Computer software means:
(a) any computer programme recorded on any disc, tape, perforated media or other information storage device; or
(b) any customized electronic data or any product or service of similar nature, as may be notified by the board,
which is transmitted or exported from India to any place outside India by any means (as per explanation 2 in the said provisions).
Export Turnover is also defined u/s. 10A & 10B as follows:
(IV) “Export Turnover” means the consideration in respect of export of articles or things or computer software received in, or brought into India, by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of the articles, or things or computer software outside India or expenses, if any, incurred in foreign exchange for providing technical services outside India.
Whereas exemptions u/s. 10A & 10B are eligible only if the computer software is exported out of India, the deduction u/s. 80HHE is eligible not only for software exports out of India or its transmission from India to a place outside India by any means, but also for providing any technical services outside India. Section 80HHE, which allows deduction, is as under:
(1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of
(i) exporting of computer software out of India, or its transmission from India to a place outside India by any means;
(ii) providing technical services outside India in connection with the development or production of computer software,
there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of the profits derived by the assessee from such business.
The above section has many restrictions for allowing deductions. The important distinction between 10A, 10B and 80HHE is that the technical services provided outside India in connection with the
development or production of computer software is eligible for deduction only u/s. 80HHE
and not under 10A and 10B.
In a case surveyed by the income tax officers, it has come to their knowledge that many of the software technology/service providers registered with the STP are under the impression that all receipt from abroad are eligible for deduction under IT Act, either under 10A and 10B or under 80HHE. But there are distinctions in claiming various exemptions/deductions under these sections and particularly when the software company is involved in providing technical service outside India.
It is also noticed that body shopping cannot be considered as providing technical services
outside India in connection with the development or production of computer software.
Under 80HHE (1B) deduction of export profits is being restricted to an extent of 80% as
tax concessions are being phased out. In view of the above, 20% of the claim will be disallowed for the Assessment Year beginning from 1st April, 2001 and so the said companies are required to pay
advance tax during this financial year. In addition, it is also brought to notice
that bonding and agreement with the STP is not undertaken, even though many companies are
registered as per the provisions. These are important while considering the deduction u/s. 10A & 10B.