R&D Activity in Biotechnology Services would be treated as ‘Computer Software’: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore has held that the R&D activity in biotechnology services shall be treated as “computer software” for the purpose of allowing benefit of section 10B of the Income Tax Act, 1961.

The assessee is engaged in the business of undertaking R&D activity in biotechnology. The Principal CIT, while invoking the revisional jurisdiction under section 263 of the Income Tax Act, 1961, examined the assessment orders and took the view that the deduction allowed to the assessee by the AO u/s 10B of the Act should not have been allowed. He was of the view that the R&D activity carried out by the assessee in biotechnology services would not qualify as ‘computer software’ within the meaning given in sec. 10B of the Act.

Before the Tribunal, the assessee submitted that the assessee has started claiming deduction under section 10B of the Act from assessment year 2005-06 onwards and it has been allowed up to assessment year 2010-11 and also in the subsequent assessment years.

The assessee argued that the Ld. Principal CIT has raked up this issue only during the year under consideration. The assessee submitted that the eligibility of the assessee for deduction under section 10B of the Act was required to be considered only in the first year of claim and once it is accepted in the first year, the benefit should be given in the succeeding years also.

The Tribunal bench comprising ITAT Vice-President N V Vasudevan and Accountant Member Mr. B R Bhaskaran relied on the decision of the Bombay High Court in the case of CIT vs. Western Outdoor Interactive Pvt. Ltd. has held that whether a benefit of deduction is available for a particular number of years on satisfaction of certain conditions and under the provision of Act, then without withdrawing or setting aside the relief granted for the first assessment year in which claim was made and accepted, the AO cannot withdraw the relief for subsequent assessment years.

“This ratio was laid down in the context of section 10A and the same, in our view, can be applied to sec.10B also. Accordingly, once there is no change in the facts and circumstances of the case from the earlier years from the initial year when the claim has been accepted, then the deduction cannot be disallowed or denied in the subsequent years of claim. In the instant case, the eligibility of the assessee to claim deduction u/s 10B of the Act would have been examined in the first year, i.e., in AY 2005-06 and the deduction was allowed. The deduction so allowed in assessment year 2005-06 has not been withdrawn. In that case, the PCIT was not justified in directing the AO to deny deduction in the intervening year. Hence, the second reasoning given by Ld. Principal CIT also would fail,” the Tribunal said.

To Read the full text of the Order CLICK HERE

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