In a recent judgement of the High Court of Himachal Pradesh, Manufacturing of Encryption Software was held eligible to deductions under section 80-1B of the Income Tax Act.
The respondent, Shoghi Communications Ltd is an establishment, engaged in the manufacture of voice and fax encryption systems. They imported the necessary hardware as well as corresponding software from the United States and subsequently imported hardware was integrated at their premises at Shoghi, District Shimla, Himachal Pradesh.
Initially, their claim for deduction was disallowed by the Assessing Officer as per the assessment order, which initiated the company to approach the first appellate authority on appeal. Aggrieved by the orders the company approached the Income Tax Appellate Tribunal for relief.
The Tribunal remanded the matter back to the Assessing Officer for fresh adjudication in accordance with law after giving due and reasonable opportunity of being heard to the appellants.
The division bench comprising of Acting Chief Justice Sanjay Karol and Justice Sandeep Sharma has upheld the Tribunal findings that, since company has fulfilled all the four conditions, as contained in Section 80-1B(2) of the Income Tax Act, it was eligible for deductions under Section 80 1B of the Income Tax Act.
While dismissing the appeal, the Court also accepted assessee claim that, it manufactured software, which was an Encryption Algorithm and also manufactured Serial Encryption Hardware. The Encryption Algorithm was programmed & down loaded on the hardware device.
Read the full text of the Judgment below.