Circular No. 3/2004

Section 80HHE of the Income-tax Act, 1961 - Deductions - Profits from export of computer software, etc. - Clarification regarding provisions of section 80HHE of the Income-tax Act, 1961

What this is

Circular No. 3/2004 was issued by the Central Board of Direct Taxes on 12 February 2004. Its subject is Section 80HHE of the Income-tax Act, 1961 - Deductions - Profits from export of computer software, etc. - Clarification regarding provisions of section 80HHE of the Income-tax Act, 1961.

This is a clarification. The Board is stating how it reads a provision. That reading binds the department; it does not bind a court, and where the section says otherwise the section wins.

What it does

Fixes the date from which the Explanation to section 80HHE(1) operates. That Explanation declares, for the removal of doubts, that profits from on-site development of computer software, including services for development of software, outside India are deemed to be profits derived from the export of computer software out of India. It was inserted by the Finance Act, 2001 with effect from 1st April 2001. The Board, noting the Ministry of Law's view that the words for the removal of doubts normally mark an Explanation as merely clarificatory, holds that since this Explanation only clarifies the existing law, it takes effect from 1st April 1991, the date section 80HHE itself came into force.

Why it was issued

The Board received references seeking clarification on the period for which the Explanation under section 80HHE(1) applies.

Who it reaches

Software exporters with on-site development work abroad
Assessees whose section 80HHE claims for years before assessment year 2001-02 were denied
Assessing Officers computing the section 80HHE deduction
Appellate authorities hearing on-site development disputes

The provisions it speaks to

Left, the provision of the Income-tax Act, 1961 as the instrument itself names it. Right, the section of the Income-tax Act, 2025 that the department’s own concordance maps it to — which is where the same ground is now covered.

Under the 1961 Act	Now
s.80HHE	no counterpart recorded

The instrument, as the Board published it

The words below are the department’s own, reproduced from its published text. Where the department’s copy carried a publisher’s notes after the instrument, those are not reproduced.

Section 80HHE of the Income-tax Act, 1961 - Deductions - Profits from export of computer software, etc. - Clarification regarding provisions of section 80HHE of the Income-tax Act, 1961
CIRCULAR NO. 3/2004, DATED 12-2-2004
1. The Board has received references seeking clarification on the period of applicability of the Explanation under section 80HHE(1) of the Income-tax Act, 1961. The Explanation states as under -
"For the removal of doubts, it is hereby declared that the profits and gains derived from on site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of computer software outside India."
1.1 The Explanation was inserted by the Finance Act, 2001 w.e.f. 1-4-2001. However, as pointed out by the Ministry of Law on various occasions, the use of the words "for the removal of doubts" in an Explanation normally implies that the Explanation is only clarificatory in nature. As this Explanation under section 80HHE(1) only, clarifies the existing position of law, the Board are of the opinion that the Explanation will be considered to have effect from 1-4-1991, i.e. the date on which section 80HHE came into force.
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What to watch

The concession is on the reach in time of the Explanation, not on the substance of the deduction; the other conditions of section 80HHE remain.
It runs back to 1st April 1991, so it can be used in older assessments and appeals still alive.
The reasoning rests on the words for the removal of doubts in the Explanation itself.
Section 80HHE has since been phased out, so the point survives only for the years the deduction ran.

Where you meet it

In an appeal or rectification where deduction for on-site software development was refused for a year before assessment year 2001-02, and in a reassessment on the same ground.

What it names

It mentions. Circular No. 3/2004

On the same provision

Other instruments in this library that name the same provision of the 1961 Act. They are not necessarily still operative, and a later one may have replaced an earlier one without saying so.

Notification No. 890(E) — Following information technology enabled products or services specified under section 10A 26 September 2000
Notification No. 11521 — Following Information Technology enabled products or services specified under section 10A 26 September 2000
S.O. 925(E) — A notification under section 80HHE of the Income-tax Act, 1961 23 October 1998
S.O. 924(E) — A notification under section 80HHE of the Income-tax Act, 1961 23 October 1998
Circular No. 694 — Section 10A l Exemption for NEW Industrial Undertakings in FTZ 23 November 1994

← Circular No. 4/2004 · Circular No. 2/2004 →

A circular binds the department, not you and not a court. The Board issues a circular to its own officers. An assessee may hold the department to a circular that helps him; the department cannot hold an assessee to one that hurts him, and the Tribunal and the courts decide the law for themselves.

Source: the Income Tax Department’s own published text — its page for this instrument.