The Mumbai bench of Income Tax Appellate Tribunal, in a recent ruling held that a Firm of Advocates and Solicitors engaged in the business of exporting legal services to their foreign clients, based on legal data base is entitled to get the benefit of section 10B of the Income Tax Act, 1961. The Tribunal found that such activities are duly covered under section 10B.
The assessee, M/s. Majmudar & Co, is a Firm of Advocate & Solicitors engaged in production and export of customized electronic data or legal database. They provide legal services through legal database held by it, to various banks, companies and financial institutions both in India and abroad. The Assessing Officer, while completing assessment, observed that the assessee is not eligible for deduction under section 10(B) of the Income Tax Act,1961for amount received on account of rendering of legal service to overseas clients and the money brought in convertible foreign exchange in India.The assessee maintained that transferred the customized electronic data to its client therefore it forms part of computer software which is duly covered under explanation 2 of section 10B. Further, the unit of the firm was recognized as a 100% EOU by the Development Commissioner SEZ, SEEPZ and its entire sale proceeds from export of such legal services was brought in India in convertible foreign exchange.However, the Assessing officer rejected these conditions and passed an order against the assessee on ground that rendering of legal services by the assessee firm to the foreign clients cannot be termed as export of legal database from India and the assessee do not fulfilled the conditions specified in section 10B of the Act since the assessee was engaged in providing legal services to its foreign clients and not engaged in exporting legal database which was one of the items notified by the CBDT for the purpose of “Computer Software.”
On appeal, the Commissioner of Income Tax (Appeals) decided in favour of the assessee-firm. Aggrieved with the same, the Revenue preferred an appeal before the ITAT.
The Tribunal found that the services provided by the assessee i.e. legal services are recognized by the Government of India for the various benefits under the scheme of EOU as per EXIM Policy 2002-2007. According to the Tribunal, s.10(B) was introduced in the Act with an object to provide benefit to such EOU under the Income Tax Act, reflecting the intention of law to provide encouragement to the genuine exporters of services to enhance their capacity for provision of services and in turn earn valuable foreign exchange for our country. The Tribunal opined that “The assessee has, by use of the legal database compiled by it over a period of more than 60 years (firm is in practice of law since 1943), earned reasonable amount of valuable foreign exchange for our country, thereby fulfilling the most core intention of the law for introduction of EOU Scheme under EXIM Policy and Section 10B of the Act. The assessee has also fulfilled the specific requirements of Section 10B of the Act, by providing Legal Services using Legal database. Legal database being recognized by the Board vide its notification No. S.O.890(E) dated September 26, 2000 as one of the eligible information technology enabled services”.
“Explanation 2(i) (b) defines computer software to include inter alia a “Customized Electronic Service as notified by the Board”. As legal database is notified by the Board for this purpose and the assessee has provided services by using such legal database via electronic media i.e. via emails and internet facilities, the claim of the assessee for deduction under section 10B of the Act in the light of Explanation 2(i) (b) is fully justified.”
The Tribunal noticed the decision in Kiran Kapoor v. ITO, 150 ITD 237 (2014) (Delhi ITAT), cited by the Assessee in which it was held that “the nature of activity done in the EOU was that of producing designs, drawings, layouts and scanning for the projects of foreign clients on the basis of specifications. The activity was done by taking into consideration the data collected by the assessee itself or from clients. Thus, “ready to print books” exported by the assessee in the form of CDs or e-mails are customized electronic data eligible for claiming deduction under section 10B of the Act.”
The Tribunal further noticed the decision in DCIT v. Tecnimont ICB (P) Ltd, 19 ITD 151 (2009) (Mumbai), in which it was held that services provided by an assessee by use of emails and FTP sites are eligible for deduction as computer programs as defined under Section 10A of the Act.
While concluding the decision in favour of the assessee, the Tribunal held that “Before us, no contrary decision was pointed out by the Revenue and respectfully following the decision of the Hon‟ble Delhi Court in the case of KiranKapoor (Supra), we confirm the order of the CIT (A) by holding that the expression “Computer Software” is wide enough to embrace diverse activities and to eliminate any doubt the reference can be made to “Customized Electronic Data” as mentioned in Second Explanation to Section 10B (2) of the Act. Further, CBDT issued notification and the notification relied on in the present case uses the expressions “(iii) content development or animation (iv) data processing …. (vii) human resources services” and (ix) legal data-bases”.
Read the full text of the order below.
