HIGH COURT OF KARNATAKA
Infosys Ltd. V/s. Commissioner of Income-tax
R.P. NOS. 14, 15 AND 75 OF 2012
IT APPEAL NOS. 2972 TO 2974 & 3232 OF 2005 AND 539 OF 2006
Date of Pronouncement – MARCH 19, 2012
1. These three review petitions are filed on the ground that there is an error apparent on the face of the record and therefore, it requires to be reviewed.
2. The assessee is carrying on the business of development of software and sale of software packages. The assessee’s contention before the Assessing Authority was that no expenditure was incurred towards rendering technical services outside India. The data communication expenses are the only expenditure incurred by them towards the sale of software package. The expenditure of Rs. 3.36 crores refers to travelling expenses of the marketing staff and also their maintenance expenditure abroad. If the said expenditure is to be excluded from the total turnover, it should also be excluded from export turnover. The Assessing Authority though accepted the case of the assessee that the assessee is involved in only software exports nevertheless held that the expenditure incurred towards services to sell software is to be reduced from export turnover and total turnover. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). The Appellate Commissioner held that it is difficult to agree with the argument that the job of the software technicians sent abroad and working at the work site is not providing technical services in connection with development or production of software. It is unbelievable that activities such as studying the operating system of limited number of clients to understand the configurations and parameters, subject to which the software is to be created, or testing and installation of the software at the client’s place, and providing back up facilities during the initial phase of work by themselves require stay and work of large number of employees for several months, at the work site necessitating huge fees as part of turnover and also huge expenses. These services after supply of the software is also development of software supplied to suit it to the particular conditions of the client and would also be covered by the expression “providing technical services” for development of computer software and also under the term “providing technical services outside India” and thus, the order of the Assessing Authority was confirmed. Aggrieved by the same, the assessee preferred an appeal to the Tribunal. The Tribunal on a careful appraisal of the material on record held that the assessee company had only marketing offices outside India. The annual report clearly indicates that the company has only marketing offices outside India. The approvals from RBI and other regulatory authorities also indicate that the company had only marketing offices outside India. Looking at the overall picture, based on the facts of the case, it was held that where a person is involved in computer programme creation, he should be regarded as being engaged in the development of computer software so as to fall within section 80HHE(1)(i). Such a person should not be held as engaged in the business of rendering of technical services covered by section 80HHE(1)(ii). Therefore, they held that the assessee was not involved in the business of providing technical services outside India in connection with the development of computer software. Therefore, they directed that in computing the figures of the export turnover and total turnover relevant for the application of the formula in sub-section (3) of the Section 80HHE, no exclusion be made of any expenditure incurred in foreign currency other than those already done by the assessee. Therefore, the appeals preferred by the assessee for all the years were allowed. Aggrieved by the said order, the revenue preferred appeals before this Court.
3. In these three appeals, this Court set aside the order passed by the Tribunal on the ground that it is erroneous. In coming to the said conclusion, this Court held that though it is true that particulars have been furnished by the assessee regarding expenditure incurred in foreign currency during the relevant assessment years, the certificate is required to be given by the Chartered Accountant under Section 80HHE(4) of the Act read with Rule 18BBA(7) of the Income Tax Rules. As per the certificate issued for the above said assessment years, it is clear that the income that is received from export of computer software or its transmission to a place outside India is shown as Nil as no figure is mentioned against the said column and under Sl. No. 3(II) regarding providing technical services outside India in connection with the development or production of computer software, the amount is mentioned and the amount of eligible deduction under Section 80HHE is arrived at after including the said expenses and therefore the said certificate issued by the Chartered Accountant of the assessee itself would show that for the above said assessment years, the amount was received for providing technical services outside India in connection with the development of computer software and not in connection with the export of computer software or its transmission to a place in India. The Tribunal has failed to consider the said relevant documents which would clearly show that the expenses incurred in foreign exchange was towards technical services rendered outside India and not for development of software outside India. The said certificate would show that only for the assessment year 1997-98, the amount incurred in foreign exchange is shown towards export turnover relating to transmission to a place outside India and no amount has been shown towards providing technical services outside India in connection with the development of software. Therefore, the substantial question of law about admissibility of deduction under Section 80HHE was answered in favour of the revenue and against the assessee in all the three appeals. The correctness of this finding is the subject matter of these three review petitions.
4. The learned Senior Counsel points out that all the three authorities have concurrently held that the assessee is not in the business of providing technical services. It is in the business of sale of computer software. The dispute was whether after sale of computer software when the technician of the assessee were sent to the customer’s place, which was located in foreign country, the services rendered by them and the expenditure incurred therein has to be excluded from the export and total turnover. At no point of time, it is no body’s case that the assessee was in the business of providing technical services. In fact, the assessee has produced 12 certificates issued by the Chartered Accountant in this regard from 1993-94 to 2004-05. Except in three certificates on which reliance was placed while passing the impugned orders in all the other 9 certificates, the turnover is shown as against the entry export of computer software or its transmission to a place outside India. In three certificates issued by the Chartered Accountant by a typographical error instead of mentioning the amount at Clause 3(i), it is mentioned against Clause 3(ii). By reading the said three certificates, this Court came to the conclusion that the assessee is in the business of providing technical services and therefore, the finding of the Tribunal was erroneous. The said error is purely a typographical error and therefore, he submits that the impugned orders require to be recalled and the appeal is to be heard on merits keeping in mind the question involved in the appeals.
5. Per contra, the learned Counsel for the revenue submits that the finding of the Hon’ble Court is based on the certificates produced by the assessee’s themselves and therefore, no case for review is made out.
6. Unfortunately this is not the Bench, which has passed the said order. It is not possible for the Court to find out what exactly was in the mind of the Judge when he passed the order. But nonetheless in Para 9 of the impugned order, it is clearly held as under:-
“It is not in dispute that the assessee is engaged in the business of production and export of software from India to foreign countries. It is well settled that to arrive at the deduction, formula to be adopted is
Profits of the business × export turnover = Total turnover”
7. That gives an indication that it is not in dispute between the parties that the assessee is engaged in the business of production and export of software from India to foreign countries and they are not in the business of providing technical services outside India, it is only producing and exporting software. The material on record clearly shows that except for these three years, rest of the certificates are correctly issued showing the amount involved in the production and export of the software at Clause 3(i). It is only in these three years certificates as against the Clause 3(i) nothing is typed and it is typed against Clause 3(ii). Hence, we are satisfied that there is a bona fide typographical error. The Chartered Accountant without carefully looking into those entries has issued the certificates, which has resulted in confusion.
8. In that view of the matter, there is an error apparent on the face of the order passed by this Court, which calls for review. Accordingly, we pass the following:
(i) The Review Petitions are allowed.
(ii) The impugned orders are hereby set aside.
(iii) The appeals are restored to its file, which has to be heard on merits along with the connected appeals, which are listed with these review petitions.