M/s Vertex Infosoft Solutions Pvt. Ltd., V. ACIT, Chandigarh

CO 25/CHANDI/2009

• Counselvise Citation: [2014] 122 COUNSELVISE.COM (IT) 9245 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 year(s) 30 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-01-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-12-2013
• Assessment Year: 2005-2006
• Appeal Filed On: 09-12-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Keywords: Benefit of exemption
• Section: 80HHC; 10B; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 1023/CHD/2008 ASSESSMENT YEAR: 2005-06 M/S VERTEX INFOSOFT SOLUTIONS PVT. LTD. VS THE ACIT , MOHALI CIRCLE 4(1), CHANDIGARH PAN NO. AABCV 6727H ITA NO. 1008/CHD/2008 ASSESSMENT YEAR: 2005-06 THE ACIT, VS M/S VERTEX INFOSOFT SOLUTIONS PVT. LTD CIRCLE 4(1), CHANDIGARH CHANDIGARH ITA NO. 652/CHD/2011 ASSESSMENT YEAR: 2007-08 THE ACIT, VS M/S VERTEX INFOSOFT SOLUTIONS PVT. LTD CIRCLE 4(1), CHANDIGARH CHANDIGARH & C.O. 25/CHD/2009 (IN ITA NO. 1023/CHD/2008) ASSESSMENT YEAR: 2005-06 M/S VERTEX INFOSOFT SOLUTIONS PVT. LTD. VS THE ACIT , MOHALI CIRCLE 4(1), CHANDIGARH (APPELLANT) (RESPONDENT) DATE OF HEARING : 30.12.2013 DATE OF PRONOUNCEMENT : 08.01.2014 APPELLANT BY : SHRI SUDHIR SEHGAL RESPONDENT BY : SMT. JYOTI KUMARI ORDER PER T.R.SOOD, A.M. THE APPEAL FILED BY THE ASSESSEE IN ITA NO. 1023/C HD/2008 AND THAT OF REVENUE IN ITA NO. 1008/CHD/2008 AND CROSS OBJECTIO NS RAISED BY THE ASSESSEE 2 ARE DIRECTED AGAINST THE COMMON ORDER DATED 23.9.30 08 OF CIT(A) CHANDIGARH WHEREAS APPEAL FILED BY THE REVENUE IN ITA NO. 652/ CHD/2011 IS DIRECTED AGAINST THE ORDER DATED 1.3.2011 OF LD. CIT(A), CHA NDIGARH. 2. SINCE IDENTICAL ISSUES HAVE BEEN RAISED IN THESE APPEALS AND CROSS OBJECTIONS, THEREFORE, THE SAME ARE BEING DISPOSED OF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. FIRST, WE WILL DEAL W ITH THE MAIN APPEAL I.E ITA NO. 1023/CHD/2008. 3. ITA NO. 1023/CHD/2008 IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWI NG GROUNDS:- 1. THAT THE WORTHY COMMISSIONER OF INCOME TAX (APPEALS), CHANDIGARH HAS ERRED IN CONFIRMING THE A CTION OF THE ASSESSING OFFICER THAT SUPPLYING OF COMPUTER SO FTWARE SOLUTION TO VARIOUS SHIPPING COMPANIES IS NOT EXPOR T INCOME FROM SALE OF SUCH SOFTWARES, THEREBY DISALLOWING EX EMPTION U/S 10 B ON THIS GROUND. 2. THAT THE WORTHY CIT(A), CHANDIGARH HAS NOT CONSIDERED PROPERLY OUR SUBMISSIONS ALONG WITH VARI OUS JUDICIAL PRONOUNCEMENT / CIRCULARS ETC. CITED BY US TO SUBSTANTIATE OUR STAND. 3. THAT THE WORTHY CIT(APPEALS), CHANDIGARH HAS NOT CONSIDERED THE FACT THAT THE ASSESSEE COMPANY, WHO IS ENGAGED IN DEVELOPING OF COMPUTER SOFTWARES IS REGI STERED WITH SOFTWARE TECHNOLOGY, PARK OF INDIA, DEPARTMENT OF COMMUNICATION AND IT, GOVT. OF INDIA IS 100% EXPORT ORIENTED UNIT UNDER STPI AND PROVISIONS OF EXEMPTIO N U/S 10B HAS RIGHTLY BEEN CLAIMED AND WHICH HAS NOT PROPERLY BEEN INTERPRETED BY THE CIT(APPEALS), CHANDIGARH. 4. THAT THE WORTHY CIT(APPEALS), CHANDIGARH HAS NOT CONSIDERED THE FACT THAT SALE OF COMPUTER SOFTWARE IS MOSTLY 3 RESTRICTED TO SALE OF RIGHT TO USE THE SOFTWARE OR APPLICATION AND IT IS NEVER ABSOLUTE TRANSFER OF OWNERSHIP RIGH TS. 4. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS REC EIVED A SUM OF RS. 17,27,808/- FROM VIETNAM OCEAN SHIPPING COMPANY (HE RE-IN-AFTER REFERRED TO AS VOSCO). FROM THE LICENSE SALE AGREEMENT BETWEEN TH E ASSESSEE AND VOSCO IT WAS NOTICED THAT VOSCO HAS AGREED TO PAY ONLY LI CENSE FEE FOR THE SOFTWARE OWNED BY THE ASSESSEE FOR VOSCOS OWN USE. IT WAS ALSO NOTICED THAT AGREEMENT FURTHER PROVIDES THAT VOSCO SHALL SEIZE U SING THE SOFTWARE AFTER TERMINATION OF THE AGREEMENT. SIMILARLY, THERE WAS AN AGREEMENT WITH M/S DEVCO LTD (HERE-IN-AFTER CALLED AS DEVCO) FROM WHOM THE ASSESSEE HAD RECEIVED RS.36,04,240/-. IN THIS AGREEMENT ALSO, IT WAS CLEARLY MENTIONED THAT SOFTWARE IS THE PROPERTY OF THE ASSESSEE DEVELOPER AND THE PATENT AND COPYRIGHT BELONGS TO THE DEVELOPER. THE ASSESSEE WAS ASKED T O EXPLAIN THAT WHY AGREEMENTS WITH VOSCO AND DEVCO WHICH WERE ONLY LIC ENSE SALE AGREEMENTS AND WHICH WERE GRANTED NON-EXCLUSIVE AND NON TRANSF ERABLE LICENSES SHOULD BE TREATED AS SALE FOR THE PURPOSE OF CLAIMING DEDUCTI ON U/S 10B. THE ASSESSEE GAVE DETAILED REPLIES ON VARIOUS DATES. IN THESE R EPLIES IT WAS EXPLAINED THAT NORMALLY OWNERSHIP RIGHT IN THE SOFTWARE GENERALLY REMAINS WITH THE DEVELOPER E.G. IN THE CASE OF TALLY ACCOUNTING SYSTEM WHAT A CUSTOMER GETS IS ONLY RIGHT TO USE AND NOT THE OWNERSHIP RIGHT. IT WAS ALSO EX PLAINED THAT FOR EXAMPLE IN CASE OF WINDOW M.S. OFFICE, NORMAL CUSTOMER WOULD H AVE TO CLICK YES FOR ACCEPTANCE OF LICENSE AGREEMENT ONLY EVEN IF THE SU CH CUSTOMER HAS PURCHASED THE SOFTWARE FOR ITS USE. IT WAS ALSO EXPLAINED TH AT IF THE RIGHT OF OWNERSHIP WITH SOURCE CODE WAS PROVIDED TO THE CUSTOMER, THEN ASSESSEE CANNOT SELL / DEVELOP SUCH SOFTWARE TO ANY OTHER CUSTOMER BECAUSE FROM THE SOURCE CODE THE CUSTOMER CAN CREATE COPIES OF THE SOFTWARE AND SELL THE SAME TO FURTHER CUSTOMERS. THE ASSESSING OFFICER AFTER EXAMINING T HE SUBMISSIONS DID NOT FIND 4 FORCE IN THESE SUBMISSIONS BECAUSE THERE WAS NO PRO VISION IN THE INCOME TAX ACT TO TREAT A LICENSE TO USE AS MENTIONED IN THE A GREEMENT AS SALE, THEREFORE, THE COMPANY CANNOT CLAIM GRANT OF LICENSE AS SALE. IN THIS BACKGROUND THE ASSESSING OFFICER CONCLUDED THAT ASSESSEE IS NOT CO NDUCTING SALES AND, THEREFORE, WAS NOT ENTITLED TO DEDUCTION U/S 10B. 5. ON APPEAL, THE SUBMISSIONS MADE BEFORE THE ASSE SSING OFFICER WERE REITERATED AND IT WAS EMPHASIZED THAT AGREEMENT ENT ERED INTO BY THE ASSESSEE FOR SALE OF SOFTWARE TO THE END USER AND TO THE DISTRIB UTOR WERE NORMAL AGREEMENT PREVALENT IN THE CASE OF SALE OF SOFTWARE. IT WAS F URTHER POINTED OUT THAT SOFTWARE EXPORT IS CANNED SOFTWARE AND SOLD IN THE CDS OR TH OROUGH ELECTRONIC MEDIA. IN LICENSE SALE AGREEMENT WORDS BUYER AND SALE ARE USE TO DENOTE THE CONTRACTING PARTIES. IN THE CONSIDERATION CLAUSE T HE PRICE IS MENTIONED IN BOTH THE AGREEMENTS. IT WAS POINTED OUT THAT SOFTWARE W AS DEVELOPED IN STPI AREA AND INVOICES WERE REPORTED TO STPI, RBI AND CUSTOMS DEPARTMENT. RELIANCE WAS ALSO PLACED ON THE FOLLOWING DECISIONS - JUDGMENT OF HONBLE SUPREME COURT OF INDIA IN TATA CONSULTANCY SERVICES V. STATE OF ANDHRA PRADESH [20 04] 141 TAXMAN 132(SC). SONATA INFORMATION TECHNOLOGY LTD. V. ADDITIONAL COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, RANGE-19, BANGALORE [2006] 103 ITD 324 (BANG) SAMSUNG ELECTRONICS CO. LTD. V. INCOME TAX OFFICER (TDS) [2005] 94 ITD 94 ITD 91(BANG). MOTOROLA INC. V. DEPUTY COMMISSIONER OF INCOME-TAX, NON-RESIDENT CIRCLE [2005] 95 ITD 269 (DELHI)(SB) DEPUTY COMMISSIONER OF INCOME TAX, NON-RESIDENT CIRCLE, NEW DELHI V. METAPATH SOFTWARE INTERNATIONA L LTD. [2006] 9 SOT 305 (DELHI) 6. THE LD. CIT(A) SEND THESE SUBMISSIONS TO ASSESSI NG OFFICER FOR HIS COMMENTS BECAUSE HE HAS SPECIFICALLY ASKED FOR THE HEARING. THE ASSESSING OFFICER IN HIS REPORT DATED 6.6.2008 AGAIN SUBMITTE D THAT ASSESSEE WAS NOT SELLING SOFTWARE AND IT WAS ONLY ALLOWING THE USE B Y A LICENSE. HE FURTHER 5 POINTED OUT THAT EVEN IF THE SAME WAS ACCEPTED BY R BI BEING ONLY A REGULATORY AUTHORITY CANNOT ADJUDICATE WHETHER EXPORT BY SALE OF GOODS HAD TAKEN PLACE OR NOT. IT WAS FURTHER POINTED OUT THAT ASSESSEE HAS PUT A WRONG INTERPRETATION ON SECTION 10B. WITH REFERENCE TO THE DECISION OF HON 'BLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY SERVICES (SUPRA), IT WAS M ENTIONED THAT ASSESSEE DID NOT MENTION IN THE AGREEMENT THAT SOFTWARE WAS EXPO RTED IN CANNED VERSION. THE ASSESSING OFFICER FURTHER DISTINGUISHED OTHER DECIS IONS. THE LD. CIT(A) EXAMINED THE SUBMISSIONS OF THE ASSESSEE AS WELL AS COMMENTS OF THE ASSESSING OFFICER AND ULTIMATELY AGREED WITH THE OBSERVATIONS OF THE ASSESSING OFFICER AND DECIDED THE ISSUE AGAINST THE ASSESSEE. 7. BEFORE US, LD. COUNSEL FOR THE ASSESSEE REITERA TED THE SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND CIT(A). HE FURTHE R CONTENDED THAT IN CASE OF SOFTWARE, THE OWNERSHIP IS RETAINED THROUGH SOURC E CODE AND IF THE SOURCE CODE IS ALSO PROVIDED TO THE CUSTOMER THEN SUCH CU STOMER CAN MAKE ANY NUMBER OF COPIES AND SHALL START SELLING THE SAME TO ANY N UMBER OF CUSTOMERS I.E WHY SOFTWARE IS ALWAYS SOLD THROUGH A LICENSE. HE GAVE ANOTHER EXAMPLE OF A BOOK I.E. WHEN A BOOK IS SOLD, THE READER CAN READ THE B OOK, RETAIN THE BOOK, USE IT IN ANY MANNER AND AT THE SAME TIME SUCH READER CUSTOME R DOES NOT GET COPYRIGHT TO THE BOOK AND HE CANNOT COPY THE BOOK AND START SELLING SUCH BOOKS. HE GAVE ANOTHER EXAMPLE OF LEGAL REPORTS WHICH IS NOW AVAIL ABLE IN THE FORM OF CDS. SUCH REPORTS ARE GIVEN TO A PARTICULAR CUSTOMER AND A KEY NUMBER IS PROVIDED THOUGH WHICH THE REPORT CAN BE USED BUT IT CANNOT B E COPIED. 8. HE THEN REFERRED TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY SERVICES (SUPRA) WHEREIN THE SA LE OF SOFTWARE WAS HELD TO BE SALE OF GOODS. HE ALSO STRONGLY RELIED ON ANO THER DECISION OF HON'BLE SUPREME COURT IN THE CASE OF CIT V B. SURESH 313 IT R 149 (SC) WHEREIN EVEN 6 EXPLOITATION OF A FILM RIGHTS TO EXPORT OUTSIDE IND IA WAS HELD TO BE EXPORT AND ALLOWABLE FOR DEDUCTION U/S 80HHC. 9. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTE D THE ORDER OF ASSESSING OFFICER AND CIT(A). 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FI ND FORCE IN THE SUBMISSIONS OF THE LD. COUNSEL FOR THE ASSESSEE. THE SOFTWARE IS GENERALLY DEVELOPED BY THE SOFTWARE COMPANY AND THEN THE SAME IS SOLD TO VARIO US CUSTOMERS. THE NORMAL PROCEDURE FOR SUCH SALE IS THROUGH A LICENSE AGREEM ENT BY WHICH THE CUSTOMER GET TO USE THE SOFTWARE. BUT THE SOURCE CODE IS NO RMALLY NOT PROVIDED BECAUSE THAT WILL ENABLE THE CUSTOMER TO MAKE ANY NUMBER OF COPIES AND THE DEVELOPER WOULD LOOSE THE PREMIUM WHICH IT CAN RECEIVE BY SEL LING IT TO VARIOUS CUSTOMERS. WE ARE OF THE OPINION THAT EXAMPLE OF SELLING OF A BOOK WOULD CLARIFY THE SITUATION. WHENEVER A PERSON BUYS A BOOK, HE GETS THE RIGHT TO READ BUT HE DOES NOT GET THE COPYRIGHT TO PRODUCE THE COPIES OR ANY CONTENT OF SUCH BOOKS WHICH DOES NOT MEAN THAT THE BOOKS SELLER HAS NOT SOLD T HE BOOKS OR CUSTOMERS HAS NOT PURCHASED THE BOOKS. SIMILARLY IT CAN BE SAID ABOU T THE USAGE OF LAW JOURNALS WHICH ARE BEING SOLD OR PURCHASED ON LICENSE BASIS. THE HON'BLE SUPREME COURT IN THE CASE OF TATA CONSULTANCY SERVICES V STATE OF ANDHRA PRADESH (SUPRA), WHEREIN THE QUESTION AROSE WHETHER SALE OF INTELLEC TUAL PROPERTY IN CASE OF SOFTWARE THROUGH A LICENSE WOULD AMOUNT TO SALE OF GOODS OR NOT. IN THIS CONNECTION, THE HON'BLE SUPREME COURT OBSERVED AS U NDER:- THE TERM GOODS, FOR THE PURPOSES OF SALES TAX, C ANNOT BE GIVEN A NARROW MEANING. PROPERTIES WHICH ARE CAPABL E OF BEING ABSTRACTED, CONSUMED AND USED AND/OR TRANSMIT TED, TRANSFERRED, DELIVERED, STORED OR POSSESSED, ETC., ARE GOODS FOR THE PURPOSE OF SALES TAX. THE TEST TO ASCERTAIN WHETHER A PROPERTY IS GOODS FOR THE PURPOSES OF SALES TAX I S NOT WHETHER THE PROPERTY IS TANGIBLE OR INTANGIBLE OR I NCORPOREAL. THE TEST IS WHETHER THE CONCERNED ITEM IS CAPABLE O F 7 ABSTRACTION, CONSUMPTION AND USE AND WHETHER IT CAN BE TRANSMITTED, TRANSFERRED, DELIVERED, STORED, POSSES SED, ETC. IN THE CASE OF SOFTWARE, BOTH CANNED AND UNCANNED, ALL OF THESE ARE POSSIBLE. INTELLECTUAL PROPERTY WHEN IT IS PUT ON A MEDIA BECOMES GOODS. A SOFTWARE PROGRAMME MAY CONSIST OF VARIOUS COMMANDS WHICH ENABLE THE COMPUTER TO PERFORM A DES IGNATED TASK. THE COPYRIGHT IN THE PROGRAMME MAY REMAIN WIT H THE ORIGINATOR OF THE PROGRAMME. BUT THE MOMENT COPIES ARE MADE AND MARKETED, IT BECOMES GOODS WHICH ARE SUSCE PTIBLE TO SALES TAX. EVEN INTELLECTUAL PROPERTY, ONCE IT I S PUT ON TO A MEDIA, WHETHER IT BE IN THE FORM OF BOOKS OR CANVAS (IN THE CASE OF PAINTING) OR COMPUTER DISCS OR CASSETTES, A ND MARKETED WOULD BECOME GOODS. THERE IS NO DIFFEREN CE BETWEEN SALE OF A SOFTWARE PROGRAMME ON A CD/FLOPPY DISC AND SALE OF MUSIC ON A CASSETTE/CD OR SALE OF A FIL M ON A VIDEO CASSETTE/CD. IN ALL SUCH CASES, THE INTELLECT UAL PROPERTY HAS BEEN INCORPORATED ON A MEDIA FOR PURPOSES OF TR ANSFER. SALE IS NOT JUST OF THE MEDIA WHICH BY ITSELF HAS V ERY LITTLE VALUE. THE SOFTWARE AND THE MEDIA CANNOT BE SPLIT U P. WHAT THE BUYER PURCHASES AND PAYS FOR IS NOT THE DISC OR THE CD. AS IN THE CASE OF PAINTINGS OR BOOKS OR MUSIC OR FILMS THE BUYER IS PURCHASING OR DISC OR CD. A TRANSACTION OF SALE OF COMPUTER SOFTWARE PACKAGE OFF THE SHELF IS CLEARLY A SALE OF GOODS WITHIN THE MEANI NG OF THAT TERM IN SECTION 2(N) OF THE ANDHRA PRADESH GENERAL SALES TAX ACT, 1957. THE TERM ALL MATERIALS, ARTICLES AND CO MMODITIES IN SECTION 2(H) OF THE ACT INCLUDES BOTH TANGIBLE A ND INTANGIBLE / INCORPOREAL PROPERTY WHICH IS CAPABLE OF ABSTRACTION, CONSUMPTION AND USE AND WHICH CAN BE TRANSMITTED, TRANSFERRED, DELIVERED, STORED, POSSES SED, ETC. THE SOFTWARE PROGRAMMES HAVE ALL THESE ATTRIBUTES. FROM THE ABOVE IT IS CLEAR THAT TRANSFER OF RIGHT T O USE THE SOFTWARE IN MEDIA FORM I.E. IN THE FORM OF C.D. ETC WAS HELD TO BE SA LE OF GOODS. THE HON'BLE SUPREME COURT IN THE CASE OF B. SURESH WHERE THE I SSUE AROSE WHETHER EXPLOITATION OF A FILM RIGHT WHICH WERE TRANSFERRED BY THE ASSESSEE IN INDIA TO 8 ABROAD WOULD CONSTITUTE EXPORT FOR THE PURPOSES OF DEDUCTION U/S 80HHC OF THE ACT, IT WAS OBSERVED AS UNDER; HELD, AFFIRMING THE DECISION OF HIGH COURT, THAT T HE TELECASTING RIGHTS FELL IN THE CATEGORY OF ARTICLES OF TRADE AND COMMERCE AND HENCE WITHIN THE CATEGORY OF MERCHAND ISE AND THE TRANSFER OF THE SAID RIGHTS BY WAY OF LEAS E FELL WITHIN THE MEANING SALE AND WOULD ATTRACT SECTION 80HHC. 11. FROM THE ABOVE IT IS CLEAR THAT EVEN THE USAGE OF THE RIGHTS IN A PRODUCT WOULD AMOUNT TO EXPORT, THEREFORE, IN OUR OPINION WHEN ASSESSEE HAS DEVELOPED AND SOLD THE SOFTWARE ON LICENSE BASIS, THE SAME WO ULD AMOUNT TO SALE FOR THE PURPOSE OF DEDUCTION U/S 10B, ACCORDINGLY WE SET AS IDE THE ORDER OF LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION U/S 10B OF THE ACT. 12. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. 13. ITA NO. 1008/CHD/2008 IN THIS APPEAL, THE REVENUE HAS RAISED THE FOLLOWI NG GROUND:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) WAS RIGHT IN ALLOWING THE BENEFIT OF EXEMPTION UNDER SECTION 10B OF THE ACT, WHEREAS THE COMPANY I S DOING DATA ENTRY WORK AS PER AGREEMENT AND DOES NOT FULFILL TH E CONDITION LAID DOWN UNDER SECTION 10B. 14. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DU RING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSESSE E IS ALSO DOING SOME DATA ENTRY WORK. ON QUERY, THE ASSESSEE SUBMITTED THE F OLLOWING REPLIES:- DATA ENTRY SUB-SECTION (2) OF SECTION 10B READ WITH CLAUSE(I) OF THE SUB-SECTION PROVIDES THAT THIS SECTION APPLIES TO ANY UNDERTAKING WHICH FULF ILS ALL THE FOLLOWING CONDITIONS, NAMELY: 9 (I) IT MANUFACTURES OR PRODUCES ANY ARTICLES OR THI NGS OR COMPUTER SOFTWARE: SINCE THE QUERY RELATES ONLY ON THE ABOVE SAID CO NDITION, THE SAME HAS BEEN REPRODUCED HEREINABOVE. THE WORKS ARTICLES OR THIN GS OR COMPUTER SOFTWARE SIGNIFY THEMSELVES THAT COMPUTER SOFTWARE IS SOMETH ING DIFFERENT FROM AN ARTICLE OR THINGS. EXPLANATION (2) TO SECTION 10B READS: FOR THE PURPOSE OF THIS SECTION, (I) COMPUTER SOFTWARE MEANS (A) ANY COMPUTER PROGRAM RECORDED ON ANY DISC, TAP E, PERORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE; OR B) ANY CUSTOMIZED ELECTRONIC DATA OR ANY PRODUC T OR SERVICE OF SIMILAR NATURE AS MAY BE NOTIFIED BY THE BOARD, WHICH IS TRANSMITTED OR EXPORTED FROM INDIA TO ANY PLACE OUTSIDE INDIA BY ANY MEANS; IN VIEW OF ABOVE IT IS CLEAR THAT IF THE DATA IS SI MPLY CUSTOMIZED AS PER REQUIREMENTS OF THE CUSTOMER THEN THE REQUIREMENT OF THE PROVISI ON OF THE SECTION 10B IS FULFILLED. THEREFORE, BARE READING OF .SAID PROVISI ONS CLEARS THE ISSUE. HOWEVER WE ARE PUTTING SOME OTHER SUPPORTING DOCUME NTS IN SUPPORT OF THE CLAIM. A) SOFTWARE EXPORT DECLARATION FORM (SOFTEX FORM) THIS FORM IS FILLED UP BY THE EXPORTER COMPANY AND THREE COPIES OF THIS FORM ALONG WITH COPY OF INVOICE ARE SENT TO STPI WITHIN THE STIPULATED TIME FROM THE DATE OF EXPORTS. AFTER COMPLETING THE RELEVANT FORMALITI ES. STPI KEEPS ONE COPY WITH THEM, SENDS ANOTHER COPY TO RBI AND THIRD COPY TO E XPORTER OF SOFTWARE. THIS SOFTEX FORM IS THE BASIC REQUIREMENT OF RBI AND HAS DULY BEEN APPROVED BY THE MINISTRY OF FINANCE, GOVT. OF INDIA. IN THIS FORM, RBI HAS WRITTEN CODE NO. 906 REGARDIN G DATA ENTRY SERVICES WHICH NARRATES AS GIVEN BELOW: DATA ENTRY JOBS AND CONVERSION SOFWARE DATA PROCES SING B) SOFTWARE TECHNOLOGY PARK OF INDIA THIS BODY REPRESENTS THE DEPARTMENT OF INFORMATION TECHNOLOGY, MINISTRY OF COMMUNICATION & IT, GOVT. OF INDIA. AS DEFINED BY S AID BODY, DATA ENTRY JOBS DO FALL UNDER IT ENABLED SERVICES. PHOTOCOPY OF THE SA ME IS ENCLOSED FOR READY REFERENCE. MOREOVER THE TERM DATA ENTRY IS GENERALLY USED VERY LIBERALLY AND NOT JUST FOR THE PURPOSE OF THE MERE DATA ENTRY. WITHOUT PREJUDICE T O OUR EARLIER SUBMISSION, IF DEPARTMENT FEELS THAT SAID SERVICES PROVIDED BY THE COMPANY DO NOT FALL UNDER THE HEAD DATA PROCESSING THEN WE FALL UNDER THE CATEGOR Y OF BACK OFFICE OPERATIONS I.E. BUSINESS PROCESS OUT SOURCING WHICH IS CLEARLY DEFI NED AS IT ENABLED SERVICES / PRODUCTS IN THE NOTIFICATION NO. 890(E) DATED 26-9- 2000. 10 15. FROM THE ABOVE REPLIES AND OTHER FACTORS IT WAS CONCLUDED BY ASSESSING OFFICER THAT ASSESSEE IS DOING ONLY DATA ENTRY WOR K AND, THEREFORE, THE SAME WAS NOT AS PER THE NOTIFICATION NO. 890(E) DATED 26.9.2 000. THE SERVICE BUYER COMPANY WAS ORGANIZING THE SOURCE DATA IN THE FORM OF EXCEL SHEETS OR ANY OTHER ELECTRONIC FORM AND DELIVERING THE SOURCE DAT A TO THE ASSESSEE FOR MERELY FOR DATA ENTRY PURPOSES AND ACCORDINGLY THIS ACTIVI TY WAS ALSO NOT ELIGIBLE FOR DEDUCTION U/S 10B OF THE ACT. 16. ON APPEAL BEFORE THE CIT(A), IT WAS SUBMITTED THAT THE OBSERVATION OF THE ASSESSING OFFICER THAT COMPANY IS PROVIDING ONLY DA TA ENTRY SERVICES WHICH DOES NOT INVOLVE ANY SKILLED TECHNICAL SOFTWARE ENGINEER S IS NOT CORRECT. IN THIS REGARD, A REFERENCE WAS MADE TO CLAUSE 3.2 OF THE S ERVICES LEVEL AGREEMENT WHICH READS AS UNDER;- VERTEX WILL PROVIDE A PROJECT TEAM WITH SKILLS AND EXPERIENCE COMMENSURATE WITH THE NEEDS OF THIS SERV ICE AND WHO ARE CAPABLE OF ENSURING THE SUCCESSFUL DELIVERY OF THIS SERVICE AGREEMENT MOREOVER, LD. ASSESSING OFFICER HAS NOWHERE PROVIDED BASIS OF HER OBSERVATI ON IN THIS REGARD AND THERE APPLICABILITY VIS--VIS ELIGI BILITY OF THE ASSESSEE U/S 10B. 17. IT WAS FURTHER POINTED OUT THAT SUCH ACTIVITY W OULD BE TERMED AS BACK OFFICE OPERATIONS. THE LD. CIT(A) FOUND FORCE IN T HESE SUBMISSIONS AND ALLOWED THE DEDUCTION VIDE PARA 32, WHICH READS AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AS WELL AS GONE THROUGH THE ORDER OF THE ASSESSING OFFICER. FROM THE NATURE OF THE AGREEMENT, IT IS FOUND THAT THE W ORD WRITTEN IS DATA ENTRY. IT IS WELL KNOWN THAT THAT THE WORDS IN THE AGREEMENT ARE METICULOUSLY WRITTEN KEEPING I N VIEW THE NATURE OF THE JOB. MERE MENTION OF THE WORDS DA TA ENTRY WOULD INDICATE THAT IT IS NOT DATA PROCESSING. ON EXAMINATION OF THE AGREEMENT. I FIND THAT THE ASSES SEE IS TO SIMPLY EXTRACT DATA FROM VARIOUS CELLS OF EXCEL SHE ET WHICH 11 IS TO BE PROVIDED BY MODEC AND THEN TO ENTER THE EXTRACTED DATA INTO RELATED FIELDS OF AMOS M&P SOFT WARE. IN MY OPINION, IT IS MERELY COPYING OF DATA FROM ON E SOURCE TO OTHER SOFTWARE. IT CANNOT COME WITHIN THE MEANIN G OF DATA PROCESSING. AS REGARDS THE ALTERNATIVE SUBMISS IONS, THAT THE SAME SHOULD BE CONSIDERED WITHIN THE AMBIT OF BACK OFFICE OPERATIONS, THE ASSESSING OFFICER DID NOT EN TERTAIN THE PLEA OF THE ASSESSEE ON THE GROUND THAT THE ASS ESSEE CANNOT TAKE ANY ALTERNATIVE SUBMISSIONS. IN MY OPIN ION, THE ASSESSING OFFICER IS NOT JUSTIFIED IN NOT ENTERTAIN ING THE ALTERNATIVE SUBMISSIONS FOR THE REASONS THAT THE AS SESSEE DOES NOT KNOW WHAT WOULD BE THE VIEW OF THE ASSESSI NG OFFICER AT THE TIME OF FILING OF INCOME TAX RETURN. IF THE ASSESSEE CAN SATISFY THE ASSESSING OFFICER THAT A P ARTICULAR ITEM COULD BE COVERED UNDER THE BACK OFFICE OPERATI ONS, THEN THE ASSESSING OFFICER SHOULD HAVE CONSIDERED T HE ALTERNATIVE PLEA. IN MY OPINION, THE ACTIVITY OF TH E ASSESSEE AS MENTIONED ABOVE WOULD BE COVERED UNDER THE MEANI NG OF BACK OFFICE OPERATIONS AND THUS THE ASSESSEE WOULD BE ELIGIBLE FOR DEDUCTION U/S 10B IN RESPECT OF PAYMEN TS RECEIVED FROM M/S MODEC. THUS, ON THE BASIS OF THE ALTERNATIVE PLEA TAKEN BY THE ASSESSEE, THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 18. BEFORE US, THE LD. DR STRONGLY SUPPORTED THE OR DER OF ASSESSING OFFICER. 19. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASS ESSEE SUBMITTED THAT DATA ENTRY WORK WAS HELD TO BE ELIGIBLE BY CHANDIGARH BE NCH OF THE TRIBUNAL FOR DEDUCTION U/S 10B IN THE CASE DCIT VS BEBO TECHN OLOGIES (P) LTD. V JCIT 139 TTJ (CHD) 428, A COPY OF THE DECISION IS ALSO F ILED. HE SUBMITTED THAT DATA ENTRY WORK IS ALSO LIKE BACK OFFICE OPERATION, THER EFORE, ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE. 20. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT CHANDIGARH BENCH OF THE TRIBUNAL IN THE CASE OF BEB O TECHNOLOGIES (P) LTD (SUPRA) LTD HAS OBSERVED AS UNDER;- 12 EXEMPTION UNDER S. 10B- EXPORT OF COMPUTER SOFTWAR E SOFTWARE DEVELOPMENT AND QUALITY ASSURANCE SERVICES VIS-- VIS BACK OFFICE OPERATIONS- ASSESSEE COMPANY IS RUN NING A STPI UNIT AND PROVIDING CONSULTING SERVICES TO A US COMPANY- IT IS ENGAGED IN PROGRAMMING TO RENDER QUA LITY AND TESTING ASSURANCE SERVICES AS PER THE REQUIREME NTS OF ITS CLIENTS AND THE SAME IS TRANSMITTED TO THE CLIENTS THROUGH INTERNET-SUCH SERVICES RENDERED BY THE ASSESSEE ARE IN THE NATURE OF BACK OFFICE OPERATIONS AND ARE COVERED BY CBDT NOTIFICATION NO. 890E, DT. 26 TH SEPT., 2000 WHICH HAS NOTIFIED INFORMATION TECHNOLOGY ENABLED PRODUCTS OR SERVICES FOR THE PURPOSE OF EXPLN. 2 TO S. 10B-OBJECTION OF THE AO REGARDING NON-AVAILABILITY OF PRODUCTION DATA HAS N O MERIT AS THE ASSESSEE IS CARRYING OUT BACK OFFICE OPERATI ONS FOR ITS CLIENTS WHICH IS A PROJECT OF SERVICE INDUSTRY FOR WHICH PRODUCTION DATA IS NOT REQUIRED FURTHER, FINDING OF THE AO THAT THERE WAS RESTRUCTURING OF BUSINESS ALREADY IN EXISTENCE AS THE ASSESSEE WAS FOUND TO BE OPERATING FROM THRE E DIFFERENT PLACES AND NO NEW COMPUTERS WERE PURCHASE D BY THE ASSESSEE FOR CARRYING ON ITS BUSINESS IS ALSO N OT CORRECT- ASSESSEE WAS CARRYING ON ITS BUSINESS IN TWO UNITS AT CHANDIGARH WHILE ITS REGISTERED OFFICE IS LOCATED I N MOHALI WHERE NO BUSINESS ACTIVITY WAS CARRIED OUT- THERE W AS NO RESTRUCTURING OF BUSINESS- ASSESSEE HAS CARRIED OUT ITS WORK ON LOANED EQUIPMENTS AND EVIDENCE IN THIS REGARD HA S BEEN CONSIDERED BY CIT(A)- THERE IS NO MERIT IN THE OBSE RVATION OF THE AO THAT NON-MENTIONING OF THE LOCATION FROM WHERE INVOICES WERE ISSUED DISENTITLED THE ASSESSEE TO TH E CLAIM OF EXEMPTION UNDER S.10B-THERE IS NO REQUIREMENT TO FU RNISH THE ADDRESSES OF THE INDIVIDUAL PLACES FRO WHERE SE RVICES WERE RENDERED AS AGAINST MENTION OF REGISTERED OFFI CE ON THE INVOICES ASSESSEE HAS FURNISHED THE REGISTRATION UNDER THE STPI AS A 100 PER CENT EOU-THEREFORE, ASSESSEE IS E NTITLED TO DEDUCTION UNDER S. 10B. 21. IN OUR OPINION, THE ISSUE REGARDING DATA ENTRY WORK STAND COVERED BY THE ABOVE DECISION AND, THEREFORE, WE CONFIRM THE ORDER OF LD. CIT(A). 22. ITA NO. 652/CHD/2011 IN THIS APPEAL THE REVENUE HAS RAISED THE FOLLOWIN G GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSEE WITHOUT APPRECIATING THE FACTS OF THE CASE . 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE AD DITION MADE BY THE A.O. ON ACCOUNT OF DISALLOWANCE OF DEDU CTION U/S 10-B CONSIDERING THAT AMOUNT RECEIVED FROM EXPO RT OF 13 SOFTWARE IS A NOT SALE PROCEEDS BUT IS ROYALTY INCO ME ON ACCOUNT OF LICENSE TO USE COMPUTER SOFTWARE. 23. AFTER HEARING BOTH THE PARTIES WE FIND THAT IN THIS YEAR ALSO THE ASSESSING OFFICER DENIED DEDUCTION U/S 10B BECAUSE ACCORDING TO HIM ASSESSEE WAS NOT SELLING THE SOFTWARE AND IT WAS ONLY ALLOWING THE U SE OF SUCH SOFTWARE DEVELOPED BY IT TO THE CUSTOMERS ON LICENSE BASIS. 24. ON APPEAL, THE LD. CIT(A) ALLOWED RELIEF IN VI EW OF DECISION OF THE HON'BLE SUPREME COURT IT HE CASE OF TATA CONSULTANC Y SERVICES VS STATE OF ANDHRA PRADESH (SUPRA) AND CIT V B. SURESH (SUPRA). 25. BEFORE US, BOTH THE PARTIES MADE IDENTICAL ARGU MENTS AS IN THE CASE FOR ASSESSMENT YEAR 2005-06 IN ITA NO. 1023/CHD/2008, WHICH WE HAVE ADJUDICATED ABOVE. 26. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE ISSUE IS IDENTICALLY SAME AS IN THE CASE OF ASSESSEES APPEA L FOR ASSESSMENT YEAR 2005-06 IN ITA NO. 1023/CHD/2008. THIS ISSUE HAS BEEN ADJU DICATED BY US IN PARA NOS. 10 & 11 AND FOLLOWING THE SAME, WE DECIDE THIS ISSU E AGAINST THE REVENUE. 27. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 28. C.O. NO. 25/CHD/2009 AT THE TIME OF HEARING, CROSS OBJECTIONS WERE NOT PRESSED BEFORE US AND THEREFORE, THE SAME ARE DISMISSED AS NOT PRESSED . 29. IN THE RESULT, ASSESSEES CROSS OBJECTION IS DI SMISSED. 14 30. TO SUM UP, ASSESSEES APPEAL IN ITA NO. 1023/C HD/2008 IS ALLOWED WHEREAS REVENUES APPEAL IN ITA NOS. 1008/CHD/2008 & 652/CHD/2011 ARE DISMISSED AND CROSS OBJECTIONS RAISED BY THE ASSESS EE IS ALSO DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.01.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 8 TH JANUARY, 2014 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH 15