galileo B.V.; ( in shrt Galile), who is the 3 owner of a reservation system through which airlines and hotels reservations are done worldwide. The system allows the travel agents to book airlines tickets and hotel rooms throughout the worlds. The Galileo B.V. entered into agreement with the assessee. The assessee as per the agreement installs computer hardware and software at various travel agents’ offices throughout India. The computers purchased by the assessee were installed at various travel agents offices’ throughout India. These agents make booking on the software and are entitled to commission. Each month, the Galileo calculates commission due to the assessee and thereafter remits the same in US $. The Assessing Officer observed that the assessee, in turns redistributes its commission which it receives from Galileo to subscribers i.e. the travel agents and terms this payment as incentive. The Assessing Officer by making several other observations came to the conclusion that assessee is not doing any data processing work from its Noida SEZ units and the only source of income available to the assessee is from its overseas customers, Galileo in the shape of commission on bookings done by the travel agents on Galileo’s GDS System. The Assessing Officer accordingly denied the claimed deduction under sec. 10AA of the Act. The Learned CIT(Appeals) has, however, allowed the claimed deduction, which has been questioned by the Revenue in the above appeals.
4 4. In support of the grounds, the Learned CIT(DR) has basically placed reliance on the assessment order, He submitted that Galileo, a non-resident entity, operates fully automatic computer information system which enables display and dissemination of information supplied by various airlines, which in turn facilitates, inter alia, reservations, communications, ticketing and related functions on a worldwide basis (referred as GDS) for the travel industry. The aforesaid system is for the facility of both travel agencies and airlines offices worldwide. In order to ensure that customer’s needs in each national market/country are made, Galileo entered in to distribution agreement with various companies, incorporated in the respective national market/countries for distribution of the aforesaid GDS. Galileo entered into a distribution agreement with the assessee in India. The claim of the assessee that under the said distribution agreement, assessee is required to provide IT Enabled Services to Galileo, viz. export of data processing, is not correct. It is also not correct on the part of the assessee to say that the aforesaid data processing services were rendered on the Galileo’s GDS in USA from the unit located in the Noida SEZ and not at the desk of the travel agents. The Learned CIT(DR) submitted that the decision of Delhi Bench of the ITAT in the case of Amadeus India Pvt. Ltd. – 79 ITD 407 (Del.) followed by the Learned CIT(Appeals) while allowing the claimed deduction to the assessee, 5 is having distinguishable facts and thus is not relevant in the present case. He submitted that in that case before Amadeus India Pvt. Ltd. (supra), the nature of activity of the assessee company was as data entry/data processing job which was software development programme as defined by the customs notification No. 10/96 dated 17.2.1997 issued by the Ministry of Finance, Department of Revenue, whereas in the present case before us, the assessee has not explained as to how it is doing data processing. The action of the assessee does not result in any data processing. The assessee is only engaged in data entry and transfers it to Galileo. There is no result of any new product. The present assessee thus is rendering services to Galileo in India but not outside India. There is no value addition by the assessee. The Learned CIT(DR) submitted that for eligibility of claiming of deduction under sec. 10AA of the Act export of services is required.
The Learned AR on the other hand placed reliance on the first appellate order. He reiterated submission made before the Learned CIT(Appeals). He submitted that the assessee is very much eligible for the claimed deduction under sec. 10AA of the Act. The new undertaking was set up/established during the year and notified by the Development Commissioner of Noida SEZ. During the previous year, the assessee company was engaged in the business of software development and 6 providing IT Enabled Services viz. Data Processing & Export thereof from its Unit located in NOIDA SEZ at SDF No. D-5, Second Floor, Noida Special Economic Zone, Noida Complex, Gautambudh Nagar, Uttar Pradesh – 201301. The new unit was not formed by transfer to unit, of plant and machinery previously used for any purpose. The unit was not set up by reconstruction or splitting up of any business already in existence. The entire consideration in respect of which deduction under sec. 10AA of the Act has been claimed in the return of income, was received in convertible foreign exchange and deduction of profit has been claimed in the ratio of export turnover to the total turnover. The claimed deduction under sec. 10AA of the Act is supported by Chartered Accountant’s certificate in the prescribed form 56F. The Learned AR submitted that all the technical services are provided by the assessee and furnished a written note on steps/services involved, reproduced hereunder: “Access Levels Travel Agency is identified by our Marketing and sales team to convince him to work on a Galileo GDS terminal. Once convinced, a trained ITQPL Help Desk staff resident at the SEZ Unit crates a specific location Identifier known as Pseudo city code (PCC) by means of data transmission and processing at the Galileo Data Centre for that specific location from where the ticket booking from travel agency will be initiated on the Galileo GDS. This PCC includes information like Agency name, location address and access permissions for that location. Apart from PCC lTQPL also creates by means of data transmission and processing Galileo
7 Terminal Identifier (GTID) and user name passwords per terminal. These terminals (computers) are provided to the Travel Agent by lTQPL. Host Servers at Denver will have logically partitioned resources in the servers for India travel agents for whom these PCCs have been created. These partitioned resources within the host servers will have an access permissions and functionality based on the profile of the agency PCC. These additions and modifications by means of data transmission and processing to the information residing in Denver Host server is conducted on a regular basis to add new users, modify existing users, or delete the existing users by lTQPL through their access levels defined by Galileo International. These PCCs are constantly monitored by lTQPL and data transmission and processing happens all the time. Once the access levels are updated by ITQPL the agent is enabled and he can now start creating his unstructured bookings. Communication Links To connect to the Galileo GDS, Agent also requires communication link which is also provided by ITQPL. These communication links are generally through Virtual Private Network (VPN) created by accessing the internet cloud and connecting to the host computers at Denver USA to enable data transmission. Considerable investments have been made by ITQPL to create a communication setup. All network operations beyond the point of India Travel Agent Terminal CPE (Client Premise equipment) are provided, enabled, monitored and managed by ITQPL and then data transmission happens. For these operations the monitoring routers are located in the SEZ Unit of ITQPL. Essentially on a yearly basis network technology gets enhanced and ITQPL has to keep upgrading the network setup for enabling the travel agent to book unstructured PNR and ticket structured PNR's (Passenger Name Request) in their day to day operations on Galileo CRS. If the communication network breaks down the travel agent will not be able to access the Galileo GDS. The following diagram would clarify how the network functions. Configuring the system
8 Once the agency information are created like PCC, GTID's, and the user information (sign on), the computers terminals are loaded with the CRS software called Focal Point which is used to work on the GDS host systems. Along with Focal point ITQPL also loads multiple “scripts” which are developed and maintained by ITQPL for the industrial, regulatory and Technical (Windows OS) changes as and when either of these conditions demands so that the data transmission and processing can happen correctly with the host servers at Denver. Industrial Changes: These are changes resulting from the working modalities as directed by lATA, BSP, Airlines and GDS host server changes. Regulatory Changes: These are changes resulting from the working modalities as directed by Tax authorities/Govt of India, lATA & BSP. Technical Changes: These are changes resulting from the changes which derive from the OS version changes, security patch up dation as and when notified by Microsoft Corporation. Scripts ITQPL has developed a number of Programs in the nature of wrappers on Focal Point, software known as "Scripts" which are loaded on the travel agency terminals, for easy and user friendly operations and generation of reports and MIS by means of data transmission and processing. Scripts can be defined as user friendly interface for the user to bundle the number of cryptic commands in one consolidated input and to get the desired output. This is a handy solution for the users as they don't have to refer to or memorize the focal point cryptic commands, as the inputs for the desired functionality are on a simple GUI (Graphic User Interface) data entry forms. Scripts also have features of exporting the data generated into various applications like MS-Excel & MS-Word, and any other database for future references and MIS generation. These are also quality enhancement tools which automate repetitive activity and -save, time and eases out the user of the complexity involved in running a GDS application. These scripts are developed by ITQPL at the SEZ Unit.
9 PT - Problem Ticketing and Help Desk Operations ITQPL also performs function called Help Desk operations & Problem Ticket initiation for resolving any & every kind of problems which may be faced by an India travel agent or ITQPL SEZ unit while working on the Galileo CRS. These problem tickets are closed only upon getting the problem resolved or in other words due escalation process to resolve the problem with Galileo is taken up until the problem comes to a logical conclusion. These problems may arise due to error in the Galileo CRS application, or Airlines reservation system, or any of the communication link such as India Network, Airlines Network or SITA controlled Network, based on country specific needs or it could be a generic problem which has cropped up due to the complexity of the booked itinerary (PNR). Hence ITQPL process the India Travel Agent stored/created data (unstructured PNR's) constantly on the Galileo GDS application Host servers by ensuring the modifications are done to the data by means of transmission and processing. If a travel agent is unable to explain the exact problem it is facing then ITQPL's concerned support department staff emulates and remotely perform the required task on the Travel agent's system/ PNR and transacts data processing and transmission to ensure that the booking takes place and is ticketed. Voice In bound Call Centre 24X7 ITQPL also provides voice based support for agents who do not process the capability to even make a PNR due to variety of reasons; this call centre runs on national toll free numbers 24X7 and 365 days a year. Subscriber agency calls our help desk, our staff performs the data processing & transmission for creating an error free PNR in all respect. This Call centre is equipped with the latest technology and infrastructure such as STM16 MUX installed by majority of the telecomm providers. The SEZ also has a DR (disaster recovery) and BCP (Business continuity process) outof our Mumbai office as also depicted in the figure illustrated below.
10 Network Monitoring Operations: Due to the very high number of users and the associated data network there are possibilities that the network may not respond. ITQPL also monitors this network and ensures that the travel agent at all times gets the required network performance to transact and create unstructured PNRs. Voice In bound Call Centre 24X7: ITQPL also provides voice based support for agents who do not process the capability to even make a PNR due to verity of reasons; this call centre runs on national toll free numbers 24X7 and 365 days a year. Subscriber agency calls our help desk, our staff performs the data processing & transmission for creating an error free PNR in all respect. This Call centre is equipped with the latest technology and infrastructure such as STM16 MUX installed by majority of the telecomm providers. The SEZ also has a DR (disaster recovery) arid BCP (Business continuity process) out, of our Mumbai office as also depicted in the figure illustrated below. Network Monitoring Operations: Due to the very high number of users and the associated data network there are possibilities that the network may not respond. ITQPL also monitors this network and ensures that the travel agent at all-times gets the required network performance to transact and create unstructured PNRs. Ticket Stock Control Operations: Operations of travel agency in India are controlled by an independent non-profit IATA (International Air Transport Association) off shoot body called BSP (Billing Settlement Plan). This body also controls the credit limits (value capping of the number of tickets which the travel agents can issue in fortnight) for all Airlines which are available on the GDS system. This transaction capping of travel agents is updated on the Galileo CRS by ITQPL concerned support department staff on a regular and periodical basis. Apart from the periodic capping update, there could be an ad-hoc requirement by a travel agency to 11 increase the capping on BSP. BSP after performing their internal process for enhancing the capping limit then notifies the concerned GDS in this case ITQPL to enhance the transaction capping. Only after updating the information in the Host server by ITQPL concerned department support staff, the agent would be able to issue tickets. Vendor Support Operations: As per directive given by IATA/BSP in this local Indian market, Airlines also have to control the value capping to India travel agents. Hence Airlines have their own way of controlling their risk of exposure by restricting the number of tickets which the travel agent can book and issue tickets in an Airline inventory by reducing the capping to lesser number of tickets. This information pertaining to the Travel agency is transmitted to ITQPL by the Airline through software specifically developed and hosted at the SEZ Unit for this purpose by ITQPL, with controlled information coming from specific pre-determined users within the Airlines. The level of interaction of ITQPL with the Airline vendors of Galileo International is mainly at an operational support level to the travel agents; all official communication takes place between Airline & Galileo International directly. ITQPL is not a party to that except for further dissemination of the communication down the line to the travel agent. Fares Support Operations: Airlines globally file their fares for all the sectors that they operate through ATPCO (Airline Tariff Publishing Company) who offers resource for airlines & global distribution systems (GDS). The passenger International Fares System is a database containing worldwide carrier (Airline)fares. This allows airlines to display and update fares, to view the text associated with a fare, and to transmit fare instructions to ATPCO. For more than 30 years this database has been providing international fare data to airlines, global distribution systems (GDS), computer reservation systems (CRS), travel agents, and travel related companies.
12 Travel agents while working on a GDS terminal uses the fares which have been filed by the Airline through ATPCO to perform the creation of a PNR and finally to ticket the same. Many a time travel agents are not able to price the fare correctly leading to data discrepancy in the PNR for fare discrepancy related to airline fare/taxes/commission and hence do not ticket the same. The fares and support department at the SEZ unit of ITQPL ensures that the travel agents PNR is correct as per the fare filed by the Airline with ATPCO and what is visible on the Galileo GDS. Sometimes it also happens that due to weather situation the aircraft may not be able to take the full load of passengers. During these times the travel agent may contact our help desk located in SEZ unit to verify the availability and saleable data on the GDS terminal. Due to the higher level access rights available to ITQPL support staff and comparing it with the ATPCO filing, would be able to know the reasons that this inventory is non-saleable and updates the travel agent about the same. All the above process and many more such operations are conducted real times by ITPQPL staff at SEZ unit on a 24X7 environment by accessing Galileo Host Servers at Denver to enable the data transmission and processing resulting and data export and earning of much needed foreign exchange for the country”.
5.1 The Learned AR submitted that all the technical services are provided by the assessee as discussed above. Constant updating work is done by the assessee time to time. He referred page No. 37 of the paper book which is software export declaration (SOFTEX) form showing the assessee in the data entry jobs and conversion software data processing. The Learned AR also referred page Nos. 12, 22, 23, 29, 30 and 168 of the paper book which 13 are copies of profit and loss account (showing data processing software export, software development services income ), part of auditor’s report certifying that the assessee company has been engaged in the development of computer software and information technology enabled products and services, the auditor’s report that Revenue depicted under “data processing software” has been/is being certified by the office of development commissioner, Noida Special Economic Zone, further certifying that during the year the company issued 117, 500, 10% cumulative redeemable preference shares redeemable at the end of 18 years or earlier at the option of the management of the company; bill issued by Galileo to the assessee to the amount of data processing fee for the month of June 2006, letter from Noida Special Economic Zone sending the assessee certified copy of SOFTEX form along with invoice submitted by the assessee for software export through data communication link as per the given details, and the letter issued from office of the development commissioner, Noida Special Economic Zone (Ministry of Commerce & Industries), Noida Dadri Road, Noida to the assessee for extending assessee all the facilities and privileges admissible and subject to the provisions as envisaged in SEZ Scheme for the establishment of a new undertaking at Noida Special Economic Zone for data processing (software export) for the prescribed capacity. The Learned 14 AR also referred the relevant contents of the distribution agreement with the Galileo made available at page Nos. 96 to 136 with emphasis on the contents of page Nos. 96, 100, 101, 102, 103, 104, 109 and 110. It is working throughout twenty four hours of a day. Raw-data comes from agent then assessee processed it and transmitted it to Galileo. He referred reply dated 09.12.2009 filed before the Assessing Officer along with all the necessary annexureS including the distribution agreement with Galileo made available at page Nos. 26 to 136 of the paper book. Learned AR submitted that the provisions of deduction laid down under sec. 10AA of the Act are broader than those laid down under sec. 80HHC of the Act. The Assessing Officer has wrongly treated the assessee a call centre without appreciating the activities of the assessee in right prospective. He submitted that the issue raised in the present case is squarely covered by the decision of Delhi Bench of the ITAT in the case of ACIT vs. Amadeus India (P) Ltd. 79 ITD 407 (Del.) holding that in absence of a specific definition of word “computer program” in the Act, said expression should be understood as defined in copyright Act and should be interpreted, liberally and consistently with other relevant legislation of government to include export of “data processing software” as well. He submitted that Amadeus India (P) Ltd. is in the same business as the assessee is and actually they are competitor of the assessee.
15 The Learned AR pointed out that assessee company is an entrepreneur for the purpose of sec. 2(j) of Special Economic Zone Act, 2005 which is manifest in the fact that after detailed scrutiny, the assessee company has been notified by the Development Commissioner of the NOIDA SEZ as an “eligible unit” for the purposes of the said Act. He also placed reliance on the following decisions while referring relevant extract of the Special Economy Zone Act 2005 and the Special Economic Zone Rules, 2006 made available at page Nos. 1 to 21 of the paper book: i) Galileo International Inc. vs. DCIT – 116 ITD 1 (Del); ii) DIT vs. Galileo International Inc. – 336 ITR 264 (Del.); iii) Travelport L.P. USA vs. DDIT – 6327, 1342/Del/2012 (A.Y. 2006-07, 2007-08 & 2008-09) – order dated 23.11.2015; iv) Acquire Services (P) Ltd. Vs. Commissioner of Service-tax, Delhi – 48 Taxman.com 269; v ) DCIT vs. Goenka Diamond & Jewellers Ltd. – 146 TTJ 68 (Jaipur); & vi) Oracle Software India Ltd. (2010) – 320 ITR 546 (SC); vii) LI & Fung India (P) Ltd. vs. CIT – 305 ITR 105 (Del.); viii) CIT vs. M.L. Outsourcing Services (P) Ltd. (2014) – 271 CTR 553 (Del.); ix) Vasisth Chay Vyapar Ltd. & Anr. (2011) – 333 ITR 440 (Del.); 16 6. In rejoinder, the Learned CIT(DR) reiterated that assessee is a local marketing agent doing business in India for Galileo. The services are rendered in India to Galileo. Such services are not exported.
Considering the above submissions in view of orders of the authorities below, material available on record and the decisions relied upon, we find certain undisputed facts that the unit of assessee company is located in Noida SEZ; the new undertaking was set up during the previous year relevant to assessment year 2007-08, and notified by the development commissioner of Noida SEZ with approvals dated 23.2.2005 and 13.10.2005. There is no dispute that the new unit has not been formed by transfer to the unit, of plant and machinery previously used for any purpose; the new unit was not set up by reconstruction or splitting up of any business already in existence; the entire consideration in respect of which deduction under sec. 10AA of the Act claimed in the return of income was received in convertible foreign exchange and the deduction of profit has been claimed in the ratio of export turnover to the total turnover; and the claimed deduction under sec. 10AA of the Act is supported by chartered accountants certificate in the prescribed form 56F. The only dispute is regarding the nature of job rendered by the assessee to make it eligible for deduction under sec. 10AA 17 of the Act. The Assessing Officer denied the claimed deduction under sec. 10AA of the Act alleging that the assessee was merely acting as a distributor for Galileo and did not undertake export of data processing/software export from its unit located in Noida SEZ. The Assessing Officer alleged further that major part of the assessee’s activity happened outside the SEZ unit i.e. at the large number of computer installed at the desk of the travel agents. He also alleged that the real and actual source of Revenue for the assessee was not any data processing activities carried out at the SEZ unit but the travel agents, who booked ticket(s) of the airlines using Galileo’s GDS. 7.1 The submission of the assessee against the above allegations of the Assessing Officer remained that in terms of Article 9 read with Schedule-I of the Distribution Agreement ( the agreement ) between the assessee and Galileo, the Galileo is entitled to a fee based on the number of segments completed by the assessee. “Segment” is defined under Article 2 to mean a booking, either of a direct flight or consisting of various legs of journeys, which is concluded and not cancelled at any stage. As a corollary, more the number of segments booked by travel agent to the assessee, higher would be the Revenues of the assessee. It is, therefore, critical for the assessee to ensure that the bookings are converted into complete segment. It was submitted that it is in this regard that in terms of Article 8 of the agreement, 18 the assessee is required to provide any kind of technical help, support or assistance, as may be required by the subscribers, in connection with use of Galileo GDS server located in Denver USA. It was submitted that Revenue is generated on creation of segment and finalization of PNRs which required the assessee undertaking the said data processing services from its units located in Noida SEZ. It was submitted that the aforesaid data processing services were rendered on the Galileo’s GDS in USA from the unit located in the Noida SEZ and not at the desk of the travel agent.
7.2 Against the allegations of the Assessing Officer that only two employees were stationed at the Delhi Office, whereas computers worth Rs.2.2 crores had been installed at the said office which was beyond norms of commercial experience, the assessee submitted that the said computers had been installed at the desk of the travel agents in terms of the distribution agreement (more particularly Article 5.2 of the agreement ), the assessee was required to (i) installed computers at the desk of the travel agents who subscribed to the GDS and (ii) connect computers at the desk of the travel agents with the assessee’s server located in the SEZ unit at Noida which, in turn, is connected to Galileo server in USA. The value or number of computers installed at the desk of the travel agent, therefore, have nothing to 19 do with the business of export of data processing services undertaken by the assessee from its SEZ unit Noida. It was submitted by the assessee that in the units return of income it had offered to tax income of Rs.55.26 lacs from development of software, training of personnel and other miscellaneous income from operation carried out outside the SEZ unit. It was also submitted that the issue raised in the present appeal is squarely covered by the decision of the Delhi Bench of the ITAT in the case of AMDEUS India Pvt. Ltd. (supra).
7.3 The Revenue on the other hand contended that in the distribution agreement between Galileo and assessee, no such term is there that assessee is required to provide IT enabled Services to Galileo with export of data processing. It is also wrong to claim that data processing services were rendered on the Galileo’s GDS in USA from unit located in the Noida SEZ. The further contention of the Revenue remained that for the first time, it was argued before the Learned CIT(Appeals) that assessee had also developed a number of program in the nature of wrappers on focal point (front & in client GDS application) software known as script which are loaded on the travel agency terminals, for e.g. and user friendly operations and general of reports and MIS. It was contended by the Revenue before us that assessee is 20 paid distribution fee only and no payment for export of data processing services is made.
7.4. We find that the Learned CIT(Appeals) has discussed the issue in detail and has come to the following conclusion in para Nos. 5, 5.1 and 5.2 of the first appellate order: These paragraphs are being reproduced hereunder for a ready reference:
“5. I have considered the submissions of the Id. AR, perused the submissions filed and also gone through the assessment order. The assessing officer has in the assessment order alleged that the assessee was not exporting any data processing services and merely acted as a distributor of Galileo's GDS in India. The assessing officer further alleged that the SEZ unit of the assessee was merely a call centre and not engaged in any activity of data processing. In light of the above observations, the assessing officer has denied deduction of Rs. 27,83,45,741 under section 10AA of the Act. 5.1 From the submissions filed by the assessee and the arguments addressed before me, it is also noticed that the assessee has entered into a Distribution Agreement with Galileo under which the assessee is required to not only distribute the GDS of Galileo in India but also carry out various data processing services from its SEZ unit located in India. In terms of Article 9 read with Schedule 1 of the Agreement the assessee is entitled to a fee based on the number of completed 21 segments. A segment, on the other hand; is defined in Article 2 of the agreement to mean a booking, either to a direct flight or consisting various legs of travels which are completed. As a corollary more the number of segments booked higher would be the revenue of the assessee. It is therefore critical for the assessee to ensure that the bookings made by the travel agent culminate into completed segments. It is in this regard that the role of the assessee becomes critical. In terms of the Article 8 of the agreement the assessee is required to provide technical assistance, support, etc. to the travel agents in connection with the use of Galileo's GDS server located in USA. It is also seen that the assessee's staff in the SEZ unit provides 24 x 7 technical support to the travel agents and virtually takes over all inputs received from the travel agents and passes them on to the server located in Denver, USA to ensure that the booking culminates into completed segments. It is also seen that the assessee provides technical support in respect of publishing of fares, capping of tickets and price and also assists the travel agent in cancellation and modification of the reservation made by the travel agents. Such services are critical to the conversion of request made by a travel agent into completed segment for which the assessee receives revenue from Galileo. 5.2 The data processing services, provided by the assessee to Galileo in terms of the Distribution Agreement have been elaborately explained in the submissions filed by the assessee, which are reproduced as under:
22 1) Once the travel agent chooses to install GDS, a trained personnel from the appellant's staff, resident at the SEZ Unit. creates a specific location Identifier known as Pseudo city code (PCC) for that specific location from where she ticket booking from that travel agency will be initiated on the Galileo GDS. 2) This PCC includes information like Agency name, location address and access permissions for that location. Apart from PCC, the appellant also creates Galileo Terminal Identifier (GTJD) and user name passwords per terminal. These terminals (computers) are provided to the travel agent by the appellant. Host Servers at Denver will have logically partitioned resources in the servers for India travel agents for whom these PCC's have been created. Only these partitioned resources within the host severs will have access permissions and functionality based on the profile of the agency PCC. 3) It is only the appellant who can add new users, modify existing users, or delete the existing users through ifs access levels defined, by Galileo International. These PCC's are constantly monitored by the appellant. Once the access levels are updated by the appellant, the agent can start making bookings. 4) All network operations beyond the point of India Travel Agent Terminal CPE (Client Premise equipment) are provided, enabled, monitored, and managed by the appellant. The monitoring routers are located in the SEZ Unit of the appellant.
23 5) Any changes to be earned out on Galileo's GDS, resulting from the working modalities directed by IATA, BSP, Airlines and are also carried out by the appellant. 6) Similarly, all changes resulting from the working modalities directed by tax authorities/ Govt of India, IATA & BSP qua restriction on number of bookings that a travel agent can make the credit limit allowed to each travel agency etc are also carried out by the appellant on Galileo’s GDS. 7) The appellant has also developed a number of programs in the nature of wrappers on Focal Point (front end client CDS application) software known as "Scripts" which are loaded on the travel agency terminals, for easy and user friendly operations and generation of reports and MIS Scripts can be defined as user friendly interface for the user to bundle the number of cryptic commands into one consolidated input and to get the desired output. This is a handy solution for the users as they do not have to refer to or memorize the focal point cryptic commands, as the inputs for the desired functionality are on a simple GUI (Graphic User Interface) data entry forms. Scripts also have features of exporting the data generated into various applications like MS-Excel & MS-Word, and any other database for future references and MIS generation. These are also quality enhancement tools which automate repetitive activity and save time and eases out the user of the complexity involved in running a GDS application. These scripts are developed by the appellant at the SEZ Unit.
24 8) Due to a very high number of users and the associated data network, the network gets clogged and does not respond at times. The appellant also monitors this network and ensures that the travel agent at all time gets the required network performance to transact and create PNR's. 9) Vendor Support Operations: As per directive given by IATA/BSP, airlines also have to control the value capping allowed to any travel agent. Hence, airlines have their own way of controlling their risk of exposure by restricting the number of tickets which the travel agent can hook and issue in an Airline inventory by reducing the capping to lesser number of tickets. This information, pertaining to the travel agency, is transmitted to the appellant by the Airline through software specifically developed and hosted at the SEZ Unit for this purpose by the appellant, with controlled information coming from specific pre determined users within the Airlines. The appellant, thereafter, makes modifications on the GDS to ensure that such parameters are adequately inserted m the GDS. 10) Fares Support Operations: Airlines file their fares for all the sectors that they operate through ATPCO (Airline Tariff Publishing Company). The Passenger International Fares System is a database containing worldwide carrier (Airline) fares. This allows airlines to display and update fares, to view the text associated with a fare, and to transmit fare 25 instructions to ATPCO. For more than 30 years this database has been providing international fare data to airlines, global distribution systems (GDS). computer reservation systems (CRS), travel agents, and travel related companies. Travels agents, while working on a CDS terminal, use the fares which have been filed by the Airline through ATPCO to perform the creation of a PNR and finally to ticket the same. At most time, travel agents are not able to price the fare correctly leading to data discrepancy in the PNR for fare discrepancy related to airline fare/taxes/commission and hence the booking does not get concluded on the GDS. The fares and support department at the SEZ Unit of the appellant ensures that the travel agent's PNR is correct as per the fare filed by the Airline with ATPCO and what is visible on the Galileo CDS. Sometimes it also happens that due to weather situation the aircraft may not be able to take the full load of passengers. During these times the travel agent may contact the help desk located in appellant's SEZ Unit to verify the availability and saleable data on the GDS terminal. Due to higher level access rights available to the appellant's support staff and comparing the same with the ATPCO filing, the appellant's staff would be able to know the reasons why a particular inventory is non saleable and updates the travel agent about the same. 11) PT - Problem Ticketing and Help Desk Operations: The Appellant also resolves any & every kind of problem which may be faced by a travel agent while working on the Galileo GDS in 26 connection with generation of a PNR. Problems in generation of a PNR may arise due to error in the Galileo GDS application, or Airlines reservation system, or any of the communication link such as India Network, Airlines Network or SITA controlled Network, based on country specific needs or it could be a generic problem which has cropped up due to the complexity of the booked itinerary. At this juncture, the appellant which is constantly processing all communication/transaction from India on the Galileo GDS application, makes the necessary modification/correction to the data, script software or the PNR’s database, to ensure successful generation of a PNR. If a travel agent is unable to explain the exact problem it is facing, then the appellant's concerned support department staff emulates and rectifies the mistake through remote login. 12) Many a times the travel agent is unable to access the GDS. In such cases the appellant's SEZ unit virtually fakes over all the inputs provided by the travel agents and passes on the processed PNR by exporting data to the host server located at Denver to ensure that business for SEZ unit is not affected by the failure of the travel agents. 13) The appellant's, staff at the SEZ unit provides 24*7 support to change and modify the bookings for end users who would desire a change in travel plans mid-way. Such requests require half an hour to two hours of complex IT driven solutions which are provided by the appellant from its SEZ unit. It is imperative to point out that it is only the appellant which undertakes such a transaction since no travel 27 agent would risk such an activity because any incorrect processing could result in cancellation of the whole reservations and leave the traveler stranded. This activity is called ticket re-issuance. The aforesaid description of services makes it amply clear that the assessee undertook export of software/ data processing services @ %age of GDP as part of the distribution services provided to Galileo and the consideration paid by Galileo for such services qualified for deduction under section 10AA of the Act. The assessing officer, therefore, erred in holding that the assessee was acting as a distributor of Galileo in India and its office was merely call centre not engaged in the activity of export of data processing. It was also explained by the Id. AR and rightly so that the value of computers vis-à-vis the number of employees cannot form basis for denying deduction under section 10AA of the Act, since the value and the number of computers installed at the desks of the travel agent had nothing to do with the business of export and data processing undertaken by the assessee from its unit at Noida. The AR was also required to explain whether the assessee company had fulfilled the other conditions for claiming deduction under section 10AA of the Act. In response thereto: the Ld. AR submitted as under: (a) The assessee company is an entrepreneur for the purposes of the SEZ Act, 2005 and has set-up/established a unit in the Noida SEZ during the year which has been notified by the Development Commissioner of Noida SEZ, vide approvals dated 23rd February, 2005 and 13th 28 October. 2005 (consequent to change in the name of assessee company), copies whereof were filed before me. As per section 2(j) of the SEZ Act, 2005; an ‘entrepreneur' means a person who has been granted a letter of approval by the development commissioner. The assessee company has been granted approval by Development commissioner and hence is an entrepreneur under SEZ Act, 2005. This is the first year of business to claim 10AA exemption under Income Tax Act. (b) During the relevant previous year, the assessee-company was engaged in the business of software development and providing IT Enabled Services viz. data processing and export thereof from its unit located in Noida, SEZ at SDF No. D-5, 2nd Floor, Noida Special Economic Zone, Noida Complex, Gautam Budh Nagar, Uttar Pradesh-201301. (c) The new unit has not been formed by transfer to the unit of plant and machinery previously used for any purpose. (d) The new unit was not set up by reconstruction or splitting up of any business already in existence. (e) The entire consideration in respect of which deduction under section 10AA of the Act has been claimed in the return of income, was received in convertible foreign exchange and the deduction of profits has been claimed in the ratio of export turnover to the total turnover. The flow of revenue was also explained by the assessee as under:
29 The customer pays cost of the ticket to the respective airlines. The airlines further make payment in the nature of booking fees' to Galileo on the basis of segments booked. Galileo further makes payment of distribution fee to the assessee company for export of data processing services in USD. The assessee company, in turn, makes payment of incentives to the travel agents who opt for Galileo's GDS. The money flow diagram is as under- Customer —» Airlines —» Galileo —» Interglobe (assessee) —» Travel agents (f) The claim of deduction under section 10AA of the Act was supported by Chartered Accountant's Certificate in the prescribed Form 56F, copy whereof was also filed before me. It is also observed that the similar issue had arisen in the case of Amadeus India (supra) wherein in the context of section 80HHE (which section is similarly worded to section 10AA of the Act) and in respect: of identical data processing services rendered by the said assessee the Tribunal held the assessee therein to be entitled to deduction under that section. The services rendered by Amadeus India to the non-resident in that case were identical to the services rendered by the assessee to Galileo in the present case. In fact, during the course of arguments the Id. AR clarified that Amadeus and Galileo are both competitors in the same line of business. In the case of Amadeus (supra) the Tribunal held as under:
30 26. We also find that when the Assessing Officer was not satisfied with the explanation of the assessee he had made a reference to SIT. The Assistant Director, STP vide his letter dated 26-2-1998 had replied to the Assessing Officer which is reproduced in the body of this order earlier. They had confirmed that the nature of activity of the assessee is as data entry/data processing job which was a software development programme as defined by the Customs Notification No. 10/96 dated 17-2-1997 issued by the Ministry of Finance, Department of Revenue. The Assessing Officer took note of the letter received from the STP but he was of the view that as the finding of the STP was based on Customs Notification and not any Notification under the Income-tax Act the same was not applicable in the Income-tax proceedings. We differ with the Assessing Officer in this regard. As per Explanation (b) of section 80HHE. 'Computer Software' means any 'computer programme'. But once the scope of the words "computer programme" was not explained in section 80HHE we have to &o by the global meaning of the word. The doctrine of pari materia is very relevant for this purpose. As per this doctrine the Explanation / meaning of a particular word could be imported if the same was not contrary to the provisions of the importer Act. Department of Electronics, Government of India, the Customs Department, Department of Revenue, National Informatics Centre, Planning Commission and the ESC were authorized Government/ Government Controlled Organizations from where the meaning of a particular word could be imported. This will be in consonance with the doctrine of pari material. We, therefore, feel that the meaning of the words 'Software Development', computer program could be imported from 31 the above named Acts/ Institutions. In the year 1991-92 there was substantial demand for a new software related activity "consultancy exports' i.e., development of software 'on-site' abroad at clients location by software personnel deployed by Indian software exporters. Then CBEC, on the recommendation of ESC issued a clarificatory Notification No. 154/98 dated 13-8-1993 that export benefits will be available to software exporting units for providing consultancy services for development of software 'on-site' abroad and that consultancy fees received by software units in convertible foreign currencies shall be deemed to be export earning. ……………………… 36. Apart from the above facts we also find that the assessee- company submits their monthly return for exports to the Competent Authority which has accepted the same in discharge of export obligation. We have also noted that the export of software as per the statutory requirements are also declared on exporters declaration form SOFTEX (specimen of SOFTEX form has been filed). The competent authority i.e. Department of Electronics authorised official also certifies that the software described in the SOFTEX form was actually transmitted and the export value declared by the exporter has been found to be in order and accepted by the authorised officer. ………………………..
Keeping in view the above facts we hold that the assessee was entitled to deduction under section 80HHE of the Act as all the 32 necessary conditions for such claim have been satisfied with. As the order passed by the Commissioner (Appeals) is in accordance with law and facts no interference in the same is called for. We, therefore, uphold the same.
We also find that before the CIT(A) the assessee had made an alternate claim for deduction under section 10-A/10-B and section 80HHC of the Act. The Commissioner (Appeals) held that the assessee-company having been set up as a 100% export oriented unit under STP Scheme, its claim under section 10-A/10-B of the Act was prima facie admissible. This finding of the Commissioner (Appeals) has not been challenged by the revenue by way of appeal. In other words, the revenue has accepted that the assessee company satisfied the conditions of the claim of exemption under section 10-A/ 10-B of the Act. It may be mentioned in this connection that deduction under sections 10-A and 10-B of the Act was available only if the assessee was an industrial undertaking and produces an article or thing. By accepting that the assessee was entitled lo deduction under section 10-A/ 10-B of the Act there is no force in the revenue's submission that the assessee was not engaged in making or producing of a computer programme. Considering the facts as a whole we uphold the order of the Commissioner (Appeals) and dismiss the ground of appeal raised by the revenue.
33 5.2 I have considered the decision of Amadeus India (supra) and also perused the submissions of the assessee in this regard. It is seen that the assessee has fulfilled all conditions prescribed under section 10AA of the Act for claiming deduction under that section, namely, (i) the assessee company is an "entrepreneur” for the purposes of the SEZ Act, 2005 and has set- up/established a unit in the Noida SEZ during the year which has been notified by the Development Commissioner of Noida SEZ, vide approvals dated 23rd February, 2005 and 13th October, 2005; (ii) during the relevant previous year, the assessee-company was engaged in the business of software development and provided IT Enabled Services viz. data processing and export thereof; (iii) the new unit has not been formed by transfer to the unit, of plant and machinery previously used for any, purpose; (iv) the new unit was not set up by reconstruction or splitting up of any business already in existence; (v) the entire consideration in respect of which deduction under section 10AA of the Act was, claimed in the return of income; was received in convertible foreign exchange; (vi) the claim of deduction under section 10AA of the Act was supported by Chartered Accountant's Certificate in the prescribed Form 56F. On a comparative analysis, it is further observed that the services rendered by the assessee to Galileo are identical to the services rendered by Amadeus India to Amadeus group of companies in the aforesaid case. The two parties, are in fact, competitors in the same line of business. The Tribunal has, in the aforesaid case, held Amadeus India to be entitled to deduction under section 80HHE of the Act under which deduction was available to an exporter of computer prpgramme/ software. On the other hand, deduction is available to an entrepreneur under section 10AA of the Act in respect of profits from export of articles or things or services from an SEZ unit. The provisions of section 10AA arc, therefore, wider in scope than 34 section 80HHE of the Act. Consequently, if profits from certain services are eligible for deduction under section 80HHE of the Act, deduction under section 10AA of the Act cannot be denied in respect of similar services. In that view of the matter, respectfully following the decision of the Tribunal in the case of Amadeus (supra), I am of the considered view that the action of the assessing officer in denying deduction under section 10AA of the Act was not justified and, therefore, the disallowance made in this regard is deleted”.
7.5 We find that the Learned CIT(Appeals) while dealing with the issue has basically followed the decision of the ITAT in the case of Amadeus India (supra). He has elaborately discussed the terms of distribution agreement between the assessee and Galileo and has compared the activities of the assessee with that of Amadeus India before coming to the conclusion that the assessee before us is very much eligible for claiming deduction under sec. 10AA of the Act with this finding that the Assessing Officer was not justified in denying the claimed deduction under sec. 10AA of the Act in the present case. In para No. 5.2, the Learned CIT(Appeals) firstly has discussed the terms of distribution agreement and on the basis of those description of services, he has come to the conclusion that the assessee had undertaken export of software/data processing services at the rate of % of GDP as part of the distribution services provided to Galileo and the 35 consideration paid by Galileo for such services qualified for deduction under sec. 10AA of the Act. The Learned CIT(Appeals) has met out the objections raised by the Assessing Officer to justify his denial of the claimed deduction. The services rendered by the assessee to Galileo have been compared by the Learned CIT(Appeals) with the services rendered by Amadeus India to Amadeus Group of Companies. If we compare the working of the assessee with Amadeus India as the Amadeus India undisputedly was in the same line of business as it has not been denied that the assessee and Amadeus India are in fact competitor in the same line of business. In the case of Amadeus India (supra), the ITAT has held that the Amadeus India was performing the functions of a program exporter. They do not add mere entries to the data base as done by the travel agent. In fact, it has no direct interest in adding to, or drawing extracts from the data base built into the computers like the several operators all the world over but what it does actually is to supplement the function of the Amaedeus Group by preparing and transmitting programs to the latter for the incorporation into the portion or “partition” in its mega – computers at Erding in Germany, so as to enable the travel agent in marketing reason drawn on the available information for their benefit. Its activities are to issue instructions to the master computer to recognize the operators, identify them and provide them excess to specific 36 portion of the data base. There can be no doubt whatever, for the reasons discussed above that the assessee manufactures, produces and export software within the meaning of the three specified sections of the Act. It is open to it to claim exemption under any of these sections and as is well established by pertaining to interpretation of taxing statute it is entitled to choose that one which is most favourable to it in any particular assessment year, held the ITAT. The ITAT in that case also noted some material facts that assessee company submits their monthly returns for export to the competent authority which has accepted the same in discharge of export obligation. The ITAT noted further that the export of software as per the statutory requirement are also declared on exporters declaration form SOFTES(specimen of SOFTES Form has been filed). The competent authority Le., Department of Electronics authorized official also certified that the software described in the SOFTES form was actually transmitted and the export value declared by the exporter has been found to be in order and accepted by the authorized officer. Similar are the functions of the assessee in the present case before us and similar types of certificates have been issued to the assessee about the transmission of software and the export value declared by the exporter has been found to be in order and accepted by the authorized officer. We are thus of the view that the Learned 37 CIT(Appeals) was justified in equating the facts of the present case with that of the Amadeus India, also in the same line of business and following the decision of the ITAT on an identical issue, in the case of Amadeus India, in para No. 5.2 of the first appellate order reproduced hereinabove, the Learned CIT(Appeals) has summarized the fulfillments of all the requirements of the eligibility of the deduction claimed under sec. 10AA of the Act in the case of the assessee, which we are not reiterating here for the sake of brevity. Besides, Software export declaration form shows the assessee in the data entry jobs and conversion software, data processing; the profit and loss account show data processing software export, software development services income; auditor’s report has certified that the assessee has been engaged in the development of computer software and information technology enabled product and services. The auditor’s report also talks about the Revenue depicted under “data processing software” has been/is being certified by the Office of Development Commissioner, Noida, Noida Special Economic Zone. “Export” as per the Special Economic Zones Act, 2005 in relation to the “Special Economic Zones” means taking goods, or providing services out of India from a Special Economic Zone by land, sea air or by any other mode whether physical or otherwise. And above all, as per section 51 of the SEZ, Act, notwithstanding anything inconsistent 38 therewith contained in any other law for the time being in force, the provisions of SEZ Act will prevail. We thus do not find infirmity in the first appellate order in coming to the conclusion that the assessee is very much eligible for the claimed deduction under sec. 10AA of the Act in view of the decision of the ITAT in the case of Amadeus India (supra). The Learned CIT(Appeals) was thus right in deleting the disallowance made by the Assessing Officer in this regard.
7.6 The above view that the assessee is eligible for claimed deduction under sec. 10AA of the Act is also strengthened by the decision of CESTAT, New Delhi Bench in the case of Acquire Service (P) Ltd. vs. Commissioner of Service-tax (supra). In that case like the present assessee before us, the assessees were 100% EOUs registered with software technology park and were granted exemption under income-tax for export of computer software. The assessees therein were parts of a group of companies i.e. Amadeus or Galileo. These groups had evolved and were maintaining a computer reservation system (CRS), the requisite software and a huge database comprising a variety of information relating to several airlines and other travel services providers, for providing international travel related facilities. The core computer system/server were established at overseas locations at 39 US, Germany or Spain as the case may be. The travel agent, with a computer, merely accesses or utilizes travel information drawn from the data base of the computers. The travel agent also adds to, and alters, the data available on the computer when he books a ticket (or other travel facilities like cab services, accommodation at hotels/resorts etc.) for a customer by feeding in the data regarding the customer such as airlines, hotel, local travel fare, tickets, the several intermediary and eventual destination; and the nature of services to be provided etc. This data enters the composite data based stream and becomes available to other operators via computers operating on Amadeus or Galileo system, all over the world, whenever a fulfilling transactions occurs at the travel agents end. The assessee’s role like the present assessee before us, was occupying the position of hyphen between the overseas Amadeus and Galileo which have conceived, evolved, maintained and operates the CRS (Computer Reservation System ) facility on the one hand; and travel agent on the other. What the assessees do, is to supplement functions, of the overseas entities (Amadeus or Galileo) by preparing and transmitting the locally generated travel related data to them for incorporation and synthesis into the core data base, maintained in the mega computers overseas, so as to enable travel agents (operating within the assessee’s marketing region) to draw on the available and updated 40 information, for their benefit. The assessees issued instructions to the respective master computer ( of Amadeus or Galileo) to enable recognition that identification of tour operators and facilitate access to them of specific portion (segment) of the composite data basis. CRS is a system connected with a data base carrying various kinds of information pertaining to several airlines and other travel services providers is used for booking airlines tickets, cabs, hotels and like travel facilities across the globe. Airlines, hotels, cabs agencies and other services providers pay fee to the overseas entities (Amadeus or Galileo) for bookings made by employing the CRS. The assessees process the data generated by their accredited travel agent in India, at their respective STP unit and align and interface such information as per protocols of the CRS systems of the overseas entitles – Amadeus or Galileo. On successful booking of a ticket or other travel related facilities by accredited travel agents, the relevant data is processed by the assessees and fed into the data overseas, employing internet facilities and activities amounting to computer data processing. For providing this service, assessees received data processing fees from the overseas entities in convertible foreign exchange, assessees however receive no fees/consideration from either the airlines, the travel agents or from hotels etc. The CESTAT has thus come to the conclusion that the assessees promote/market CRS services 41 provided by the Overseas entities (Amadeus/ Galileo) but do so through computers data processing, amounting to information technology services.
7.7 The functions of assessee have also been discussed by the ITAT in the case of Galileo International Inc. vs. DCIT (supra) while deciding the issue of holding of any permanent establishment of Galileo International Inc. in India to examine its income to be taxable in India. This decision of the ITAT has been upheld by the Hon'ble High Court.
7.8 The Hon'ble Delhi High Court in the case of CIT vs. M.L. Outsourcing Services (P) Ltd. (supra) in para No. 9 of the decision has been pleased to make observation on the CBDT Notification No. SO890(E) dated 26.9.2000 in relation to deduction under sec. 10A, reproduced as under:
“9. A perusal of the said notification would indicate that the Board has included several distinct types of services under the expression, “product or service of similar nature, information technology enabled product or services” in the fifteen clauses. The Board, in the Notification has understood that product or services, to be included within clause (b) of Explanation 2 to Section 10A, need not be computer software as understood in the common parlance or even customized electronic data, as generally understood. Any product or 42 service of similar nature would include in its ambit, product and services which were enabled by, i.e. would rely upon, or are driven by information technology. This becomes clear when we refer to the wide ambit of the divergent and varied services covered in the different clauses like, “(ii) call centres…(viii) human resources services…(viii) insurance claim processing… (xii) remote maintenance” and, “(XIV) support centres”. These services would not necessarily and primarily involve customized data processing, but nevertheless, these are information technology enabled services. In case of call centres, queries and questions from a customer of a third company are answered by an employee of the assessee based in India. The said task is performed with the aid and help of information technology but it would not be a case of customized electronic data service or export thereof. Similar exercise may be undertaken in case of remote maintenance or support centres, which answer queries and gives suggestions by e-mails or through voice and/or video communications. These services would not normally involve processing or sending customized electronic data abroad, yet these are information technology enabled services and specifically covered under the Notification”.