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TMI Blog2010 (2) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... passed by the Commissioner of Income Tax (Appeals) deleting the additions made by the Assessing Officer on account of royalty expenses?" In the lead matter, which is civil appeal arising out of S.L.P. (C) No.18545 of 2009, the facts are as under: Assessee carries on the business of development of Software Package and Packaged Software Products divisible into four groups, namely, (i) Customized Software; (ii) Packaged Software Products; (iii) Agency Products; and (iv) Exports. In the lead matter, we are concerned with Assessment Year 1996-1997 and with the Agency Products. In that year, assessee claimed deduction under Section 37 of the Income Tax Act, 1961 [`Act', for short] in respect of royalty expenses of Rs.3,23,28,158/-. The Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p; Rs.32328158 In respect of the said payments, the assessee claimed deduction under Section 37 of the Act on the ground that the assessee had made the said payments towards royalty for "duplicating" the software by the name 'Ingres' in India and supplying the same to the end-users. According to the assessee, the ownership of the said software was retained by Ingres Corporation [which is an American based Multi-National Company in United States]; that for each copy, which stood duplic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ican Corporation in the United States for "duplicating" the software. Before coming to the dictionary meaning of the word "Duplication", we may state that `Ingres', according to the Department, is a software which is a `Back-end System', which, in turn, is used to develop other softwares therefrom depending on the needs of the customers. In the present case, the customers of the assessee are Reliance Industries Limited, Anand Bazar Patrika, Air India, etc. One more aspect needs to be highlighted. The contract/arrangement between the assessee and the American Corporation in this case consists of two parts, namely, commercial and manufacture. From the said contract/ arrangement, it, prima facie, appears that the above custom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictionary, the part of a compiler that transforms the source code into object code is called "Back-end". A Back-end processor is a slave processor that performs a specialized task, such as providing rapid access to a database, freeing the main processor for other work. Such function is called `Back-end' because it is supporting to the computer's main function. Keeping in mind the fact that none of the above-mentioned aspects has been considered by the High Court, we are of the view that the High Court should have framed, on the facts and circumstances of these cases, the following question of law for determination: "Whether allowance of royalty expenses, as claimed by the assessee, are to be allowed in its entirety under Section 37 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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