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$-43,46 &47 HIGH COURT OF DELHI
ITA 560/2008
ITA 560/2008
ITA 795/2009
ITA 796/2009
N.K.PARWANDA Appellant
Through
N.K.PARWANDA Appellant
Through
VERSUS
COMMISSIONER OFINCOME TAX .... Respondent
Through: Mr. Zoheb Hossain, Sr.
Standing Counsel with Mr. Deepak Anand, Jr. Standing
Counsel for Revenue.
Through: Mr. Zoheb Hossain, Sr.
Standing Counsel with Mr. Deepak Anand, Jr. Standing
Counsel for Revenue.
CORAM:
HON'BLE MR.JUSTICE S.RAVINDRA BHAT
HON'BLE MR.JUSTICE A.K.CHAWLA
30.08.2018 The following question of law arises in all these three appeals:
"Whether the translation services provided by the assessee to its foreign clients through the internet amounts to data processing and, consequently, falls within the ambit ofcomputer software as referred to in
Section 80 HHE ofthe Income Tax Act, 1961 read with the notification issued by the Central Board ofDirect
Taxes being Notification No.SO 890 (E) dated 26.09.2000?"
The facts of the cases briefly are that for the relevant
HON'BLE MR.JUSTICE A.K.CHAWLA
30.08.2018 The following question of law arises in all these three appeals:
"Whether the translation services provided by the assessee to its foreign clients through the internet amounts to data processing and, consequently, falls within the ambit ofcomputer software as referred to in
Section 80 HHE ofthe Income Tax Act, 1961 read with the notification issued by the Central Board ofDirect
Taxes being Notification No.SO 890 (E) dated 26.09.2000?"
The facts of the cases briefly are that for the relevant
ITA 560/2008,795/2009&796/2009 page 1 of9
2018:DHC:8296-DB assessment years(Assessment Years 2002-03;2004-05 and 2005-
06)which are covered in thesethree appeals,the assessee claimed the benefit of Section 80HHE, contending that it was providing translation services through the internetto its clients. The assessee is aproprietor ofM/sInternational Academy ofForeignLanguages
(lAFL). During the year, the assessee has shown translation and interpretation export for services rendered to foreign clients and claimed deduction. For all these years, the Assessment Officer held thatthe nature ofreceipts could not be characterized as export of software within the meaning of Section 80HHE. Upon being asked to do so, the assessee explained that deduction sought was permissible stating that explanation(b)to Section 80HHE allows customised electronic data and enables service providers to seek exemption in view ofthe CentralBoard ofDirectTaxes s(CBDT) notification No.SO 890(E)dated 26.09.2000.
The Assessment Officer however, declined to grant relief.
The assessee appealed to the Commissioner. The CIT(A), after considering the text ofthe provisions under Section 80HHE and notification No.SO 890(E)and also taking into account the then prevailing decision ofthe Income Tax Appellate Tribunal(ITAT) in New Delhi Television Ltd. v. Deputy Commissioner ofIncome
Tax,(2004)1 SOT 116(Delhi)passed in ITA No.l757(Del)/2003
(decided on 26.07.2004) held that the services so provided fell withinthe prescription ofdata processing as they were customized
2018:DHC:8296-DB assessment years(Assessment Years 2002-03;2004-05 and 2005-
06)which are covered in thesethree appeals,the assessee claimed the benefit of Section 80HHE, contending that it was providing translation services through the internetto its clients. The assessee is aproprietor ofM/sInternational Academy ofForeignLanguages
(lAFL). During the year, the assessee has shown translation and interpretation export for services rendered to foreign clients and claimed deduction. For all these years, the Assessment Officer held thatthe nature ofreceipts could not be characterized as export of software within the meaning of Section 80HHE. Upon being asked to do so, the assessee explained that deduction sought was permissible stating that explanation(b)to Section 80HHE allows customised electronic data and enables service providers to seek exemption in view ofthe CentralBoard ofDirectTaxes s(CBDT) notification No.SO 890(E)dated 26.09.2000.
The Assessment Officer however, declined to grant relief.
The assessee appealed to the Commissioner. The CIT(A), after considering the text ofthe provisions under Section 80HHE and notification No.SO 890(E)and also taking into account the then prevailing decision ofthe Income Tax Appellate Tribunal(ITAT) in New Delhi Television Ltd. v. Deputy Commissioner ofIncome
Tax,(2004)1 SOT 116(Delhi)passed in ITA No.l757(Del)/2003
(decided on 26.07.2004) held that the services so provided fell withinthe prescription ofdata processing as they were customized
ITA 560/2008,795/2009&796/2009 2of9 data and therefore,eonforming to Explanation(b).
The relevant extract of the CIT(A)'s decision for the assessment year 2002-03 reads as follows :
"4. Now the contention ofthe appellant isfound to be correct. The entireprocedure ofthe transactions between the assessee and his buyer abroad and the samples submitted to explain the same make it clear that the appellant was engaged in data processing and transactions ofthe same to his clients abroad. As a result ofthis only he receivedforeign exchange. Now asper the notification of the CBDT as referred to above, as per item No.(iv) ofthe notification the assessee's business is covered under the head "data processing". As the business activity of the appellant was also part of
Information technology enabled products or services he was entitled to deduction under section 80HHE. As per explanation (b) to section 80HHE the appellant was engaged in supplying customized electronic date to his foreign clients through Internet and as per the notification ofthe Board, the appellantshould have been allowed deduction under section 80HHE. The appellant's case is squarely covered with the decision ofthe ITAT, Delhi Bench 'A' New Delhi in the case of NDTV Vs.
DCIT in ITA No. 1757(Delhi) of2003 dated 267.04. In that case it was held that'No doubt the main provisions ofsection 80HHE are in regard to deduction on account ofcomputersoftware. However, ifexplanation(b)ofsub section(5)is taken into consideration, then it will be seen that many other items are included, which includes customized electronic data also. The Board in its instructions dated 26.9.2000 had enlarged the scope of deduction under section 80HHE whereby Explanation(b) to section 80 HHE(5) expanded to scope by including various information technology enabledproducts or
ITA 560/20.08,795/2009 &796/2009 page 3 of9 services. In these items, the item data processing is also included which is at No.(iv) of the Board Instruction dated 26.9.2000. The Board instructions which came through Notification No.890E)/[Notification No.
II521IF.No.143/49/3000 TPL] are binding on the department authorities. Therefore, no doubt remained that the activities done by the assessee as customized electronic data were covered under the provisions of section 80HHE, as the scope ofExplanation (b), sub section (5), has been enlarged. Various stages in regard to collecting the customized electronic data had been explained"Similarfacts exist in the appellants'case also and thus he was entitled to deduction under section 8-
HHE." The Revenue's appeal was that neither the definition of computer programme nor processed electronic data cover the kind ofservice provided by an assessee. It was submitted that until the computer software or something analogous to it is developed and provided by an assessee, the benefit of Section 80HHE could not be claimed. This contention was accepted by theITAT,which held as follows :
"S. As per explanation to section 80HHE even any customize electronic data or product or services of similar nature as notified by the Board which is transmitted or exportedfrom India will also be treated as
"computer software". As noted above the Board has issued notification No.S.O. 890(E) dated 26.09.2000. It is the contention ofthe assessee that the nature ofservice rendered by the assessee falls under the clause 'Back
Office Operation' or 'Data Processing' or 'Support
Centres'. All these clauses are notdefined butgiving its
The relevant extract of the CIT(A)'s decision for the assessment year 2002-03 reads as follows :
"4. Now the contention ofthe appellant isfound to be correct. The entireprocedure ofthe transactions between the assessee and his buyer abroad and the samples submitted to explain the same make it clear that the appellant was engaged in data processing and transactions ofthe same to his clients abroad. As a result ofthis only he receivedforeign exchange. Now asper the notification of the CBDT as referred to above, as per item No.(iv) ofthe notification the assessee's business is covered under the head "data processing". As the business activity of the appellant was also part of
Information technology enabled products or services he was entitled to deduction under section 80HHE. As per explanation (b) to section 80HHE the appellant was engaged in supplying customized electronic date to his foreign clients through Internet and as per the notification ofthe Board, the appellantshould have been allowed deduction under section 80HHE. The appellant's case is squarely covered with the decision ofthe ITAT, Delhi Bench 'A' New Delhi in the case of NDTV Vs.
DCIT in ITA No. 1757(Delhi) of2003 dated 267.04. In that case it was held that'No doubt the main provisions ofsection 80HHE are in regard to deduction on account ofcomputersoftware. However, ifexplanation(b)ofsub section(5)is taken into consideration, then it will be seen that many other items are included, which includes customized electronic data also. The Board in its instructions dated 26.9.2000 had enlarged the scope of deduction under section 80HHE whereby Explanation(b) to section 80 HHE(5) expanded to scope by including various information technology enabledproducts or
ITA 560/20.08,795/2009 &796/2009 page 3 of9 services. In these items, the item data processing is also included which is at No.(iv) of the Board Instruction dated 26.9.2000. The Board instructions which came through Notification No.890E)/[Notification No.
II521IF.No.143/49/3000 TPL] are binding on the department authorities. Therefore, no doubt remained that the activities done by the assessee as customized electronic data were covered under the provisions of section 80HHE, as the scope ofExplanation (b), sub section (5), has been enlarged. Various stages in regard to collecting the customized electronic data had been explained"Similarfacts exist in the appellants'case also and thus he was entitled to deduction under section 8-
HHE." The Revenue's appeal was that neither the definition of computer programme nor processed electronic data cover the kind ofservice provided by an assessee. It was submitted that until the computer software or something analogous to it is developed and provided by an assessee, the benefit of Section 80HHE could not be claimed. This contention was accepted by theITAT,which held as follows :
"S. As per explanation to section 80HHE even any customize electronic data or product or services of similar nature as notified by the Board which is transmitted or exportedfrom India will also be treated as
"computer software". As noted above the Board has issued notification No.S.O. 890(E) dated 26.09.2000. It is the contention ofthe assessee that the nature ofservice rendered by the assessee falls under the clause 'Back
Office Operation' or 'Data Processing' or 'Support
Centres'. All these clauses are notdefined butgiving its
ITA 560/2008,795/2009&796/2009 page4of9 natural or grammatic meaning, the nature of services rendered by the assessee that is translation services do notfall into any such categories. The data in theform of text in foreign language is not processed through the medium of computer but merely translated and the translated text are uploaded in the computer and transmitted through the use ofInternet. Thus it cannot be considered as Data Processing. It cannot be considered as Back-Office Operation too as in the said operations the data received in one form is processed which are used in administration. It do not fall in the clause
Support Centres also as thejob ofthe assessee is not to provide any support to the main Job of the client. The client is not expert at translation and hence such translation work is assigned to the assessee who after doing such translation work sends back the text of translated scripts. Any activity, which requires use of
Internet, do not automatically become Data Processing job or a computer software. The decision ofIncome-tax
Appellate Tribunal A Bench New Delhi in the case of
NDTV (supra) will not assist the case of the assessee "
The assessee relies upon the decision of this court in the
Commissioner ofIncome Tax v. New Delhi Television Ltd., ITA
No.40/2005(decided on 31.08.2017)which confirmed the ruling of the ITAT. It is further argued by the assessee that the court analyzed the provision i.e. Explanation(b)to Section 80HHE and rejected the Revenue's contention thatthe expression"or any other customized electronic data" has to take colour from the main part of the said explanation. It was emphasized that the decision in
ITA 560/2008,795/2009&796/2009 page 5 of9
Commissioner ofIncome Tax v. New Delhi Television Ltd.(supra), dissected the definition of computer software. The first part exhaustively dealt with as to what was'^computer software''\ but it was an inconclusive definition which also took within its field a disjunctive "or" tending to expand the meaning ofthe expression.
Thus, the export of news programmes was held to be customized electronic data. It is stated by the assessee that, likewise,providing translation services, both through electronic devices as well as through the human interface,and their packing in electronic format for onward transmission through the medium of the internet is nothing but export ofcustomised electronic data and therefore,falls within the expanded meaning of''computer software'".
Ld. counsel for the Revenue submitted that there is a distinction between the facts of the present case and the case of
Commissioner ofIncome Tax v. New Delhi Television Ltd.(supra).
In the latter, news programmes were entirely created, published and seen through the medium ofthe internet,whereas in the present case, the translation of the transmission could well be done manually, although sent via the medium of the internet. Ld. counsel also drew the attention of the court to the fact that explanation (b) to Section 80HHE(1) is a later addition and that notification No.SO 890(E)was issued before the explanation was added.
ITA 560/2008,795/2009 &796/2009 page6 of9
The decision in Commissioner ofIncome Tax v. New Delhi
Television Ltd.(supra)had relied upon an earlierjudgment ofthis court in Commissioner of Income Tax v. Kiran Kapoor, ITA
No.13/2015. The quotation cited in New Delhi Television Ltd. of
Kiran Kapoor is as follows ;
"15. ... The expression "computer software" is wide enough to embrace diverse activities. To eliminate any doubt, the reference to "customized electronic data" in the second Explanation to Section lOB (2), Parliament enabled the Board(CBDT) to include (by notification) diverse activities — which involve exportofsoftware, etc.
The Notification relied on in the present case uses the expressions "(Hi) ContentDevelopmentor animation (iv)
Data Processing... (vii)Human ResourcesServices"and
"(ix) Legal Databases". Here, the very first head
"content development or animation" describes the process and is wide enough to cover compilation of material or data and its transformation into a ready to print/ ready to publish book. It is also a "legal database". ..."
The relevant extract of the decision in Commissioner of
Income Tax v. New Delhi Television Ltd.(supra) which discussed as to what constitutes computer software is as follows:
"25. Turning to clause(b)ofthe Explanation to Section
80HHE ofthe Act, the Court is unable to agree with the contentions of Mr. Singh, learned counsel for the
Revenue that the words "or any customised electronic data" has to take colourfrom the mainpartofclause(b) ofthe Explanation and cannot be construed independent ofit.
Support Centres also as thejob ofthe assessee is not to provide any support to the main Job of the client. The client is not expert at translation and hence such translation work is assigned to the assessee who after doing such translation work sends back the text of translated scripts. Any activity, which requires use of
Internet, do not automatically become Data Processing job or a computer software. The decision ofIncome-tax
Appellate Tribunal A Bench New Delhi in the case of
NDTV (supra) will not assist the case of the assessee "
The assessee relies upon the decision of this court in the
Commissioner ofIncome Tax v. New Delhi Television Ltd., ITA
No.40/2005(decided on 31.08.2017)which confirmed the ruling of the ITAT. It is further argued by the assessee that the court analyzed the provision i.e. Explanation(b)to Section 80HHE and rejected the Revenue's contention thatthe expression"or any other customized electronic data" has to take colour from the main part of the said explanation. It was emphasized that the decision in
ITA 560/2008,795/2009&796/2009 page 5 of9
Commissioner ofIncome Tax v. New Delhi Television Ltd.(supra), dissected the definition of computer software. The first part exhaustively dealt with as to what was'^computer software''\ but it was an inconclusive definition which also took within its field a disjunctive "or" tending to expand the meaning ofthe expression.
Thus, the export of news programmes was held to be customized electronic data. It is stated by the assessee that, likewise,providing translation services, both through electronic devices as well as through the human interface,and their packing in electronic format for onward transmission through the medium of the internet is nothing but export ofcustomised electronic data and therefore,falls within the expanded meaning of''computer software'".
Ld. counsel for the Revenue submitted that there is a distinction between the facts of the present case and the case of
Commissioner ofIncome Tax v. New Delhi Television Ltd.(supra).
In the latter, news programmes were entirely created, published and seen through the medium ofthe internet,whereas in the present case, the translation of the transmission could well be done manually, although sent via the medium of the internet. Ld. counsel also drew the attention of the court to the fact that explanation (b) to Section 80HHE(1) is a later addition and that notification No.SO 890(E)was issued before the explanation was added.
ITA 560/2008,795/2009 &796/2009 page6 of9
The decision in Commissioner ofIncome Tax v. New Delhi
Television Ltd.(supra)had relied upon an earlierjudgment ofthis court in Commissioner of Income Tax v. Kiran Kapoor, ITA
No.13/2015. The quotation cited in New Delhi Television Ltd. of
Kiran Kapoor is as follows ;
"15. ... The expression "computer software" is wide enough to embrace diverse activities. To eliminate any doubt, the reference to "customized electronic data" in the second Explanation to Section lOB (2), Parliament enabled the Board(CBDT) to include (by notification) diverse activities — which involve exportofsoftware, etc.
The Notification relied on in the present case uses the expressions "(Hi) ContentDevelopmentor animation (iv)
Data Processing... (vii)Human ResourcesServices"and
"(ix) Legal Databases". Here, the very first head
"content development or animation" describes the process and is wide enough to cover compilation of material or data and its transformation into a ready to print/ ready to publish book. It is also a "legal database". ..."
The relevant extract of the decision in Commissioner of
Income Tax v. New Delhi Television Ltd.(supra) which discussed as to what constitutes computer software is as follows:
"25. Turning to clause(b)ofthe Explanation to Section
80HHE ofthe Act, the Court is unable to agree with the contentions of Mr. Singh, learned counsel for the
Revenue that the words "or any customised electronic data" has to take colourfrom the mainpartofclause(b) ofthe Explanation and cannot be construed independent ofit.
ITA 560/2008,795/2009&796/2009 page7of9
ORDER
26. There are two parts to the definition 'computer software'. First is the exhaustive definition where the word "computersoftware"is usedand this isfollowed by 'any computer programme recorded on any disc, tape, perfotated media'. Then there is the inclusive part ofthe definition where the word includes any such programme or any customised electronic data. The expression 'any customized electronic data'ispreceded by the disjunctive 'or' which clearly indicates that any customized electronic data would also be considered to be 'computer software'under the inclusive part ofthe definition. The principle ofejusdem generis will notapply in the instant case particularly in the context under which this provision wasintroduced.
27. Circular No.772 dated 23''^ December 1998 explained the rationale behind introduction of these words. It acknowledged that "software exports grown exponentially in recent years" and there was need to increase India's marketshare in the international arena. Therefore, the expression 'any customized electronic data'requires a liberal interpretation. The amendment to clause (b) ofthe Explanation makes it more explicit. Section 80HHF(1) now envisages computer software including television news software. Therefore, the positionfor the AY2000-01 onwards is notin doubt." In the present case,the assessee provides transaction services to its overseas clients. The translated material or content is reduced to electronic format in the form of data fields and then transmitted by the internet. In one sense,the use ofcomputers and electronics predominates the entire lifecycle of the business. Consequently, this court upholds that the view of the CIT(A)was recorded in ITA 560/2008,795/2009&796/2009 page 8 of[9] ''f- K r-'h. Vaecordance with the parlianifentary iritent and also conforms to the -•..-ti-:rC Following the judgment of Commissioner ofIncome Tax v. New I ^ Delhi Television Ltd.(supra),this court,therefore,is ofthe opinion ■; fhat Ihe previous;decision>in; iDe/Zw: (si|p conclusive and in favour of the; as^essee. The question of law -;>; framed is accordingly answered in favour of the assessee and againstthe Revenue. ' The SRAVINDRA BHAT,J AUGUST 30,2018 aj A.K.GHAWLA,J •ITA 560/2008,795/2009&796/2009 page9of[9].-.'V