IN THE ITAT CHENNAI BENCH ‘B’
Section 80-O of the Income-tax Act, 1961 - Deductions - Royalty, etc., from certain foreign enterprises - Assessment year 2000-01 - Whether creation of website, being a highly specialized work which includes state of art programming, technical writing, imaging and animation skills having original ideas, artistic as well as intuitive, is designing within definition of word ‘design’ for purpose of claiming deduction under section 80-O - Held, yes
The assessee-company was engaged in the business of computer maintenance and services. In its return of income for the assessment year 2000-01, the assessee claimed deduction under section 80-O on foreign exchange earned by it for designing and development of websites. The Assessing Officer disallowed the said claim on the ground that the consulting work done by the assessee in earning the foreign exchange did not constitute ‘design’ within the meaning of section 80-O. On appeal, the Commissioner (Appeals) confirmed the order of the Assessing Officer.
On second appeal :
Ontrack Systems Ltd.
Assistant Commissioner of Income-tax, Company Circle-V(1)
The assessee was designing a website for a particular client according to its needs. As per the provisions of section 80-O, deduction in respect of royalties, etc., received from certain foreign enterprises is allowed as deduction if it is earned on account of designing, patent or trade mark. This indicates that what is contemplated for deduction is royalties received or similar payments of that nature for use of any patent, technical know-how and trade mark, invention, design by any foreign enterprise or person and its uses abroad for which they are earning foreign exchange. This is an incentive given for encouraging research and development activity in India. What is essential is to have appropriate right over such patent, invention, design, registered trademark, etc. It was a fact that the assessee was not the owner of the website and the work of designing websites was done on behalf of its clients and the websites were designed differently for different clients depending on their requirements. [Para 8]
The development work, i.e., creation of a website, is a highly specialized work which includes state-of-the-art programming, technical writing, imaging and animation skills having original ideas, artistic as well as intuitive. In view of the said technical aspects, the development work involved in the instant case in the creation of web portal was a highly creative and a challenging task and, in no circumstances, the same could be equated to the data entry jobs, where the prime focus is to digitize the given content from paper into a text/image format without introducing any changes to the content. Therefore, the creation of a website is designing within the definition of the word ‘design’ for the purpose of claiming deduction under section 80-O. Accordingly, the claim of the assessee was to be allowed and the orders of the lower authorities were to be set aside. [Para 10]
In the result, the appeal was to be allowed. [Para 11]