Even if offshore supply not taxable, software embedded in offshore supply can be taxable

In a turnkey contract, in which the assessee was under an obligation to supply the equipment and software as well as install them, the profit should be taxed on the completion of each milestone or at the time of handing over the functioning system to the contracting party. The supply of the equipment and software constituted a milestone in the contract and the income therefrom arose in the year of shipment, which was in a previous year.

A bifurcation of the revenue into the supply of the equipment and software in the ratio of 30:70 was justified because, though the software was embedded in the equipment and supplied as one package for one price, it was permissible to segregate the composite consideration into different components.