TMI Blog2020 (10) TMI 711X X X X Extracts X X X X X X X X Extracts X X X X ..... into an error in not allowing the said claim. We therefore hold that the assessee is entitled to claim deduction u/s. 80IC of the Act on service income - Decided in favour of assessee. - ITA No.461/Bang/2020 - - - Dated:- 14-10-2020 - Shri N.V. Vasudevan, Vice President And Shri B R Baskaran, Accountant Member For the Appellant : Shri S. Parthasarathi, Advocate For the Respondent : Smt. R. Premi, Addl. CIT(DR)(ITAT), Bengaluru ORDER PER N.V. VASUDEVAN, VICE PRESIDENT This appeal by the assessee is against the order dated 31.01.2020 of the CIT(Appeals)-7, Bengaluru relating to assessment year 2013-14. 2. The only issue that arises for consideration in this appeal is as to, whether the revenue authorities were justified in refusing to allow deduction u/s. 80IC of the Income-tax Act, 1961 [the Act] for a sum of ₹ 62,13,596. 3. The facts and circumstances under which the appeal arises are that the assessee is a company engaged in telecommunication, software development and trading in telecommunication hardware required mainly to run their software that are being supplied to the prospective consumers. 4. In the return filed for AY 2013-14, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Acceptance testing; changes requirements, etc. Hence it becomes part and parcel of the software being developed and supplied by the assessee. Hence, the same should be considered while calculation deduction u/s 80-IC of the Act. The Assessee pointed out that services like installation, training, support services etc form integral part of the products supplied by the assessee, therefore have nexus between the products supplied and services provided by the assessee in connection with the said products. 7. The Assessee pointed out that in the case of Contract between the Assessee and Nepal Telecom, the contract is for Supply, Delivery, Installation and Commissioning of the GSM Roaming and NRTRDE System Upgrade with Additional features. It is a Turnkey project for both supply and services to be provided. The Assessee drew attention of the CIT(A) to clause 5.1 which provides for Delivery, Installation, Testing and commissioning of the Contract and it clearly demonstrates that the Installation, Testing and Commissioning is considered complete only when the system is ready in respect for putting into commercial service. The relevant clause is reproduced below for ease of reference. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee pointed out that the contract is for Supply of products and services. It is a Turnkey project for both supply and services to be provided. Attention was drawn to clause-4 of the Agreement which provides for Prices, Terms of Payment and Taxes . The said clause reads as follows:- Payment terms for supply of products (Hardware and Software) 50% of value of supply shall be released on delivery and receipt by Buyer/ Customer within thirty(30) days from the invoice date. 15% of the value of supply on completion of validation 25% of the supply shall he released on completion of Acceptance test Remaining 10% of total purchase order value (Excluding AMC) on Completion of one year after Completion of Acceptance test or against submission of bank guarantee of equivalent amount Payment terms for Services (Installation and commissioning charges) 65% of Validation of products 25% of completion on acceptance test Remaining 10% on completion of one year after Completion of acceptance test or against submission of bank guarantee of equivalent amount. The Assessee submitted that the above clause provides that the supply by itself would no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from development and sale of software products, licences and services. The dispute is only with regard-to whether-income earned from the impugned service fees qualifies for deduction u/s 80-IC. According to the appellant, service income earned during the year has close nexus with sale of software developed by it. Here it is important to note that service fee income shown by the appellant has been received from only three customers. The software sales to Nepal Telecom and Ericsson India have been structured as composite contracts involving supply, installation and testing of the software. There is some component of training in the services agreed upon to be rendered. The consideration for sale of product and rendering of services has been separately fixed and also invoiced separately. Just because a composite contract has been entered into and payment terms for supply of product are linked with completion of allied services, it does not mean that services have a nexus with sale of software products. The service activity is separate and independent which can be undertaken by any other company, In today's software industry, there are different companies which are engaged in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had to perform as sub-contractor. In the case of CIT v. Meghalaya Steels Ltd. Pride Coke Pvt. Ltd. (2013) 356 ITR 235 (Gau) it was held that assessee was entitled to deduction u/s 80-IB or 80-IC on transport subsidy, interest subsidy, power subsidy and insurance subsidy as it was held that there is a nexus between the subsidies, on one hand, and the profits and gains derived by, or derived from, the industrial undertakings concerned. The Hon ble Gauhati High Court in the case of Torsa Machines Ltd. v. CIT (2017) 154 TR (A) 79 (Gau-HC), was concerned with a case wherein the assessee was engaged in business of manufacturing of stone crushing plant and accessories. It claimed deduction under section 80-IC. AO disallowed deduction of claim towards service and erection charges. AO opined that earnings from service and erection charges were not derived from manufacturing business and not eligible for deduction. CIT(A) as well as Tribunal affirmed disallowance. It was held that when the assessee, installed/erected the self-manufactured stone crushing plants and serviced them at the customers site, the amount received from such service was nothing but earnings from the busine ..... X X X X Extracts X X X X X X X X Extracts X X X X
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