M/s. Xalted Information Systems Private Limited, Bengaluru V. The Deputy Commissioner Of Income Tax, Circle- 7(1)(2), Bangalore

ITA 461/BANG/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4968 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 07-10-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 03-06-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R PREMI BENGALURU
• Section: 143(3); 80IC; 80IC; 13; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER ITA NO. 461/BANG/2020 ASSESSMENT YEAR : 2013 - 14 M/S XALTED INFORMATION SYSTEMS PVT. LTD. NO.31, 3 RD FLOOR, XAVIER BOARD, PRIMROSE ROAD, BENGALURU 560 025. PAN: AAFCS 5024G VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(2) BENGALURU. APPELLANT RESPONDENT APPELLANT BY : SHRI S. PARTHASARATHI, ADVOCATE RESPONDENT BY : S MT. R. PREMI, ADDL. CIT(DR)(ITAT), BENGALURU. DATE OF HEARING : 07. 1 0.2020 DATE OF PRONOUNCEMENT : 14 . 1 0.2020 O R D E R 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 ASSESS MENT YEAR 2013-14. 2. THE ONLY ISSUE THAT ARISES FOR CONSIDERATION IN THIS APPEAL IS AS TO, WHETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN R EFUSING TO ALLOW DEDUCTION U/S. 80IC OF THE INCOME-TAX ACT, 1961 [THE ACT] FOR A SUM OF RS.62,13,596. 3. THE FACTS AND CIRCUMSTANCES UNDER WHICH THE APPE AL ARISES ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN TELECOMMUNICAT ION, SOFTWARE ITA NO.461/BANG/2020 PAGE 2 OF 11 DEVELOPMENT AND TRADING IN TELECOMMUNICATION HARDWA RE REQUIRED MAINLY TO RUN THEIR SOFTWARE THAT ARE BEING SUPPLIED TO THE P ROSPECTIVE CONSUMERS. 4. IN THE RETURN FILED FOR AY 2013-14, THE ASSESSEE 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 ALLO WING 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 DA TED 22.2.2016 AND DIRECTING THE AO TO RE-EXAMINE ALL THE RELEVANT FAC TS WITH REGARD TO DEDUCTION U/S. 80IC OF THE ACT AND PASS A FRESH ASS ESSMENT 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 TH E PROFITS & GAINS DERIVED FROM AN INDUSTRIAL UNDERTAKING FROM THE BUS INESS 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 TH E 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 TH E 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 EQU ATED WITH MANUFACTURE OF COMPUTER SOFTWARE, THE AO HELD THAT THE ASSESSEE IS NOT ENTITLED TO DEDUCTION ON SERVICE FEES INCOME. THE DEDUCTION U/ S. 80IC WAS ACCORDINGLY RECOMPUTED BY THE AO. 6. BEFORE THE CIT(APPEALS), THE ASSESSEE GAVE A BRE AK-UP OF INCOME IN THE FORM OF SERVICE FEES RECEIVED FROM 3 ENTITIES W HICH WERE AS FOLLOWS:- ITA NO.461/BANG/2020 PAGE 3 OF 11 NAME OF THE PARTY INCOME FROM SERVICES RENDERED NEPAL TELECOM 16,74,419 SATYAMCOMPUTER SERVICES LIMITED 45,00,000 ERICSSON. INDIA PRIVATE LIMITED 39,177 THE ASSESSEE EXPLAINED THE NATURE OF SERVICES PROVI DED BY IT IN RESPECT OF WHICH DEDUCTION U/S.80IC OF THE ACT WAS CLAIMED AND DENIED B THE AO BY POINTING OUT THAT THESE SERVICES WERE REQUIRED TO B E PERFORMED FOR USING SOFTWARE DEVELOPED BY THE ASSESSEE AND SUPPLIED TO A CUSTOMER AND IS PART AND PARCEL OF THE SOFTWARE SO SUPPLIED. THE AS SESSEE POINTED OUT THAT EVEN AFTER SUPPLY OF THE SOFTWARE THE ASSESSEE NEED S TO RENDER THE SERVICES TO MEET THE COMPLETE SCOPE OF WORK WHICH I NCLUDES SERVICES LIKE INTEGRATION TESTING, VALIDATION/SYSTEM TESTING ACCE PTANCE TESTING; CHANGES REQUIREMENTS, ETC. HENCE IT BECOMES PART AN D PARCEL OF THE SOFTWARE BEING DEVELOPED AND SUPPLIED BY THE ASSESS EE. HENCE, THE SAME SHOULD BE CONSIDERED WHILE CALCULATION DEDUCTION U/ S 80-IC OF THE ACT. THE ASSESSEE POINTED OUT THAT SERVICES LIKE INSTALLATIO N, TRAINING, SUPPORT SERVICES ETC FORM INTEGRAL PART OF THE PRODUCTS SUP PLIED BY THE ASSESSEE, THEREFORE HAVE NEXUS BETWEEN THE PRODUCTS SUPPLIED AND SERVICES PROVIDED BY THE ASSESSEE IN CONNECTION WITH THE SAID PRODUCT S. 7. THE ASSESSEE POINTED OUT THAT IN THE CASE OF CO NTRACT BETWEEN THE ASSESSEE AND NEPAL TELECOM, THE CONTRACT IS FOR SUP PLY, DELIVERY, INSTALLATION AND COMMISSIONING OF THE GSM ROAMING A ND NRTRDE SYSTEM UPGRADE WITH ADDITIONAL FEATURES. IT IS A TU RNKEY PROJECT FOR BOTH SUPPLY AND SERVICES TO BE PROVIDED. THE ASSESSEE D REW ATTENTION OF THE CIT(A) TO CLAUSE 5.1 WHICH PROVIDES FOR 'DELIVERY, INSTALLATION, TESTING AND COMMISSIONING' OF THE CONTRACT AND IT CLEARLY DEMON STRATES THAT THE INSTALLATION, TESTING AND COMMISSIONING IS CONSIDER ED COMPLETE ONLY WHEN ITA NO.461/BANG/2020 PAGE 4 OF 11 THE SYSTEM IS READY IN RESPECT FOR PUTTING INTO COM MERCIAL SERVICE. THE RELEVANT CLAUSE IS REPRODUCED BELOW FOR EASE OF REF ERENCE. 'THE INSTALLATION OF NEW HARDWARE AND SOFTWARE, THE IR TESTING AND COMMISSIONING SHALL BE CARRIED OUT IN STAGES WITHOU T OR WITH MINIMUM DISTURBANCE ON THE NORMAL OPERATION OF EXIS TING GSM ROAMING SYSTEM. THE INSTALLATION, TESTING AND THE C OMMISSIONING 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 T HE 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 MA DE THROUGH IRRECOVABLE LC ON SUBMISSION OF ORIGINAL DOCUMENTS B) ON PROVISIONAL ACCEPTANCE 30% PAYMENT OF THE PRICES OF APPLICATION SOFTWARE S HALL BE MADE THROUGH IRRECOVABLE LC WITHIN 30 DATE OF ISSUANCE O F 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 FR OM 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. ITA NO.461/BANG/2020 PAGE 5 OF 11 B) INSTALLATION SERVICES I) 80% PAYMENT FOR THE INSTALLATION SERVICES SHALL BE MADE IN 2 INSTALLMENTS ON CERTIFICATION BY NEPAL TELECOM MANA GER OF TIMELY COMPLETION OF WORKS AS PER PROJECT SCHEDULE ON PRO- RATA BASIS. THE PAYMENT SHALL BE MADE BEFORE OR ON ISSUANCE OF PAC OF APPLICATION SOFTWARE II) 20%PAYMENT SHALL BE MADE AFTER THE ISSUANCE OF FINAL ACCEPTANCE CERTIFICATE OF THE COMPLETE SYSTEM IT WAS SUBMITTED THAT THE ABOVE TERMS OF THE CONTRA CT ESTABLISHES THAT THE SUPPLY BY ITSELF WOULD NOT ENABLE THE ASSESSEE TO R ECEIVE THE FULL PAYMENT. ONLY ON ISSUANCE OF PROVISIONAL ACCEPTANCE CERTIFIC ATE AND FINAL ACCEPTANCE CERTIFICATE THE ASSESSEE RECEIVES THE FU LL PAYMENT FOR SUPPLY OF THE PRODUCT. PROVISIONAL ACCEPTANCE CERTIFICATE INV OLVES ACTIVITIES LIKE INSTALLATION, TESTING AND FROM WHICH APPELLANT DERI VES SERVICE INCOME. IT WAS SUBMITTED THAT SUPPLY AND SERVICES ARE INTERLINKED AND HAVE NEXUS TO EACH OTHER, WITHOUT EITHER ONE, THE SYSTEM AS A WHOLE FA ILS TO FUNCTION. 8. AS FAR AS THE CONTRACT BETWEEN AND M/S.ERICSSON INDIA PRIVATE LIMITED IS CONCERNED, THE ASSESSEE POINTED OUT THAT THE CONTRACT IS FOR SUPPLY OF PRODUCTS AND SERVICES. IT IS A TURNKEY PR OJECT FOR BOTH SUPPLY AND SERVICES TO BE PROVIDED. ATTENTION WAS DRAWN TO CL AUSE-4 OF THE AGREEMENT WHICH PROVIDES FOR 'PRICES, TERMS OF PAYMENT AND T AXES'. THE SAID CLAUSE READS AS FOLLOWS:- PAYMENT TERMS FOR SUPPLY OF PRODUCTS (HARDWARE AND SOFTWARE) 50% OF VALUE OF SUPPLY SHALL BE RELEASED ON DELIVER Y AND RECEIPT BY BUYER/ CUSTOMER WITHIN THIRTY(30) DAYS F ROM THE INVOICE DATE. 15% OF THE VALUE OF SUPPLY ON COMPLETION OF VALIDAT ION ITA NO.461/BANG/2020 PAGE 6 OF 11 25% OF THE SUPPLY SHALL HE RELEASED ON COMPLETION O F ACCEPTANCE TEST REMAINING 10% OF TOTAL PURCHASE ORDER VALUE (EXCLUD ING AMC) ON COMPLETION OF ONE YEAR AFTER COMPLETION OF ACCEPTANCE TEST OR AGAINST SUBMISSION OF BANK GUARA NTEE OF EQUIVALENT AMOUNT PAYMENT TERMS FOR SERVICES (INSTALLATION AND COMMIS SIONING 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 PROVID ES THAT THE SUPPLY BY ITSELF WOULD NOT ENABLE THE ASSESSEE TO RECEIVE THE FULL PAYMENT, ONLY ON COMPLETION OF VALIDATION TEST AND ACCEPTANCE TEST T HE APPELLANT RECEIVES THE FULL PAYMENT FOR SUPPLY OF THE PRODUCT. IT WAS POINTED OUT THAT VALIDATION TEST AND ACCEPTANCE TEST INVOLVES ACTIVITIES LIKE I NSTALLATION, TESTING AND COMMISSIONING FROM WHICH ASSESSEE DERIVES SERVICE I NCOME. IT WAS SUBMITTED THAT BOTH SUPPLY AND SERVICES ARE INTERLI NKED AND HAVE NEXUS TO EACH OTHER, WITHOUT EITHER ONE, THE SYSTEM AS A WHO LE FAILS TO FUNCTION. 9. AS FAR AS CONTRACT BETWEEN THE ASSESSEE AND SAT YAM COMPUTER SERVICES LIMITED., IS CONCERNED, THE ASSESSEE POINT ED OUT THAT IT WAS A SUB-CONTRACT AGREEMENT TO PROVIDE INTERIM SUPPORT T O BHARAT ELECTRONICS LIMITED (BEL)/MAHANAGAR TELECOM NIGAM LIMITED (MTNL ). AS PER THE SAID CONTRACT, THE ASSESSEE WAS TO PROVIDE TECHNICAL & F UNCTIONAL SUPPORT FOR SP, MEDIATION & IUC APPLICATIONS DEPLOYED BY ASSESS EE IN MTNL MUMBAI & DELHI :- ITA NO.461/BANG/2020 PAGE 7 OF 11 - TO ENSURE STABILITY & AVAILABILITY OF DELIVERED APP LICATIONS - 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 I N RELATION TO THE COVERGENT BILLING & CRM SYSTEM OF MTNL ROLLED IN DE LHI & MUMBAI. AS A PART OF COVERGENT BILLING & CRM SYSTEM, ASSESSEE HA D DELIVERED. SP, MEDIATION & IUC APPLICATIONS VIDE EARLIER AGREEMENT S WITH IBM INDIA PRIVATE LIMITED FOR SUPPLY OF SOFTWARE LICENSES (AG REEMENT DATED 1ST JUNE 2006) AND AGREEMENTS WITH SATYAM COMPUTER SYSTEMS L TD FOR PROVIDING SERVICES( AGREEMENT DATED 7TH AUGUST 2006). IT WAS SUBMITTED THAT THE SERVICES PROVIDED BY ASSESSEE WERE IN RELATION TO T HE SUPPLY OF APPLICATION SOFTWARE ALREADY SUPPLIED, HENCE HAS A CLOSE NEXUS WITH THE PRODUCT WHICH -REQUIRED TECHNICAL & FUNCTIONAL SUPPORT TO ENSURE STABILITY, FIX OPERATIONAL ISSUES ETC. 11. THE ASSESSEE THUS SUBMITTED THAT THE DEDUCTION U/S.80IC OF THE ACT SHOULD BE ALLOWED ON THE SERVICES FEES ALSO AS IT H AS A CLOSE NEXUS WITH THE SUPPLY OF SOFTWARE AND HENCE HAS TO BE REGARDED AS PART OF THE PROFITS DERIVED FROM THE ELIGIBLE BUSINESS. 12. THE CIT(APPEALS), HOWEVER, DID NOT ACCEPT THE C ONTENTION OF THE ASSESSEE. THE RELEVANT PARAGRAPH OF THE CONCLUSION OF THE CIT(APPEALS) WAS AS FOLLOWS:- ........... IN THE INSTANT CASE, THE AO HAS NO DIS PUTE IN SO FAR AS DEDUCTION CLAIMED U/S 80-IC WITH RESPECT TO PROFITS DERIVED FROM DEVELOPMENT AND SALE OF SOFTWARE PRODUCTS, LICENCES AND SERVICES. THE DISPUTE IS ONLY WITH REGARD-TO WHETHER-INCOME E ARNED FROM THE IMPUGNED SERVICE FEES QUALIFIES FOR DEDUCTION U /S 80-IC. ACCORDING TO THE APPELLANT, SERVICE INCOME EARNED D URING 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 ITA NO.461/BANG/2020 PAGE 8 OF 11 HAS BEEN RECEIVED FROM ONLY THREE CUSTOMERS. THE SO FTWARE SALES TO NEPAL TELECOM AND ERICSSON INDIA HAVE BEEN STRUC TURED AS COMPOSITE CONTRACTS INVOLVING SUPPLY, INSTALLATION AND TESTING OF THE SOFTWARE. THERE IS SOME COMPONENT OF TRAINING I N THE SERVICES AGREED UPON TO BE RENDERED. THE CONSIDERATION FOR S ALE OF PRODUCT AND RENDERING OF SERVICES HAS BEEN SEPARATELY FIXED AND ALSO INVOICED SEPARATELY. JUST BECAUSE A COMPOSITE CONTR ACT HAS BEEN ENTERED INTO AND PAYMENT TERMS FOR SUPPLY OF PRODUC T ARE LINKED WITH COMPLETION OF ALLIED SERVICES, IT DOES NOT MEA N THAT SERVICES HAVE A NEXUS WITH SALE OF SOFTWARE PRODUCTS. THE SE RVICE 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 PROVIDING VARIETY OF SERVICES SUCH AS TRAINING, CONSULTANCY, TESTING AND MAINTENA NCE, EACH WITH ITS OWN NISCHE MARKET. THESE COMPANIES MAY NOT BE D EVELOPING SOFTWARE OF THEIR OWN BUT WORK ON SOFTWARE'S DEVELO PED BY OTHERS. THEREFORE, SERVICE ACTIVITY UNDERTAKEN BY T HE APPELLANT INCLUDING TRAINING IS AN INDEPENDENT ACTIVITY AND S ERVICE FEE TOWARDS TRAINING AND MAINTENANCE HAS NOTHING TO DO WITH REVENUE FROM SALE OF PRODUCTS. UNDER THE AGREEMENT WITH SAT YAM COMPUTERS, THE APPELLANT WAS A SUBCONTRACTOR WHO HA D RENDERED CERTAIN SERVICES IN CONNECTION WITH APPLICATION SOF TWARE SOLD IN THE PAST BY THE APPELLANT TO BEL/MTNL. FROM THIS, A S OBSERVED ABOVE, IT IS CLEAR THAT A DIFFERENT COMPANY OTHER T HAN THE DEVELOPER OF A PARTICULAR SOFTWARE CAN UNDERTAKE MA INTENANCE OF THAT SOFTWARE, LIKE IN THIS CASE SATYAM COMPUTERS H AD CONTRACTED WITH BEL/MTNL FOR RENDERING SERVICES IN RELATION TO SOFTWARE SUPPLIED BY THE APPELLANT BUT HAS SUB CONTRACTED TH AT WORK TO THE APPELLANT. THUS, SERVICE FEE EARNED THROUGH THIS SU B CONTRACT ALSO DOES NOT HAVE NEXUS WITH TURNOVER ON SALE OF PRODUCTS.(UNDERLINING FOR EMPHASIS) 13. IN SHORT, THE CONCLUSION OF THE CIT(APPEALS) WA S 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. C OUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO AN ORDER OF ITAT BAN GALORE BENCH IN ITA NO.461/BANG/2020 PAGE 9 OF 11 ASSESSEES OWN CASE IN ITA NO.821/BANG/2019 FOR THE AY 2014-15, ORDER DATED 26.2.2020 WHEREIN ON AN IDENTICAL ISSUE OF SERVICE FEES INCO ME, THE TRIBUNAL ALLOWED DEDUCTION TO THE ASSESSEE U/S. 80I C OF THE ACT. THE CONCLUSION OF THE TRIBUNAL WAS THAT THE SUPPLY OF S OFTWARE AND PROVIDING SERVICES WERE INTER-LINKED AND HAD A NEXUS AND THER EFORE THE SERVICE FEES RECEIVED WAS TO BE REGARDED AS PROFITS DERIVED BY T HE INDUSTRIAL UNDERTAKING FROM MANUFACTURE OF GOODS. THE LEARNED DR RELIED O N THE ORDER OF THE CIT(A). 15. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RI VAL SUBMISSIONS. IN AY 2014-15, IDENTICAL ISSUE WAS DECIDED BY THE ITAT BANGALORE BENCH BY ITS ORDER DATED 26.2.2020. THE FOLLOWING WERE THE CONCLUSIONS OF THE TRIBUNAL ON THE ISSUE:- 15. IT IS CLEAR FROM THE BREAK-UP OF SERVICE FEE RECEIVED THAT THEY WERE ALL RELATED TO THE FMCC & RA PROJECT OF B SNL WHICH THE ASSESSEE HAD TO PERFORM AS SUB-CONTRACTOR. IN T HE CASE OF CIT V. MEGHALAYA STEELS LTD. & PRIDE COKE PVT. LTD. (20 13) 356 ITR 235 (GAU) IT WAS HELD THAT ASSESSEE WAS ENTITLED TO DEDUCTION U/ S 80-IB OR 80-IC ON TRANSPORT SUBSIDY, INTEREST SUBSI DY, POWER SUBSIDY AND INSURANCE SUBSIDY AS IT WAS HELD THAT T HERE IS A NEXUS BETWEEN THE SUBSIDIES, ON ONE HAND, AND THE PROFITS AND GAINS DERIVED BY, OR DERIVED FROM, THE INDUSTRIAL UNDERTA KINGS CONCERNED. THE HONBLE GAUHATI HIGH COURT IN THE CA SE 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 A ND ACCESSORIES. IT CLAIMED DEDUCTION UNDER SECTION 80- IC. AO DISALLOWED DEDUCTION OF CLAIM TOWARDS SERVICE AND E RECTION CHARGES. AO OPINED THAT EARNINGS FROM SERVICE AND E RECTION CHARGES WERE NOT DERIVED FROM MANUFACTURING BUSINES S AND NOT ELIGIBLE FOR DEDUCTION. CIT(A) AS WELL AS TRIBUNAL AFFIRMED DISALLOWANCE. IT WAS HELD THAT WHEN THE ASSESSEE, I NSTALLED/ERECTED THE SELF-MANUFACTURED STONE CRUSHING PLANTS AND SER VICED THEM AT THE CUSTOMERS SITE, THE AMOUNT RECEIVED FROM SUCH S ERVICE WAS NOTHING BUT EARNINGS FROM THE BUSINESS OF MANUFACTU RING ACTIVITY. THE HONBLE HIMACHAL PRADESH HIGH COURT IN THE CASE OF [SPRAY ITA NO.461/BANG/2020 PAGE 10 OF 11 ENGINEERING DEVICES LTD. V. ASSTT. CIT & ANR.] IT A PPEAL NO. 39 OF 2006 JUDGMENT DATED 7.11.2009 TOOK THE VIEW THA T WHEN A MANUFACTURER IS REQUIRED BY THE CUSTOMER TO ERECT A ND COMMISSION THE MACHINERY, THE AMOUNT RECEIVED BY TH E MANUFACTURER ON THIS COUNT, IS THE INCOME DERIVED F ROM THE BUSINESS ITSELF AND THEREFORE, THE SAME IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80-IB OF THE INCOME TAX ACT. THE HON BLE BOMBAY HIGH COURT IN THE CASE OF CIT V. INTERNATIONAL DATA MANAGEMENT LTD. (2003) 261 ITR 177 (BOM) HAD TO DEA L WITH A CASE REGARDING ENTITLEMENT OF DEDUCTION UNDER SECTION 80-IC FOR INCOME, RECEIVED ON ACCOUNT OF SERVICE AND MAINTENA NCE CHARGE. IN THE CONTEXT, THE BOMBAY HIGH COURT HELD THAT THE INCOME RECEIVED BY THE ASSESSEE WHICH RENDERED SERVICE AND MAINTENANCE FACILITIES FOR THE CLIENTS, HAS A DIRECT NEXUS WITH THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE. 16. IN THE PRESENT ASSESSMENT YEAR, THE CONTRACTS ARE WITH 3 DIFFERENT PARTIES. IT IS CLEAR FROM THE SUBMISSIONS MADE BEF ORE THE CIT(A) THAT THE SERVICE INCOME IN RESPECT OF WHICH THE ASSESSEE CLA IMED DEDUCTION U/S.80IC OF THE ACT HAD A CLEAR NEXUS WITH THE SUPP LY OF SOFTWARE AND PROVIDING SERVICES WERE INTER-LINKED AND THEREFORE THE SERVICE FEES RECEIVED WAS TO BE REGARDED AS PROFITS DERIVED BY THE INDUST RIAL UNDERTAKING FROM MANUFACTURE OF GOODS. THE CONCLUSIONS OF THE TRIBU NAL AND THE CASES CITED BY THE TRIBUNAL IN THE AFORESAID DECISION RENDERED IN AY 2014-15 ARE CLEARLY APPLICABLE TO THE PRESENT AY 2013-14 ALSO. WE ARE THEREFORE OF THE VIEW THAT THE CLAIM MADE BY THE ASSESSEE FOR DEDUCT ION U/S. 80IC OF THE ACT ON SERVICE INCOME OUGHT TO HAVE BEEN ALLOWED BY THE AO/CIT(A) AND THEY FELL INTO AN ERROR IN NOT ALLOWING THE SAID CLAIM. WE THEREFORE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION U/S. 80IC O F THE ACT ON SERVICE INCOME OF RS.62,13,596. ITA NO.461/BANG/2020 PAGE 11 OF 11 17. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS A LLOWED. PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF OCTOBER, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 14 TH OCTOBER, 2020. / DESAI S MURTHY / COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.