The judgment of the court was delivered by
S. Sujatha, J.- This appeal is directed against the order passed by the Income-tax Appellate Tribunal, Bangalore in I. T. A. No. 333/Bang/2008 dated September 19, 2008, whereby the order passed by the Appellate Commissioner is confirmed for the assessment year 2002-03.
2. The facts of the case are :
The assessee has been in the business of export of software and has incurred expenses in foreign exchange, claimed the same to be included in total turnover. The assessee has claimed deduction of Rs. 92,59,70,672 under section 10A of the Income-tax Act, 1961 (for short the "Act") and placed reliance on the decisions of the various High Courts before the Assessing Officer. The Assessing Officer took the view that those decisions are rendered in the context of section 80HHE of the Act and declined to allow the claim of deduction made by the assessee.
3. On appeal, the Commissioner of Income-tax (Appeals) allowed the claim of the assessee holding that expenditure incurred in foreign currency outside India in execution of software project or software business cannot be excluded from the export turnover and accordingly, relief under section 10A of the Act was allowed. Aggrieved, the Revenue preferred appeal before the Tribunal. The Tribunal following the order passed in an identical case, confirmed the order of the Commissioner of Income-tax (Appeals) granting relief to the assessee treating expenses incurred in foreign currency to be taken along with total turnover of the assessee. Being aggrieved by the said judgment of the Tribunal, the Revenue is in appeal before this court. The relevant substantial question of law that arises for our consideration is :
"Whether on the facts and in the circumstances of the case, the appellate authorities were correct in holding that expenditure incurred in foreign currency is not required to be reduced from 'export turnover' as the same was incurred in foreign currency outside India in execution of software project/development of computer software and not for technical services rendered outside India, when the assessee on its own has excluded the said expenditure from 'export turnover' while filing return of income and also before the Assessing Officer and also when the assessee has not established that expenditure in foreign currency was in connection of the development of computer software which was exported and recorded a perverse finding ?"
4. Heard the learned counsel appearing for the parties.
5. Learned counsel appearing for the appellant/revenue vehemently contended that there is no dispute regarding the legal position as observed by this court in the case of CIT v. Motor Industries Co. Ltd. (I. T. A. Nos. 776 of 2007 with connected cases disposed off on June 13, 2014 and Mphasis Limited (I. T. A. Nos. 1075 c/w 196 of 2009) that the software engineers deputed abroad by the assessee-company have to do testing, installation and monitoring of software supplied to the client, though the said services are technical in nature, it does not fall within the ambit of technical services outside India in connection with the development or production of computer software and the said expenditure cannot be excluded in computing export turnover. It is strongly emphasized by the learned counsel that the activity carried out by the assessee is purely one of export of computer software or not, has to be established either in terms of the actual transaction, which had produced the foreign exchange remittance, or production of an agreement entered into at the relevant point of time with its customers from whom remittance/payment had been received in foreign exchange. In the original returns, the assessee has categorically admitted that the activities carried on by the assessee was relating to development and sale of computer software with services. It is only before the appellate authority, the assessee has changed its stance taking advantage of the judgment of the Tribunal in the case of Asst. CIT v. Infosys Technologies Ltd. The first appellate authority and the Tribunal without examining the agreements or any relevant material, has arrived at a conclusion that the activity carried on by the assessee was relating to computer software falling under section 10A of the Act and not the technical services. As such, he seeks for remanding the matter back to the Assessing Officer placing reliance on the judgment of this court in the case of CIT v. Infosys Technologies Limited (I. T. A. No. 2973 c/w 2972, 2974 and 3015 of 2005 disposed of on February 18, 2013).
6. On the other hand, learned counsel appearing for the assessee placing reliance on the judgments of this court in the case of Motor Industries Company Limited and Mphasis Limited (supra) contends that the Commissioner of Income-tax (Appeals) has elaborately considered the material placed by the assessee as well as the reports furnished by the Assessing Officer and thereafter, has rightly arrived at the conclusion that the pre- execution and post execution of software project could not be regarded as technical services which is distinguishable from computer software as these works are integral to the overall work of computer software and it cannot be bifurcated as separate components. The learned counsel invited our attention to Explanation 3 to section 10A of the Act to contend that the profits and gains derived from onsite development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India. The appellate authority and the Tribunal having extensively considered the scope of section 10A read with Explanation 3 thereof has allowed the deduction towards the export of computer software as the services for development of software is deemed to be the profits and gains derived from onsite development of computer software.
7. We have considered the rival submissions and perused the material on record. Section 10A of the Act is a special provision in respect of newly established undertaking in free trade zone, etc. This provision provides for a deduction of such profits and gains derived by an 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 such articles or things or computer software, as the casemay be, shall be allowed from the total income.
8. The term "Computer software" has been defined in Explanation 2(i) to section 10A which is extracted hereunder :
"Explanation 2.-
(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 ;"
9. Explanation 2(iv) to section 10A defines "export turnover" which is reproduced hereunder :
Explanation 2.- . . .
"(iv) 'export turnover' means the consideration in respect of export by the undertaking if 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 ;"
10. Explanation 3 to section 10A reads thus :
"For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software), outside India shall be deemed to be the profits and gains derived from the export of computer software outside India."
The reading of these provisions makes it clear that the consideration received from export of computer software is not liable to Income-tax however, the said export turnover does not include freight, telecommunication charges or insurance attributable to the delivery of computer software outside India or expenses if any, incurred in foreign exchange in providing the technical services outside India. It is thus clear that there is a distinction between technical services rendered in connection with export of computer software and export of technical services for the purpose of development or production of computer software outside India. This court in the case of Motor Industries Company Limited (supra) while considering the similar provision of section 80HHE of the Act has held thus :
"The assessee is engaged in the business of export out of India of computer software and its transmission to places from India outside India. Before a computer software is exported, the software engineers of the assessee would have initial discussion with regard to the requirements, specifications, etc. Thereafter computer software is manufactured and then it is transmitted from India to a place outside India. The software engineers deputed abroad who among other things have to do testing, installation and monitoring of software supplied to the client. Though the said services are technical in nature it does not fall within clause (ii) of sub-section (1) of section 80HHE of the Act of providing technical services outside India in connection with the development or production of computer software. It falls under clause (i) of sub-section (1) of section 80HHE of the Act. Therefore, the said expenditure cannot be excluded in computing export turnover. In that view of the matter we do not see any merit in this appeal."
11. This judgment has been followed in the case of Mphasis Limited (supra). There is no cavil regarding this legal position. In the present case, we find from the order of the Assessing Officer that the Assessing Officer had no occasion as such to go into the claim of the assessee that the services rendered are relating to the development or production of computer software since the assessee on its own had reduced expenses in foreign currency from export turnover and total turnover. The Assessing Officer proceeded to make the assessment on the ground that the expenses incurred towards maintenance of technical personnel and other expenses incurred in foreign currency were only in connection with the rendering of technical services and accordingly excluded the said amount from computing the export turnover and total turnover. On appeal, the appellate authority considered the question in detail, as the assessee in his appeal contended that no part of the amount comprising export turnover of computer software could have been excluded in arriving at the export turnover. The Appellate Commissioner on examining the activities as contended by the assessee and on perusal of the assessment records, remand reports etc., arrived at a decision that the pre-execution and post-execution work of computer software project carried on by the assessee is "computer software" as defined under Explanation 2 to section 10A and cannot be characterised as technical services which form part of the export turnover and thus it does not disentitle the assessee from claiming deductions under section 10A of the Act.
12. We have noticed that on appeal by the Revenue before the Appellate Tribunal, the Tribunal following the judgment of an identical case, wrongly mentioned as assessee's case as submitted by both the parties, confirmed the order of the Appellate Commissioner treating expenses incurred in foreign currency to be taken along with total turnover of the assessee.
13. We find that the Tribunal's finding is not based on any examination of available and relevant material to come to a conclusion as to whether the activity related to the computer software as defined under Explanation 2 to section 10A or involving technical services which has to be excluded from the export turnover as per Explanation 4 to section 10A, more particularly, when the assessee had reduced the said expenditure incurred in foreign currency from the export turnover and total turnover at the time of filing the returns and thereafter has shifted to a different stance before the appellate authority, that the said services were integral part of development of computer software. Even in the order of the Appellate Commissioner, we do not see the details of remand reports said to have been submitted by the Assessing Officer and any discussion regarding any material or any agreement copies to establish the factual situation and the activities of the assessee. The Tribunal without examining any commensurate material, placing reliance on the judgment of the Tribunal dated May 30, 2008, allowed the relief claimed by the assessee. Given the circumstances, the said finding of the Tribunal is not based on any relevant material.
14. We are therefore of the opinion that it would be proper to remand the matter to the Tribunal to examine the material on record and to record a finding as to the nature of the activity, keeping in view the settled legal position as per the judgment of this court in Motor Industries Company Limited's case (supra) and Mphasis Limited's case(supra). It is also made clear that what is required to be excluded in the export turnover are only freight, telecommunication charges or insurance attributable to the delivery of computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India which cannot be confused with the services rendered for the development of computer software, an integral part of export turnover of computer software.
15. For the reasons stated above, without going into the questions of law raised, this appeal is disposed of and the matter is remitted to the Tribunal for fresh consideration in the light of the discussions as above. The parties are at liberty to produce additional evidence, if any. The Tribunal shall pass the orders as expeditiously as possible after providing an opportunity of hearing to both the parties.