Case Law Details
RELEVANT PARAGRAPH
5. I have duly considered the rival contentions and the material on record. The issue to be considered is whether the profit earned by the assessee from the activity of recruitment and training of personnel and supplying the data thereof to its parent company in US is eligible for deduction under sec. 10A or not read with the Board’s Circular dated 26.09.2000. In this connection, it would be worthwhile to consider first the role of the circulars issued by the Board.
ROLE OF BOARD’S CIRCULARS
6. This is best explained by the Supreme Court in the case of UCO Bank vs. CIT in 237 ITR 889. After referring to the various provisions of sec. 119 of the Act, at page 896 of the report, the Court observed that the Board has power, inter alia, to tone down the rigour of the law and ensure a fair forcement of its provisions, by issuing circulars in exercise of its statutory powers under sec. 119 of the Act, which are binding on the authorities in the administration of the Act. It is also observed on the same page that the power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Again, at page 898 of the report, it is observed that the task of interpretation of the laws is the excessive domain of the Courts. However, the Board has the statutory power under sec. 119 to tone down the rigour of the law for the benefit of the assessee by issuing circulars to ensure a proper administration of the fiscal statute and such circulars would be binding on the authorities administering the Act.
7. Let us consider the above role of the circulars in the context of sub-clause (b) of clause (i) of Explanation 2 to sec. 10A of the Act. The said clause (i) gives the meaning of the term “Computer Software”. One of the meanings given is “any customised electronic data or any product or service of similar nature, as may be notified by the Board”. In other words, if the assessee is engaged in the export of any customised electronic data, then, profit earned from such export would qualify for deduction under sec. 10A of the Act. It may be noted that whereas sub-clause (a) refers to any computer programme, sub-clause (b) refers to any customised electronic data. Computer programme referred to in sub-clause (a) may or may not be customised and may be useful for general application. On the other hand, the electronic data referred to in sub-clause (b) has necessarily to be customised. By the word “customised” is meant that the data is suitable for a specific customer only. Considering the fact that the expression “customised electronic data” is quite general in nature and also considering the fact that computer applications are fast expanding, one cannot visualise as to what type of products or services will come up in future. Considering this ever-expanding horizon of software products and services, the Board has been given the power to notify such products and services which in its opinion should qualify for deduction under section 10A. In other words, this power of the Board when exercised, it will ensure proper administration of the fiscal statute as observed by the Supreme Court in UCO Bank’s case supra. It is in this sense the Id. A.M. has observed that the Board’s circular has made the job of the Assessing Officer quite simple. Thus, it is this role, as explained by the Supreme Court, which is played by the Board by issuing the circular dated 26.9.2000.
EJUSDEM GENERIS
8. The above maxim serves to restrict the meaning of a general word to things or matters of the same genus as the preceding particular words. It is a well recognised rule of construction that when two or more words which are susceptible of analogous meaning are coupled together, they are understood to be used in their cognate sense. The term is chiefly used in cases where general words have a meaning attributed to them less comprehensive than they would otherwise bare, by reason of particular words preceding them. In order to attract the principle of ejusdem generis, it is essential that a distinct genus or category must be discernible in the words under examination. As an illustration, clause (a) provides that any sum payable by the assessee by way of tax, duty, cess or fee, by whatever name called, under any law for the time being in force, shall be allowed as deduction in the previous year in which such sum is actually paid. Here, while determining whether a particular payment falls within the expression “by whatever name called”, the principle of ejusdem generis will apply. Similarly the said principle will apply while determining whether a particular receipt is analogous tc brokerage, commission, interest, rent, charges mentioned in Ci=L:se ” (baa) of tne Explanation to sec. SOHHC. On the other hand, so far as customised electronic data is concerned, or a service of similar nature is concerned, deduction under sec. 1OA in respect of profits therefrom will not be allowed unless the service is notified by the Board. To reiterate, statutory liabilities by whatever name called in sec. 43B(a) or receipts of similar nature mentioned in clause (baa) of the Explanation to sec. 80HHC need not be notified by the Board. In those cases, the revenue authorities have to see whether the liability claimed by the assessee under sec. 43B-is a statutory liability or not and whether it fits into the description of a tax, duty, cess etc. Similarly, the receipts mentioned in clause (baa) need not be notified by the Board and the revenue authorities will consider whether trie receipts are of the nature of brokerage, rent etc. While deciding these issues, the principle of ejusdem generis will have to be kept in mind. However, so far as services which are Information Technology Enabled are concerned, the assessee can take the benefit of deduction only if they are notified by the Board. If this power of notifying the services was not given to the Board, principle of ejusdem generis would have applied. Since the power is* exercised under the specific provision of sec.lOA, it is pre-supposed that the services in respect of which the assessee is claiming deduction are I.T.Enabled. Of course, as a matter of normal precaution taken while making an assessment, the Assessing Officer will satisfy himself as to whether the customised data is in electronic form or not and whether it is electronically transmitted outside India or no:. 1: the data of recruitment and training collected by the present assessee is in a manual form and -;s sent to US by post, the assessee will not be entitled to deduction under section 10A. Therefore, I fail to understand as to what further condition the assessee need to fulfil in the present case, as observed by the ld. J.M., when undisputedly the entire data is in electronic form.
HUMAN RESOURCES SERVICES
9. The Id. JM is right in mentioning that software is not merely knowledge but rather is knowledge recorded in a physical form having a physical existence, taking up space on a tape, disc or hard drive, making physical things happen and can be perceived senses. However, he misdirected himself by misunderstanding that since the recruitment and training of the personnel was by itself not IT enabled, the profit earned by the assessee is not eligible for deduction u/s 10A of the Act. The requirement of the provision is that there should be a customised electronic data and such data should be exported outside India. The data- which a customer may require, may be gathered either by manual effort or by electronic means, as for example, through internet. By whatever means the data is collected, once it is stored in an electronic form, it becomes a customised electronic data which can be exported to qualify for deduction u/s 10A. The process of actually collecting the data need not be IT enabled- What all is required is that the data collected should be in an electronic form. If one were to go by the understanding of the Id.JM, then perhaps the purpose of giving impetus to software industry or to the computerisation as a whole, would be defeated. As an illustration, if a person wants to open a garment shop in a particular locality, it may approach a consulting firm to explore the market potentiality of tf.at area. In tr.at case, the consulting firm will have re initially” work ‘manually to-collect data like, number of garment shops in the locality, the economic strata to which the population residing in that locality belongs, the spending habits of the people residing in the locality etc. All these activities will have to be carried out manually and once the data is collected, it may be collated and analysed and may be stored in an electronic device. This becomes the IT enabled customised electronic data. If this data is exported outside India, the consulting firm will be eligible for deduction u/s 10A. Similar is the situation in the present case. The assessee invited applications for recruitment through newspapers, carried out interviews, selected them and trained them. It is worth noting that this exercise was carried out not for namesake but it was a serious and sincere effort which is reflected by the magnitude on which the assessee worked. More than 7000 applications were received which were vetted and then the process of recruitment was undertaken. All these data were stored in an electronic device and transmitted to US for the use of the parent company. Recruitment can be done online also, but perhaps the scale of operation may not be as huge asfit was in the present case. Training can also be carried out online but it cannot be as effective as a classroom training. If the intention of the legislature was that in order to qualify for deduction u/s 10A, every activity should be carried out through electronic means, then the purpose of enacting section 10A would have been totally defeated. The exact language of sub-clause (b) of clause (1) of Explanation 2 is “any customised electronic data”. Thus, if the result of the entire exercise of recruitment and training is stored in a. electronic device, then it is not possible to say that it is not a customised electronic data. If the data is in a form other than electronic, then the export thereof will not qualify for the deduction. This aspect, as mentioned earlier, has to be examined by the Assessing Officer in the course of the assessment and which in this case, there is no dispute that the data was in the electronic form.
