N.k.parwanda v. Commissioner Of Income Tax

$-43, 46 & 47*IN THE HIGH COURT OF DELHI AT NEW DELHI +ITA 560/2008+ITA 795/2009+ITA 796/2009 % N.K.PARWANDA Appellant Through versus COMMISSIONER OF INCOME TAX .... RespondentThrough: Mr. Zoheb Hossain, Sr.Standing Counsel with Mr.Deepak Anand, Jr. StandingCounsel for Revenue. CORAM:HON'BLE MR. JUSTICE S. RAVINDRA BHATHON'BLE MR. JUSTICE A. K. CHAWLAORDER30.08.2018 The following question of law arises in all these three appeals : "Whether the translation services provided by theassessee to its foreign clients through the internetamounts to data processing and, consequently, fallswithin the ambit of computer software as referred to inSection 80 HHE of the Income Tax Act, 1961 read withthe notification issued by the Central Board of DirectTaxes being Notification No. SO 890 (E) dated26.09.2000?" The facts of the cases briefly are that for the relevantITA 560/2008, 795/2009 & 796/2009 page 1 of 9 assessment years (Assessment Years 2002-03; 2004-05 and 2005-06) which are covered in these three appeals, the assessee claimedthe benefit of Section 80HHE, contending that it was providingtranslation services through the internet to its clients. The assesseeis a proprietor of M/s International Academy of Foreign Languages(lAFL). During the year, the assessee has shown translation andinterpretation export for services rendered to foreign clients andclaimed deduction. For all these years, the Assessment Officerheld that the nature of receipts could not be characterized as exportof software within the meaning of Section 80HHE. Upon beingasked to do so, the assessee explained that deduction sought waspermissible stating that explanation (b) to Section 80HHE allowscustomised electronic data and enables service providers to seekexemption in view of the Central Board of Direct Taxes s (CBDT)notification No.SO 890 (E) dated 26.09.2000. The Assessment Officer however, declined to grant relief.The assessee appealed to the Commissioner. The CIT (A), afterconsidering the text of the provisions under Section 80HHE andnotification No.SO 890 (E) and also taking into account the thenprevailing decision of the Income Tax Appellate Tribunal (ITAT)in New Delhi Television Ltd. v. Deputy Commissioner of IncomeTax, (2004) 1 SOT 116 (Delhi) passed in ITA No.l757(Del)/2003(decided on 26.07.2004) held that the services so provided fellwithin the prescription of data processing as they were customizedITA 560/2008, 795/2009 & 796/2009 2 of 9 data and therefore, eonforming to Explanation (b). The relevant extract of the CIT(A)'s decision for the assessment year 2002-03 reads as follows : The Assessment Officer however, declined to grant relief.The assessee appealed to the Commissioner. The CIT (A), afterconsidering the text of the provisions under Section 80HHE andnotification No.SO 890 (E) and also taking into account the thenprevailing decision of the Income Tax Appellate Tribunal (ITAT)in New Delhi Television Ltd. v. Deputy Commissioner of IncomeTax, (2004) 1 SOT 116 (Delhi) passed in ITA No.l757(Del)/2003(decided on 26.07.2004) held that the services so provided fellwithin the prescription of data processing as they were customizedITA 560/2008, 795/2009 & 796/2009 2 of 9 data and therefore, eonforming to Explanation (b). The relevant extract of the CIT(A)'s decision for the assessment year 2002-03 reads as follows : "4. Now the contention of the appellant is found to becorrect. The entire procedure of the transactions betweenthe assessee and his buyer abroad and the samplessubmitted to explain the same make it clear that theappellant was engaged in data processing andtransactions of the same to his clients abroad. As a resultof this only he received foreign exchange. Now as per thenotification of the CBDT as referred to above, as peritem No. (iv) of the notification the assessee's business iscovered under the head "data processing". As thebusiness activity of the appellant was also part ofInformation technology enabled products or services hewas entitled to deduction under section 80HHE. As perexplanation (b) to section 80HHE the appellant wasengaged in supplying customized electronic date to hisforeign clients through Internet and as per thenotification of the Board, the appellant should have beenallowed deduction under section 80HHE. The appellant'scase is squarely covered with the decision of the IT AT,Delhi Bench 'A' New Delhi in the case of NDTV Vs.DCIT in ITA No. 1757 (Delhi) of 2003 dated 267.04. Inthat case it was held that 'No doubt the main provisionsof section 80HHE are in regard to deduction on accountof computer software. However, if explanation (b) of subsection (5) is taken into consideration, then it will be seenthat many other items are included, which includescustomized electronic data also. The Board in itsinstructions dated 26.9.2000 had enlarged the scope ofdeduction under section 80HHE whereby Explanation (b)to section 80 HHE(5) expanded to scope by includingvarious information technology enabled products or services. In these items, the item data processing is alsoincluded which is at No.(iv) of the Board Instructiondated 26.9.2000. The Board instructions which camethrough Notification No.890E)/[Notification No.II521 IF.No. 143/49/3000 TPL] are binding on thedepartment authorities. Therefore, no doubt remainedthat the activities done by the assessee as customizedelectronic data were covered under the provisions ofsection 80HHE, as the scope of Explanation (b), subsection (5), has been enlarged. Various stages in regardto collecting the customized electronic data had beenexplained" Similar facts exist in the appellants' case alsoand thus he was entitled to deduction under section 8-HHE." The Revenue's appeal was that neither the definition ofcomputer programme nor processed electronic data cover the kindof service provided by an assessee. It was submitted that until thecomputer software or something analogous to it is developed andprovided by an assessee, the benefit of Section 80HHE could notbe claimed. This contention was accepted by the ITAT, which heldas follows : "S. As per explanation to section 80HHE even anycustomize electronic data or product or services ofsimilar nature as notified by the Board which istransmitted or exportedfrom India will also be treated as"computer software". As noted above the Board hasissued notification No.S.O. 890 (E) dated 26.09.2000. Itis the contention of the assessee that the nature of servicerendered by the assessee falls under the clause 'BackOffice Operation' or 'Data Processing' or 'SupportCentres'. All these clauses are not defined but giving its ITA 560/2008, 795/2009 & 796/2009 "S. As per explanation to section 80HHE even anycustomize electronic data or product or services ofsimilar nature as notified by the Board which istransmitted or exportedfrom India will also be treated as"computer software". As noted above the Board hasissued notification No.S.O. 890 (E) dated 26.09.2000. Itis the contention of the assessee that the nature of servicerendered by the assessee falls under the clause 'BackOffice Operation' or 'Data Processing' or 'SupportCentres'. All these clauses are not defined but giving its ITA 560/2008, 795/2009 & 796/2009 natural or grammatic meaning, the nature of servicesrendered by the assessee that is translation services donot fall into any such categories. The data in the form oftext in foreign language is not processed through themedium of computer but merely translated and thetranslated text are uploaded in the computer andtransmitted through the use of Internet. Thus it cannot beconsidered as Data Processing. It cannot be consideredas Back-Office Operation too as in the said operationsthe data received in one form is processed which areused in administration. It do not fall in the clauseSupport Centres also as the job of the assessee is not toprovide any support to the main Job of the client. Theclient is not expert at translation and hence suchtranslation work is assigned to the assessee who afterdoing such translation work sends back the text oftranslated scripts. Any activity, which requires use ofInternet, do not automatically become Data Processingjob or a computer software. The decision of Income-taxAppellate Tribunal A Bench New Delhi in the case ofNDTV (supra) will not assist the case of theassessee " The assessee relies upon the decision of this court in theCommissioner of Income Tax v. New Delhi Television Ltd., ITANo.40/2005 (decided on 31.08.2017) which confirmed the ruling ofthe ITAT. It is further argued by the assessee that the courtanalyzed the provision i.e. Explanation (b) to Section 80HHE andrejected the Revenue's contention that the expression "or any othercustomized electronic data" has to take colour from the main partof the said explanation. It was emphasized that the decision inITA 560/2008, 795/2009 & 796/2009 page 5 of 9 Commissioner of Income Tax v. New Delhi Television Ltd. (supra),dissected the definition of computer software. The first partexhaustively dealt with as to what was '^computer software''\ but itwas an inconclusive definition which also took within its field adisjunctive "or" tending to expand the meaning of the expression.Thus, the export of news programmes was held to be customizedelectronic data. It is stated by the assessee that, likewise, providingtranslation services, both through electronic devices as well asthrough the human interface, and their packing in electronic formatfor onward transmission through the medium of the internet isnothing but export of customised electronic data and therefore, fallswithin the expanded meaning of ''computer software'". Ld. counsel for the Revenue submitted that there is adistinction between the facts of the present case and the case ofCommissioner of Income Tax v. New Delhi Television Ltd. (supra).In the latter, news programmes were entirely created, publishedand seen through the medium of the internet, whereas in the presentcase, the translation of the transmission could well be donemanually, although sent via the medium of the internet. Ld.counsel also drew the attention of the court to the fact thatexplanation (b) to Section 80HHE(1) is a later addition and thatnotification No.SO 890 (E) was issued before the explanation wasadded. The decision in Commissioner of Income Tax v. New DelhiTelevision Ltd. (supra) had relied upon an earlier judgment of thiscourt in Commissioner of Income Tax v. Kiran Kapoor, ITANo. 13/2015. The quotation cited in New Delhi Television Ltd. ofKiran Kapoor is as follows ; The decision in Commissioner of Income Tax v. New DelhiTelevision Ltd. (supra) had relied upon an earlier judgment of thiscourt in Commissioner of Income Tax v. Kiran Kapoor, ITANo. 13/2015. The quotation cited in New Delhi Television Ltd. ofKiran Kapoor is as follows ; "15. ... The expression "computer software" is wideenough to embrace diverse activities. To eliminate anydoubt, the reference to "customized electronic data" inthe second Explanation to Section lOB (2), Parliamentenabled the Board (CBDT) to include (by notification)diverse activities — which involve export of software, etc.The Notification relied on in the present case uses theexpressions "(Hi) Content Development or animation (iv)Data Processing... (vii) Human Resources Services" and"(ix) Legal Databases". Here, the very first head"content development or animation" describes theprocess and is wide enough to cover compilation ofmaterial or data and its transformation into a ready toprint/ ready to publish book. It is also a "legaldatabase". ..." The relevant extract of the decision in Commissioner ofIncome Tax v. New Delhi Television Ltd. (supra) which discussedas to what constitutes computer software is as follows : "25. Turning to clause (b) of the Explanation to Section80 HHE of the Act, the Court is unable to agree with thecontentions of Mr. Singh, learned counsel for theRevenue that the words "or any customised electronicdata" has to take colour from the main part of clause (b)of the Explanation and cannot be construed independentof it. ITA 560/2008, 795/2009 & 796/2009 26. There are two parts to the definition 'computersoftware'. First is the exhaustive definition where theword "computer software " is used and this is followed by'any computer programme recorded on any disc, tape,perfotated media'. Then there is the inclusive part of thedefinition where the word includes any such programmeor any customised electronic data. The expression 'anycustomized electronic data' is preceded by the disjunctive'or' which clearly indicates that any customizedelectronic data would also be considered to be 'computersoftware' under the inclusive part of the definition. Theprinciple of ejusdem generis will not apply in the instantcase particularly in the context under which thisprovision was introduced. 27. Circular No.772 dated 23''^ December 1998explained the rationale behind introduction of thesewords. It acknowledged that "software exports grownexponentially in recent years" and there was need toincrease India's market share in the international arena.Therefore, the expression 'any customized electronicdata' requires a liberal interpretation. The amendmentto clause (b) of the Explanation makes it more explicit.Section 80HHF(1) now envisages computer softwareincluding television news software. Therefore, theposition for the AY 2000-01 onwards is not in doubt. " In the present case, the assessee provides transaction servicesto its overseas clients. The translated material or content is reducedto electronic format in the form of data fields and then transmittedby the internet. In one sense, the use of computers and electronicspredominates the entire lifecycle of the business. Consequently,this court upholds that the view of the CIT (A) was recorded inITA 560/2008, 795/2009 & 796/2009 page 8 of 9 ''f-K r-'h. Vaecordance with the parlianifentary iritent and also conforms to theFollowing the judgment of Commissioner of Income Tax v. New Delhi Television Ltd. (supra), this court, therefore, is of the opinion fhat Ihe previous; decision >in;iDe/Zw: (si|pconclusive and in favour of the; as^essee. The question of law framed is accordingly answered in favour of the assessee andagainst the Revenue. 'The SRAVINDRA BHAT,J A.K.GHAWLA,J AUGUST 30,2018aj • ITA 560/2008, 795/2009 & 796/2009 page 9 of9 I; - ; >; .-.'V I ^