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TMI Blog2017 (5) TMI 1307X X X X Extracts X X X X X X X X Extracts X X X X ..... nic system/machines and equipments as per customers' varying specifications. It filed its return of income on 30th November, 2006 declaring nil income. During the course of assessment proceedings, the Assessing Officer observed that the assessee company has received an amount of Rs. 42,67,468/- as service charges on which deduction u/s 80IC has been claimed. On being questioned by the Assessing Officer, it was explained by the assessee that the service charges are related to services related to AMC of the products and for the services provided after the warranty period is over. It was submitted that the earning of service charge is in consequence and subsequent to the manufacturing of the equipment having been sold by the company during the course of business and received from the customers who do not opt for AMC and should the equipments sold required maintenance or repair of fault, for which, as a provision for after sales service AMC. Therefore, earning of the service charges is the direct result of the manufacture and its subsequent sale of equipment by the company and, therefore, cannot be bifurcated for the limited purpose of not allowing as revenue qualified for the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice charges is taxable, the next step would be to look at its quantification. The assessee has not maintained any distinction in its accounts between the direct expenditure incurred on free services and that incurred on paid service. Similarly, there is no such distinction in respect of the indirect expenses also. Hence, the profit from servicing has to be estimated. The AO ignored expenditure on parts and on travelling outright and allowed expenditure on salary, wages and rent fully while estimating such profit. In my considered opinion, this approach is not correct. The assessee has to incur expenditure on parts and travelling in connection with paid servicing just as it has to incur expenditure on salary and wages and rent in connection with free servicing. Hence, appropriate allocation of these expenses has to be made between these two components. In the absence of the relevant information (which could be provided by the assessee only), I would apply the thumb rule and allocate the entire quantum of expenditure relating to service equally between the chargeable part and free part of servicing. By this logic, the deductible direct expenditure works out to Rs. 12,87,585/-. As r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction u/s 80IC of the Act. 7. Learned DR, on the other hand, heavily relied on the order of the learned CIT(A). He submitted that since annual maintenance charges are not derived from the eligible business of the assessee, therefore, the Assessing Officer was fully justified in denying the benefit of deduction u/s 80IC of the Act. 8. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and learned CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find that the only issue to be decided in the impugned appeal is regarding the eligibility of the assessee to claim deduction u/s 80IC on account of the AMC charges. It is the case of the Revenue that such service charges are not derived from the eligible business and, therefore, the assessee is not entitled to deduction u/s 80IC. It is the case of the assessee that such AMC charges are directly relatable to the business carried on by the assessee of manufacturing, commissioning and erection of electronic systems, machines and equipments as per customers' varying specifications and, therefore, such AMC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... customer to erect and commission the machinery the amount received by it on this count is income derived from the business itself and therefore eligible for deduction under Section 80-IB. 53. Following the above said parity of reasoning and in view of the factual aspect brought on record by the assessee, we hold that AMC charges received by the assessee are directly relatable to the business carried on by the assessee of manufacturing, commissioning and erection of cooling system and consequently the assessee is eligible to the claim of deduction u/s 80IB/80IC of the Act. Ground No.3 raised by the assessee is allowed." 10. We find the Hon'ble Bombay High court in the case of International Data Management Ltd. (supra) has held that the assessee is entitled to deduction u/s 80I on its income from service charges, maintenance revenue and lease rent. The relevant observation of Hon'ble High Court at page 184 reads as under :- "Question No.6 : "6. Whether, on the facts and in the circumstances of the case, and in law and without prejudice to the above, the assessee is not entitled to deduction under section 80-I on merits as the assessee's income from service charges, maintenanc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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