TaxTMI 
TaxTMI 
2020 (10) TMI 711
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....ee claimed deduction u/s. 80IC of the Act to the extent of Rs. 14,52,171. The order of assessment u/s. 143(3) was passed on 22.2.2016 allowing the claim of assessee. The Pr.CIT-7, Bengaluru passed an order dated 6.2.108 u/s. 263 of the Act setting aside the order of the AO dated 22.2.2016 and directing the AO to re-examine all the relevant facts with regard to deduction u/s. 80IC of the Act and pass a fresh assessment order. It is pursuant to the aforesaid order u/s. 263 of the Act that the AO examined the claim of assessee u/s. 80IC of the Act. 5. U/s. 80IC of the Act, deduction is allowed on the profits & gains derived from an industrial undertaking from the business referred to in section 80IC(2) of the Act viz., manufacture of an article or thing, other than the article or thing mentioned in Schedule 13 of the Act. Assessee was engaged in the manufacture of an article or thing i.e., computer software and was eligible to claim deduction u/s. 80IC of the Act on the profits derived from the said business. The AO noticed that the deduction u/s. 80IC was claimed on income from service fees to the extent of Rs. 62,13,596. Since the service fees cannot be equated with manufacture of ....
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....ing GSM Roaming System. The installation, testing and the commissioning shall be considered complete only if the system is ready in all respect for putting into commercial service." The Assessee also referred to clause 7.1 & 7.2 of the agreement with regard to "Payment of Goods" & "Payment of Services". The relevant clauses 7.1 & 7.2 is as follows:- "7.1 Payment for Goods (Application Software) a) On Shipment 50% of the Application software shipped shall be made through Irrecovable LC on submission of Original documents b) On Provisional Acceptance 30% payment of the prices of Application software shall be made through Irrecovable LC within 30 date of issuance of Provisional Acceptance Certificate of the Complete System c) On Final Acceptance Remaining 20% payments of the prices of Application software shall be made through Irrecovable within 30 days from the date of issuance of Final Acceptance Certificate of the Complete System 7.2 Payment for Services a) Payment for training 100% payment for training shall be made upon claim after the successful completion of training. b) Installation services i) 80% payment for the installation services shall be made in....
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....Acceptance Test involves activities like installation, testing and commissioning from which Assessee derives service income. It was submitted that both supply and services are interlinked and have nexus to each other, without either one, the system as a whole fails to function. 9. As far as contract between the Assessee and Satyam Computer Services Limited., is concerned, the Assessee pointed out that it was a sub-contract agreement to provide Interim Support to Bharat Electronics Limited (BEL)/Mahanagar Telecom Nigam Limited (MTNL). As per the said contract, the Assessee was to provide Technical & Functional support for SP, Mediation & IUC Applications deployed by Assessee in MTNL Mumbai & Delhi :- - To ensure stability & availability of delivered applications - To fix operational issues, which are raised in Bug Tracking tool - To provide fixes, to business critical problems. 10. The services above provided by Assessee were in relation to the Covergent Billing & CRM System of MTNL rolled in Delhi & Mumbai. As a part of Covergent Billing & CRM system, Assessee had delivered. SP, Mediation & IUC Applications vide earlier agreements with IBM India Private Limited for supply o....
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....re, service activity undertaken by the appellant including training is an independent activity and service fee towards training and maintenance has nothing to do with revenue from sale of products. Under the agreement with Satyam Computers, the appellant was a subcontractor who had rendered certain services in connection with application software sold in the past by the appellant to BEL/MTNL. From this, as observed above, it is clear that a different company other than the developer of a particular software can undertake maintenance of that software, like in this case Satyam Computers had contracted with BEL/MTNL for rendering services in relation to software supplied by the appellant but has sub contracted that work to the appellant. Thus, service fee earned through this sub contract also does not have nexus with turnover on sale of products."(underlining for emphasis) 13. In short, the conclusion of the CIT(Appeals) was that service activity was separate and independent and had nothing to do with the supply of software by the assessee. Aggrieved by the order of CIT(Appeals), the assessee is in appeal before the Tribunal. 14. We have heard the rival submissions. The ld. counsel ....