Export – Exemption u/s 10B – Scope – Meaning of ‘computer software’ – Engineering and design included in computer software – Assessee engaged in export of customised electronic data relating to engineering and design – Entitled to exemption u/s 10B

Export – Exemption u/s 10B – Scope – Meaning of ‘computer software’ – Engineering and design included in computer software – Assessee engaged in export of customised electronic data relating to engineering and design – Entitled to exemption u/s 10B

The assesse (appellant) is a 100% export-oriented undertaking engaged in the business of export of customised electronic data according to the requirements of its customers. The requirement is received in electronic format and it is again delivered in electronic format pertaining to various activities in the field of engineering and design. For the A.Y. 2009-10 the assessee filed its return of income declaring ‘Nil’ income after claiming deduction of Rs. 1,80,27,563 u/s 10B. The A.O. denied the claim for deduction u/s10B.

The Commissioner (Appeals) and the Tribunal upheld the decision of the A.O.

The Karnataka High Court allowed the appeal filed by the assessee and held as under:

‘i) Under section 10B, newly-established 100% export-oriented undertakings are entitled to 100% deduction of export profits. Prior to its substitution, section 10B has been operative from 1st April, 1989. With a view to enlarging the scope of the tax holiday to 100% export-oriented undertakings approved by the prescribed authority, an Explanation for the term “produce” had been inserted in section 10B to include production of computer programmes by the Finance Act, 1994.

ii) A tax holiday was given to certain assessees importing and exporting electronic data and as it was a new subject under the Act, the Central Board of Direct Taxes (CBDT) was empowered to notify certain services of customised electronic data or any products or services to mean “computer software” eligible for deduction. The CBDT, in exercise of powers conferred under Explanation 2(i)(b) to section 10B, has notified certain information technology-enabled products or services by Notification dated 26th September, 2000 ([2000] 245 ITR (St.) 102]. The Notification… is a clarificatory Circular and it has been issued in exercise of the powers conferred under Explanation 2(i)(b) to section 10B of the Income-tax Act. The CBDT has notified certain services of customised electronic data or products or services to mean the computer software eligible for deduction. The intention of the Notification was not to constrain or restrict, but to enable the Board to include several services or products within the ambit of the provisions of section 10B and this is precisely what has been done by the Board.

iii) The term “computer software” means: (a) a set of instructions expressed in words, codes, schemes or in any other form capable of causing a computer to perform a particular task or achieve a particular result; (b) a sequence of instructions written to perform a specified task for a computer. The same programme in its human-readable source code form, from which executable programmes are derived, enables a programmer to study and develop its algorithms; (c) a set of ordered instructions that enable a computer to carry out a specific task; (d) written programmes or procedures or rules and associated documentation pertaining to the operation of a computer system. Engineering and design finds place in the CBDT Notification dated 26th September, 2000. The Act nowhere provides for a definition of “engineering and design” and the requirement for availing of the benefit of deduction as reflected from section 10B read with the Notification… is fulfilled when the assessee has finally developed a computer programme only. Under section 10B no certificate is required under any regulatory authority.

It is a settled proposition of law that a co-ordinate bench of the Tribunal is required to follow the earlier decisions and in case there is a difference of opinion, the matter may be referred to a larger bench.

From the documents on record, it could be safely gathered that the assessee was engaged in the activity of engineering designs, redesigns, testing, modifying, prototyping and validation of concept. The assessee was also engaged in the activity of providing manufacturing support and computer-aided design support to its group companies. The assessee captured the resultant research of the activity in a customised data both in computer-aided design and other software platforms and for the purposes of carrying (out) these activities, the assessee employed engineers and other technical staff for various research projects undertaken by them. The assessee exported the software data. The activities carried out by the assessee like analysing or duplicating the reported problems, developing and building, testing products, carrying out tests, design and development had to be treated as falling within the scope of section 10B with or without the aid of section 10BB. Thus, the assessee was certainly eligible for deduction u/s 10B.

Another important aspect of the case was that in respect of the eligibility of claim of deduction u/s 10B, in respect of the same assessee it had been accepted by the Department for the A.Ys. 2006-07 to 2008-09. The assessee was entitled to the deduction u/s 10B for the A.Y. 2009-10.’