Ita/259/2014 Of Commissioner Of Income Tax-Iii v. Shri Narendra R

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 10 DAY OF SEPTEMBER 2020. PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD LT.A. NO.259 OF 2014 C/W LT.A. NQ.1L2 OF 2016 LT.A. NQ.259 OF 2014 BETWEEN: 1.COMMISSIONER OF INCOME TAX-III CENTRAL REVENUE BUILDINGS QUEENS ROAD, BANGALORE-560001. 2.|THE DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-7(1), BANGALORE. ... APPELLANTS (BY SRI. E.1. SANMATHI, ADV.,) AND: SHRI. NARENDRA R THAPPETTANO.158, 1 PHASE|PALM MEADOWSAIRPORT-WHITEFIELD ROAD BANGALORE-560066. ... RESPONDENT (BY SRI. A. SHANKAR, SR. COUNSEL A/WSRI. M. LAVA, ADV.) |SRI. M. LAVA, ADV.) | THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,1961 ARISING OUT OF ORDER DATED 03.01.2014 PASSED IN [TA|NO.426/BANG/2013 FOR THE ASSESSMENT YEAR 2009-10,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO: (1) DECIDE THE FOREGOING QUESTION OF LAW AND/OR-SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT. (1) SET ASIDE THE APPELLATE ORDER DATED 03.01.2014PASSED BY THE ITAT, ‘BB BENCH, BANGALORE IN APPEAL|PROCEEDINGS NO.ITA NO.426/BANG/2013 FOR ASSESSMENT|YEAR 2OO0O9-LO AS SOUGHT IN THIS APPEAL LT.A.§ NO.12 OF 2016 BETWEEN: 1.PR, COMMISSIONER OF INCOME TAX| CENTRAL REVENUE BUILDINGS QUEENS ROAD, BANGALORE-560001. 2.|THE INCOME TAX OFFICER| WARD-4(3)(3), BANGALORE. ... APPELLANTS (BY SRI. E.1. SANMATHI, ADV.,) AND: SHRI. NARENDRA R THAPPETTANO.158, 1 PHASE, PALM MEADOWS|AIRPORT-WHITEFIELD ROAD BANGALORE-560066 PAN: ACKPI23/8J. ... RESPONDENT (BY SRI. A. SHANKAR, SR. COUNSEL A/W SRI. M. LAVA, ADV.) | THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,1961 ARISING OUT OF ORDER DATED 07.08.2015 PASSED IN [TA|NO.605/BANG/2015 FOR THE ASSESSMENT YEAR 2010-11,|PRAYING THAT THIS HON'BLE COURT MAY BE PLEASED TO:(1) DECIDE THE FOREGOING QUESTION OF LAW AND/OR-SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON’BLE COURT AS DEEMED FIT. (I) SET ASIDE THE APPELLATE ORDER DATED 07-08-2015.PASSED BY THE ITAT, A’ BENCH, BENGALURU, IN APPEAL|PROCEEDINGS NO.ITA NO.605/BANG/2015 FOR ASSESSMENT|YEAR 2010-11, AS SOUGHT FOR IN THIS APPEAL. THESE ITASs COMING ON FOR FINAL HEARING, THIS DAY,ALOK ARADHE J.,DELIVERED THE FOLLOWING: COMMON JUDGMENT These appeals under Section 260A of the Income) Tax Act, 1961 (hereinafter referred to as the Act forsnort) nave been preferred by the revenue. Tne subjectmatter of I.T.A.No.259/2014 pertains to the AssessmentYEdr|2009-10,whereas,the|subjectmatterofI.T.A.No.12/2016 pertains to Assessment Year 2010-11. — 2 |In both the appeals, the following commonsubstantial questions of law. Arise for consideration: © (i) Wnetner on tne facts and in tnecircumstances of the case, the Income TaxAppellate Tribunal was Justified in holding|that the assessee was entitled to the Denefitof deduction under Section 10A of the.Income Tax Act, 1961 for the Assessment.Year in question? (ii)WhethertheServicesofthe assessee were limited to drafting of patent|application and their submission to the US|patent office and as such the assessee was|not entitled to claim deduction under Section|10A of the Income Tax Act, 1961? 3.Since, common questions of law arise forconsideration in these appeals; they were’ heardtogether and are being decided by this commonjudgment. 4Facts leading to filing of these appeals brieflystated are that the assessee filed the returns of Incomefor the Assessment Year 2009-10 and 2010-11 on18.09.2009 and 27.09.2010 respectively, by which aclaim for deduction under Section 10A of the Act wasmade.for.an)amountofRs.3,24,/74,124/-and|Rs.3,34,41,151/- respectively. The returns of incomefiled by the assessee were selected for scrutiny. TheAssessing Officer in respect of Assessment Years 2009-10 and 2010-11 by orders dated 12.12.2011 and 3.Since, common questions of law arise forconsideration in these appeals; they were’ heardtogether and are being decided by this commonjudgment. 4Facts leading to filing of these appeals brieflystated are that the assessee filed the returns of Incomefor the Assessment Year 2009-10 and 2010-11 on18.09.2009 and 27.09.2010 respectively, by which aclaim for deduction under Section 10A of the Act wasmade.for.an)amountofRs.3,24,/74,124/-and|Rs.3,34,41,151/- respectively. The returns of incomefiled by the assessee were selected for scrutiny. TheAssessing Officer in respect of Assessment Years 2009-10 and 2010-11 by orders dated 12.12.2011 and 26.03.2013 held that Section 10A of the Act applies onlyin respect of profit and gains derived from export ofarticles, or things or computer software and therefore,assessee is not entitled for deduction under Section 10Aof the Act as the activities of the assessee does not!constitute development of computer program as definedunder Section 10A of the Act. It was further held that.the activities of the assessee do not fall in any of thecategory as mentioned in Notification No.896 dated26.09.2010 issued by Central Board of Direct Taxes(CBDT) and rejected the claims of deduction of theassessee under Section 10A of tne Act. 5.|The assessee thereupon filed appeals beforethe Commissioner of Income Tax (Appeals). TheCommissioner of Income Tax (Appeals) in respect ofAssessment Years 2009-10 and 2010-11 + £4Dy ordedated 19.12.2012 and 20.02.2015 respectively held thatrespondent is entitled for deduction under Section 10Aof the Act in the lignt of notification issued py CBDIT, which is applicable to the case of the assessee as theservices rendered by the assessee can broadly beclassified as office operations, data processing, legaldatabases and same can be termed as informationtechnology enabled services. Being aggrieved, therevenue filed appeals before the Income Tax AppellateTribunal (hereinafter referred to as ‘the Tribunal forshort). The tribunal in respect of Assessment Years2009-10 and 2010-11 vide orders dated 03.01.2014 and07.08.2015 inter alia held that activities of the assesseecan be categorized as back office operations, dataprocessing, legal databases or even under remotemaintenance|and|theSalmeCanbe|termedas|information technology enabled products or services.The tribunal therefore held that the assessee is entitled|to claim deduction under Section 10A of the Act. In the|result, the appeals preferred by the revenue weredismissed. In the aforesaid factual background, therevenue has filed these appeals.| 6.|Learned counsel for the revenue submittedthat assessee is an individual and is neither a companynor an undertaking and is also located in SpecialEconomic Zone (SEZ) and the assessee in order to claim.the benefit of Section 10A of the Act has to fulfill all the|conditions laid therein. Since, the assessee is neither acompany nor an undertaking and is also not located in.Special Economic Zone, therefore, assessee being anindividual is not entitled to the benefit of Section 10A ofthe Act. While referring to the Dudget speech of thefinance minister, it is contended that the object ofSection 10A is to encourage establishment of exportoriented industries in Free Trade Zone (FIZ) and togrant incentives for export towards tax payer from anindustrial undertaking newly set up in India. It is furthersubmitted that the assessee is engaged in the activity offorwarding of a patent application, which does notamount to back office operations. It is further submittedthat the burden was on the assessee to establish ‘what| is back office operation’, which he has failed todischarge. It is also urged that in order to claim thebenefit of deduction under Section 10A of the Act, allconditions have to be satisfied. It is also submitted thatif there is any ambiguity in the exemption notification,the same should be interpreted strictly and in favour ofthe revenue. In support of his submissions, learnedcounsel for the revenue has placed reliance on decisionsIn"M/S L.R.BROTHERS INDO FLORA LIMITED VS.COMMISSTONER|OFCENTRAL|EXCISE’,CIVILAPPEAILNO.7157/2008DATED|01.09.2020, ‘RAMNATH & CO. VS, COMMISSIONER OF INCOME-TAX’,(2020)116TAXMANN,.COM885(SC),‘COMMISSIONER OF INCOME TAX VS. REGENCYCREATIONS LTD.’, (2012) 27 TAXMANN.COM 322(DELHI),156‘COMMISSIONEROF|CUSTOMS|(IMPORT),MUMBATYS,DILITPKUMAR&COMPANY’, (2018) 69 GST 239 (SC). J |On the other hand, learned Senior counsel forthe assessee has invited our attention to the definition|of the expression ‘assessee’ and has further pointed outthat the expression ‘person’ includes an individual aswell. It is further submitted that Notification No.890Odated 26.09.2000 was issued to specify the informationtechnology enabled product services as provided under.Section 10A of the Act, Explanation 2(i)(b) of the Act. Itis also pointed out that it was never the case of theAssessing Officer that assessee is not an undertaking Itis also pointed out that assessee is a registered STP unitgoverned under Directorate of Software Technology Parkand the assessee is also recognized to be 100% export.oriented unit under STP scheme for IT enabled services|viz., back office / remote data entry. It is also pointedout that assessee is also engaged in the transmission ofelectronic data i.e., patent related data from India to aplace outside India as per Explanation 2 to Section 10Aof the Act and is entitled to claim deduction under Notification issued by CBDT dated 26.09.2000. It isfurther submitted that the assessee by an order dated2/.01.2006 passed by the Assessing Officer was giventhe benefit of deduction under Section 8OHHI of the Act|for the Assessment Year 2003-04. It is furthersubmitted that the expression ‘computer software’ iswide enough to embrace diverse activities. It is also.pointed out that processing of basic data for consumerson computer machines has been held to be ‘processingOf goods”by division benchofthis|courtIn‘COMMISSIONER OF INCOME TAX VS. Datacons (P)LTD.'’, (1985) 155 ITR 66 (KAR)It is also Submitted|that the issues involved in these appeals are in factquestions of fact and findings of fact are concurrent innature and therefore, no interference is called for. InSupport of aforesaid submissions, reliance has beenplaced on."KULWANT KAUR VS, GURDIAL SINGH|MANN’, (2001) 4 SCC 262, ‘VIJAY KUMAR TALWARVS. CIT’, 330 ITR 1 (SC), ‘K.RAINDRANATHAN NAIR VS. CIT’, 247 ITR 178 (SC), ‘SUDHARSHANSILKS AND SAREES VS. CIT’, 300 ITR 205 (SC), ‘CBDTNOTIFICATION|NO.890(E)DATED26.09.2000, ‘CIT VS. M.L.OUTSOURCING SERVICESPVT LTD’, 271 CTR 553 (DEL), CIT VS. MS/KIRANKAPOOR’, 372 ITR 321 (DEL), ‘CIT VS. B.SURESH,313|ITR149|(SC),‘CITVS.PEERLESSCONSULTANCY AND SERVICE (P.) LTD.’(, (2001)248[TR178|(SC),"CITVS, PEERLESSCONSULTANCY AND SERVICES (P.) LTD.’, (1990)186 ITR 609 (CALCUTTA), CHILLIES EXPORTHOUSE LIMITD VS. CIT’, (1997) 225 ITR 814 (SC),‘CIT VS. DATACON (P.) LTD.’, (1985) 155 ITR 766(KARNATAKA). 8.|We have considered the submissions madeby learned counsel for the parties and have perused therecord. The singular issue, which arises for considerationin this appeal, is whether the assessee is entitled tobenefit of deduction under Section 10A of the Act. The expression ‘computer software’ defined under Section Explanation 2 to Section 10A of the Act reads as under: ‘Computer software’ means -— (a)Any computer program recorded onany disc, tape, perforated media or other information storage device;|any disc, tape, perforated media or other information storage device;| Or 8.|We have considered the submissions madeby learned counsel for the parties and have perused therecord. The singular issue, which arises for considerationin this appeal, is whether the assessee is entitled tobenefit of deduction under Section 10A of the Act. The expression ‘computer software’ defined under Section Explanation 2 to Section 10A of the Act reads as under: ‘Computer software’ means -— (a)Any computer program recorded onany disc, tape, perforated media or other information storage device;|any disc, tape, perforated media or other information storage device;| Or (b)Any customized electronic data or|any product or service of similar|nature, as may be notified by tne|board,any product or service of similar|nature, as may be notified by tne|board, which ts transmitted or exported from India|to any place outside India by any means.to any place outside India by any means. 9 |The assessee is a_ registered STP unitgoverned under the Directorate of Software TechnologyPark and the assessee is recognized to be 100% exportoriented unit under STP scneme for IT enabled services| (Back Office / Remote Data Entry). The CBDT hadissued a Notification No.890 dated 26.09.2008 to specifythe information technology enabled product services asprovided under Section 10A of the Act, Explanation 2(i)(b) of the Act. The aforesaid Notification isClarificatory in nature and has been issued to clarify theexpression viz., ‘computer software’ used in Explanation2(i)(b) of Section 10A of the Act. The aforesaidNotification specifies that information and technologyenabledproductsOrservicesmentionedIntheNotification shall be treated as Information Technologyenabled products or services for the purposes ofExplanation 2(i)(b) of Section 10A of the Act, whichincludes Back Office Operations and Data processing as_well. 10. The assessee receives back office work from.the legal department of software companies in USA. —The companies assign back office work of registeringtheir technology in USA patent office. The applications.are prepared, finalized and signatures are obtained inthe declaration. For development of work product aspatent application, US patent application containsdrawings and specification. The drawings are generated using computer aided design software and specification|is written using word processing software. The backoffice standardrequires a level of control over)formulation of the editing of the content of theapplication, whicn is possibile only with the use ofInformation Technology. The activities of the assesseecan be classified as Data Processing, Legal Databasesand remote maintenance under the Notification issuedby the CBDT. The assessee is transmitting the patentapplication and related data, which is stored in electronicform and therefore, such data, is customized data and iseligible for deduction under Section 10A of the Act.Therefore, it is evident that assessee is engaged in backoffice operations, whicn is prescribed as informationtechnology enabied services in the Notification dated26.09.2000. It is pertinent to note that the revenueitself Nas granted the benefit of deduction to theassessee vide order dated 27.01.2006 in respect ofAssessment Year 2003-04 under Section S8OHHE of the Act, which is a pari materia to Section 10A of the Act. Act, which is a pari materia to Section 10A of the Act. 11. It ts well settled legal proposition thattribunal is a fact finding authority and decision on factsrendered by the tribunal can be gone into by High Court.only if a question is referred to it, which says the findingIS|perverse|See:SANTHOSHHAZARIVS.PURUSHOTTAM TIWARI’, (2001) 3 SCC 1/79 and adecision of this court in CIT VS. SOFT BRANDS (P) LTD.,(2018) 406 ITR 513, ‘KULWANT KAUR S. GURDIALSINGH MANN’, (2001) 4 SCC 262, ‘VIJAY KUMARTALWAR VS. CIT 330 ITR 1 (SC), ‘K.RAVINDRANATHANNAIR VS. CIT’, 247 ITR 178 (SC) and‘SUDHARSHAN.SILKS AND SAREES VS. CIT’, 300 ITR 205 (SC)]. Evenotherwise, concurrent findings of fact recorded by therevenue that assessee is entitled to benefit of deduction.under Section 10A of the Act is based on meticulousappreciation of evidence on _ record. The _ aforesfindings, by no stretch of imagination can be said to beperverse. Learned counsel for the revenue was unable to point out any perversity in the concurrent findings offact recorded by Commissioner of Income Tax (Appeals)as well as Income Tax Appellate Tribunal. Even the issueof perversity has neither been raised in the memo ofappeal nor has been argued before us. In view of preceding analysis, we hold that no)substantial question of law arises for consideration inthese appeals, as the matter stands concluded byconcurrent findings of fact which are based on based onmeticulous appreciation of evidence on record. In theresult, we do not find any merit in these appeals. Thesame fails and are hereby dismissed. Sd/-—JUDGE. Sd/-—JUDGE.