Document Fragment View

Matching Fragments

Our software industry has made considerable progress in recent years. However, there is still a vast unexploited potential for growth. It is time we make allout efforts to capture the overseas software market. With this objective, I propose to extend the tax concession under Section 80HHC of the IT Act to export of software. With this concession the exports of this industry should register rapid growth.

29. Learned Counsel submitted, it is significant that no such amendment was brought in Section 80HHC with a view to extend its benefits to software exports was proposed in the Finance (No. 2) Bill of 1991. On the contrary, an entirely new section was introduced, i.e. Section 80HHE, exclusively dealing with the deduction allowable to profits derived from the export of computer software [(1991) 96 CTR (St) 134 : (1991) 191 ITR (St) 220}. The intention of the legislature is clear. Had the legislature intended to allow deduction to profit derived from export of computer software on the same footing as provided for export of other goods and merchandise within the meaning of Section 80HHC, there was no need for introducing a new provision. As a matter of fact, there are certain striking and subtle differences between Sections 80HHC and 80HHE. Section 80HHC speaks of allowance of deduction "to the extent of profits, referred to in Sub-section (IB), derived by the assessee from the export of such goods or merchandise". Clause (a) of Sub-section (2) of Section 80HHC states that "this section applies to all goods or merchandise, other than those specified in Clause (b)". Clause (b) states that "this section does not apply to (i) mineral oil; and (ii) minerals and ores other than processed minerals and ores specified in the Twelfth Schedule". On the other hand, learned Counsel submitted, deduction under Section 80HHE is available "to the extent of the profits, referred to in Sub-section (IB), derived by the assessee from such business". The wordings are quite different. Section 80HHC refers to goods or merchandise" whereas Section 80HHE refers to "such business". Learned Counsel pointed out that computer software, as specified in Clause (i) of Sub-section (1) of Section 80HHE and defined in Expln. (b) to the said section, could very well be covered by the expression "goods or merchandise" within the meaning of Section 80HHC. One of the purposes for incorporating the new Section 80HHE was to extend the benefit of deduction to persons providing technical services outside India in connection with development or production of computer software. But this purpose would have been served by merely adding the word "services" to the expression "goods or merchandise" used in Section 80HHC. Instead of amending the Section 80HHC, new Section 80HHE was introduced. There is no reason to assume that this subtle difference in the language of two sections is without any merit or consequence. The legislature in its wisdom apparently used a different expression in Section 80HHE from the one used in Section 80HHC with specific objective. The modus operandi of computing relief under Section 80HHE has been so conceived as to exclude from consideration everything else except the profit/turnover of "such business", i.e. the software business, the particular business of the assessee in which the export is made. By making the aforesaid alteration in the language of new section, legislature intended to indicate that profits/turnover of the goods or services, the export of which are not entitled to exemption under Section 80HHE, need not be considered for computation of deduction allowable under this section in all cases. Learned Counsel submitted, quite clearly, whether or not the assessee derives income from carrying on any other business is wholly extraneous to the scheme of granting deduction under Section 80HHE. It necessarily follows that in cases where the assessee has been engaged solely in the business of export of computer software or providing technical services abroad in connection with development or production of computer software and has maintained distinct separate account for such business, Sub-section (3) of Section 80HHC would have no application in working out the profit derived from such business. Learned Counsel further submitted, where the assessee also having domestic software business, such profit, i.e. profit from eligible business would be computed as per the provisions of Sub-section (3) of Section 80HHE. Naturally, even if the assessee had derived profit from the business of any other goods or merchandise. turnover from that business would not be considered for the purpose of determining profit derived from export of computer software within the meaning of Sub-section (3) of Section 80HHE. Furthermore, Sub-section (3) of Section 80HHE will be applicable only in cases where the accounts are so maintained that profit derived from export of computer software is incapable of precise ascertainment. Where the profit on software export business carried on by the assessee is precisely ascertained and segregated from other profits of business on the basis of duly audited accounts, full deduction under Section 80HHE should be allowed without being affected by the profits/turnover in domestic software business. Learned Counsel thus submitted that direction may be issued to allow deduction under Section 80HHE by computing the quantum of the same on the basis of turnover of its export unit at SEEPZ, as claimed by the assessee.