Ita/544/2013 Of The Commisioner Of Income Tax v. M/S Ntt Data Global Advisory Services Pvt Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 12 DAY OF NOVEMBER 2070. PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASADLT.A. NOCO.544 OF 201 BETWEEN: 1.|THE COMMISSIONER OF INCOME-TA® C.R. BUILDING, QUEENS ROAD BANGALORE. 2.|THE ASST. COMMISSIONER OF INCOME-TAXCIRCLE-11(5), RASHTROTHANA BHAVANCIRCLE-11(5), RASHTROTHANA BHAVAN NRUPATHUNGA ROAD, BANGALORE. .., APPELLANTS~ (BY SRI. K.V. ARAVIND, ADV.,) AND* M/S. NTT DATA GLOBAL ADVISORYSERVICES PVT. LITD.,GLOBAL VILLAGE TECH PARKTOWER-E, 9TH FLOOR|MYLASANDRA, PATTANAGERE VILLAGERVCE POST, BANGALORE-560058(AMENDED AS PER COURT ORDER DATED 12.11.2020) ~. RESPONDENT (BY SRI. CHYTHANYA K.K. ADV.) THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961 ARISING OUT OF ORDER DATED 21.06.2013 PASSED IN ITA.NO.1182/BANG/2011 FOR THE ASSESSMENT YEAR 2007-08,PRAYING TQ: (I) FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW.STATED ABOVE. (II) ALLOW THE APPEAL AND SET ASIDE THE ORDER.PASSED BY THE ITAT, BANGALORE IN ITA NO.1182/BANG/2011.DATED 21-06-2013 AND CONFIRM THE ORDER OF THE APPELLATE.COMMISSIONER CONFIRMING THE ORDER PASSED BY THE.ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(5),.BANGALORE. THIS|LIACOMING|ONFOR.HEARING,THISALOK ARADHE J.,DELIVERED THE FOLLOWING: | DAY, | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (hereinafter referred to as the Act for short)nas been preferred by the revenue. The subject matterof the appeal pertains to the Assessment year 2007-08.The appeal was admitted by a bench of this Court videorder dated 21.03.2014 on the following substantial|question of law: (i) Whether the Tribunal on the facts|and circumstances of tne case and in lawwas correct in holding that, the assessee'sactivity of human resources services are ITenabled services, when the assessee wasonly making available the data base ofgualifiedLTpersonnelandentitled|CO deduction u/s. 10A of the Act and recorded aperverse finding?| (ii) Whether the Tribunal on the facts|and circumstances of the case and in lawwas correct in holding that the assessee'sactivity of human resources services are ITenabled services, when the assessee wasonly making available the data base ofqualifiedTTpersonnelandentitled|CO deduction under Section 10A of the Act andrecorded a perverse finding? 2D Thefactualbackground,Inwhichtheaforesaidsubstantialquestionsoflawarise|for.consideration in this appeal needs mention. Theassessee iS a private limited company and is in thebusiness of software development and_ professionalservices. During the Assessment Year 2007-08, the.assessee had 6 separate units, each in Bangalore and.Chennai. The assessee filed the return of income for the|Assessment Year 200/-08 on 31.10.2007 and claimed|deduction under Section 10A of the Act only in respect of five units viz., unit Nos.2 to 6 to the extent ofRs.1,24,77,99,092/- and reflected the income after thededuction at Rs.29,30,45,240/-. The Assessing Officer.by|an|order|dated24.17.7010|re-computed|thededuction under Section 10A of the Act by reducing the.recruitment fee from the export turnover. The assesseethereupon filed an appeal before the Commissioner ofIncome.Tax(Appeals)whoby an)order|dated24.10.2011 affirmed the order passed by the AssessingOfficer and held that Income from Numan resourceservices is not eligible for deduction under Section 10Aof the Act and accepted the alternative plea to tax onlynet income from the business of Manpower supply. | 3.0Tne assessee thereupon approached theIncome Tax Appellate Tribunal (hereinafter referred toas the tribunal for short). The tribunal by an orderdated25.05.7012.DY|placingrelianceON?"COMMISSIONER OF INCOME TAX AND ANR. VS,M/S TATA ELXSI LTD AND ANR.’, I.T.A.NO.386, 387 3.0Tne assessee thereupon approached theIncome Tax Appellate Tribunal (hereinafter referred toas the tribunal for short). The tribunal by an orderdated25.05.7012.DY|placingrelianceON?"COMMISSIONER OF INCOME TAX AND ANR. VS,M/S TATA ELXSI LTD AND ANR.’, I.T.A.NO.386, 387 & 388/2015 DECIDED ON 15.02.2016held that.income reduced from export turnover has to be reducedfrom total turnover. The assessee thereupon preferredan appeal under Section 254(2) of the Act seekingrectification of the mistake. The tribunal by an orderdated 01.03.2013 held that the finding recorded by the.tribunal in the previous order is erroneous and the samerequires re-adjudication. Therefore, the order dated25.05.2012 was recalled. Thereafter, the tribunal by anorder dated 71.06.7013inter aliaheld that transmitting»the data of qualified Information Technology personnel is.human resource services and Information Technologyenabled services. Accordingly, the appeal preferred bythe assessee was allowed and the appeal preferred bythe revenue was dismissed as infructuous. In the!aforesaid factual background, this appeal Nas been filed.4Learned counsel for the revenue submittedthat the assessee is not engaged in Numan resourceservices and is engaged only in the business of placement which is akin to a commission agent andtherefore, the benefit of deduction under Section 10A ofthe Act cannot be granted to the assessee. It is urged.that|merecompilationOf informationofcertalncandidates in computers does not amount to InformationTechnology enabled services and in the prevalent.circumstances, mere use of computer cannot be held tobe Information Technology enabled service. It is alsosubmitted that the nature of activity carried on by theassessee is clear from the reply submitted by theassessee Defore the Assessing Officer as well asCommissioner of Income Tax (Appeals) and the tribunaland from the stand taken by the assessee before theauthorities, it is evident that the assessee is not entitledto deduction under Section 1LOA of the Act. It Is alsurged that tridDunal has erred in relying on the decisionrendered by the Chennai Bench of the Tribunal in.ITOVS, ACCURUM INDIA PVT. LTD. 5.|It is also argued that Delhi High Court in"COMMISSIONER OF INCOME-TAX-II, NEW DELHIVS. ML OUTSOURCING SERVICES (P.) LTD,,, 271|CTR 553 (DELHI)has clearly laid down as to what.constitutes Human Resource Services and the activityundertaken by the assessee does not fall within theaforesaid expression interpreted by the Delhi High Court.and in view of law laid down by Delhi High Court, the.activity of the assessee cannot be treated as humanresource services. It is also urged that tribunal recordeda finding of fact for the first time that the assessee.engaged in the training and recruitment, which was not.even the case of the assessee, which is evident from thereply submitted by the assessee before the AssessingOfficer as well as the Commissioner of Income Tax)(Appeals). It is also urged that the order requiresreconsideration in view of law laid down by SupremeCourt in ML OUTSOURCING SERVICES (P.) LTD. supra. Itis also pointed out that the assessee during the course of hearing submitted that it is imparting training to its.own employees also. Therefore, possibility of training:expenses referred to by the tribunal may have beenincurred by the assessee for training its own employees.It is also pointed out that factual analysis as to whethertraining has been imparted to the persons mentioned in>the list, which was shared with the other companies isrequired. Lastly, it was urged that the fact whether ornot the assessee had incurred expenses for training ofits own employees or for the employees of othercompanies requires factual determination. of hearing submitted that it is imparting training to its.own employees also. Therefore, possibility of training:expenses referred to by the tribunal may have beenincurred by the assessee for training its own employees.It is also pointed out that factual analysis as to whethertraining has been imparted to the persons mentioned in>the list, which was shared with the other companies isrequired. Lastly, it was urged that the fact whether ornot the assessee had incurred expenses for training ofits own employees or for the employees of othercompanies requires factual determination. 6.On the other hand, learned counsel for the|assessee submitted tnat assessee itself is a software|company and has been given the benefit of computationof deduction under Section 10A of the Act. It ts furthersubmitted that human resource services extended by theassessee are entitled to deduction even witnout training.In this connection, learned counsel for the assessee hasinvited tne attention of this court to Notification dated 26.09.2000 issued by Central Board of Direct Taxes(CBDT) in exercise of powers under Explanation 2 ofSection 10A clause (b) of item (i) of Explanation 2 ofSection 10B and clause (b) of Explanation to SectionSOHHE of the Act, which includes Numan resourceservices. Learned counsel for the assessee has also!invited our attention to dictionary meaning of expression‘human resources’ and has also referred to Circular!No.772 dated 23.12.1998. In Support of aforesaidSubmissions, reliance has been placed on decision ofDelhi High Court in ~COMMISSIONER OF INCOME-TAX-I1I, NEW DELHI VS. M/S M.L.OUTSOURCING P.LTD.', IN ITA NO.1255/2011 DATED 03.09.2014,‘COMMISSIONER OF INCOME-TAX-VIII VS. M/SKIRAN KAPOOR, (2015) 57 TAXMANN.COM 39(DELHI)and in the case of"COMMISSIONER OFINCOMEJTAX=-1VS,MALHARINFORMATIONSERVICES, 351 ITR 119 (BOM). JWe have considered the submissions made bylearned counsel for the parties and have perused therecord. Section 10A of the Act deals with specialprovision in respect of newly established undertaking inFree Trade Zone (FIZ) and provides for deduction. Therelevant extract of Section 10A reads as under: 10A. (1) Subject to the provisions ofthis section, a deduction of such profits andgains as are derived by an undertaking|from the export of articles or things or.computer software for a period of 10)consecutive assessment years beginning:with the assessment year relevant to the.previous year In which tne undertaking|begins to manufacture or produce sucn|articles or things or computer software, as|the case may De, Shall be allowed from the|total income of the appellant : xXXXXX (2) This section applies to any|undertaking which fulfils all the following|conditions, namely :— (i) it has begun or _ begins to|manufacture or produce articles or things or computer software during the previous yearrelevant to the assessment year— (a) commencing on or after the ist.day of April, 1981, in any free trade zone;Or (b) commencing on or after the 1st.day of April, 1994, In any electronic|hardware technology park, or, as the case.may be, software technology park; (Cc) Xxxx Explanation 2 to Section 10A “Computer software means- (a)AnycomputerProgrammerecorded on any disc, tape, perforatedmeaia or otner information storage device;Or (b) Any customized electronic data or any product or service of a similar nature,as may be notified by the Board.” 8.Theaforesaidprovision.applies|tOan)undertaking which begins to manufacture or producesuch articles or things or computer software for a period (a) commencing on or after the ist.day of April, 1981, in any free trade zone;Or (b) commencing on or after the 1st.day of April, 1994, In any electronic|hardware technology park, or, as the case.may be, software technology park; (Cc) Xxxx Explanation 2 to Section 10A “Computer software means- (a)AnycomputerProgrammerecorded on any disc, tape, perforatedmeaia or otner information storage device;Or (b) Any customized electronic data or any product or service of a similar nature,as may be notified by the Board.” 8.Theaforesaidprovision.applies|tOan)undertaking which begins to manufacture or producesuch articles or things or computer software for a period of 10 consecutive years beginning from Assessment Year.in which undertaking begins to manufacture or producesuch articles or things or computer software. The.expression ‘computer software has been defined inExplanation 2 to Section 10A and provides that the samemeans even any customized electronic data or anyproduct or service of a similar nature as may be notified|by the Board. Thus, the Legislature has empowered theBoard to notify the products or services of similar naturewhich would be covered under clause (b) and treated as‘customized electronic data’ and also, ‘any product orservice of similar nature’. The Board has issued aéNotificationdated26.09.7000|andtheaforesaidNotification admittedly contains Numan resources as wellas Information Technology enabled product or services.The relevant extract of the Notification, is reproducedbelow for the facility of reference: In exercise of the powers conferred byclause (b) of item (i) of Explanation 2 of section10A, clause(Db)ofItem(I)ofExplanation 2 of section 10B and clause (Db) ofExplanation to section 8OHHE of the Income-tax Act, 1961 (43 of 1961), the Central Boardof Direct Taxes hereby specifies the following.information technology enabled products or.services, as the case may be, for the purpose.of said clauses, namely :— (1) Back-office Operations; (ii) Call Centres ; (iii) Content Development or Animation ; (iv) Data Processing ; (v) Engineering and Design ; (vi) Geographic Information System Services ; (vil) Human Resources Services; (vill) Insurance Claim Processing ; (ix) Legal Databases ; (x) Medical Transcription ;— (xi) Payroll ; (xii) Remote Maintenance ; (xiii) Revenue Accounting ; (xiv) Support Centres, and; (xv) Web-site Services. orThe aforesaid Notification has been issuedwith an object to outsourcing service industry in India asit generates employment and helps in earning ForeignExchange. The assessee admittedly is involved inproviding human resource services and from the perusalof the order passed by the Assessing Officer, it is evident.that if the nature of activity of the assessee ismaintenance of computerized database with regard tovarious types of qualified Information Technologypersonnel available in India and the company providesthe customers with information to potential candidates,which would meet the requirements on the customers.Thus, the role of the company is to create an electronicdatabase of qualified personnel and transmit datathroughelectronicmeansTO.theclient.TheCommissioner of Income Tax (Appeals) has also foundthat the assessee is in the business of supply ofmanpower from India to its Foreign clients after theirrecruitment in India. Thus, irrespective of the fact whether or not the assessee provides training to its.employees or to the employees who are recruited by its clients, since, the assessee is engaged in providing.human resource services, its case is squarely covered byNotification dated 26.09.2000. Therefore, the assesseeis entitled to the benefit of deduction under Section 10Aof the Act. In view of preceding analysis, the substantialquestions of law framed by a bench of this courtanswered against the revenue and in favour of the.assessee. In the result, we do not find any merit in thisappeal, the same fails and is hereby dismissed. Sd/-JUDGE. Sd/-—JUDGE. AAJ/HINPJITA No.544/201326.02.7027 ORDER ON I1.A.NO.1/202 whether or not the assessee provides training to its.employees or to the employees who are recruited by its clients, since, the assessee is engaged in providing.human resource services, its case is squarely covered byNotification dated 26.09.2000. Therefore, the assesseeis entitled to the benefit of deduction under Section 10Aof the Act. In view of preceding analysis, the substantialquestions of law framed by a bench of this courtanswered against the revenue and in favour of the.assessee. In the result, we do not find any merit in thisappeal, the same fails and is hereby dismissed. Sd/-JUDGE. Sd/-—JUDGE. AAJ/HINPJITA No.544/201326.02.7027 ORDER ON I1.A.NO.1/202 Mr.K.V.Aravind, learned counsel for the revenue.Mr.Sharath S., learned counsel for the assessee. | Heard on I.A.No.1/20121 for correction of the judgment.dated 12.11.2020 passed in ITA No.544/2013. After hearing the learned counsel for the parties, it is.directed that the name of respondent in the cause of title of the.judgment be read as M/s NTT Data Global Advisory Services Pvt. Limited instead of M/s NTT Data Global Delivery Services Pvt. Ltd. This order shall be read in conjunction with the judgment.dated 12.11.2020 passed in ITA No.544/2013. Accordingly, I.A.No.1/2021 is disposed of. Sd/-.JUDGE| Sd/-JUDGE| SS