17 October, 2014

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HR services provided via IT- eligible for Section 10A deduction

In a recent case of CIT v. ML outsourcing services (P) Ltd. ITA No. 1255 of 2011, dated 3-9-2014, the Delhi High Court gave the decision in favour of the assessee and held that the tax payer is eligible to claim deduction u/s 10A of Income Tax Act 1961 read with Notification bearing No. SO 890(E) dated 26th September, 2000. The details regarding the same are given below.

The tax payer, a unit registered under STPI, was engaged in providing services related to recruitment consultants for foreign companies. ML outsourcing services claimed its income to be exempt under section 10A which the revenue authority denied the claim asserting that the assessee rendered services as an employment agent and merely forwarded list of shortlisted candidates with minimum use of computers and IT enabled services. Further the Tribunal held that the services provided by the assessee are covered by Section 10A of the Income Tax Act 1961 read with Notification bearing No. SO 890(E) dated 26th September, 2000 .

The high court observed that the taxpayer was using IT in scanning the data and processing it for shortlisting candidates and held that impugned activities to be squarely covered under clause (vii) of notification SO 890 (E) issued by Board. The high court thus held that the taxpayer was entitled to deduction under Section 10A.

Section 10A of the Income Tax Act 1961 allows deduction of such profits and gains as are derived by an undertaking from the export of articles or things or computer software in accordance with such other conditions as may be prescribed.

As per sub clause (b) of clause (i) of Explanation 2 of the abovementioned section computer software is defined as “any customized electronic data or any product or service of similar nature, as may be notified by the Board”

Further the CBDT has notified Human Resource Services under clause vii of Notification NO. 11521 [SO 890(E)( F. No. 142/49/2000-TPL)], DATED 26-9-2000, which brings it under the ambit of computer software as defined under Section 10A.

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