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2. Ground No.1 & 3 raised by the assessee in ITA No.3537/M/07 and Ground No.6 to 10 raised by the revenue in ITA No.54/M/07 can be conveniently decided together as the arise on the same facts and circumstances. These grounds read as follows:-

Grounds No.1 of ITA No.3537/M/05:
"1.0 The Learned Commissioner of Income Tax (Appeals) erred in confirming disallowance of claim for deduction of Rs.1,09,56,923/- being sales return. 1.1 Without prejudice the Learned Commissioner of Income Tax (Appeals) erred in treating amount of Rs.1,09,56,923/- as part of income and failed to appreciate that the said sum had not accrued as income at all. 1.2 Without prejudice to the above the Learned Commissioner of Income Tax (Appeals) failed to appreciate that the customized software specifically developed for the customer did not have any market value and the value thereof should be taken as Nil."

3. The assessee is a company. It is engaged in the business of development of software and provision of software consultancy. The assessee derives income in the form of licence fee for allowing its customers to use software developed by it. The assessee sold (granted licence for use which is described as sales) software to Sunidhi Consultancy Services Ltd. (SCS). The sale was in respect of client access licence for ODIN front office software product for NSE and BSE ( 40 access licences) for Rs. 25,70,400/-. This sale was on 31/12/2000. On 31/3/2001 the assessee also sold software for Rs. 1,02,81,600/-. This sale was for allowing SCS Access Licence for Net.net Internet Trading Software Product. Both the aforesaid software products were meant to be used for online share trading. SCS expressed its desire not to use these software and, therefore, these licences were uninstalled. Thus sale to the extent of Rs. 1,09,56,923/- was treated as sales returned by the assessee. SCS had expressed its desire not to use this software in the month of September, 2001 and accordingly sales to extent of Rs. 1,09,56,923/- was treated as sales returns by the assessee.

The appellant also has sought to distinguish the decision of Turner Morison from its application in the case of the appellant in as much as that the decision of Turner Morison was based on principal to agent basis as against the appellant's case whereby the same is applicable on principal to principal basis. The assessee has also relied on mercantile method of accounting, decision in the case of Kedarnth June, need for applicability of accounting standards as also decision in the case of Godhra Electricity Co. 1997 225 ITR 746 (SC) which refers to accounting of real, income as also decision in the case of ISBC Consultancy Services 88 ITD 134(Mumbai) wherein it was held that customization of software is nothing but manufacturing and the AMC of software involves nothing but upgradation and customization of software from time to time as per various requirements including statutory requirements, customer base, requirement, banking related change requirements etc. This AMC pertains more to dynamic upgradation of software akin to manufacturing and hence the manufacturing / AMC which take place over a period cannot be accounted for on receipt of such amount at the beginning of the contract.

29. Copy of the Software Support Services Agreement dated 29-3-2001 is at page 119 to 122 of the paper book. It is necessary to see the various terms of this agreement.

30. Under the agreement, the Assessee has agreed to provide support services to a licensee of the software developed by the Assessee. Support service has been defined as follows:

"Support Services" shall mean the technical support services in connection with the Software and includes bug fixes and support for any regulatory changes related to the message based or file based interfaces as specified by the respective regulators. Support Services shall not include customizing the Software and resolving problems associated with the design and configuration of the system software (operating system, database engine, drivers among others) required by the Software or the hardware on which Licensee has installed or uses the Software."