Facts of the Case

  • The assessee, proprietor of M/s International Academy of Foreign Languages, provided translation and interpretation services to foreign clients via the internet.
  • For Assessment Years 2002–03, 2004–05, and 2005–06, deduction under Section 80HHE was claimed on export earnings.
  • The Assessing Officer denied the deduction, holding that such services do not amount to export of computer software.
  • The CIT(A) allowed the deduction, treating the services as “data processing” and “customized electronic data.”
  • The ITAT reversed this finding, holding that translation services do not qualify as data processing.
  • The matter reached the Delhi High Court.

Issues Involved

  1. Whether translation services provided through the internet qualify as “data processing”?
  2. Whether such services fall within the ambit of “computer software” under Section 80HHE?
  3. Whether export of translated electronic content constitutes “customized electronic data”?

Petitioner’s Arguments (Assessee)

  • Translation services, when converted into electronic format and transmitted online, constitute customized electronic data.
  • Explanation (b) to Section 80HHE includes such data within “computer software.”
  • Reliance was placed on CIT v. New Delhi Television Ltd., where export of content was held eligible.
  • The definition of “computer software” is inclusive and expansive, not restrictive.

Respondent’s Arguments (Revenue)

  • Translation is a manual activity and not “data processing.”
  • Mere use of computers or internet does not convert a service into software export.
  • The case differs from NDTV as no software or program is created.
  • Section 80HHE applies only where there is development or export of software or analogous products.

Court’s Findings / Order

  • The Court held that:
    • The definition of “computer software” includes “any customized electronic data”, which must be interpreted broadly.
    • Translation output converted into electronic format and transmitted abroad qualifies as such data.
    • The use of computers and electronic systems dominates the entire business process.
    • The principle of ejusdem generis does not restrict the scope of “customized electronic data.”

Important Clarifications

  • “Customized electronic data” has a wide and liberal interpretation.
  • Human input does not disqualify a service if the final output is electronically processed and transmitted.
  • Mere absence of software development does not negate eligibility under Section 80HHE.
  • CBDT notifications expanding scope are binding on authorities.

Sections Involved

  • Section 80HHE of the Income Tax Act, 1961
  • Explanation (b) to Section 80HHE(5)
  • CBDT Notification No. S.O. 890(E) dated 26.09.2000

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

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