THE issue before the Bench is - Whether the provisions of Sec
10A enlarge the ambit of the term 'computer programme' by including the process
of management of electronic data. And the answer favours the
assessee.
Facts of the
case
The assessee is a 100% export oriented unit under the STP
Scheme. It filed its Return of Income claiming deduction of section 10A. The
Return of Income filed by the assessee was picked up for scrutiny. During the
course of assessment proceedings the AO disallowed the claim of deduction of
section 10A on the ground that assessee was engaged in providing BPO services,
which services neither amounted to manufacturing nor services as envisaged in
section 10A.
Aggrieved with the order of the AO,
the assessee filed appeal before the CIT (Appeal) and contented that the claim
of the assessee was fully tenable in view of the Board Circular. However, the
CIT (Appeal) affirmed the order of the AO.
On appeal, the Tribunal
held that,
++ from the provisions of Sec 10A in the Act, the meaning of computer programme has been expanded as "computer program" "process" or "management of electronic data". By way of above Explanation, computer software which was not earlier defined has been defined and apart from recording of program on disc, tape, perforated media or other information storage device as contemplated under clause (iii) of Explanation to pre-amended sec. 10A clause (i) of Explanation-2 to amended provision also includes in the definition of computer software any customised electronic data or any product or services of similar nature as notified by the Board which is transmitted or exported from India to any place outside by any means;
++ the production of computer software programme is basically a job requiring more of human skills and expertise than machine work. Further section 10A enlarges the ambit of the term "computer programme" by including the process of management of electronic data. Therefore, the engagement of software professionals/ programmers/analysts and rendering services to the assessee, as discussed earlier, cannot be treated as a separate activity of the assessee on the reason that the assessee collected fees on man-hour basis;
++ raising of bill on the basis of man-hour further supports the case of the assessee that the assessee is carrying out the customization work of software and development of programme as per the specific requirement of clients. Therefore, this method of invoice cannot be the basis of rejection of the claim of the assessee. In any case, when the assessee has been collecting the customised data, stored and transmitted the same through electronic media, then this activity of the assessee falls under the definition of computer programme as provided under sec. 10A as well as under Explanation 2 of sub.sec. 10A thereby the definition of software has been expanded as customised electronic data or any product or service of similar nature as may be notified by the Board. The assessee is definitely engaged in the export of customised electronic data as recorded by the Assessing Officer in his order;
++ the Assessing Officer has not disputed the fact that the assessee was engaged in customising the software as per the needs of the clients. One of the main objections of the Assessing Officer is that the assessee customised the software which was already available and has not created altogether new software. It is pertinent to note that the definition of “produce” is wider than the term "manufacture" as held by the Supreme Court in a number of decisions and does not require to produce or manufacture altogether a new product; but if the outcome of the process is a different product than the input it would fall under the definition of ‘produce’. Therefore, the customised SAP software after passing through cumbersome process of customization is different product; i.e. software, then the original standard software and would certainly fall under the term ‘produce’;
++ the claim of the assessee u/s. 10A is to be allowed as the deduction claimed by the assessee falls under the provisions of Explanation 2 after section 10A(9A) of the Act.
++ from the provisions of Sec 10A in the Act, the meaning of computer programme has been expanded as "computer program" "process" or "management of electronic data". By way of above Explanation, computer software which was not earlier defined has been defined and apart from recording of program on disc, tape, perforated media or other information storage device as contemplated under clause (iii) of Explanation to pre-amended sec. 10A clause (i) of Explanation-2 to amended provision also includes in the definition of computer software any customised electronic data or any product or services of similar nature as notified by the Board which is transmitted or exported from India to any place outside by any means;
++ the production of computer software programme is basically a job requiring more of human skills and expertise than machine work. Further section 10A enlarges the ambit of the term "computer programme" by including the process of management of electronic data. Therefore, the engagement of software professionals/ programmers/analysts and rendering services to the assessee, as discussed earlier, cannot be treated as a separate activity of the assessee on the reason that the assessee collected fees on man-hour basis;
++ raising of bill on the basis of man-hour further supports the case of the assessee that the assessee is carrying out the customization work of software and development of programme as per the specific requirement of clients. Therefore, this method of invoice cannot be the basis of rejection of the claim of the assessee. In any case, when the assessee has been collecting the customised data, stored and transmitted the same through electronic media, then this activity of the assessee falls under the definition of computer programme as provided under sec. 10A as well as under Explanation 2 of sub.sec. 10A thereby the definition of software has been expanded as customised electronic data or any product or service of similar nature as may be notified by the Board. The assessee is definitely engaged in the export of customised electronic data as recorded by the Assessing Officer in his order;
++ the Assessing Officer has not disputed the fact that the assessee was engaged in customising the software as per the needs of the clients. One of the main objections of the Assessing Officer is that the assessee customised the software which was already available and has not created altogether new software. It is pertinent to note that the definition of “produce” is wider than the term "manufacture" as held by the Supreme Court in a number of decisions and does not require to produce or manufacture altogether a new product; but if the outcome of the process is a different product than the input it would fall under the definition of ‘produce’. Therefore, the customised SAP software after passing through cumbersome process of customization is different product; i.e. software, then the original standard software and would certainly fall under the term ‘produce’;
++ the claim of the assessee u/s. 10A is to be allowed as the deduction claimed by the assessee falls under the provisions of Explanation 2 after section 10A(9A) of the Act.
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