ITO, NEW DELHI vs. M/S. FIS GLOBAL RECOVERY SERVICE INDIA PVT. LTD., NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: ‘B’ NEW DELHI BEFORE SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER AND SH. O.P. KANT, ACCOUNTANT MEMBER ITA Nos. 1410 & 4315/Del/2012 Assessment Years: 2008-09 & 2009-10 Income Tax Officer, Ward- Vs. M/s. FIS Global Recovery 11(2), Room No. 321, C.R. Services India Pvt. Ltd., S- Building, New Delhi 405 (LGF), Greater Kailash, Part-II, New Delhi PAN : AACCG0720A (Appellant) (Respondent) Appellant by Sh. Anil Kumar Sharma, Sr.DR Respondent by S/sh. S.D. Kapila & R.R. Maurya, Advocates Date of hearing 25.07.2016 Date of pronouncement 30.09.2016 ORDER PER O.P. KANT, A.M.: These two appeals of the Revenue for assessment years 2008-09 and 2009-10 are directed against two separate orders of the learned Commissioner of Income-tax (Appeals) dated 21/02/2012 and 21/05/2012 respectively. The grounds raised in both the appeals are identical except the amount involved and therefore both the appeals are heard together and disposed of by this consolidated order. ITA No. 1410/Del/2012 2. The grounds of appeal raised in ITA No. 1410/-Del/2012 are reproduced as under:

2 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 i. On the facts and in the circumstances of the case in law, the learned Commissioner of Income Tax (Appeals) has erred in directing to allow deduction u/s 10A of the IT Act amounting to Rs.63,18,643/- ii. The Commissioner of Income Tax(Appeals) has erred in ignoring the findings of the Assessing Officer that the services rendered by the assessee were that of making telephone calls for debt and mortgage collection and thus not eligible for deduction u/s 10A of the IT Act. iii. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) has erred in directing the work out the deduction u/s 10A without excluding telecommunication and insurance expenses from the export turnover. iv. The appellant crave leave to add, alter or amend any ground of appeal raised above at time of hearing. 3. The facts in brief of the case are that during relevant period, the assessee was engaged in providing outsourcing services to its Group Company M/s. Chex Systems Inc, USA from its unit at Mumbai which is registered under the Software Technology Parks of India (STPI) Scheme, formulated by the Government of India. In the return of income filed on 28/09/2008, the assessee declared income of Rs.10,125/-. This return was revised subsequently. In the return of income filed, the assessee claimed deduction amounting to Rs.63,18,643/- under section 10A of the Income Tax Act, 1961 (in short ‘the Act’). The Assessing Officer did not find clarity in respect of the actual outsourcing activity as it was worded differently in the report filed under section 92E in form No. 3CEB (Business Process Management and Call Centre services), Tax Audit Report in form No. 3CD (Business of Outsourcing Services related to global consumer and commercial collection and debt

3 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 recovery) and in the submission dated 21st of October, 2010 made before the Assessing Officer (BPO Services related to accounts receivable and recovery management) and, therefore, he asked the details of actual services rendered by the assessee and whether the calls made for recovery of debts were manual or computerized. In response, the assessee submitted that the services rendered by the assessee company were generally in the nature of outbound call centre activities for debt and mortgage collection and data entry functions. The assessee further submitted that the activity of the assessee of back-office operations and call centers have been notified by the CBDT vide Notification No. SO 890 (E) dated 26/09/2000 as “computer software for the purpose of Explanation-2 to section 10A of the Act. According to the Assessing Officer, the assessee made calls to the CSI’s International Customers and talked verbally to them and such a conversation was being made by the assessee manually through application of personal voice and judgment and there is no application of any computer software whatsoever neither for data processing not for making any such computerized calls. The Assessing Officer further observed that the assessee company was just using the Internet lines instead of the traditional telephone lines for making calls to the International customers and held that the manual talk with the International customers could not be termed as computerized calls and the profit derived from such a business could not be said to be earned from export of computer software. In the assessment completed under section 143(3) of the Act, the Assessing Officer disallowed the claim of

4 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 deduction of Rs.63,18,643/- under section 10A of the Income Tax Act, 1961 (in short ‘the Act’) in respect of the STP unit located in Mumbai. Alternatively, the Assessing Officer also held that in case the assessee is granted deduction under section 10A of the Act, then the deduction should be restricted on the amount of export turnover calculated after excluding the communication and insurance expenses. Aggrieved, the assessee filed appeal before the learned Commissioner of Income Tax(Appeals) and submitted that the assessee was rendering services related to accounts receivable and recovery management, i.e., providing commercial collection and debt recovery services to its customers located outside India from its STP unit located at Mumbai and the said activity of the assessee i.e. call Centre was specifically covered under the definition of computer software in terms of clause(b) of item (i) of Explanation-2 to section 10A of the Act read with notification number SO 890 (E) dated 26/09/2000 issued by the Central Board of Direct Taxes(CBDT). The assessee further submitted that circular/notifications issued by the CBDT are binding on the Departmental Officers. The assessee in its submissions provided details of services rendered by it and why the same fall in the definition of the computer services before the learned Commissioner of Income-tax (Appeals), who reproduced the same in the impugned order as under: “2.1 It is submitted that the Appellant is a service provider for its group company, Chex Systems Inc, USA (“CSI”). A copy of agreement of the Appellant with CSI which was placed on record before the Ld. AO is placed as Annexure 1 of the Paper book. The services rendered by

5 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 the Appellant are generally in the nature of outbound call centre activities for debt and mortgage collection and data entry functions for CSI’s international customers. CSI provides all technical information utilized by the Appellant in the provision of the required services to CSI which is available to the Appellant on its computer systems connected through dedicated internet data lines. The activities undertaken by the Appellant for proving the services are as under: • Financial Institutions (“FIs ”)based in USA (who are customers of CSI) report debt accounts through a web application known as CCC (e-access) which is assessable to CSI which in-turn provides access of the said, information to the Appellant via internet through dedicated internet data lines on a real-time basis. • The Appellant in-turn provides services for collection of the debt reported by the said FIs. The said data collected i.e. the outstanding debts for Demand Deposit Accounts is stored on a computer software (AS400). The Appellant uses a Unix based software known as TCS which gets data input directly from AS400. • The Appellant access a U.S based application which has details of the debt amount and details of the debtors. Using this data, a Predictive Dialler Software dials out to the phone numbers available in these accounts. Predictive Dialler Software automatically dials telephone numbers that have been uploaded on call tables. The Predictive Dialler has the ability to recognize a human voice and then transfer the phone call to any available collector (who is the personnel of the Appellant) who responds to the call being dialled automatically by the Predictive Dialler Software which is transferred automatically to the said collector. The Predictive Dialler Software has a web application interface for collector to login and start receiving calls. • There is no manual dialling being made by the personnel of the Appellant, the calls are being dialled by the Predictive Dialler Software and when the software detects a human voice at the other end the

6 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 call is automatically connected by the software to any available collector who would be able to view the particulars of the relevant debtor to whom call is connected by the Predictive Dialler Software on his computer screen. • The collector uses ‘computer systems ’ on which details of the relevant debtor are viewed and recovery call is undertaken. It is a known fact that the Computer system includes a complete unit along with the hardware, software and other peripheral devices that are necessary to make the computer function. It may be noted that computer software is required so that the computer performs the desired functions in the desired manner. Without computer software, the hardware cannot function on its own. A common example would be Microsoft Windows software which is used for running Personnel Computers without which the computer hardware which is a CPU, monitor, keyboard, etc. is not able to function. • After the call, the collector inputs the relevant information obtained from the debtor in the real-time system which is transmitted to the customer outside India electronically using the internet system. Also, after the recovery is made, the system is updated based on the collections and the said information is transmitted to the customer electronically using the internet system. • From the above, it is submitted that sophisticated softwares are used at each and every process right from accessing the information regarding debtors on a real-time basis, making calls to the debtors, updation of the system regarding collection, etc. 2.2 It is pertinent to mention here that the Ld. AO while disallowing the deduction under section 10A claimed by the Appellant has alleged that the Appellant does not fulfill the essential condition of a “customized electronic data” to fall in the definition “computer software”. It has been further alleged that by the Ld. AO that the Appellant only takes the information relating to the international customers from CSI to make calls to them and there is no

7 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 customized electronic data which is being prepared and sent to CSI. It is submitted that it is evident from the aforesaid activity undertaken by the Appellant that customized electronic data is being prepared by the Appellant and the same is transmitted to its customers outside India electronically. In support of the above the Appellant places its reliance on the judgment of the Hon ’ble Chennai Tribunal in the case of v. Accurum India (P.) Ltd. [2010] 126ITD 69 (CHENNAI) (TM) wherein in respect of customized electronic data it is observed as under: “9……….The requirement of the provision is that there should be a customized electronic data and such data be exported outside India. The data which a customer may require, may be gathered either by manual effort or by electronic means, as for example, through internet. By whatever means the data is collected, once it is stored in an electronic form, it becomes a customized electronic data which can be exported to qualify for deduction under section 10A. The process of actually collecting the data be IT enabled. What all is require is that the data collected should be in an electronic form. If one were to go by the understanding of the ld. JM, then perhaps the purpose of giving impetus to software industry or to the computerization as a whole, would be defeated. As an illustration, if a person wants to open a garment shop in a particular locality, I may approach a consulting firm to explore the market potentiality of that area. In that case, the consulting firm will have to initially work manually to collect data like, number of garment shops in the locality, the economic strata to which the population residing in that locality belongs, the spending habits of the people residing in the locality etc. All these activities will have to be carried out manually and once the data is collected, it may be collated and analyzed and may be stored in an electronic device. This becomes

8 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 the IT enabled customized electronic date. If this date is exported outside India, the consulting firm will be eligible for deduction under Section 10A.” 3.1 Further the assessee submitted that it was registered under the Software Technology Parks of India (STPI) Scheme formulated by the Government of India for the development of computer software/IT enabled services and, therefore, its activity have been duly examined by the STPI Authorities. The relevant submissions of the assessee reproduced by the learned Commissioner of Income-tax (Appeals) in the impugned order are as under: “2.3 It is further submitted that the undertaking of the Appellant in Mumbai is registered under the Software Technology Parks of India (‘STPI’) scheme formulated by the Government of India for the development of computer software/IT enabled services on 8 June 2004. The copy of the said permission and transfer intimation issued by the STPI Authority, Mumbai duly highlighting that the nature and activities of the assessee company have been examined and accepted as IT Enabled Services which was placed on record before the Ld. AO (please refer 2 of the Paper book). It is submitted that the STPI authority is the authority which makes an in-depth verification while accepting that the nature of services of any unit to be an IT enabled service provider for the purpose of granting approval for operating a STP unit. Also, the eligible unit is required to file return of its activities and other details with the STPI authority. The return filled for the year under consideration submitted before the Ld. AO and placed as Annexure 3 of the Paper book. The said STPI return submitted by the Appellant duly states that the core business area of the assessee company is BPO & Call Centre and there has been no adverse inference ever drawn by the STPI authorities since inception on the activities of the eligible unit of the Appellant.

9 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 2.4 We would further like to draw your kind attention to the IT and ITES Policy, 2003 of the Government of Maharashtra dated 12 July 20,03 available online (www.mumbai.stpi.in) wherein IT Services and IT Enabled Services have been defined in its para 5(c), which reads as under: “(c) IT Services and IT Enabled Services These include various IT Services and are defined by the IT Task force of the Government of India as follows: “IT Services including IT Enabled Services is defined as any unit that provides services, that result from the use of any IT Software over a Computer System for realizing any value addition.” ” The Directorate of Industries has prepared and published an illustrative list of such IT Enabled Services (Appendix II) which is updated from time to time. ” [emphasis supplied by us]

Further, the illustrative list of activities registrable as IT Services and IT enabled Services in terms of Appendix II referred above includes Computerized Call Centres. A copy of the IT and ITES Policy, 2003 along with Appendix II duly highlighting the above is placed as Annexure4 of the Paper book. It is important to mention here that the unit of the Appellant is located in Mumbai in the State of Maharashtra. It is submitted that one of the major assets of the Appellant is “computer including networking equipments ” which amounts to Rs. 54,63,611 out of the total gross bock of assets of Rs. 1,07,70,525 as on 31 March 2008 (i.e. more than 50% of the total assets of the asses see company). The same is corroborated from the Schedule 4 of fixed assets appended to the audited financial statements (please refer Annexure 5 of the Paper book). It is further submitted that the assessee company operates and makes calls via a dedicated internet data lines (Computerized) and does not have any ISD call facility (Manual) which is evident from the details of telecommunication expenses (please refer Annexure 6 of the Paper book) wherein it is self-evident

10 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 that out of the total communication expenditure of 14,38,863 an amount of Rs. 14,24,413 was incurred on account of expenditure incurred on leased data lines (approximately 99% of the total communication expenditure) and there is no expenditure on ISD/manual facility for operations.”

3.2 The assessee also submitted before the learned Commissioner of Income-tax (Appeals) why its activity are in the nature of call centers, as under: “2.5 The Ld. AO disregarded the submissions made by the Appellant and held that that the activities of the Appellant is not eligible for deduction under section 10A of the Act since the internet data lines used by the Appellant in connection with its business of providing call centre services are only a communication channel and communication device and mere change of communication channel from telephone line to Internet line cannot be regarded as usage of computer software for provisioning of the said service. This is disregarding the fact that the Appellant is engaged in outbound call centre activities for debt collection and there is no dispute thereon. Also, CSI provides all technical information utilized by the Appellant in the provision of the services which is available to the Appellant on its computer systems connected through dedicated internet data lines. The detail of the business process and the usage of the software and technology is elaborately discussed above. The Appellant would not be able to make any calls without information being displayed on its computer systems connected through dedicated internet data lines on a real-time basis. Also, the Appellant uses ‘computer systems ’ its business and it is a known fact that the computer system will include a complete unit along with the hardware, software and other peripheral devices that are necessary to make the computer function. It is reiterated that computer software is required so that the computer performs the desired functions in the desired manner. Without computer software, the hardware cannot function on its own. The Ld. AO erred in appreciating the

11 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 fact thatthe Appellant uses a complete computer system wherein specialized software is used for viewing confidential information of its customers and after viewing and analyzing the same processing is done and outbound calls are made by the Appellant and thereafter information is transmitted to the customer electronically.” 3.3 Further, the assessee also submitted that the deduction claimed under section 10A has been allowed to the assessee in assessment years 2006-07 and 2007-08 after verification of the business activity of the assessee and there being no change in the business activity carried out during the year under consideration, following the rule of consistency, the deduction claimed with assessee should have been allowed. In support thereof, the assessee relied on the decision of Hon’ble Supreme Court in the case of Radhaswami Satsang, 193 ITR 321 (SC). Further, the assessee also explained and reconciled that the services differently worded at different places by the assessee. The learned Commissioner of Income-tax (Appeals) after considering the submission of the assessee allowed relief to the assessee on the issue of deduction under section 10A of the Act. He also allowed relief on the alternative issue of restricting the deduction under section 10A of the Act on the amount of export turnover calculated after excluding the communication and insurance expenses following the earlier orders of the Commissioner of Income-tax (Appeals) on the issue in dispute Aggrieved, the Revenue are in appeals before the Tribunal, raising the grounds as reproduced above.

12 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 4. Grounds No. 1 and 2 of the appeal are related to the issue of eligibility of the assessee for deduction under section 10A of the Act. 4.1 Before us, the learned Senior Departmental Representative relying on the order of the Assessing Officer submitted that the activities of the assessee were not in the nature of call centre and, therefore, the assessee was not entitled for deduction under section 10A of the Act and accordingly submitted that order of the learned Commissioner of Income Tax(Appeals) might be set-aside and the order of the Assessing Officer might be restored, and the appeal of the Revenue might be allowed. 4.2 On the other hand, the learned Authorized Representative for the assessee filed paper book containing pages from 1 to 268, reiterating the submission made before the learned Commissioner of Income Tax (Appeals), as under: (i) that the call made by the STPI unit of the assessee, are being dialled by the “Predictive Dialler Software” and when the software detects a human voice at the other end, the call is automatically connected by the software to any available collector who would be able to view the particulars of the relevant debtor to whom the call is connected by the Predictive Dialler Software on the computer screen. (ii) that No call Centre can work without human intervention (iii) that the unit of the assessee is registered under the Software Technology Parks of India (STPI) scheme formulated by the government of India and the STPI

13 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 authorities had examined and accepted the assessee unit as IT enabled services. (iv) that according to the schedule 2 of IT and ITES policy, 2003 of the government of Maharashtra, the IT services and IT enabled services include computerised call Centre( referred page 177 of the paper book) (v) that the call Centre are included in the IT enabled services as held in (2014) 110 DTR 105 (Del) (vi) the business activity of the assessee has been accepted as eligible for deduction under section 10 A of the Act in earlier assessment years 2006-07 and 2007-08 and in the year under consideration the same activity has been carried without any changes and therefore the rule of consistency, demands that the assessee should be allowed deduction in the year under consideration also. 4.3 We have heard the rival submissions and perused the material on record including the order of the lower authorities. We find that the learned Commissioner of Income-tax (Appeals), has decided the issue in dispute in para-6.3 of the impugned order with following observations: “6.3 Decision I have very carefully considered the findings recorded by the ASSESSING OFFICER and the detailed submissions made on behalf of the Appellant. Further, in respect of the findings recorded by the ASSESSING OFFICER and discussed above, the following facts are observed: a. The activities of the Appellant though have been described in different words at the places identified i.e. Form 3CEB, 3CD and submission dated 21 October,

14 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 2010, however, the nature of business is the same. In nut-shell, the customers of Chex Systems Inc., SA (“CSI”) who are Financial Institutions in USA require debt collection services for their US clients and the appellant provides said services. The appellant has reconciled the nature of activities candidly in its submission dated 21 February 2012. Therefore, in my view there is no inconsistency in nature of services provided by the appellant. The services rendered by the appellant are in the nature of outbound call centre activities for managing accounts receivables and recovery for the international customers, of CSI (who is the customer of the Appellant). Further, the ASSESSING OFFICER in his assessment order on Page 8 has himself stated that Appellant is engaged in the provision of services in the sphere of managing accounts receivable and recovery. The ASSHSSING OFFICER further admits that the Appellant is making calls to CSI’s International customers, however the ASSESSING OFFICER disputes that the appellant was not using any computer software in the process of making outbond calls to its customers, therefore deduction u/s 10A was disallowed. b. The contention of the ASSESSING OFFICER that there is no application of any computer software whatsoever neither for data processing nor for making any such computerized calls is not correct. The appellant has described in his submission reproduced above wherein it has stated that appellant is using sophisticated software like web application CCC(e-access), AS400, TCS, Predictive Dialler Software, etc. at each and every process right from accessing the information regarding debtors on a real-time basis, making calls to the debtors, updating the system regarding collection, transmitting the information to the customers electronically, etc. The use of all these software in the business process has been elaborately explained by the appellant. Thus, it makes clear that appellant is using computer software especially the Predictive Dialler Software which automatically dials the

15 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 telephone numbers that have been uploaded on call tables. This software has the ability to recognize a human voice and then transfer the phone call to any available personnel in the call center of the appellant. The said personnel then responds to the call being dialed automatically by the Predictive Dialler Software which is transferred automatically to the said person. The Predictive Dialler Softwarehas a web application interface for the personnel to log-in and start receiving calls. Thus, it is clear that no manual dialing is being made by the Appellant and the calls are being dialed by the Predictive Dialler Software without any human intervention. The ASSESSING OFFICER in his order at Page No. 8 has himself stated that the Appellant uses computers systems connected through dedicated internet lines. It is a known fact that the Computer System includes a complete unit along with the hardware, software and other peripheral devices that are necessary to make the computer function. Computer Software is an essential element in a computer system so that the computer performs the desired functions in the desired manner. Without computer software, the hardware cannot function on its own. A common example would be Microsoft Windows software which is used for running Personnel Computers without which the computer hardware which is a CPU, monitor, keyboard, etc. will not be able to function. It is a matter of record that computers including networking equipments comprise of more than 50% of the total assets of the appellant. It is also an undisputed fact that the appellant does not have any ISD facility and the details of telecommunication expenses are on record. All the calls are made using the Predictive Dialer Software using the internet facility. Thus, the contention of the ASSESSING OFFICER that no software is used by the Appellant is not based on the proper appreciation of the working of outbond call centers. Hence I do not agree with the findings of the ASSESSING OFFICER.

16 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 c. The ASSESSING OFFICER has also mentioned that there is no customized electronic lata which is being prepared and sent to the customer and thus, it cannot be said that the Appellant is using computer software for his business activities to make him eligible to deduction u/s 10A. To this also I do not agree with the contention of the ASSESSING OFFICER. Since the Appellant has been using sophisticated software in carrying out its business activities and the same is discussed in detail above. It has been observed that after the call, the personals of the Appellant collect inputs of the relevant information obtained from the debtor of the US Financial Institutions in the real-time system and then transmit the same to the customers outside India electronically using the internet system. Thus, customized data are being transmitted electronically to the customer of the Appellant. In this regard the reference can be made to the decision of Hon’ble ITAT Chennai in the case of ITO v. Accurum India (?.) Ltd. [2010] 126 IT'D 69 (CHENNAI) (TM) wherein it has made important observation in respect of customized electronic data as under: “……………The requirement of the provision is that there should be a customized electronic data and such data should be exported outside India The data which a customer may require, may be gathered either by manual effort or by electronic means, as for example, through internet. By whatever means the data is collected, once it is stored in an electronic form, it becomes a customized electronic data which can be exported to qualify for deduction under section 10A. The process of actually collecting the data need not be IT enabled. What all is required that the data collected should be in an electronic form.” In the case of the Appellant there is no dispute that there is a call centre engaged in managing accounts receivables and recovery, the calls are made by the Predictive Dialer Software and after the call, the inputs of the relevant information obtained from the debtor of the US Financial Institution in made in the real-time system which is transmitted to the customer outside India electronically using the internet system. Thus, he

17 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 requirement of a customized electronic data being transmitted outside India electronically stands fulfilled. The ASSESSING OFFICER has also mentioned that appellant is just using the Internet lines instead of the traditional telephone lines for making calls to the international customers, the observation of the ASSESSING OFFICER are not correct in view of the detailed discussion made about the working of the appellant company. The appellant is not dialing any calls manually. The calls are being dialed by the Predictive Dialler Software automatically. The business activity of the Appellant i.e. Call Centre is specifically covered under the definition of computer software in terms of clause (b) of item (i) of Explanation 2 to section 10A of the I.T. Act, 1961 read with Notification No. SO 890(E) dated 26 September 2000 issued by the Central Board of Direct Taxes. Considering the business module of the appellant. It is seen that appellant is eligible for deduction u/s 10A of the IT Act. It is also seen that the claim of deduction u/s 10A of the Appellant was accepted in the earlier Assessment Year(s) 2006-07 and 2007-08 and no adverse inference drawn about the deduction claimed u/s 10A of the Income-tax Act, 1961 (hereinafter referred to as "the Act") in those year. The only disallowance in those two earlier years was in respect of restricting the deduction u/s 10A on the amount of export turnover calculated after excluding communication and insurance expenses. The said disallowance has also been deleted by the learned CIT(A) in both the assessment years and the appeal order passed in both the earlier years allowing the claim of the Appellant has been placed on record before me. It is also seen that the nature of business activities of the Appellant remains the same in the year under appeal as well as in the earlier assessment years i.e. 2006-07 and 2007-08. Thus, the Appellant is eligible for deduction u/s 10A of the Act. The ASSESSING OFFICER is directed to allow deduction

18 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 under section 10A of the I.T. Act, 1961 to the Appellant.”

4.4 According to the Assessing Officer there is no application of any computer software either for the data processing or for making computerized calls. But this contention of the Assessing Officer is not found to be correct as assessee has shown use of sophisticated software like web application CCC (e-access), AS400, and particularly “Predictive Dialer Software” for making outbound calls. The learned Authorized Representative has further explained that the “Predictive Dialer Software” has a web application interface for the personal login and start receiving calls and thus we find that the call dialing is not done manually and calls are being dialed by the “Predictive Dialer Software” using Internet facility. 4.5 We find that call Centre activity is specifically covered under the definition of computer software in terms of clause (b) of Item (i) of Explanation-2 to section 10A of the Act read with notification number SO 890 (E) dated 26/09/2000 issued by the Central Board of Direct Taxes. But the Assessing Officer has disputed whether the activity of the assessee can be called as call Centre. From the facts elaborated by the assessee there is no dispute that it is a call Centre engaged in managing accounts receivable and recovery. The calls are made by the “Predictive Dialer Software” and after the call the inputs of the relevant information obtained from the data of the US Financial Institution is made in real-time system which is transmitted to the customer outside India electronically using the Internet

19 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 system. In view of the explanation of the assessee, it is evident that customized electronic data is being transmitted outside India electronically. The Assessing Officer has also mentioned that assessee is using Internet lines for telephone calls to its international customer rather than traditional telephone lines. This observation also supports that activities of the assessee are in the nature of call Centre and therefore in our considered opinion, the assessee is entitled for deduction under section 10A of the Act. In prior assessment years, the Assessing Officer has accepted the claim of the assessee and deductions have been allowed. In the year under consideration, there is no change in the business activity of the assessee, thus, in our view, the principle of consistency also demand that this deduction should be allowed to the assessee. In view of above discussion, we find the order of learned Commissioner of Income-tax(Appeals) on the issue in dispute, is well reasoned and no interference on our part is required. Accordingly, we uphold the same. The grounds No. 1 and 2 of the appeal are dismissed. 5. In ground No. 3, the Revenue has raised the issue that if the deduction under section 10A of the Act is allowed to the assessee, then the export turnover for computation of deduction under section 10A should be reduced by the communication and insurance expenses. 5.1 We have heard representatives of both the parties and perused the material on record.

20 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 5.2 Before the learned Commissioner of Income-tax(Appeals), the assessee filed a detailed submission, which is reproduced in the impugned order as under: “7.2 Submission of the appellant "During the year under consideration, the Appellant incurred telecommunication and insurance expenses amounting to Rs. 14,38,863 and Rs. 20,632 respectively. The break-up of the telecommunication expenses incurred by the Appellant (and duly submitted before the Id. AO during the course of assessment proceedings are as under: Nature Total(in Rs.) Voice Lines expenses 1,000 Date Lease Lines 14,24,413 Telephone expenses 13,450 Grand Total 14,38,863 The insurance expenses amounting to 20,632 relates to the insurance of the assets of the Appellant. The telecommunication and insurance expenses were incurred by the Appellant during the course of its business and the same were not incurred currency. The Ld. AO held without quantifying that the telecommunication expenses and insurance expenses respectively are attributable to data delivery lines are excluded from export turnover for computation of deduction under section 10A of the Act. 3.1 It is submitted that section 10A(I) of the Act provides for the deduction of profits and gains derived by an undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce such articles or things or computer software from the total income of the assessee.

21 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10

Further, section 10A(4) of the Act provides that for the purpose of sub section (I), the profits derived from the export of articles or things or computer software shall be the amount which bears the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. The term export turnover has been specifically defined Explanation 2 to Section 10A of the Act which provides that turnover” means the consideration in respect export by the undertaking of articles or things or computer software received in, or brought India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses ,if any, incurred in foreign exchange in providing the technical services outside India. ”(emphasis supplied) It is submitted that the freight, telecommunication or insurance expenses are required to be deducted while computing the export turnover where the said expenses are included in the turnover and have been recovered from the customer/client. Where the export turnover is only towards consideration for goods/services and there no recovery of expenses which included in the turnover, deduction of expenses is required to be made from the export turnover. In the instant case the Appellant is charging its customer the service fee for its services. The copy of invoices raised to the customer which were also submitted before the Id. AO during the course of assessment proceedings are enclosed herewith as Annexure From of the said invoices it is evident that the Appellant had not charged and received reimbursement of any expenses from its customers. The Appellant had only received consideration for services rendered to the customer.

22 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 Thus, since the Appellant had only received sales consideration for services and no expenses had been charged by the Appellant to customers, the Ld. AO has erred in deducting the telecommunication which are attributable to data line and connectivity and insurance charges from the export turnover while computing deduction under section 10A of the Act. The contention of the Appellant that what is required to be excluded is out of what is received. This principle is squarely covered by the decision of the Hyderabad Tribunal in the case Patni Telecom (P) Ltd. vs. ITO dated 11 January 2008 reported 120 ITD 105 wherein the assessee was engaged export of software and was claiming deduction under section IDA of the Act. The Assessing Officer deducted certain communication expenses from the export turnover which were confirmed by the Commissioner (Appeals). The Tribunal held that the aspect which is required to he considered is that the consideration received in convertible foreign exchange is including such expenses. If such expenses are not included in the consideration received in convertible foreign exchange, deduction of such expenditures from the consideration does not arise. was held that The Hon ’ble Tribunal observed as under: “The ISP expenses is not attributable to the delivery of computer software, therefore, such expenses needs not be excluded from consideration in foreign exchange. However, if for the sake of arguments it is presumed that the expenditure incurred is attributable to delivery of goods outside India even though same not to be excluded. The words 'received' and 'but not include' used in clause (iv) of Explanation 2 to section IDA of Act are significant. What is to be excluded is out of what is received. In the case under consideration the assessee received consideration against software, Le.. goods. For this purpose, the assessee has demonstrated by referring invoices (Pages 4.1 to 4.4) and agreement (page 2.1) of which photocopies have been placed assessee's paper book. The agreement, invoices and the turnover clearly show that the assessee did not recover any such expenditure. Therefore, there is no scope of

23 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 any exclusion from the export turnover on account of such expenses. If at all on presumption, it is to be excluded (or the purpose of 'export turnover' then on the same assumption, reason and analogy it should be excluded from 'total turnover’. The simple reason is that such expenditure is also included consolidated consideration which is forming part of'total turnover'. In order to make the formula the purpose of "export turnover" in section 10A workable one has to give a schematic interpretation to the formula. Elimination should be from both the denominator and the numerator. We therefore find that the Assessing Officer was not correct in excluding Rs. 40,93,493 from consideration received in convertible foreign exchange while calculating export turnover for the purpose of section 10A of the Income-tax Act.” (emphasis supplied) 3.2 It may further be submitted the insurance expenses has been incurred on the insurance of the assets of the Appellant and they are in no way attributable to the delivery of services outside India. The details of insurance expenses are enclosed as Annexure 13 for your ready reference. From a perusal of the said details and the copy of invoices raised by the Appellant (referred to above), it is evident that insurance expenses being related to insurance of fixed assets being neither attributable to the delivery outside India nor these expenses are charged to the customer and they do not form part of the export receipts. Thus, the same are not required to be deducted from the export turnover while computing deduction under section 10A of the Act. 3.3 Without prejudice to the above contention, it is also submitted the expenses, if deducted from the export turnover, are also liable to be deducted from the total turnover and the ultimate deduction under section IOA would remain unchanged as the export turnover and the total turnover would remain the same. The issue has been considered in various judicial decisions and it has been held that where any expenditure is deductible from export

24 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 turnover same is required to be deducted from the total turnover as. Some of the decisions are enlisted hereunder: a) In a recent case of the Hon’ble Bombay High Court in the case CIT vs. Gem Plus Jewellery India Limited (please refer Annexure 14 of the Paper book) reported in [2011] 194 Taxman 192 (Bom.) it was held that for purpose of application of formula prescribed by section 10A(4),export turnover in numerator must have same meaning as export turnover which a constituent element of total turnover in denominator. Further, since in computing export turnover Legislature has made a specific exclusion of freight and insurance charges, these two items would have to be excluded from total turnover also for purpose of computing exemption under section 10A. b) In the case of the Hon’ble Hyderabad Tribunal in the case Patni Telecom (P) Limited vs.ITO (supra) it was held that if at all on presumption, it is to be excluded for the purpose of 'export, turnover' then on the same assumption, reason and analogy should be excluded from 'total turnover'. The simple reason that such expenditure is also included in consolidated consideration which is forming part of 'total turnover'. In order to make the formula for the purpose of "export turnover" section 10A workable one has to give a schematic interpretation to the formula. Elimination should be from both the denominator and the numerator. We therefore find that the Assessing Officer was not correct in excluding Rs. 40,93,493 from consideration received convertible foreign exchange while calculating export turnover for the purpose of section 10A of the Act. c) The Special Bench of the Hon'ble Chennai Tribunal the case of ITO vs. M/s Sak Soft Ltd reported in 30 SOT 55 (Chennai), held that "for the purpose of applying the formula under subsection (4) of section I OB, the freight, telecom chargesor insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the technical services outside India are to be excluded both from the export turnover and from the total turnover, which

25 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 are the numerator and the denominator respectively in the formula. ” d) In the case of ACIT Vs. IGATE Global Solutions Ltd ITA No. 624 & 625/Bang/2009, the Bangalore Tribunal held that the expenditure in foreign currency on travel and telecommunication expenses should also be reduced not only from export turnover but also from the total turnover for the purpose of deduction 10A of the Act. The relevant text of the above mentioned decision is as under: "i) Whether the CIT(A)is justified holding that the expenditure incurred in foreign currency on travel and telecommunication expenses is to be reduced from the total turnover when the same is reduced from the export turnover for the purpose of computation of deduction under section 10A of the Act. 3.1 At the very outset, it is submitted by both the parties that first issue mentioned above is covered by the order of the Tribunal in assessee's own case (ITA Nos. 248 & 249/Bang/2007 dated 27th November, 2007) as well as the decision of the Special Bench of the Tribunal in the case of ITO v M/s Sak Soft Ltd. (2009) 313 ITR (AT) 353 (Chennai)(S.B.) = (2009-TIOL-187-ITAT-MAD-SB),wherein the Special Bench held as follows:-

"We hold that for the purpose of applying the formula under sub-section (4)of section 1 OB the freight, telecom charges or insurance attributable to the delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange in providing the technical services outside India are to be excluded both from the export turnover and from the total turnover, which are the numerator and the denominator respectively in the formula.” 3.2 As it is not disputed by the revenue that the above issue is already covered by the aforesaid, the first issue mentioned above is decided in

26 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 favour of assessee and we confirm the CIT(A)’s direction reduce the expenditure incurred in foreign currency on travel and telecommunication expenses not only from the export turnover but also from the total turnover for the purpose of deduction u/s of the Act. ” (emphasis supplied) e) In the decision of the Bangalore Tribunal dated 11 December 2009 in the case of DCIT vs. M/s Shobha Renaissance Information Technology P Ltd ITA No. 706/Bang/2009 wherein the Bangalore Tribunal following the decision of Special Bench in case of Income Tax Officer vs. M/s Saksoft Ltd. held that the expenditure incurred towards freight, telecommunication charges be excluded from the total turnover for the purpose of computation income under section 10A of the Act. f) The decision of Special Bench was also considered by the Bangalore Tribunal in the decision of M/s. Intel Technology India Private Limited vs. DCIT, ITA No. 706/Bang/2009 wherein it was held that if expenses incurred in foreign currency are deducted from the export turnover the same are also to be deducted from total turnover for allowing section 10A benefit. g) In the case of KPIT Cummins Infosystem (P) Ltd. Vs. ACIT 26 SOT 529, the Bangalore Tribunal held that while computing deduction under section 10A of the Act, amount of telecommunication charges which is reduced from the export turnover is to be reduced from total turnover as well for the purpose of arriving at deduction in ratio export turnover to total turnover. h) The Bangalore Tribunal in the case of ACIT, Bangalore vs. M/s Novell Software Development India Pvt. Ltd ITA Nos. 851 & 852(BNG)/2008 held that if expenses in foreign currency towards telecom connectivity for providing technical services are deducted from export turnover then such expenses are required be deducted from total turnover.

27 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10

i) The Bangalore Tribunal in the case of M/s Mphasis Ltd. vs. Asst. Commissioner of Income Tax ITA No. 524 and 619 (Bang)/2008 held that telecommunication expenses are to be excluded from export turnover and also total turnover. j) Further, in the case of M/s. ANZ Operations & Technology Pvt. Ltd. vs. Commissioner of Income Tax ITA No. 30/Bang/2008 the Bangalore Tribunal held that " ....The term export turnover and total turnover be interpreted in the same manner. Hence, the amounts reduced while calculating export turnover would also need to be reduced while calculating value of Total turnover for the purposes of allowing exemption u/s 10A of the IT ” k) In the case of the Asst. Commissioner of Income tax vs. M/s Khoday India Ltd ITA No 89/Bang/08, Bangalore Tribunal held that: “ ………….we hold that whatever is not included in the export turnover cannot be included in the total turnover as total turnover is the sum of export turnover + domestic turnover. The above-referred issue has been considered by this Bench in a number of cases and it has been held that whatever is not included the export turnover should not be included in the total turnover. ” 1) The jurisdictional Delhi Tribunal in the case of Deputy Commissioner of Income Tax vs. Binary Semantics Ltd. reported in 109 TTJ 556, where in it was held as under: “The question before us is whether, in absence of the definition of the term "total turnover" in s. 10A, it should be interpreted by having recourse to the definition of the term "export turnover" furnished in the section? We have furnished the definition of the term "export turnover" already. It has also been pointed out that the deduction has to be computed under sub-s. (4) on the basis the ratio of "export turnover" to the turnover”. In the case of Sudarshan Chemicals Industries Ltd., a similar question

28 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 confronted the Hon'ble Bombay High Court under s. 80HHC. In that section the profits derived from the export business had to be worked out on the basis of a formula which involved the finding out the ratio of export turnover to the total turnover. Excise duty and sales-tax were not payable in respect of the export turnover while the duty and the tax were payable in respect of inland turnover, which formed part of the total turnover. The Hon'ble Court pointed out that s. 80HHC a code itself and, therefore, general definition of the word "turnover" or the cases under the sales-tax could not have been imported while interpreting the term "total turnover". Thus, even when the definition was given in the section, which did not exclude excise duty and sales-tax from the turnover, the Hon'ble Court came to the conclusion that the aforesaid two levies will have to be excluded from the "total turnover" on the ground that the deduction cannot be reduced artificially by including statutory levies in the denominator, namely, total turnover while the same did not find a place in the numerator, namely, the export turnover. In other words, to arrive at a fair computation of the deduction, the export turnover and the total turnover have to be understood in the same manner, namely that if certain amounts are not to be included the export turnover, the same should also not be included in the total turnover. In other words, such exclusion will have to be read by interpreting the two terms in the same manner. This decision was approved by the Hon'ble Delhi High Court, being the jurisdictional Court, in the case of Jaypee Hotels Ltd. Thus, the interpretation of Hon'ble Bombay High Court regarding contextual meaning, excluding the commonplace meaning, have to be taken into account while computing the numerator and the denominator. The definition of the "export turnover", in s. 10A excludes from its ambit any expenses incurred in foreign exchange in providing technical services outside India. In view decision in the case of Sudarshan Chemicals Industries, such expenses will have to be included (sic- excluded) from the total turnover also. Therefore, we are of the view that the learned CIT(A) right holding that the total turnover shall not include expenses incurred in foreign

29 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 exchange in providing technical services outside India." (emphasis supplied) m) M/s Goodrich Aerospace Services Private Limited vs. DCIT, ITA No. 58/(Bang.)/2008, wherein the Bangalore Tribunal held as under: "…...we hold that the expenses reduced from the export turnover are to be reduced from the total turnover for the purpose of computing eligible profit for deduction u/s 10A of the Income-tax Act, 1961 (hereinafter referred to as "the Act")…….” Thus, based on the above rulings it apparently clear in law that telecommunication and insurance expenses if deducted from the export turnover will also be deducted from the total turnover. 3.4 It is further submitted that in earlier years the telecommunication expenses and insurance expenses have been excluded from export turnover for the purpose of claiming deduction under section 10A of the Act in earlier years, i.e., Assessment Year 2006-07 and onwards. It is submitted that in an appeal filed by the assessee company respect to the same the Hon’ble CIT (Appeals)-VIII Delhi allowed the appeal and directed to consider and allow the deduction under section 10A without excluding the telecommunication and insurance expenses from the export turnover. The said decision has been accepted by the Department and no further appeal is filed by the Department against the order of the Hon'ble CIT (Appeals)- VIII, New Delhi. Copy of the order of the Hon’ble CIT (Appeals)-VIII is being enclosed at Annexure 9 of the Paper book. Thus, the mater stands covered in favor of the assessee and the same shall be allowed to the assessee in the year under consideration. Apropos the above discussion, since the Appellant has not charged the expenses on telecommunication and insurance from its customers the same are not required to be excluded while computing the export turnover for

30 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 the purpose of determining deduction under section 10A of the Act. Without prejudice to the above, even otherwise, any item excluded from the export turnover is also to be excluded from the total turnover as held in the various decisions mentioned above. Thus, the disallowance may kindly be deleted and relief be granted to the Appellant. It is accordingly prayed. Further, the Appellant vide submission dated November 2012, had also submitted the copy of the order of the learned CIT(A)-V, New Delhi the case of the Appellant for the Assessment Year 2007-08 wherein the learned Commissioner of Income Tax(A) has decided the similar matter in favor of the Appellant thus, allowing the appeal and directed to consider and allow the deduction under section 10A without excluding the telecommunication and insurance expenses from the export turnover.” 5.3 In view of the above submission and following the earlier order of the learned Commissioner of Income-tax (Appeals), the issue in dispute has been decided in favour of the assessee by the learned Commissioner of Income-tax(Appeals) with following observations: “7.3 Decision I have considered the observation of the ASSESSING OFFICER, submission of the appellant, judicial pronouncements relied upon by the appellant and CIT (Appeal) order for A.Y. 2006-07 and 2007-08 in appellant’s own case. It is seen that while deciding the issue the ASSESSING OFFICER has relied upon the assessment order passed by ASSESSING OFFICER for A.Y. 2006-07 and A.Y. 2007-08 wherein telecommunication and insurance expenses have been excluded from the export turnover for the purpose of computing the deduction under section 10A of the I.T. Act. It is seen that the Appellant had appealed against the assessment order for the AY 2006-07 and AY 2007-08 before the CIT(A)-VIII, New Delhi and the CIT(A)- V, New Delhi respectively and the said appeals have been

31 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 decided in favour of the Appellant. The relevant extract of the decision of the CIT (Appeal) for A.Y. 2007-08 is reproduced hereunder:- "The assessment order passed by the AO for the year under consideration relies on the asst, order the case of the Appellant in the earlier year i.e. AY 2006-07 wherein the erstwhile AO has excluded the telecommunication and insurance expenses from export turnover for the purpose of computing the deduction under section 10A of the Act. It seen that the Appellant had appealed against the assessment order for the Assessment Year 2006-07 before the CIT(Appeals)-VIII, New Delhi and the said appeals was decided favour of the Appellant. As the facts are identical, I am in agreement with the views of the New Delhi and the AO is therefore directed to allow deduction u/s 10A without excluding the telecommunication and insurance expenses from export turnover. ’’ As the facts of this assessment year are identical with the facts of the appellant’s case for A.Y. 2006-07 and 2007-08, therefore I am in full agreement with the views of CIT( Appeals)-V, New Delhi and ASSESSING OFFICER is therefore directed to allow deduction u/s 10A of the IT Act without excluding the telecommunication and insurance expenses from export turnover.”

5.4 From the above observations, we find that in the case of the assessee, the expenses on communication and insurance have not been incurred in foreign exchange and also not included in the invoices issued to the foreign customer. Apropos the above discussion, since the assessee has not charged the expenses on telecommunication and insurance from its customers, the same are not required to be excluded while computing the export turnover for the purpose of determining deduction u/s 10A of the Act. Once, the telecommunication

32 ITA Nos. 1410 & 4315/Del/2012 AYs: 2008-09 & 2009-10 insurance expenses are not part of export turnover, in our considered opinion, there is no reason for reducing the expenses incurred on communication and insurance from the export turnover for the purpose of computation of deduction under section 10A of the Act. We find that order of the learned Commissioner of Income-tax (Appeals) on the issue in dispute is well reasoned and no interference on our part is required. Accordingly, we uphold the same. The ground No. 3 of the appeal is dismissed. 6. In the result, the appeal is dismissed. ITA No. 4315/Del/2012 7. The facts and circumstances of the case in ITA No. 4315/Del/2012 are identical to the facts and circumstances of case in ITA No. 1410/Del/2012, following the our findings in ITA No. 1410/Del/2012, we dismiss ground No. 1 to 3 of the appeal of Revenue in ITA No. 4315/Del/2012. 8. In the result, both the appeals of the Revenue are dismissed. The decision is pronounced in the open court on 30th Sept., 2016.

Sd/- Sd/- (SUDHANSHU SRIVASTAVA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30th September, 2016. Laptop/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi