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1. Sales segment - Sub-licensing of SAP software to customers in India, Sri Lanka and Bangladesh. The Assessee has obtained a non-exclusive license from SAP AG to use, market and sub-license SAP software products to customers in India, Sri Lanka and Bangladesh. Under separate agreements (known as the "End User License Agreements" or "EULAs") entered into with its Indian/ other customers, the Assessee sub-licenses the SAP software to such customers.

3. There were no overseas onsite development charges of services for development of software outside India since some of its employees were stationed overseas.

4. SAP India did not identify a specific process undertaken by it for which it was charging the group entities and that not all activities connected with software can be stated as software development.

8. Aggrieved by the order of the AO, the assessee preferred appeal before the CIT(A). Before CIT(A) the Assessee highlighted the nature of services rendered by the GDC unit. The Assessee submitted that SAP ITA Nos.1492-1495(B)12 & ITA No.265(B)/13 ERP (Enterprise Resource Planning) software is standard software. It has the capacity to adapt to the requirements of different customers in different type of industry and different sectors in the same industry. Besides the above, the existing software system used by a customer can be altered so as to use the SAP ERP Software. For the purpose of adapting SAP ERP Software to suit a particular customers requirement or to integrate an existing software system used by a customer with SAP ERP Software system, some customization is required to be done. Such customization could also involve corrections to the standard SAP ERP software or even developing new software module. Such customization can also extend to fixing corrections arising out of errors/discrepancies/bugs in the working of customized software. The GDC division does such corrections or customization and has to be considered as "Developing Software" within the meaning of Sec.10A of the Act.

17. The learned counsel for the Assessee submitted that SAP AG makes various software products for varied uses. These software products are standard products which would need to be adapted to fit into the customer's existing IT environment and the customer's requirements/ operational needs. For carrying on the software implementation support services for overseas customers, SAP India established a physically separate and independent unit in May 2002 i.e., GDC unit, consisting of one STP unit in Bangalore and (another STP unit in Gurgaon in December 2006). The implementation support services carried out by GDC comprises mainly modifying/enhance the existing functions of SAP's software like SAP Business Suite, SAP Business By design, Partner Edge, SAP Business One, my SAP ERP etc, to suit the requirements of overseas customers who have purchased these SAP software. This work is outsourced by overseas SAP entities to the GDC unit after the sale of the SAP software to overseas customers. For these services, SAP India is remunerated by the respective overseas SAP entities on a man-hour basis under a Cross Services Agreement entered between SAP AG (for itself and on behalf of its subsidiaries) and SAP India ( copies of the said agreement is at Page 77 to 90 of Paper book for AY 2005-06). 

           and

     −     End of GDC involvement.

22. The learned counsel for the Assessee thus submitted that:

• The Assessee provides software modification services to the end-
user customer post sales of SAP software • These services are based on functional and technical specifications of the customer which are outlined in the Project Charter drawn up between SAP's overseas entity and the Assessee • Assessee's employees then develop/ write the software code and perform unit acceptance test to check for defects in modules prepared during the development phase such as workflow modules, interface module, conversion module, etc ITA Nos.1492-1495(B)12 & ITA No.265(B)/13 • Once the software modules are developed, the Assessee tests the software and then installs it in the SAP software in the customer's office overseas.