Deduction in respect of earnings in convertible foreign exchange.

1. (1) Where an assessee, being an Indian company or a person (other than a company) resident in India, is engaged in the business of a hotel or of a tour operator, approved by the prescribed authorityin this behalf or of a travel agent, there shall, in accordance with and subject to the provisions of this section, be allowed, 2[in computing the total income of the assessee—
   • (a) for an assessment year beginning on the 1st day of April, 2001, a deduction of a sum equal to the aggregate of—
     • (i) forty per cent. of the profits derived by him from services provided to foreign tourists; and
     • (ii) so much of the amount not exceeding forty per cent of the profits referred to in sub-clause (i) as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee in the manner laid down in sub-section (4);
   • (b) for an assessment year beginning on the 1st day of April, 2002, a deduction of a sum equal to the aggregate of—
     • (i) thirty per cent of the profits derived by him from services provided to foreign tourists; and
     • (ii) so much of the amount not exceeding thirty per cent of the profits referred to in subclause (i) as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee in the manner laid down in sub-section (4);
   • (c) for an assessment year beginning on the 1st day of April, 2003, a deduction of a sum equal to the aggregate of—
     • (i) 3[twenty-five per cent.] of the profits derived by him from services provided to foreign tourists; and
     • (ii) so much of the amount not exceeding 3[twenty-five per cent.] of the profits referred to in sub-clause (i) as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee in the manner laid down in sub-section (4);
   • (d) for an assessment year beginning on the 1st day of April, 2004, a deduction of a sum equal to the aggregate of—
     • (i) 4[fifteen per cent.] of the profits derived by him from services provided to foreign tourists; and
     • (ii) so much of the amount not exceeding 1[fifteen per cent.] of the profits referred to in sub-clause (i) as is debited to the profit and loss account of the previous year in respect of which the deduction is to be allowed and credited to a reserve account to be utilised for the purposes of the business of the assessee in the manner laid down in sub-section (4), and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year]: 2[Provided that a hotel or, as the case may be, a tour operator approved by the prescribed authority on or after the 30th day of November, 1989 and before the 1st day of October, 1991, shall be deemed to have been approved by the prescribed authority for the purposes of this section in relation to the assessment year commencing on the 1st day of April, 1989 or the 1st day of April, 1990 or, as the case may be, the 1st day of April, 1991 if the assessee was engaged in the business of such hotel or as such tour operator during the previous year relevant to any of the said assessment years.]
2. (2) This section applies only to services provided to foreign tourists the receipts in relation to which are received 3[in, or brought into, India by the assessee in convertible foreign exchange within a period of six months from the end of the previous year or, 4[within such further period as the competent authority may allow in this behalf]]. 5[Explanation6[1].—For the purposes of this sub-section, any payment received by an assessee, engaged in the business of a hotel or of a tour operator or of a travel agent, in Indian currency obtained by conversion of foreign exchange brought into India through an authorised dealer, 7[from another hotelier, tour operator or travel agent, as the case may be,] on behalf of a foreign tourist or group of foreign tourists, shall be deemed to have been received by the assessee in convertible foreign exchange if the person making the payment furnishes to the assessee a certificate specified in sub-section (2A).] 8[Explanation 2.—For the purposes of this sub-section, the expression “competent authority” means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.] 9[(2A) Every person making payment to an assessee referred to in the 10[Explanation 1] to sub-section (2) out of Indian currency obtained by conversion of foreign exchange received from or on behalf of a foreign tourist or a group of foreign tourists shall furnish to that assessee a certificate in the prescribed form indicating the amount received in foreign exchange, its conversion into Indian currency and such other particulars as may be prescribed.] 11[(3) For the purposes of sub-section (1), profits derived from services provided to foreign tourists shall be the amount which bears to the profits of the business (as computed under the head “Profits and gains of business or profession”) the same proportion as the receipts specified in sub-section (2) 12[as reduced by any payment, referred to in sub-section (2A), made by the assessee] bear to the total receipts of the business carried on by the assessee.] 6. Explanation renumbered as Explanation 1 thereof by Act 27 of 1999, s. 47 (w.e.f. 1-6-1999).
3. (4) The amount credited to the reserve account under clause (b) of sub-section (1), shall be utilised by the assessee before the expiry of a period of five years next following the previous year in which the amount was credited for the following purposes, namely:—
   • (a) construction of new hotels approved by the prescribed authority in this behalf or expansion of facilities in existing hotels already so approved;
   • (b) purchase of new cars and new coaches by tour operators already so approved or by travel agents;
   • (c) purchase of sports’ equipment for mountaineering, trekking, golf, river-rafting and other sports in or on water;
   • (d) construction of conference or convention centres;
   • (e) provision of such new facilities for the growth of Indian tourism as the Central Government may, by notification in the Official Gazette, specify in this behalf; 1[(f) subscription to equity shares forming part of any eligible issue of capital made by a public company:] Provided that where any of the activities referred to in 2[clauses (a) to (f)] would result in creation of any asset owned by the assessee outside India, such asset should be created only after obtaining prior approval of the prescribed authority.
4. (5) Where any amount credited to the reserve account under clause (b) of sub-section (1),—
   • (a) has been utilised for any purpose other than those referred to in sub-section (4), the amount so utilised; or
   • (b) has not been utilised in the manner specified in sub-section (4), the amount not so utilised, shall be deemed to be the profits,—
     • (i) in a case referred to in clause (a), in the year in which the amount was so utilised; or
     • (ii) in a case referred to in clause (b), in the year immediately following the period of five years specified in sub-section (4), and shall be charged to tax accordingly. 3[(5A) Where any amount credited to the reserve account under clause (b) of sub-section (1) has been utilised for subscription to any equity shares referred to in clause (f) of sub-section (4) and either whole or any part of such equity shares are transferred or converted into money by the assessee at any time within a period of three years from the date of their acquisition, the aggregate amount so utilised in respect of such equity shares shall be deemed to be the profits of the previous year in which the equity shares are transferred or converted into money. Explanation.—A person shall be treated as having acquired any shares on the date on which his name is entered in relation to those shares in the register of members of the public company.]
5. (6) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed on the basis of the 1[2*** amount of convertible foreign exchange received by the assessee for services provided by him to foreign tourists 3[, payments made by him to any assessee referred to in subsection (2A)] and the payments received by him in Indian currency as referred to in the 4[Explanation 1 to sub-section (2)].] 5[(7) Where a deduction under sub-section (1) is claimed and allowed in respect of profits derived from the business of a hotel, such part of profits shall not qualify to that extent for deduction for any assessment year under any other provisions of this Chapter under the heading “C.—Deductions in respect of certain incomes”, and shall in no case exceed the profits and gains of such hotel.] Explanation.—For the purposes of this section,—
   • (a) “travel agent” means a travel agent or other person (not being an airline or a shipping company) who holds a valid licence granted by the Reserve Bank of India under section 32 of 6[the Foreign Exchange Management Act, 1999 (42 of 1999)];
   • (b) “convertible foreign exchange” shall have the meaning assigned to it in clause (a) of the Explanation to section 80HHC;
   • (c) “services provided to foreign tourists” shall not include services by way of sale in any shop owned or managed by the person who carries on the business of a hotel or of a tour operator or of a travel agent; 7[d) “authorised dealer”, “foreign exchange” and “Indian currency” shall have the meanings respectively assigned to them in clauses (b), (h) and (k) of section 2 of the 7[Foreign Exchange Management Act, 1999 (42 of 1999)];] 8[(e) “eligible issue of capital” means an issue made by a public company formed and registered in India and the entire proceeds of the issue is utilised wholly and exclusively for the purpose of carrying on the business of—
     • (i) setting up and running of new hotels approved by the prescribed authority; or
     • (ii) providing such new facility for the growth of tourism in India, as the Central Government may, by notification in the Official Gazette, specify.] 2. The words “aggregate of the” omitted by Act 32 of 1994, s. 25 (w.e.f. 1-4-1995). 1[80HHE.Deduction in respect of profits form export of computer software, etc.—(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) export out of India of computer software 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, 2[a deduction to the extent of the profits, referred to in sub-section (1B),] derived by the assessee from such business: 3* 4[Provided that if the assessee, being a company, engaged in the export out of India of computer software, issues a certificate referred to in clause (b) of sub-section (4A), that in respect of the amount of the export specified therein, the deduction under this sub-section is to be allowed to a supporting software developer, then the amount of deduction in the case of an assessee shall be reduced by such amount which bears to the total profits derived by the assessee from the export, the same proportion as the amount of the export turnover specified in such certificate bears to the total export turnover of the assessee. 5[Explanation.—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.] (1A) Where the assessee, being a supporting software developer, has during the previous year, developed and sold computer software to an exporting company in respect of which the said company has issued a certificate under the proviso to sub-section (1), 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 the developing and selling of computer software to the exporting company in respect of which the certificate has been issued by the said company 6[to such extent and for such years as specified in sub-section (1B)].] 6[(1B) For the purposes of sub-sections (1) and (1A), the extent of deduction of profits shall be an amount equal to(i) eighty per cent. of such profits for an assessment year beginning on the 1st day of April, 2001; 7[(ii) seventy per cent. thereof for an assessment year beginning on the 1st day of April, 2002; (iii) fifty per cent. thereof for an assessment year beginning on the 1st day of April, 2003; (iv) thirty per cent. thereof for an assessment year beginning on the 1st day of April, 2004,] 3. The proviso omitted by 22 of 1995, s. 18 (w.e.f. 1-4-1996). and no deduction shall be allowed in respect of the assessment year beginning on the 1st day of April, 2005 and any subsequent assessment year.]
6. (2) The deduction specified in sub-section (1) shall be allowed only if the consideration in respect of the computer software referred to in that sub-section is received in, or brought into, India by the assessee in convertible foreign exchange, within a period of six months from the end of the previous year or, 1[within such further period as the competent authority may allow in this behalf.] Explanation2[1].—The said consideration shall be deemed to have been received in India where it is credited to a separate account maintained for the purpose by the assessee with any bank outside India with the approval of the Reserve Bank of India. 3[Explanation 2.—For the purposes of this sub-section, the expression “competent authority” means the Reserve Bank of India or such other authority as is authorised under any law for the time being in force for regulating payments and dealings in foreign exchange.]
7. (3) For the purposes of sub-section (1), profits derived from the business referred to in that subsection shall be the amount which bears to the profits of the business, the same proportion as the export turnover bears to the total turnover of the business carried on by the assessee. 4[(3A) For the purposes of sub-section (1A), profits derived by a supporting software developer shall be,—
   • (i) in a case where the business carried on by the supporting software developer consists exclusively of developing and selling of computer software to one or more exporting companies solely engaged in exports, the profits of such business;
   • (ii) in a case where the business carried on by a supporting software developer does not consist exclusively of developing and selling of computer software to one or more exporting companies, the amount which bears to the profits of the business, the same proportion as the turnover in respect of sale to the respective exporting company bears to the total turnover of the business carried on by the assessee.]
8. (4) The deduction under sub-section (1) shall not be admissible unless the assessee furnishes in the prescribed form, along with the return of income, the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed in accordance with the provisions of this section. 4[(4A) The deduction under sub-section (1A) shall not be admissible unless the supporting software developer furnishes in the prescribed form along with his return of income,—
   • (i) the report of an accountant, as defined in the Explanation below sub-section (2) of section 288, certifying that the deduction has been correctly claimed on the basis of the profits of the supporting software developer in respect of sale of computer software to the exporting company; and
   • (ii) a certificate from the exporting company containing such particulars as may be prescribed and verified in the manner prescribed that in respect of the export turnover mentioned in the certificate, the exporting company has not claimed deduction under this section: 2. Explanation relettered as Explanation 1 thereof by s. 48, ibid. (w.e.f. 1-6-1999) Provided that the certificate specified in clause (b) shall be duly certified by the auditor auditing the accounts of the exporting assessee under the provisions of this Act or under any other law.]
9. (5) Where a deduction under this section is claimed and allowed in respect of profits of the business referred to in sub-section (1) for any assessment year, no deduction shall be allowed in relation to such profits under any other provision of this Act for the same or any other assessment year. Explanation.—For the purposes of this section,—
   • (a) “convertible foreign exchange” shall have the meaning assigned to it in clause (a) of the Explanation to section 80HHC; 1[(b) “computer software” means,—
     • (i) any computer programme recorded on any disc, tape, perforated media or other information storage device; or
     • (ii) anycustomised 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 a place outside India by any means;]
   • (c) “export turnover” means the consideration in respect of computer software received in, or brought into, India by the assessee in convertible foreign exchange in accordance with sub-section (2), but does not include freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India or expenses, if any, incurred in foreign exchange in providing the technical services outside India; 1[(ca) “exporting company” means a company referred to in sub-section (1) making actual export of computer software;]
   • (d) “profits of the business” means the profits of the business as computed under the head “Profits and gains of business or profession” as reduced by—
10. (1) ninety per cent of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in such profits; and
11. (2) the profits of any branch, office, warehouse or any other establishment of the assessee situate outside India;]
    • (e) “total turnover” shall not include(i) any sum referred to in clauses (iiia), (iiib) and (iiic) of section 28;
      • (ii) any freight, telecommunication charges or insurance attributable to the delivery of the computer software outside India; and
      • (iii) expenses, if any, incurred in foreign exchange in providing the technical services outside India;] 2[(ea) “supporting software developer” means an Indian company or a person (other than a company) resident in India, developing and selling computer software to an exporting company for the purposes of export.]

¹ Ins. by Act 3 of 1989, s. 16 (w.e.f. 1-4-1989).

² Subs. by Act 10 of 2000, s. 35, for certain words, brackets, letters and figures (w.e.f. 1-4-2001).

³ Subs. by Act 20 of 2002, s. 32, for “twenty per cent.” (w.e.f. 1-4-2003).

⁴ Subs. by s. 32, ibid., for “ten per cent.” (w.e.f. 1-4-2003).

¹ Subs. by Act 20 of 2002, s. 32, for “ten per cent.” (w.e.f. 1-4-2003).

² Ins. by Act 49 of 1991, s. 29 (w.e.f. 1-10-1991).

³ Subs. by Act 12 of 1990, s. 23, for “by the assessee in convertible foreign exchange” (w.e.f. 1-4-1991).

⁴ Subs. by Act 27 of 1999, s. 47, for certain words and brackets (w.e.f. 1-6-1999).

⁵ Ins. by Act 49 of 1991, s. 29 (w.e.f. 1-4-1992).

⁷ Subs. by Act 32 of 1994, s. 25, for “from a tour operator or, as the case may be, a travel agent” (w.e.f. 1-4-1995).

⁸ Ins. by Act 27 of 1999, s. 47 (w.e.f. 1-6-1999). 9. Ins. by Act 49 of 1991, s. 29 (w.e.f. 1-4-1992).

¹⁰ Subs. by Act 27 of 1999, s. 47, for “Explanation” (w.e.f. 1-6-1999). 11. Subs. by Act 12 of 1990, s. 23, for sub-section (3) (w.e.f. 1-4-1991). 12. Ins. by Act 32 of 1994, s. 25 (w.e.f. 1-4-1995).

¹ Ins. by Act 27 of 1999, s. 47 (w.e.f. 1-4-2000).

² Subs. by s. 47, ibid., for “clauses (a) to (e)” (w.e.f. 1-4-2000).

³ Ins. by Act 27 of 1999, s. 47 (w.e.f. 1-4-2000).

¹ Subs. by Act 49 of 1991, s. 29, for “amount of convertible foreign exchange received by the assessee for services provided by him to the foreign tourist” (w.e.f. 1-4-1992).

³ Ins. by Act 32 of 1994, s. 25 (w.e.f. 1-4-1995).

⁴ Subs. by Act 27 of 1999, s. 47, for “Explanation to sub-section (2)” (w.e.f. 1-6-1999).

⁵ Ins. by Act 21 of 1998, s. 32 (w.e.f. 1-4-1999).

⁶ Subs. by Act 17 of 2013, s. 4, for “the Foreign Exchange Regulation Act, 1973” (w.e.f. 1-4-2013).

⁷ Ins. by Act 49 of 1991, s. 29 (w.e.f. 1-4-1992).

⁸ Ins. by Act 27 of 1999, s. 47 (w.e.f. 1-4-2000).

¹ Ins. by Act 49 of 1991, s. 30 (w.e.f. 1-4-1991).

² Subs. by Act 10 of 2000, s. 36, for “a deduction of the profits” (w.e.f. 1-4-2001).

⁴ Ins. by Act 21 of 1998, s.33 (w.e.f. 1-4-1999).

⁵ Ins. by Act 14 of 2001, s. 42 (w.e.f. 1-4-2001). 6. Ins. by Act 10 of 2000, s. 36 (w.e.f. 1-4-2001). 7. Subs. by Act 14 of 2001, s. 42, for sub-clauses (ii), (iii) and (iv) (w.e.f. 1-4-2002).

¹ Subs. by Act 27 of 1999, s.48, for certain words (w.e.f. 1-6-1999).

³ Ins. by s. 48, ibid. (w.e.f. 1-6-1999).

⁴ Ins. by Act 21 of 1998, s.33 (w.e.f. 1-4-1999).

¹ Subs. by Act 10 of 2000, s. 36, for sub-clause (b) (w.e.f. 1-4-2001).

² Ins. by Act 21 of 1998, s. 33 (w.e.f. 1-4-1999).