Facts of the Case

  • The assessee, proprietor of M/s International Academy of Foreign Languages (IAFL), rendered translation and interpretation services to foreign clients via internet.
  • For Assessment Years 2002-03, 2004-05, and 2005-06, the assessee claimed deduction under Section 80HHE on export of such services.
  • The Assessing Officer denied the deduction stating that translation services do not constitute “computer software export.”
  • The assessee argued that the services involved customized electronic data transmission, falling within Explanation (b) and CBDT notification.
  • The CIT(A) allowed the deduction, holding the activity as data processing and IT-enabled service.
  • The ITAT reversed this finding, denying relief.
  • The matter reached the Delhi High Court.

Isses Involved

  1. Whether translation services amount to “data processing” under Section 80HHE.
  2. Whether such services qualify as “customized electronic data.”
  3. Whether deduction under Section 80HHE can be extended to IT-enabled services involving human interface but delivered electronically.

Petitioner’s Arguments (Assessee)

  • Translation services involve electronic processing and transmission of customized data, qualifying as “computer software.”
  • Explanation (b) to Section 80HHE expands scope to include customized electronic data.
  • Reliance placed on:
    • CIT vs New Delhi Television Ltd. (Delhi HC)
  • Argued that the definition of computer software is inclusive and expansive, not restrictive.
  • The final output is electronically transmitted, thus constituting export of data.

Respondent’s Arguments (Revenue)

  • Translation is primarily a manual activity, not data processing.
  • Merely using computers or internet does not convert an activity into computer software export.
  • Distinguished NDTV case on facts, stating that news content is inherently digital, unlike translation.
  • Claimed that unless software or similar product is developed, Section 80HHE benefit cannot apply.

Court’s Findings / Judgment

  • The Court adopted a liberal and purposive interpretation of Section 80HHE.
  • Held that:
    • “Customized electronic data” must be interpreted broadly.
    • Use of disjunctive “or” in Explanation (b) expands the definition beyond traditional software.
  • Translation services:
    • Are converted into electronic format (data fields)
    • Are transmitted through internet
    • Involve predominant use of computers in the business lifecycle
  • Relied on precedent:
    • CIT vs New Delhi Television Ltd.
    • CIT vs Kiran Kapoor
  • Concluded that such services qualify as export of customized electronic data.

Final Order:

  • Question of law answered in favour of the assessee and against the Revenue.
  • Deduction under Section 80HHE allowed.
  • Appeals allowed.

Important Clarifications by the Court

  • “Computer software” includes customized electronic data, not limited to programs.
  • Principle of ejusdem generis does not apply to restrict the scope.
  • IT-enabled services involving human + electronic interface are eligible if output is electronic.
  • CBDT Notification expands eligible activities, including data processing services.
  • Liberal interpretation required to promote export-oriented IT services.

Sections Involved

  • Section 80HHE of the Income Tax Act, 1961
  • Explanation (b) to Section 80HHE(5)
  • CBDT Notification No. SO 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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