Facts of the Case

The respondent, Granda Services Ltd., is a company engaged in providing back-office services and qualifies as a newly established undertaking in a Free Trade Zone, exporting computer software via telecommunication channels. For the Assessment Year 2005-06, the assessee declared nil income and claimed deduction under Section 10A of the Income Tax Act, 1961 (“the Act”). During scrutiny, the Assessing Officer (AO) observed that certain expenditures in foreign currency, such as ‘speed pay’ and ‘ASP expenses,’ had been reimbursed and considered them as income not derived from software export. Consequently, AO denied Section 10A deduction.

Issues Involved

  1. Whether income received as reimbursed expenses (speed pay and ASP fees) qualifies as income derived from export of computer software.
  2. Eligibility for deduction under Section 10A of the Income Tax Act.

Petitioner’s Arguments

  • The Revenue argued that the income in the form of speed pay and ASP fees should not be included for Section 10A deduction, claiming it is not derived from export business.

Respondent’s Arguments

  • Granda Services Ltd. contended that these receipts are derived from software export and hence eligible for Section 10A deduction.

Court Findings / Order

  • The Income Tax Appellate Tribunal referred the matter back to the CIT (A) to determine whether the receipts were derived from export of software and decide the deduction eligibility.
  • The Delhi High Court upheld this procedural referral, dismissing the Revenue’s appeal, noting that no finding had been made by the Tribunal yet regarding the nature of receipts.
  • Appeal dismissed, confirming that assessment of Section 10A deduction requires proper determination of whether receipts are export-derived.

Important Clarifications

  • Tribunal’s referral does not constitute a ruling on Section 10A deduction itself.
  • Reimbursed expenses must be examined to ascertain if they form part of export-derived income.

Sections Involved

  • Section 10A, Income Tax Act, 1961

Link to download the order https://delhihighcourt.nic.in/app/case_number_pdf/2011:DHC:2251-DB/AKS21042011ITA19412010.pdf

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