Facts of the Case

The assessee, proprietor of M/s International Academy of Foreign Languages, rendered translation and interpretation services to foreign clients via the internet and claimed deduction under Section 80HHE for Assessment Years 2002-03, 2004-05, and 2005-06.

The Assessing Officer denied the deduction on the ground that such services did not amount to export of computer software. However, the Commissioner (Appeals) allowed the claim, holding that the services constituted “customized electronic data” and fell within “data processing” under CBDT Notification.

Issues Involved

  1. Whether translation services qualify as “data processing” or “customized electronic data”.
  2. Whether such services fall within the scope of “computer software” under Section 80HHE.
  3. Whether deduction under Section 80HHE is available for such services exported electronically.

Petitioner’s Arguments (Assessee)

  • Translation output delivered electronically constitutes customized electronic data.
  • Explanation (b) to Section 80HHE expands the definition of computer software.
  • CBDT Notification includes IT-enabled services like data processing.
  • Reliance placed on judicial precedents where similar digital outputs were treated as software exports.
  • Entire process involved electronic handling, formatting, and transmission, qualifying it as IT-enabled service.

Respondent’s Arguments (Revenue)

  • Translation is merely a manual activity, not data processing.
  • No “computer software” is developed or exported.
  • Use of internet does not automatically convert services into software export.
  • Distinguished from cases where complete digital content (like news programs) is created and transmitted electronically.

Court Findings / Judgment

  • The Court held that “customized electronic data” has a wide and liberal interpretation.
  • Translation services, once converted into electronic format and transmitted, qualify under this definition.
  • The definition of “computer software” includes not only programs but also customized electronic data.
  • The principle of ejusdem generis does not restrict the interpretation.
  • The Court relied on precedents including Commissioner of Income Tax v. New Delhi Television Ltd.

Court Order

  • Appeals allowed.
  • Assessee entitled to deduction under Section 80HHE.

Important Clarifications

  • “Customized electronic data” is an independent and expansive category.
  • IT-enabled services need not strictly involve software development.
  • Electronic transmission and processing are key determinants.
  • Liberal interpretation aligns with legislative intent to promote software exports

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2018:DHC:8296-DB/SRB30082018ITA7952009_134142.pdf

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