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Creation of website is designing within the definition of the word 'design' for the purpose of claiming of deduction under sec.80-O of the Act
June, 28th 2007



ITA No. 442/Mds/2004
Assessment Year: 2000-01

M/s Ontrack Systems Ltd.,
#5, Club Road, Chetpet, Chennai - 31


The Asst. Commissioner of IT, Company Circle-V(1), Chennai 34



Appellant by         : Shri Philip George
Respondent by      : Shri N. Rengaraj

Development work involved in the creation of web portal is a highly creative and challenging task and in no circumstances, the same can 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. In view of this, we hold that creation of website is designing within the definition of the word 'design' for the purpose of claiming of deduction under sec.80-O of the Act. (Para 10)






                This appeal of the Assessee is directed against the order of the CIT (Appeals)-V, Chennai dated 12.12.2003.  The relevant assessment year involved in this appeal in 2000-01.

2.             The only issue in this appeal of the Assessee is whether creation of website would fall within the ambit of sec. 80-O of the Income-tax Act, 1961 and can it be considered as design within definition of this section.

3.             The briefly stated facts are that the Assessee is engaged in the business of computer maintenance and services.  The Assessee claimed deduction under sec. 80-O of the Act on foreign exchange earned at US$10,000/- equivalent to a sum of Rs. 4,32,500/-.  For designing the websites, the amounts received and the nature of work done by the Assessee are as under:

Person from whom received

Amount received US$

Date of Receipt

Nature of Service Rendered

Astral Systems Inc. California



Development of website

Itouchu Corporation Tokya



Designing and programming services

The Assessing Officer has disallowed the claim of the Assessee holding that the consulting work done by the Assessee in earning foreign exchange does not constitute design within the meaning of sec.80-O of the Act as amended by the Finance Act, 1997 with effect from 1.4.1998. Aggrieved, the Assessee preferred an appeal before the CIT (Appeals).  The CIT(Appeals) confirmed the action of the Assessing Officer.  Aggrieved, the Assessee is in appeal before us.

4.             Before us, the ld. Counsel for the Assessee argued that the Assessee is engaged in the business of computer maintenance and services and deduction is allowable in respect of patent, design, invention and registered trade mark as prescribed under sec. 80-O of the Act.  The ld. Counsel for the Assessee has drawn our attention to a copy of agreement with Astral Holdings for providing consultancy work for the website and setting up a news desk and news coverage for  He argued that the development of the site is a design to originate something new and this development is a creative work and definitely has a value addition.  He referred to an opinion from Mr. W. Gowri Shankar.  Technical Consultant who certified that the work carried out for the development of website is highly creative job involving graphical user interface design, image editing, text editing etc.  He further argued that prior to 1.4.98 also the words in Section 80-O was for the use of Outside India which are exactly the same words as are there is assessment year 2000-01.  The only difference is that the list and activities has been curtailed. In the earlier section the words used cannot be said to be controlled by the rule of "ejusdem generis" even though the same words were there Therefore, when the list is reduced also this rule cannot be made applicable. In any event the rule is used only to specify the character of the gene of the items made. Ownership is not a character relevant for application of the rule. Further, he argued that the term "use" is a very general word. In this case the website has been designed (web-designing is a very big profession) and it has been used outside India. That is all the section requires and assessee has satisfied all the requirements. It is further argued that the work of designing web portals and development of the same and also designing and programming services were highly creative and technical work as opined and certified by the technical consultant, Mr. W. Gowri Shankar, after careful study of the web portal He has drawn our attention to the meaning of the term "design" and argued that in the present technologically advancing modern world, the purpose of sec.80-O of the Act, should not defeated by the superficial and narrow interpretation. In the modern growing world, the term "design" cannot be meant narrowly. The Assessee as a web designer, its work of development of the web portal requires multi specialization skills like state-of-art programming, technical writing, imaging, animation skill, etc., which is in fact fall under the term "designing" and therefore it is entitled to relief u/s.80-O of the Act. Finally, he argued that the principles of construction will not apply in the present circumstances as the words used in the section referred to different matters and the introduction of the words "invention and design" in between these words clearly show that these words did not constitute a class of their own and all the words used therein were words having individual meaning and that no class of the same nature was determinable therefrom.

5.             On the other hand, the Id. Departmental Representative relied on the orders of the lower authorities.

6.             We have heard the rival contentions and perused the material placed before us. First of all, we have gone through the provisions of sec.80-O as amended by the Finance Act, 1997 w.e.f. 1.4.1998 which reads as under:

"Deduction in respect of royalties, etc., from certain foreign enterprises.

80-O. [Where the gross total income of an assessee, being an Indian company [or a person (other than a company) who is resident to India]], includes [any income received by the assessee from the Government of a foreign State or foreign enterprise in consideration for the use outside India of any patent, invention, design or registered trade mark] [and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, is brought into India, by or on behalf of the Assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, [a deduction of an amount equal to -"

In view of the above provision, first of all, we have to determine whether the creation of website falls within the purview of sec.80-O of the Act or not. The Assessing Officer has gone through the Oxford Advanced learner's Dictionary meaning of 'design' wherein the word "design" means "general arrangement or planning of a building, book, machine system or procedure". Further he has given the meaning of the word "design" in his assessment order as under:

"The word "design" is appearing in conjunction with patent, invention and trade mark. It is the intention of legislature to understand and interpret the meaning of "design" with reference to patent, invention and trade mark. Hence, design means outlining, arranging or planning a thing or process over which the designer has exclusive right"

The Assessing Officer has held that the Assessee is not the owner of the design or development and consultancy work which it claims to have created. He further held that as per the terms of the agreement with M/s. Astral Holdings all software specifications, statements of work, deliverables and all intellectual property rights therein will be the sole and exclusive property of the company. He further found that the Assessee only developed a website using commonly accessible hypertext market language (html) and the internet protocols. Accordingly, he put the things as under:

"To put the things inn perspective, considering the pentium IV, the example microprocessor chip designed by Intel. Intel used its won research efforts to design and develop a microprocessor chip called Pentium IV which has its unique design Intel is the absolute owner of the design that went into the making of Pentium IV. Intel services revenues by licensing or sub licensing is not the absolute owner of the chip but only has the right to use it. In the Assessee's case, the result of its development and consulting work is website called "" M/s. Astra Holdings, LLC and M/s. Igotechu Corporation are the absolute owners of the software and content developed by the assessee. After the consulting work is over, assessee has no right over the web sites it created. Assessee performed the contract and developed the software/website assessee's job as consultant/contractor ends there. At no point of time Assessee is the owner of the alleged 'designs'. Assessee's consultancy and development work involves design, at the most, to the extent of general planning or arrangement of work which cannot be equated with the 'design' as appearing in section 80-O. It is pertinent to note that every job/k work involves some kind of design i.e., of general planning, thinking and creativity. Hence, it can not be held that every job which generates foreign exchange is eligible for deduction u/s 80-O, since it involves some kind of design."

7.             First of all, we have gone through the meaning of the word 'design' as per Concise Oxford English dictionary which reads as under:

"design - 1 a plan or drawing produced to show the look and function or workings of something before it is built or made.> the art or action of conceiving of and producing such a plan or drawing> purpose or planning that exists behind an action or object 2 a decorative pattern. V decide upon the look and functioning of (something), especially by making a detailed drawing of it > do or plan (something) with a specific purpose in mind."


Further the exact meaning of HTML which is taken from reads as under:

"HTML: (Hypertext Markup Language) is the set of markup symbols of codes inserted in a file intended for display on the World Wide Web. The markup tells the Web browser how to display a Web page for the user. Each individual markup code is referred to as an element or tag. HTML is a formal Recommendation by the Word Wide Web Consortium (W3C) and is generally adhered to by the major browsers. Microsoft's Internet Explorer and Netscape's Navigator, which also provide some additional non-standard codes. The current version of HTML is HTML 4.0. However, both Internet Explorer and Netscape implement some features differently and provide non-standard extensions. This makes building web site very challenging, even for the professional."

Further, the meaning of words "web design", "webmaster", webpage" and website" taken from reads as under:

"Web design: The arrangement and creation of web pages that in turn make up a web site. There are many aspects to this process, and due to the rapid development of the Internet, new aspects are continually being added. As far as business oriented web sites go, the basics currently consist of (in order of importance):

a) The "visibility" of the site on the Internet, particularly within the mahor Search Engines.

b) The informational value of the site, from its target public's point of view

c) The aesthetic/professional appearance of the page.

Webmaster: A Webmaster is a person who either:

a) Creates and manages the information content and organization of a Web site:

b) Manages the computer server and technical programming aspects of the Web site

c) Or does both

Companies vary in their use of the term. In a smaller company, a Webmaster typically "does it all." In a larger company, a Webmaster tends to be someone with either a writing and/or graphics design background who has acquired Web site creation skills (mainly knowledge and experience with HTML) or a more technical person with some programming skills.

Webpage: On the World Wide Web, a page is a singly file written with the Hypertext Markup Language (HTML). Usually, it contains text and specifications about where images or other files are to be placed when the page is displayed by a browser. A webpage (also spelled Web page) is part of a Web site.

You can think of a Web site like a book that arrives a page at a time as you request each one. Each page of this book is an individual HTML file with its own Web address.

The first page you usually request at a site is known as the home page. (Most home pages have a default name like "index.html" that doesn't have to be specified; you only need to enter the domain name for the site itself.) With frames, multiple pages (HTML files) can be downloaded to a browser and presented on designated sections of the display screen at the same time.

Web site: (also called a site) A Web site is a collection of Web files on a particular subject that includes a beginning file called a home page. For example, most companies, organizations, or individuals that own Web sites have a single address that they given you. This is their home page address. From the home page, you can get to all the other pages on their site."

8.             The Assessee is designing a website for a particular client according to its needs. As per the provisions of sec.80-O of the Act, deduction in respect of royalties etc., received from certain foreign enterprises are 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 in 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 they 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 trade mark etc. It is a fact that the Assessee is not the owner of the website but it is done on behalf of its clients and the websites are designed differently for different clients depending on their requirements.

9.             Now, the question that arises is whether the creation of website is 'design' or not. Before arriving at the decision of this development work, which is a highly creative job, requires a team with multi-specialization skills which include state-of-the-art programming, technical writing, imaging and, animation skills. Development of such portals is no doubt the result of the implementation of intuitive, artistic and original ideas. To design website, following is the method and anybody has to go through these processes which are as under:

1. Graphical User Interface Design

The Graphical User Interface consists of the mechanisms which allow users to brose through the content with ease, and provide a convenient navigation mechanism to move from one point to the another within the portal. A careful study of the content's context, users' profile, ease of maintenance must be thought of before designing the user interface [1]. The GUI design of such portals must not only be aesthetic but also easy, self explanatory and convenient for users to navigate across the entire content [2]. It is needless to say that only such highly user friendly portals have any chance of being successful in the ever growing and dynamic domain of web content.

2. Image Editing

The images portrayed in portals convey the context of the content at a glance. Hence, careful selection of images including its positioning, color combination, and context sensitivity must be taken into account if the portal has to be successful in creating an interest among the intended audience [3]. The images have to be created with original ideas and then they have to be optimally engineered to give the best response even for the dial-up users [4]. This factor is very important because of large, unwieldy images, however attractive they may be, consume phenomenal bandwidth and result in slow downloading of the content to the users. Currently, if a site does not download with seconds, users switch to other sites of similar interest. Thus, to retain the user within the site, the images and other bandwidth consuming components must be designed in such a way, that user response is the fastest. Hence, greatest care has to shown for the response times at different test conditions and only on satisfactory results the site should be up.

3. Text Editing

The text material found in the portals must be crisp, convey the point effectively using minimum words. A separate branch of study, called the technical writing focuses precisely on this aspect of conveying the idea in a simple, lucid, unambiguous and also stylish enough to retain the interests of the readers has evolved along with the progress of the Internet [5]. The quality of technical writing in creating the text content of this portal is excellent.

10.          It is seen that this development work IS 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 above technical aspects, this development work involved in the creation of web portal is a highly creative and challenging task and in no circumstances, the same can 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. In view of this, we hold that creation of website is designing within the definition of the word 'design' for the purpose of claiming of deduction under sec.80-O of the Act. Accordingly, we allow the claim of the Assessee and the orders of the lower authorities are set aside.

11.          In the result, the appeal of the Assessee is allowed.

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