Income Tax Appellate Tribunal - Mumbai
Cybrer Tech Systems & Software Ltd., ... vs Department Of Income Tax
Cybertech Systems & Software Ltd
ITA No 2781/Mum/2003 (AY 1997-98)
ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00)
ITA No 3670/Mum/2003 (AY 1997-98)
ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
IN THE INCOME
INCOME TAX APPELLATE TRIBUNAL
MUMBAI 'F
'F ' BENCH
MUMBAI BENCHES, MUMBAI
BEFORE SHRI G E VEERABHADRAPPA, PRESIDENT
PRESIDENT & SHRI VIJAY PAL RAO, JM
ITA No 2781/Mum/2003 (AY 1997-
1997-98)
ITA No 2782/Mum/2003 (AY 1998-
1998-89).
89).
ITA No 2863/Mum/2003 (AY 1999-
1999-00)
Cybertech Systems & Software Ltd Vs The Commr of Income Tax
Plot No.B-65 J B Sawantg Marg 8(1), Mumbai
Road No.21, Wagle Estate
Thane 400 604
(Appellant ) (Respondent)
ITA No 3670/Mum/2003 (AY 1997-
1997-98)
ITA No 3671/Mum/2003 (AY 1998-
1998-89).
89).
ITA No 4482/Mum/2003 (AY 1999
1999-00).
The Commr of Income Tax Vs Cybertech Systems & Software Ltd
8(1), Mumbai Plot No.B-65 J B Sawantg Marg
Road No.21, Wagle Estate
Thane 400 604
(Appellant ) (Respondent)
PAN No. DC.CIR 5(2)/466-
5(2)/466-C
Assessee by Shri Farrokh V Irani/ Sh Yogesh Thar
Revenue by Shri Subachan Ram,
Dt.of hearing 31st Jan 2012
Dt of pronouncement 2nd Mar 2012
ORDER
PER VIJAY PAL RAO, RAO, JM These cross appeals three by the assesse and three by the revenue are directed against the orders of the CIT(A) dated 12.3.2003,13.3.2003 and 31.3.2003 for the AYs 1997-98 to 1999-00 respectively. 2
Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
2 The assessee has raised common grounds in these appeals; therefore, the grounds raised for the AY 1997-98 are reproduced as under:
1. On the facts and in the circumstances of the case and in law the learned CIT (A) erred in denying exemption u/s 10B to the appellant.
2. The learned CIT (A) erred in restricting benefit of deduction u/s 80H%jPt to the extent of 10% of receipts from CIC Inc. USA, (excluding reimbursements for traveling), while the appellant has claimed the whole of the revenue towards customization and development of software eligible for deduction u/s. 8OHHE.
3. The learned CIT (A) erred in not giving retrospective effect to the CBDT notification dated 26.9.2000, which allowed benefit of Sec.10B and Sec.
8OHHE to human resource services.
4. The learned CIT (A) erred in not allowing the netting off of interest and also erred in excluding 90% there of u/s 8OHHE(3) while the Bombay High Court has held that each and every and interest income can't be excluded.
5. The CIT (A) erred in confirming levy of interest u/s. 234B and 234C though the A.O. had not made any speaking order and also had not given any opportunity before levy of the same.
6. The learned CIT (A) erred in denying exemption u/s lOB on interest income earned by the appellant.
3 The assessee is a company and registered with the ministry of Industry as 100% Export Oriented Unit to carry out the following activities:
i) Advance learning canter to train SAP consultants
ii) to undertake & provide worldwide customer support on behalf of Unisys from India providing onsite technical service and development of software
iii) Onsite services
iv) Offshore projects
v) Software development The aforesaid activities of the assessee were approved and sanctioned by the Secretariat for industrial approvals and the aforesaid activities were recognised as an integrant part of the EoU.3
Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
3.1 The main object of the assessee company as per Memorandum of Association are as follows:
"To design, develop, alter, make, manufacture, produce, process, assemble, contract, buy, sell, export, import, trade or lease, hire or otherwise deal in computers, computer machinery, spare parts, hardware, software, computer stationery, peripherals, line printers, monitors, modem, hard disk, plotters, digitizers, electronic and electrical machines, controllers for machines, technical know-hw related software and computer programmes and accessories, telecommunication instruments and system, facsimile Tranreceiver, electronic private automatic branch exchange, cordless telephone and pay phones.
To design, develop, process, compile, service, renovate, remode, construct, assemble, render technical know-how to run education centre and coaching classes, consultancy services concerning computer scientific knowledge and to compile, make available render, assist in the field of electronics, mechanical engineer, marketing economic and research and also to render services and know how in system and management relating to computers, computer machinery, computer installation, data processing and computer science.
4 The assessee filed its return of income declaring the total income at nil by claiming the exemption u/s 10B of the Act. The Assessing Officer denied the exemption u/s 10B.
4.1 On appeal, the CIT(A) vide order dated 27th April 2000 set aside the assessment order with a direction to examine the assessee's claim u/s 80HHE and 80-O besides section 10B after allowing opportunity of being heard. 4.2 Consequently, the Assessing Officer after examining the various agreements entered into by the assessee with Cybertech International Corporation (CIC) and Unisys Corporation (Unisys) held that the assessee had not engaged in the activities relating to manufacture and exports of computer software and programmes. The Assessing Officer was of the view that the assessee company has not developed any software programme and the main 4 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
activity of the assessee is to train engineers and other professionals in administration of computer software, especially SAP and export them out of India as per the requirements of CIC. Accordingly, the Assessing Officer denied the exemption/deduction u/s 10B and 80HHE as well as 80-O. 4.3 On appeal, the CIT(A) confirmed the denial of exemption u/s 10B in respect of the entire receipts collected by the assessee; but allowed the claim u/s 80HHE towards the services rendered by the assessee to Unisys by holding that it amounts to providing technical services out of India in connection with development or production of computer software. 4.4 Since the issue relating to deduction u/s 10B as well as 80HHE regarding the interest income also involved, the CIT(A), though denied the entire claim of exemption u/s 10B; however, he has directed the Assessing Officer to exclude 90% of gross receipts of the interest while computing deduction u/s 80HHE. In this way, the CIT(A) has rejected the assessee's claim regarding the netting off of interest while passing the impugned order.
5 Ground no.1 to 4 regarding disallowance of exemption u/s 10B/80HHE of the I T Act.
6 Before us, Shri Farrokh V Irani Ld. Counsel for the assessee has submitted that the assessee deals in implementing the software as well as Systems Application Products (SAP). To carryout the customisation work on the software solution and SAP, the assessee entered into an agreement with CIC. The assessee has appointed highly qualified professionals and imparted them special training on SAP and other software through a particular device training 5 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
customization. In this process of customization of SAP, the assessee has to do individualised development, modification and customization of the programme to suit the needs of various industries/persons. The training of the personels is part and parcel of the whole process of job of customization of software i.e. SAP which was carried out by the assessee. The authorities below have denied the claim of exemption u/s 10B on the ground that the billing is based on man-hours and therefore, the assessee is only a recruitment agency. 6.1 The ld counsel has explained the relevant facts and submitted that the assessee has brought the license from SAP Ag in West Germany and installed it at its offshore centre in Thane, India for carrying out the customization, implementation activities and to improve the skill and expertise of its employees. He has referred the certificate issued by Ministry of Industry whereby the assessee is recognized as 100% EOU and the said recognition has been granted only after satisfying that the assessee company is engaged in the manufacture of computer software and in providing technical services outside India in connection with the development or production of computer software. He has referred section 10BB and submitted that the meaning of computer programme has been expanded by sec. 10BB for the purpose of sec. 10B which includes computer programmes or processing or management of electronic data. 6.2 The ld counsel for the assessee has submitted that the assessee has appointed highly qualified people and imparted them specialised training on the SAP and other software through a pre-defined training curriculum. Therefore, the recruitment of the persons and simultaneous training is part and parcel of the computer development programme which has not been disputed by the revenue. The Assessing Officer denied the deduction u/s 10B by taking note of 6 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
the mode of raising the bill by the assessee and measurement of payment. He has relied upon the decision of the coordinate Bench of the Tribunal in the case of ACIT vs SGS Consultants Pvt Ltd in ITA No. 6508/Mum/97 dated 21.12.2001 and submitted that the Tribunal in that case has held that when the main object of the assessee is to act as a technical and management consultant in relation to all aspects of computer software, then merely because the invoices were raised on candidate basis would not show that the assessee was not producing any software. The ld counsel has further submitted that software engineers, who were recruited by the assessee are bound to work with the assessee in India prior to their overseas posting, if any. This can never be in the case of a recruiting agency. Software Engineers have contributed in the software development programme of the assessee which is exported. The assessee had made huge investment in building, plant and software. He has referred the assessment order for the Assessment Year 1997-98 and submitted that the assessee has invested Rs. 1.57 crores in purchase of SAP software; Rs. 5 crores for purchase of servers and other hardware; Rs. 33 crores invested in land upto 31.3.99; Rs. 7.16 crores invested in building upto 31.3.99; Rs. 7.96 crores invested in furniture upto 31.3.99 and Rs. 4.92 crores invested in plant & machinery upto 31.3.99. Thus, if the assessee is only a recruitment agency, then there was no need of making such a huge investment. He has further submitted that the revenue has not disputed the customization of SAP software by the assessee and transmitted the same to CIC. The customization of the software can be done only by writing set of instruction in the shape of computer programmes.
7
Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
6.3 The ld counsel has further submitted that as per sec 10B, as it stood in the relevant years, the profits and gains derived by the 100% EoU were exempted which exports not less than 75% of the articles or things manufactured by it. The assessee fulfils this condition fully as it exports all its computer programmes. 6.4 The ld counsel has then contended that even for the sake of argument, it is assumed that the assessee was engaged partly in training, the exemption u/s 10B, as it stood in the relevant year, cannot be denied to the assessee when the assessee exports the computer software programmes not less than 75% of its total production/manufacture.
6.5 The ld counsel has submitted that only after the amendment w.e.f 1.4.2001, the assessee may not have got the full deduction but only proportionate exemption. He has relied upon the decision of the coordinate Bench of the Tribunal in the case of iS3C consultancy services Ltd vs DCIT in ITA No.319/Mum/2002 dated 29.8.2002 and submitted that while dealing with a similar issue, the Tribunal in that case has held that the customization exercise involves intellectual process and at the end of the process, new things come into existence. Accordingly, the ld counsel has submitted that as it has been held by the Tribunal that the activity of customization of software amounts to manufacture and production of computer software and thus entitled for exemption.
6.6 The ld counsel has submitted that the SAP is a standard programme which needs to be customised as per the requirement of each and every user i.e. the clients. The assessee had catered to the needs of clients of CIC and various industries which were engaged in the activities of manufacturing of SAP. The CIC 8 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
would inform the assessee about the current and expected programme and their scope of requirement. Therefore, to meet the current and future requirements of the clients, the assessee was required to do the various activities like formation of different teams of professionals, attend various functions to execute the work orders placed by clients.; explaining the exact functional requirement to the professionals and programmers comprised of such teams; formation of conceptual design documents; setting up features in SAP and other computer software; customization of various modules to meet the specific needs of clients; developing and writing new patches of programmes which are not available in the standard format of system; testing the functional competence of new modules designed by the assessee; Functioning integration of modules and testing of its functional accuracy and finally storing the results project wise etc. etc. The final process would take 4 to 6 months and then the project would be put to implement upon the client.
6.7 The ld counsel has submitted that the entire process is intergraded programme which involves the training and update the knowledge of development programme, implementation of programme development in the client's project and then, the trained engineers/programmers travelled to abroad to carry out the result of the development programme on the client's project. This activity of the assessee come within the ambit of sec. 10B being manufacture and products article or thing.
6.8 As per the definition of manufacture is provided in the Explanation to sec. 10B which includes any process, assembling, recording or storing of information as well as produce in relation to any article or thing including computer programmes. He has relied upon various decisions in support of his contention 9 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
and submitted that the computer software amounts to process of goods and satisfy the conditions for section 10B. He has referred the chart at page 184 and 185 of the paper book explaining the activities to be performed in the process of development of computer programme and submitted that the entire work programme is in systematic order and the input of the programme which is passed through various processes and then finally to the process of working for the output offsite.
6.9 The ld counsel further submitted that billing on the basis of man-hours as unit has been done for mark up for the work of software development done by the assessee. Therefore, merely because the assessee is raising the bill on the basis of man-hours to be on the work of development of software programme would not change the nature of the activities of the assessee. The ld counsel has further submitted that the Assessing Officer has heavily relied upon the advice of the Chartered Accountant about the eligibility of exemption u/s 10B at the time of survey which is not relevant because the Assessing Officer is bound to act as per the provisions of the I T Act and not as per the advise of the CA at the time of survey. He has submitted that the CIT(A) has recorded in para 5.3 of the impugned order that the assesse had extensively worked on various projects of CIC which shows that the assessee was doing the work of development programme, running various transactions and working on the local system of CIC, maintenance, testing the results, create final work and document the programme/transactions and the result was then sent to CIC through email. The clients of CIC would call the programmers/analyst to perform in a live environment. All these activities show that the assessee is involved in the work of development of computer programme as per the requirement of the clients of 10 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
CIC. He has relied upon he decision of the Delhi Bench of the Tribunal in the case of ACIT vs Amadeus India p Ltd reported in 79 ITD 407 and submitted that the computer programme should be understood as defined in Copyright Act and should be interpreted broadly, liberally and consistently with other relevant legislation of Government to include export of data processing software as well. The ld counsel has further submitted that the authorities below have totally ignored the technological developments and the principle of "updating construction" as applied by the Hon'ble Supreme Court in the case of Commissioner of Income-tax v. Podar Cement Pvt. Ltd. reported in 226 ITR 625. 6.10 He has stressed the point that section 10B is an incentive provision and designed to encourage as important and vital an industry identity like the software industry and therefore, the said provision has to be liberally construed as held by the Supreme Court in the case of Bajaj Tempo Ltd. v. Commissioner of Income-tax reported in 196 ITR 188.
7. He has further submitted that for the AY 2000-01, the Tribunal has allowed the claim of the assessee u/s 10B with respect to the export made to Unisys. He has filed a copy of the order of the coordinate Bench of the Tribunal dated 30.11.2005 in ITA No. 4857/Mum/2004 and submitted that the said decision has attained the finality as the revenue has accepted the same. Thus, the ld. counsel has submitted that there was no difference as far as the activity of the assessee, qua Unisys or CIC and when export to Unisys has been accepted as eligible u/s 10B then, the export of the CIC is also eligible for deduction u/s 10B. 7.1 Alternatively, the ld AR of the assessee has submitted that the assessee is also entitled for deduction u/s 80HHE. He has referred clause (b) of Explanation 11 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
after sub-sec. 5 of sec. 80HHE and submitted that the meaning of computer software as contemplated under the said Explanation is any computer programme recorded on any disc, tape perforated media or other information storage device or any electronic data or product or service on similar nature as may be defined by the Board which is transmitted to India, a place outside India by any means. The ld counsel has further submitted that when the assessee has undisputedly customized the electronic data with respect to SAP programme and transmitted the same through e-mail to outside India then the profit and gain from such export of other software is eligible for deduction/s 80HHE. He has further submitted that even for the AY under consideration the CIT(A) has allowed the claim of deduction u/s 80HHE in respect of the receipt from Unisys and the department has not filed any appeal against the order of the CIT(A). Though the department tried to raise an additional ground to challenge the order of the CIT(A) in respect of the deduction allowed u/s 80HHE however, the Tribunal vide order dated 4.1.2005 has specifically and comprehensively rejected the said application of the department for raising the additional ground. 7.2 The ld counsel has further contended that once the claim of deduction u/s 80HHE has been allowed by the CIT(A), then the claim of exemption u/s 10B should also have been allowed in view of the fact that there is no material difference as far as the export of computer software or technical service outside India is concerned.
7.3 On the point of exemption u/s 10B on interest income, the ld counsel has submitted that the Assessing Officer has treated the interest income as business income of the assessee undertaking; therefore, in view of the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Nagpur Engineering Co. 12
Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
Ltd. 245 ITR 806 and in the case of CIT v. Paramount Premises (P.) Ltd.190 ITR 259, the interest income is eligible for exemption u/s 10B in view of the fact that the assessee is a 100% EoU. He has further submitted that for the AY 2000-01, the Tribunal has allowed the claim of deduction u/s 10B on interest income. 7.4 On the other hand, the ld DR has heavily relied upon the orders of the authorities below and submitted that the Assessing Officer has given a factual finding that the assessee's primary activity is imparting training and employment for the holding/principle company. The source of the income is not manufacture or produce of article or software computer programme but from placement of trained personnel. He has further submitted that the programme which was opted by the assessee was only to train the personnel for placement with the parent company. The Assessing Officer has specifically asked the details about the remuneration received by the CIC from its clients for which the assessee has claimed to have customized the SAP programme but the assessee has failed to produce such information. The Assessing Officer has given a factual finding which remains uncontroverted. The ld DR has further submitted that the assessee has given much emphasis on the certificate of the Ministry of Industry as 100% EoU, which has limited purpose of authorising the assessee to do a business but does not itself an evidence of actual business done by the assessee. He has referred the agreement as reproduced by the Assessing Officer in the Assessment order and submitted that the assessee has received the payment against the recruitments and placement of the trained personnel and not for development or production of any computer software or programme. 7.5 The ld DR has then referred to the order of the Tribunal which was recalled by the subsequent order dated 22.11.2006 in the Miscellaneous Applications filed 13 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
by the assessee and submitted that the factual aspect considered by the tribunal in the original order has to be considered. For which, the ld counsel has raised an objection and submitted that once the original order has been recalled by the Tribunal, then the same is not relevant for the proceedings of fresh hearing and therefore case has to be decided without taking into account the earlier order. He has further pointed out that the revenue has challenged the order of the Tribunal passed in MA Nos.402 to 404/Mum/2005 whereby the earlier order was recalled; but the writ petition filed by the revenue has been dismissed by the Hon'ble jurisdictional High Court vide order dated 22.1.2010. The ld counsel for the assessee has filed a copy of the order dt 22.1.2010 of the jurisdictional High Court.
8 At this stage, we may mention that once the order of the Tribunal has been recalled by a subsequent order and consequently the appeals filed by the parties have been posted for fresh hearing and disposal, then the earlier order of the Tribunal, which is no more in existence, does not have any bearing on the fresh hearing of appeals of the parties. Therefore, we decline to accept the contention of the ld DR on this point.
9 Even otherwise, when the earlier order has been recalled in toto and appeals were posted for fresh hearing then any observation made by the Tribunal in the earlier order cannot be taken into consideration while deciding the appeals by hearing afresh.
10 The ld DR has further contended that the assessee did not file any audit report for claim of deduction u/s 80HHE, which was an alternative claim before the CIT(A). Therefore, in the absence of audit report, the claim of the assessee 14 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
is not maintenance and the CIT(A) has committed an error by allowing the claim of the assessee u/s 80HHE with respect to the receipt from Unisys 10.1 As regards the claim of exemption u/s10B on interest income, the ld DR has relied upon the decision of the Hon'ble Supreme Court in the case of Liberty India ltd reported in 317 ITR 218 (SC) and submitted that when the interest income has no nexus with the income derived from the undertaking then the deduction u/s 10B is not allowable.
10.2 In rebuttal, the ld AR of the assessee has submitted that the assessee has fully explained all the details before the Assessing Officer. He has referred page 1 & 2 of the paper book 3 and submitted that the process of customisation of the SAP includes:(i) most of the data migrations programmes for SAP data migration include developing of data extraction programme (ii) from old version developed data programme to validate a new version data and (iii) develop uploaded programme to upload data in a new version. He has referred the SAP ABAP/4 standards and submitted that in the process of customization of SAP programme, the assessee has to work according to the Medline SAP ABAP/4 programme standard which has a cumbersome process and therefore, the work of customization of the SAP programme involved a serious of activities to be carried out by the assessee through its analyst/programmers. The ld AR has referred about 150 pages of the material containing standard documents to be followed in the process of development and customization of SAP programme and technical services.
11 We have considered the elaborate arguments of both the parties as well as the relevant material on record. The dispute before us is with regard to the 15 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
receipts from CIC, Unisys, and the eligibility for exemption u/s 10B and alternatively u/s 80HHE. For the Assessment Year 1999-00, the receipt from Cybertech Europe is also subject matter of dispute for the exemption u/s 10B and alternatively for deduction u/s 80HHE. The assessee has entered into agreements with all the three companies' i.e CIC, Unisys, Cybertech Europe. In its contractual obligation the assessee has to carry out the respective activities and to provide technical services.
11.1 As regards the services rendered to CIC, the assessee's project was to produce, create computer programme i.e. customization of SAP programme for better, efficient and useful implementation of SAP software to meet the needs of the clients of CIC, the end user. For execution of the project involving the customization of SAP programme and transmitting the same to offshore clients of CIC as per their needs. The assessee was required to follow the standard as per Medline SAP ABAP/4 programme under which the assessee has to perform the following activities:
i) Most of the data migrations programs for SAP data migration are developed using the SAP programming Language as per Medline defined standards for developing these programs.
ii) Complete the data conversion steps as prescribed in the standard documents.
iii) Furnish the details of each conversion objects, the deliverables, sub-
deliverables and the status of each of this deliverables. This type of reports used to be sent from CSSL to CIC.
iv)Indicate the location of various program sources on the SAP development server for old and new version of SAP so as to help the customer to access the programmes.
16
Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
v) Provide old SAP version system and New SAP version system/software details
vi) The conversion methodology giving the details of migration programmes steps, using a sample data source list.
vii) Copy of the developed program to validate the Plant Record. This program is written in ABAP to read the old version source list and validate sources fields with the new version data requirements.
viii) Tables giving the type of output expected from the data validation program and test script to test the functioning of the program. the data from the old version of SAP.
ix) Copy of the sample developed programme to extract the data from the old version of SAP.
x) Copy of the programmed to upload the extract data to a new version, after the date is validated and corrected.
xi) Each of the written programmes to extract, validate and upload are to be tested for all valid, invalid conditions. The test cases and test conditions are written to test these programs. These pages gives the different test cases/conditions to test the programs.
xii) Sample of a program development checklist to ensure that programmer completes all components of the program and also gives the program development tracking data sheet.
xiii) Sample program specifications for source data validation program.
xiv) Sample of programs developed by CSSL staff for this project (This gives the details of the names of the staff who developed the programmes and data for these programmes.
11.2 After carry out the necessary developments and customization work on the programme, the programme would be transmitted by the assessee through internet or through e-mail to the CIC. The project undertaken by the assessee was to be completed as per the specification and requirements of the clients of the CIC as provided by the CIC to the assessee in the shape of design, specification and standard. The assessee was getting guidelines of the project, enterprise scope, document expressing the scope of work, receive design by interacting with the customer of CIC. All these communications were exchanged 17 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
through e-mail or electronic media. Thus, in pursuance to the agreement, the assessee carried out the above said activities and sent the data in the electronic form through e-mail. In carrying out the task of development and customization of SAP programme, the assessee also engaged analyst/programmers/engineers and trained them in the specific field of customisation of SAP programme. In this process, the assessee developed the customised software programme as per the specification provided by the CIC and the needs of its clients. Thus, the developed programme/customisation of SAP as well as the information of providing the training and other knowledge imparted to the concerned analyst and programmers/engineers were collected, stored in electronic media as per the specific requirement of each clients and transmitted through e-mail. 11.3 The Assessing Officer has disallowed the claim of the assessee u/s 10B on the ground that the assessee has not manufactured or produced any software or computer programme and merely work as a recruitment agency. Thus the question arises whether the entire exercise of customization/development of computer programme called SAP and in this process engaging and giving training to the analysts/programmers and thereby the entire outcome and information in the shape of data transmitted through electronic media, falls under the definition of computer programme as per sec. 10A r.w.s 10BB as exists at the relevant point of time.
Sec. 10B as exists at the relevant Assessment Year is quoted as under:
10B. (1) Subject to the provisions of this section, a deduction of such profits and gains as are derived by a hundred per cent export-oriented undertaking from the export of articles or things or computer software for a period of ten consecutive assessment years beginning with the assessment year relevant to the previous year in which the undertaking begins to manufacture or produce 18 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee :
(2) This section applies to any undertaking which fulfils all the following conditions, namely
(i) it manufactures or produces any articles or thing; (ia) in relation to an undertaking which begins to manufacture or produce any article or thing on or after the 1st day of April, 1994, its exports of such articles and things are not less than seventy five per cent of the total sales thereof during the previous year;
(ii) it is not formed by the splitting up, or the reconstruction, of a business already in existence :
Provided that this condition shall not apply in respect of any undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section ;
(iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.
Explanation.--The provisions of Explanation 1 and Explanation 2 to sub-section (2) of section 80-I shall apply for the purposes of clause (iii) of this sub-section as they apply for the purposes of clause (ii) of that sub-section. (3)....
(4)....
(5).....
(6).....
(7)..
Explanation.--For the purposes of this section,--
(i) "hundred per cent export-oriented undertaking" means an undertaking which has been approved as a hundred per cent export- oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 1469 of the Industries (Development and Regulation) Act, 1951(65 of1951), and the rules made under that Act;
(ii) "relevant assessment years" means the five consecutive assessment years specified by the assessee at his option under sub-section (3) or sub-section (5), as the case may be;
(iii) "manufacture" includes any--
(a) process, or
(b) assembling, or
(c) recording of programmes on any disc, 4ape, perforated media or other information storage device;]
(iv) "produce", in relation to any article or thing referred to in clause (i) of sub-section (2) includes production of computer programmes.] 19 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
As per clause (iii) of Explanation the term 'manufacture' includes; any process, or assembling, or recording of programmes on any disc, tape, perforated media or other information stage device. As per clause (iv), the term "produce" in relation to any article or thing referred to in clause (i) of sub.sec. (2) Includes production of computer programmes.
11.4 The term 'computer programme has not been defined u/s 10B; however, it has been defined u/s 10BB as under:
"The profits and gains derived by an undertaking from the production of computer programmes under section 10B, as it stood prior to its substitution by sec. 7 of the Finance Act, 2000 (10 of 2000) shall be construed as if for the words 'computer programmes', the words 'computer programmes or processing or management of electronic data' had been substituted in that section."
It is clear from sec. 10BB that the meaning of computer programme has been expanded as 'computer programme' or 'process' or 'management of electronic data'.
11.5 After the amendment w.e.f 1.4.2001, the definition of computer software has been given in the Explanation 2 after sub.sec. (9A) of sec 10B as under:
(9A)Explanation 2.--
2.--For the purposes of this section,--
section,--
(i) "computer software" means--
(a) any computer programme recorded on 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 the Board, which is transmitted or exported from India to any place outside India by any means;
20
Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
(ii) "convertible foreign exchange" means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973), and any rules made thereunder or any other corresponding law for the time being in force;
(iii) "export turnover" means the consideration in respect of export [by the undertaking] of articles or things or computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India;
(iv) "hundred per cent export-oriented undertaking" means an undertaking which has been approved as a hundred per cent export-oriented undertaking by the Board appointed in this behalf by the Central Government in exercise of the powers conferred by section 14 of the Industries (Development and Regulation) Act, 1951 (65 of 1951), and the rules made under that Act;
(v) "relevant assessment years" means any assessment years falling within a period of ten consecutive assessment years, referred to in this section.] 11.6 By way of this Explanation, the computer software, which was not earlier defined has been defined and apart from recording of programme on disc, tape, perforated media or other information storage device as contemplated under clause (iii) of Explanation to pre-amended sec. 10B clause (i) of Explaination-2 to amended provision also includes in the definition of computer software any customised electronic data or any product or services of similar nature as notified by the Board which is transmitted or exported from India to any place outside by any means.
11.7 Consequently, the CBDT notified the products and service for the purpose of clause (i) of Explanation 2 vide notification dated 26.9.2000 as under:
"S.O.890(E) - In exercise of the powers conferred by clause (b) of item (i) of Explanation 2 of section 10A. Clause (b) of item (i) of Explanation 2 to section 10B and clause (b) to Explanation to section 80HHC of the Income-21
Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby specifies the following Information Techno-logy enabled products or services as the case may be for the purpose of said clauses namely :-
(i) Back-Office Operations
(ii) Call Centres
(iii) Content Development or animation
(iv) Data Processing
(v) Engineering and Design
(vi) Geographic Information System Services
(vii) Human Resources Services
(viii) 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 11.8 The product and service as notified by the Board above for the purpose of clause (i) of Explanation 2 includes the contents development, data process, human resources services etc. as part of computer software eligible for exemption, if other conditions are satisfied. Consequently, the human resource service in the field of development of software programme as notified falls under the definition of computer programme as stipulated in the Explanation as well as the definition u/s 10BB.
12 Even otherwise, the production of computer software programme is basically a job requiring more of human skills and expertise than machine work.
Further, section 10BB enlarges the ambit of term 'computer programme' by including the process or management of electronic data. Therefore, the engagement of analyst/programmer and imparting training to them in the process of development and customization of SAP programme is part and part of process of the customization of SAP and customization of data and cannot be 22 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
treated as a separate activity of the assessee undertaking, which has been approved by the Government of India as 100% EoU to carry out such activity to train SAP consultant for the purpose of providing customisation support and development of software for the specific need of offshore clients. It is pertinent to note that, to meet the current and future requirements of the clients, the assessee was required to do the various activities like formation of different teams of professionals, attend various functions to execute the work orders placed by clients.; explaining the exact functional requirement to the professionals and programmers comprised of such teams; formation of conceptual design documents; setting up features in SAP and other computer software; customization of various modules to meet the specific needs of clients; developing and writing new patches of programmes which are not available in the standard format of system; testing the functional competence of new modules designed by the assessee; Functioning integration of modules and testing of its functional accuracy and finally storing the results project wise etc. etc. This entire process is intergraded programme which involves the training and update the knowledge of development programme, implementation of programme development in the client's project and therefore, the assessee's activity of engaging the analyst/programmer/personnel for imparting training on development of SAP computer programme is well within the main object of the assessee as envisaged in the Memorandum of Association as reproduced in para 3.1 of this order.
13 In view of these facts, raising of bill on the basis of man-hour further supports the case of the assessee that the assessee is carryout the customization work of software and development of programme as per the 23 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
specific requirement of CIC clients. Therefore, this method of invoice cannot be the basis of rejection of the claim of the assessee. In any case, when the assessee has been collected the customised data, stored and transmitted the same through electronic media, then this activity of the assessee falls under the definition of computer programme as provided under sec. 10BB as well as under Explanation 2 of sub.sec. 10B thereby the definition of software has been expended as customised electronic data or any product or service of similar nature as may be notified by the Board. The assessee definitely engaged in the export of customised electronic data as recorded by the Assessing Officer in his order as under:
"(Vb) Software:
In reality the assessee company was merely customising a software already available according to the needs of the clients. This software is a very elaborate one which helps in running almost all the activities of an organisation. This software runs activities like Enterprise Management, Customer Relationship Management, Product Design and Engineering, Planning, Component Procurement, Manufacturing, Sales and Distribution, Human Resource Development, Financial Management and Accounting etc. SAP AG, a German company is the owner of this software.
(Vc) Customisation or implementation or production:
SAP Ag the German company does not have manpower to help its clients in implementation of the software. The German company has appointed various partners who are recommended to the clients for the installation & implementation of the software. CIC, the holding company of the assessee company is one of such partners. In short, CIC helps the purchasers of this software in its proper implementation. The manpower required for this task is sourced from the assessee company. This fact is proved by the submission made during the course of initial assessment proceedings for the assessment year in consideration. During the course of initial assessment proceedings, the assessee company stated that "We appoint highly qualified people and impart them specialized training on SAP software through our pre -defined training curriculum and do our own developments and modifications, 24 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
rectification and customization of the program to suit needs of various industries. These developments are stored as projects and presentations by the company and reviewed by the training in charge. This process is performed continuously to have the skills of our software engineers and build and improve their technical expertise. It is these skills, knowledge and technical expertise, which is used and work performed on site at the project of the foreign client, and for what the customer pays the agreed charges."
I quote from letter dtd.9.3.2001(submitted during the course of assessment proceedings for AY. 1 998-99) of the assessee company:
"The activity of the company which was called as training involved a lot of work such as formation of a conceptual design documents, setting up features in SAP and other software, customization of various modules etc."
These submissions clearly show that the assessee was merely engaged in the customization of software already available, according to the needs of various clients of CIC. The assessee company has agreed that it was paid for the skills, knowledge and technical expertise of various professionals." 13.1 It is clear from the above that the Assessing Officer has not disputed the fact that the assessee was engaged in customising the software as per the needs of the clients.
13.2 One of the main objections of the Assessing Officer is that the assessee customised the software which was already available and has not created altogether new software. It is pertinent to note that the definition of "produce" is wider then the term manufacture as held by the Hon'ble Supreme Court in a number of decisions and does not require to produce or manufacture altogether a new product; but if the outcome of the process is a different product than the input it would falls under the definition of 'produce'. Therefore, the customised SAP software after passing through cumbersome process of customization is different product; i.e. software, then the original standard software and would certainly fall under the term 'produce'.
25
Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
14 In the case of iS3C consultancy Services Ltd, (supra), the Tribunal had an occasion to deal with a similar issue in para 17 and 18 as under:
"We have considered the rival submissions and perused the facts record. Sec.1OA of the I.T. Act was brought to Statute Book by the Finance Act, 1981 with effect from 1 .4.81 and contains special provision in respect of newly established undertakings in free trade zone. It was amended from time to time and as it stood for Asst. Year 1998-99, I.e., the year under consideration, this section applies to any industrial undertaking which "has begun/begins to manufacture or produce articles or things during the previous year relevant to the Assessment year.". The explanation to Sec.1OA in so far as it is relevant for our purpose provides as under :-
"Explanation:- For the purpose of this section,
i)
ii) -
iii) "Manufacture" indudes any --
(a) Process,
(b) Assembling
c)Recording of programs on any disk, tape, perforated media or other information storage device.
iv)
v)
vi) Produce in relation to articles or things referred to in clause (i) of sub-
section(2) includes production of computer programs."
18. The central and pivotal question before us is whether the assessee is engaged in the "Manufacture" or "Production of software as mentioned in clause (iii) and (vi) of the Explanation to Sec. 10A as it then stood for he Asst. Year 1998-99. As is evident from the facts of the case, the assessee company is engaged in the manufacture of software and It had entered into agreements with BaaN, Netherlands and BaaN India, whereby it got the standard 'software and then such a standard software had to undergo the metamorphosis by a technique known as 'CUSTOMIZATION'. The assessee company bought standard software from BaaN, Netherlands and the standard software had to undergo transformation through the process of customer level customization. The customization exercise converts standard software into customized 26 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
software rendering-the standard software practically operational in a manner that it runs as per- the demands of the customer and garners the desired results. In the customization process, the assessee harnesses the development tools and programming platforms embedded in the standard software as "raw materials" and manufacture/produce end usable software applications thereby furnishing to the customer his special and individualistic product. This fact is clear from the graphic representation of the customization placed at pages 219 to 277 of PB No.11 which has been discussed by us in pára 8 above. The whole customization drill entails creation and addition of new programs. The assessee only utilizes the development and programming platforms embedded in the standard software to develop and evolve the customized software program. Customization exercise involves intellectual process and at the end of the process, new things come into existence. The customization process carried out by the assessee, in our opinion, meets the criteria propounded by the classical connotation of the term "Manufacture". 14.1 Thus it is clear that when the process of customisation involve addition, modification and creation of new programmes as per the requirement of the individual clients by utilising the foundation of standard programme and such exercise involves human expertise and intellectual process to bring the end result a different product or thing and fit into the definition of term produce. Further, in the case of ACIT vs Amadeus India P Ltd (supra) the coordinate Bench of the Tribunal has considered and decided a similar question in para 35 as under:
"35. The assessee which occupies a position mid-way between the two fulfils, it will be clear from the facts stated above, the functions of a programme exporter, it does not add mere entries to the data base as done by the travel agent. In fact it has no direct interest in adding to, or drawing extracts from the data base built into the computer like the several operators all the world over. What it does actually is to supplement the functions of the Amadeus Group by preparing and transmitting programmes to the latter for incorporation into portions or "partitions" in its mega-computer at Erding in Germany, so as to enable the travel agents in its marketing region draw on the available information for their benefit. Its activities are to issue instructions to the master- computer to recognise the operators, identify them and provide them access to specific portions of the data base. There can be no doubt whatever, for the reasons discussed above, that the assessee manufactures, produces and exports software within the meaning of the three specified sections of the Act. It is open to it to claim exemption under any one of these sections and as is well established by pertaining to 27 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
interpretation of taxing statutes is entitled to choose that one which is most favourable to it in any particular assessment year."
15 Moreover, when the definition of computer programme and software as contemplated under section 10BB includes processing or management of electronic data and as per explanation to section 10B customization of data, then the objection raised by the Assessing Officer that the assessee is not producing any new product, is not justified and totally against the scheme of the incentive provisions u/s 10B.
16 The Assessing Officer has also not disputed the medium through which the service of implementation was rendered as under:
(vd) Medium through which the service of implantation was rendered:
It has been claimed that the software developed was uploaded into the server of CIC through e-mail. In this ground, I wish to point out that as per the details of expenses furnished by assessee company, it is clear that no compact disc. tape, perforated media or other information storage device was ever exported physically out of India, Had any meaningful software ever been produced, it could definitely have been exported via the medium of a compact disc or a computer cartridge. The very fact that the assessee company claims that the computer programmes were sent to the parent company via E-mail shows that no meaningful computer programme was over written.
The assessee company has not been able to produce a single document which would indicate that any software recorded on any physical medium ever left the custom bonded area. It is worthwhile to note that under the EOU scheme, the premises of the assessee company lies in a Customs bonded area."
16.1 It is clear from the above part of the assessment order that the Assessing Officer had reservation about the transmission of computer programme through 28 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
e-mail and not through compact disc or a computer cartridge in any physical medium.
16.2 It is pertinent to note that the provisions of sec. 10B required the transmission of customised data of computer programme through electronic media and e.mail is no doubt an electronic media and therefore, the objection raised by the Assessing Officer is unfounded.
16.3 Our above view is supported by the decision of the Tribunal in the case of S&G Consultants Pvt Ltd (supra) wherein a similar issue was considered and decided as under:
"All these letters clearly establish that Government of India has granted approval to the assessee for manufacture of accessories and software service. In the Memorandum of Association one of the main object s is to act as technical and management consultants in relation to all aspect of computer software. The CBDT has also clarified this issue and has held that merely because the software is developed at client's site aboard, the tax holiday u/s 10A or 10B should not be denied as long as the software is a product of the unit i.e produced by the unit. The assessee was supply its professional for developing the computer software as is evident from page 6 of the paper book which is the letter addressed to the United Software Services. Inc. dated 18.11.1987 by the assessee. The relevant portion of para 4 reads as under:
....This computer will be used initially to train programmers/analysts and later on to develop computer software for export to USA. The ownership of this computer will rest with us."
Exemption u/s 10A is a beneficial liabilities and should not be interpreted and the exemption could not canter on irrelevant consideration. Merely because the invoice was raised on candidates basis, it would not put to show that assessee was not producing any software. The ld departmental representative has submitted that assessee was not having copyright in respect of software developed by it. This argument, in our opinion, is misconceived because the assessee was admittedly producing the software at the site of its clients which were useful for particular clients only. Therefore, there is no question of any copy right remaining with the assessee. In this view of the matter, we confir5m the order of the ld CIT(A)."
29
Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
17 We also find fore in the contion of ld. Counsel of the assesse that the assessee had made huge investment in building, plant and software and if the assessee is only a recruitment agency, then there was no need of making such a huge investment. In view of the above discussion, we find that the assessee is entitled for exemption u/s 10B in respect of the receipt from CIC. Further, we note that the issue of exemption u/s 10B has been considered and decided by the coordinate Bench of the Tribunal for the Assessment Year 2000-01 and after elaborate discussion in ITA No. 4857/Mum/04 vide order dated 30th Nov 2005 has held in paars 9 to 16 as under:
9 We now take up the agreements in each of the cases and see whether the assessee has only acted as a recruitment agent or the assessee has engaged itself in manufacture or production of articles or things in the form of computer programme, which is also a part of 'manufacture' as explained by the statute and has specifically given an extended meaning to the provisions of section 10BB already extracted hereinbefore. The agreement with Unisys is placed at pages 87 to 119 of the paper-book. This is a technical service agreement between Unisys Corporation and the assessee/ The technical agreement no 10063 and the statement of the work have been placed at pages 89 to 121 of the paper book. We may refer to the statement of work placed at 101 to 108 of the paper book. Relevant portion of which is reproduced below "Cyber Tech international has available and will provide to Unisys Corporation the manpower, technical expertise, and product knowledge required to completely support all CTOS Software products as specified herein. Cyber-Teeh will make every effort to support the products within the Unisys Support Policy as outlined in the Technical Services Agreement. Cybertech will maintain the same interface with external Unisys support organizations as previously supplied by the San Jose Engineering organization.
In order to mutually accomplish the goals stated herein:
Unisys will:
(i) provide CyberTech with CTOS hardware and Operating software for both the Yardley, PA and Bombay, India Sites, as identified in Addendum E. Enough hardware and/or software will be provided to allow Cyber Tech to analyses/duplicate reported problems, develop ... build and test 30 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
products to verify all changes, create and ... scenarios to respond to Contacts or other questions, build any required special or other system releases and to, in at least a similar environment, verify the overall system performance of the modified software product.
The development systems will include, test beds, special controllers (slices), test equipment and administrative systems at least two of each unique hardware system or peripheral released by Unisys for the CTOS customer base plus enough components to assemble the following complete systems.
Yardley PA office: (front and support) Five complete systems, one or more controller slices as required for CSC telephone support, and one server configuration Specific concentrations will be identified and outlined in the transition plane. Bombay India office (off-shore continuation engineering) Eight full development systems, at least one server configuration and one XE system within the test beds. Specific configurations and details will be outlined in the transition plan (2) will provide direct contact to the customer environment needed to demonstrate the problem CyberTech will be provided access to network connections including TCP/IP, BNet, SNA and OSl. (3) provide access to and license to use source and object Code for all CTOS products and the Compilers and Utilities required for development. System generation and configuration management. Written ...........................................................and object code for each supported release level must be established and agreed between Unisys and CyberTech. If special system configurations are required to test any specific release, Unisys will provide access to either Unisys or Customer equipment for this testing.
(4) provide CyberTech with complete documentation of all CTOS products, including product specifications, user documentation, release notes, patch listings, release status reports and statistics for each release level to be supported (5) will provide active on-line, update access to the Unisys PRIMUS 31 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
database, the MAPPER database for tracking escalated problems by WALERTs and CSRs and Internet Web Pages and PatchNet system Cybertech will additionally need CTOS OFIS Mail connections with the San Jose (and thus all other Unisys sites) Electronics Mail services for both Yardley and Bombay (I) provide Technical expertise for the following:
-CTOS operating system Design and Development
-Microsoft Windows and Windows NT integration
-CTOS Compilers, Linkers and Standard Software
-CTOS Data Commendations Products
-CTOS OFIS Mail BNet, OFIS Products
-CTOS Hardware Products Unisys Software product development and support cycles.
(2) make every effort to analyze and respond to all UCFs within Unisys response guidelines listed below. When necessary. CyberTech will develop and distribute a fixed product to the affected client within the guidelines for the priority of the problem. When a fix is unnecessary or a workaround is established, CyberTech will close the UCF as allowed by Unisys guidelines or Support policy. CyherTech will make every effort to follow Unisys policy for Priority A and Priority B problems. Priority C problems will be treated as New Feature Suggestions. Statistics for response and closure will be maintained and reported to Unisys as required"
The payment for these work is provided in article 4, which is also reproduced below "A. Compensation:
The total Software Support compensation to CONTRACTOR for the WORK performed hereunder shall not exceed one million two hundred thousand dollars ($ 1.200,000.00 as outlined below, plus any authorized travel and having expenses as specified in Sub paragraph A2 of this Article and any applicable sales and/or use tax as specified in Paragraph C of this Article.32
Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
The following payments for support are in United States Dollars and based on monthly billing by Cyber Tech:
Transfer cost $50,000 June 1996 through May 1997 300.000 (the first two months
payment ($500O0) will be due upon contract signing) June 1097 through May l998 250,000 June 99S through May 1999 200,000 June 1909 through May 2000 200,000 June 200 through May 2001 200,000 2 Upon Unisys reasonable request Cybertech will furnish qualified personnel for onsite assistance to Unisys to resolve problems. In such even, Unisys will pay Cyber Tech at the rates set forth in Addendum B of the Agreement for the time of such personnel and reimburse Cybertech for travel and living expenses in accordance with Addendum C. However, Cybertech will not be entitled to any such payment if the problem negligently caused by Cyber Tech"
For maintaining brevity we have extracted the relevant portions but going through the copies of the agreement as also the several addendums, it does not, in any way, lead to the conclusion that the assessee has been paid so much of money just for recruiting the employees or for imparting training of the employees for and on behalf of Unisys. In our view, it is taking too a narrow view of the matter, if the agreement were to be construed as agreement for recruitment of personnel. In any event, the CIT(A) himself granted both in earlier years as also in the assessment year under consideration relief u/s 8OHHE of the Act. The Tribunal has confirmed the order of the CIT(A) giving deduction u/s 80HHE of the Act in the earlier years. But appreciating the facts of the case in the light of the agreement provided, we are unable to accept the departmental view that the assessee cannot considered as engaged in the business of manufacture of production of articles or things within the meaning of section 108 and 10BB of the Act in respect of the profits and gains arising out of this agreement. The denial of such relief, in our view, is on a wrong reasoning that export of articles and things under this agreement with Unisys did not exceed 75% of the total sales. It only results in the miscarriage of justice if such a proposition of the department were to be accepted. We, therefore, direct the Assessing Officer to allow deduction u/s 10B of the Act. The relief under section 80HHE, in the facts and circumstances of the ease, as an alternative prayer, becomes academic. 33
Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
10. Coming to second agreement, which is placed at pages 36 to 44 of the paper book, the same is entered into on 01 07 99 Cressesc Inc. Yardley. The statement of work placed at page 37 of the paper-book is as under "state of Work" or "SOW" shall mean the written document or documents mutually agreed between customer and consultant providing a general description of consulting services, applicable rates and other terms reasonably necessary to govern work orders and shall be attached hereto as contained in "Statement C Work" S Work Product As used in this agreement the term "work Product" means any deliverable items and other products of Consulting Services, 'whether or not ....and all related intellectual Property Rights, know how, ....mask works, trademarks, formulae, procession, manufacturing techniques, trade secrets ideas, artwork, software or other copyrightable or patentable work.
Y2K Comp1iant shall remain with respect or Software, systems, Consulting Services and deliverables that the same shall not be affected adversely by the occurrence of use of dates before, on or after January 1st, 2001 AD including dates and leap years between the twentieth and twenty-first centuries ("Millennial Dates) Any Software and deliverables provided by Consultant(including any software, hardware or firmware product(s) delivery by Consultant to Customer) will without error or omission, create, receive, store, process and output (collectively," Compute") information related to Millennial Dates. This warranty includes without limitation that the deliverables and Software provided by Consultant will accurately and without performance degradation, compute Millennial Dates, date' dependent date, date-related interfaces, or other date-related functions (including without limitation, calculating. comparing and sequencing such functions) Article 11(Consulting Services)
(a) Consultant shall provide Consulting Services to Customer in accordance with the terms and conditions of this Agreement together with the SOW attached hereto as' Exhibit A. The specific scope of any work and details of details of particular Consulting Services including proposed time and materials cost estimates, fixed price, or Not To Exceed amounts shall be set forth in the Statement of Work or any other document that references the appropriate Statement of Work to the jointly prepared by Customer and Consultant and approved be Customer prior to the start of any work. Consultant shall not be bound to perform and Customer shall 34 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
not be required to pay for, any Consulting Services not contained in the Statement of Work or associated documents, unless accompanied by a Change order as set forth in Section 2.2
(b) consultant will ensure that all personnel assigned shall have the skills necessary to complete the tasks set forth in the Statement of Work. ( c) Any work request shall be via a Statement of Works issued in accordance with this Section 2.1. Nothing in this Agreement shall preclude Customer from obtaining the same or similar services from any other source at any time. Nothing in this Agreement shall preclude Consultant from providing similar services to another company, provided Consultant maintain the confidentiality of Customer's proprietary information.
In this Agreement it is provided that the assessee had the expertise in area related to the business of customer and for the business of providing professional services with regard to those areas of expertise. The details of this agreement in the form of work statement are placed at page 45 of the paper book for the following services "This is a Work Statement under the Master Consulting Services Agreement between Customer and Consultant I Period of Work Date of Commencement of Work Statement15th July I999 Date of Completion of Work Statement 31 December 2000 2 Description and/or Specifications of the services to be performed and the Deliverables to be dc1ivred to Customer To develop a helpdesk/call centre product that can be developed either as a fully licensed product or using the ASP delivery mode. Phase one research and development to visualize and conceptualize the best of breed product for Cresere inc. By studying other competing products available in the market for their features, functionality, architecture Phase two Product development 35 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
Phase three- Product release and installation 3 Deliverables
-Product Requirements document
-High Level design document
-Detailed Design document
-Test plan data and test results
-Application sources, libraries, executables
-installation version of the product
-Use Manual
-Installation Guide 4 Period of work and Schedule of fees Milestone Projected End date Fixed Fee Phase One October 31, 1999 US $ 1,115,000 Phase two August 31 1999 US $ 435,000 Phase three December 31 2000 US $ 50,000 Going through the above agreement also it cannot be said that the assessee is rendering just a recruitment service or training service as made out by the revenue. The assessee in our opinion, having regard to the nature of the work mentioned in this agreement, is engaged in the manufacture or production of computer programme which falls within the scheme of 10B r.w s 10BB of the Act The assessee's claim for relied u/s. 10B of me Act is therefore directed to be allowed.
11. In relation to agreement No 3 with CTE-BNP, the CIT(A) has granted 100% deduction u/s 8OHHE of the Act in the earlier years and that has become final. The only ground on which relief u/s. 10B was denied is that the assessee's export to this client did not exceed 75% of the assessee's total sales. In the light of the discussions elsewhere in this order, we do not agree with the stand of the revenue that the assessee is not entitled for relief u/s 10B of the Act in respect of the exports made to this client. Accordingly, we direct the Assessing Officer to allow relief u/s 10B of the 36 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
Act in respect of the profits and gains derived as admittedly the agreement is an old agreement and on which the revenue has already granted relief u/s 80HHE of the Act, which is directed to he withdrawn 12 Now we take up the agreement No 4 with CIC e-worker. This agreement is newly entered into during the year under consideration. Although the assessee was to recruit and train software professionals, but in that process it develops a software of its own. Agreement in this case is entered into for development of e-worker software. A copy of the manual involving the development and supply of the software is placed at pages 138 to 541 of the paper-book. It may be pointed out that the revenue authorities have considered only 10% of the profits as eligible for deduction u/s 80HHE of the Act on the reasoning that it was mainly in the nature of recruitment and training contract The contract itself is placed at pages 55 to 67 of the paper-book. The contract also contains the scope of the work at page 65 of the paper-book, which reads as under
"This is a Work Statement under the Master Consulting Services Agreement between Customer and Consultant.
1. Period of work Date of commencement of work statement 1st July 1999 Date of Completion of Work Statement 31st October 2000 2 Description and/or Specifications of the services to be performed and the Deliverables to be delivered to Customer To develop e-WORKER. a commerce serve that enables both B-B (Business to Business) and B-C (Business to Consumer) commerce Phase one-Study various other leading products in the market, to decide upon features, serviceability and technical architecture of the product.
• Phase iwo-Product development • Phase three-Beta Product release • Phase Four- , Final Product release and installation 37 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
3. Deliverables
-Deliverables at phase three of the project
-Product Features and Functionality
-High Level design document
-Detailed Design document
-Test plan and test records
-Product source code and executables
-Beta Installation version of the product
-Installation Guide Deliverables at phase four of the project • User Manual • Finalized version of the product 4 Period of work and Schedule of fees Milestone Projected End date Fixed Fee Phase One October 31, 1999 US $ 300,000 Phase two December 31 1999 US $ 540,000 Phase three July 31 2000 US $ 400,000 Phase four October 31 2000 US $ 250,000 In terms of the contract user manual which was delivered to the parties is also part of the paper book and if one were to go through the same it can definitely be seen that this is not a contract pure and simple for recruitment and training of personnel. We, therefore. do not agree with the stand of the revenue that the assessee is entitled to relief u/s 10B. We, therefore, direct the Assessing Officer to allow deduction u/s 10B of the Act for the reasons that are already spelt out in paragraph 8 hereinbefore. We may mention that the scope of the work as detailed in para 9 above does not show that the payment of so of contracted amount was just for recruitment of employees or for training them. In our opinion, having regard to the terms of the agreement, it was clearly for manufacture or production of articles or things within the meaning of 38 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
section 10B and it is extended meaning as spelt out in section 1BB of the Act. We may also mention that merely because the payment is based on the man-hour spent on the job or the employees provided, it does not mean that the assessee was not engaged in the activity of manufacture or production of articles or things within the meaning of the provisions stated above. The complex and highly technical activities in the field of computer software, in our opinion, truly is an act of manufacture or production of articles or things as spelt out in the aforesaid provision.
13, Now coming to the agreement with SAP Arabia, the contract itself provides for carrying on the work of software development relief/processing/maintenance of electronic data for which software professional were deputed to customers locations onsite. The scope of the work is clearly covered by the provisions of section 10Br w s 10BB as construed by the Board vide its Circular no 694 dated 23.11.1994. This is not a case where the assessee has only to do recruitment or training of personnel, but the assessee is engaged in the on-site software development. In this contract with SAP Arabia, the software professionals remained on the payroll of the assessee while they are deputed on-site for carrying out assignment of software development. The relevant copies of the agreement are also placed at pages 10-15 of the paper-book. Having gone through the details contained therein, we are of the opinion that it cannot be said that the assessee is not entitled to relief u/s 10B or u/s 80HHE of the Act. The revenue authorities have denied both the relief but, in our view, the assessee is entitled to relief u/s 10B of the Act in relation to the income derived on export of software out of1ndia to this client.
14 This les us to the agreement with Geotronics-UK and Veritema-Sweden. These agreements are of the same nature a has been entered with SAF Arabia. In the light of our decision in relation to the agreement with SAF Arabia, we hold that the assessee is entitled to relief u/s 10B of the Act in respect to the profits and gains derived by the assessee under these agreements.
15 Now it leads us to the agreement with C1C-ATC, which s completely a new agreement dated 01.7.99. The agreement itself is placed at pages 19 to 27 or the paper. The agreement provides that the assessee has expertise in the fol1owin fields and the scope of service is mentioned in clauses I.1 and 1.2 of the agreement:
1) Installation, implementation, enhancements and maintenance of Applications SAP and SIEBEL
2) Design. Content development, hosting and maintenance of corporate 'websites and portals 39 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
3) Developing sales and marketing collateral such as brochures, presentations, proposals, case studies etc
4) Developing documentation such as implementation methodology, project documentation etc
5) Design of networking and internet working systems architecture, estimations, networking diagrams etc."
The assessee is obliged to grant the patent right as provided in article 4,1 and 4.2 in relation to all software programmes undertaken by virtue of the agreement. Having regard to all these, it cannot be said that the assessee is only a recruiting and training agent while considering its claim for relief u/s 10B of the Act. We, therefore, in the light of all these discussions, accept the claim of the assessee for relief u/s 10B of the Act. As a result of this, the revenue may have to withdraw the relief granted u/s 10HHE of the Act as a consequence of this order. "
18 Accordingly, in view of the discussion in the foregoing paras as well as respectfully following the earlier order of the Tribunal, we decide the issue of exemption u/s 10B in respect of all the receipts from CIC, Unisys and Cybertech Europe in favour of the assessee.
19 Next ground is regarding exemption u/s 10B on interest income.
20 We have heard the ld AR of the assessee as well as the ld DR and considered the relevant material on record. The ld AR of the assessee has submitted that the assessee undertaking has no other business than the computer software and programme therefore, the interest being the business income of the assessee is entitled for exemption u/s 10B. He has relied upon the 40 Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
decision of the Hon'ble jurisdictional High Court in the case of Nagpur Engineering Co. Ltd. and in the case of Paramount Premises (P.) Ltd. (supra).
However, the latest decision on the point is in the case of Liberty India Limited (supra) wherein it has been held that first degree nexus is required to form part of the net profits of eligible industrial undertaking for the purposes of section 80-
I/80-IA/80-IB of the 1961 Act.
20.1 Since the decision relied upon by the ld AR of the assessee is prior to the decision of the Hon'ble Supreme Court in the case of Liberty India (supra), we, therefore, by following the decision of the Hon'ble Supreme Court hold that the interest income is no direct nexus to the income derived by the assessee from the undertaking. Accordingly, this ground is decided against the assessee. 21 The last issue raised by the assessee in this appeal is levy of interest u/s 234B & C, which is consequential in nature.
22 We have heard the parties and considered the relevant material on record. The levy of interest u/s 234B and C is consequential and require no specific finding.
23 As regards the alternative ground of deduction u/s 80HHE, since we have allowed the claim of the assessee u/s 10B; therefore, we do not propose to go into the merit of the claim u/s 80HHE and the same is dismissed being infructuous.
41
Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
Revenue's appeals:
24 The revenue has raised the following ground:
Assessment Year 1997-98 &1998-99 "On the facts and in the circumstances of the cased and in law, the CIT(A) erred in directing the Assessing Officer to take the interest income as part of business profit instead of income from other sources without appreciating the facts of the case."
Asst Year 1999-00:
On the facts and in the circumstances of the case and in law, the CIT(A) erred in directing the Assessing Officer to allow the deduction u/s 80HHE on the receipts in respect of services rendered to Cybertech International Corporation regarding development, implementation, customization/SAP related services without appreciating the facts brought out by the Assessing Officer that the above receipts are not eligible for deduction."
25 The revenue is aggrieved by the treatment of interest income as business income as directed by the CIT(A) as well as the eligibility of deduction u/s 80HHE on the receipts from CIC.
26 As far as the interest income is concerned, while deciding the appeals of the assesse this issue has been decided in favour of the revenue; therefore, to that extent the revenue's appeals are allowed.
26.1 The additional issue raised by the revenue was admitted by the Tribunal to the extent of deduction allowed u/s 80HHE by the CIT(A) in respect of 10% of the receipts from CIC, Unisys and Cybertech Europe in AYs 1997-98 and 1998-99 in ITA No. 3670 & 3671/Mum/2003 vide order dated 4th Jan 2005 in paras 9 & 10 as under:
42
Cybertech Systems & Software Ltd ITA No 2781/Mum/2003 (AY 1997-98) ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00) ITA No 3670/Mum/2003 (AY 1997-98) ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
"9. Therefore, keeping in view all the facts and circumstances, we admit the following additional ground, which is similar to the original ground taken by the department for the Assessment Year 1999-2000, in the appeals of the department for the AY 1997-98 and 1998-99:
"on the facts and in the circumstances of the case and in law, the ld CIT(A) erred in directing the Assessing Officer to allow the deduction u/s 80HHE on the receipts in respect of services rendered to Cybertech International Corporation regarding development, implementation, customization/SAP related services without appreciating the facts brought out by the Assessing Officer that the above receipts are not eligible for deduction."
10 Accordingly, application fro admission of additional ground is allowed to the extent indicated above."
26.2 Since we have allowed the claim of the assessee u/s 10B; therefore, the issue of claim for deduction u/s 80HHE has become infructuous. Accordingly, the additional ground raised by the revenue is also dismissed as become infructuous. 27 In the result, the appeals filed by the assessee as well as the revenue are partly allowed.
Order pronounced on this 2nd day of March
March Feb 2012
Sd/ Sd/
( G E VEERABHADRAPPA ) ( VIJAY PAL RAO )
President Judicial Member
Place: Mumbai : Dated: 2nd March 2012
Raj*
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
43
Cybertech Systems & Software Ltd
ITA No 2781/Mum/2003 (AY 1997-98)
ITA No 2782/Mum/2003 (AY 1998-89).
ITA No 2863/Mum/2003 (AY 1999-00)
ITA No 3670/Mum/2003 (AY 1997-98)
ITA No 3671/Mum/2003 (AY 1998-89).
ITA No 4482/Mum/2003 (AY 1999-00).
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai