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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 Assessing Officer held that, only one-sixth of the amount was allowable in view of Section 35AB of the Act and, accordingly, after allowing the benefit under Section 35AB of the Act, the Assessing Officer made a disallowance of Rs.1,12,12,352/-, which was added back to the income of the assessee. On appeal filed by the assessee, the Commissioner of Income Tax (Appeals) deleted the additions made by the Assessing Officer, which view was confirmed by the Income Tax Appellate Tribunal [`Tribunal', for short] following it's earlier decision in the assessee's own case in I.T.A. No.4968/1995 and others dated 25th November, 1999. Being aggrieved by the decision of the Tribunal, the Department instituted Tax Appeal No.606 of 2008 in the High Court which, as stated hereinabove, refused to formulate the above proposed question, hence, these civil appeals.
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At the outset, we may reiterate what we have stated earlier in so many judgements, namely, that the Department has to analyse the process undertaken by the assessee(s), analyse the contracts and the price structure to ascertain the nature of payment Depending upon the analysis of the process of "duplication" in the context of the contracts signed by the assessee with the American Corporation, one has to find out whether the expense incurred is a Revenue expenditure or a capital expenditure. Moreover, one cannot proceed to decide such cases merely on the basis of the labels affixed to a given process. In this case, the assessee contends that it makes payment to the American 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 customers are given direct access to the software `Ingres' and, according to the Department, this is one reason why royalty is shared between the assessee and the American Corporation in the ratio of 60 : 40. According to the Department, such high ratio itself suggests that the impugned payment is not for "duplication", simpliciter.