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2005 (12) TMI 454 - ITAT DELHIBusiness expenditure - software development expenses - Income from manufacturer of automotive safety glass of two types viz. tempered and laminated - agreement of licensing the software and for providing services - HELD THAT:- We have to be clear on the fact that manufacturing activity of the assessee is the main source of its income. Purchase and sales activities go to fulfil this basic objective of the company whereas accounting and management information systems only helps the assessee to know its own state of affairs on which rest the decisions to be taken. To further clarify the matter, at the cost of repetition we may state that sophisticated accounting and management systems do not actually generate income for the assessee but it only aids the management in taking important decisions. The consideration for getting the right to use the software is in the form of licence fees and not in the form of any purchase price. Over and above the licence fees, since the agreement is also for providing maintenance services, the assessee is liable to pay fees for support and maintenance to Oracle. The licence given under the agreement is liable to be terminated under the provisions of the agreement. Thus, from the various clauses of the agreement, we find that the assessee has not acquired the software in its own right but has acquired only the right to use the software. In other words, what we are trying to emphasize is the fact that by paying the impugned amount, the assessee has not acquired any tangible asset, much less any asset which provides any new source of income or which augments the present source of income. Therefore, the expenses incurred by the assessee cannot be said to be of capital nature. If we look at the break-up of the expenditure for the two years, we find that the major heads under which the payment is made are license fees, annual technical support fees, professional charges, data entry operator charges, training charges and travelling expenses. This goes to show that by incurring these expenses, no new asset has come into existence nor any new source of income has arisen to the assessee. All the expenses are of recurring nature required either to upgrade the systems or to run the systems. Therefore, there is no substance in the argument of the revenue that these expenses have brought in benefit of enduring nature to the assessee. The above observations of the Supreme Court in the case of Alembic Chemical Works Co. Ltd.[1989 (3) TMI 5 - SUPREME COURT] hold equally true for the rapid strides made in the information technology sector. In fact, the pace of advancement is so rapid that whatever technology we install today becomes obsolete within a wink of the eye. In other words, the test of enduring benefit is more prone to failure in the present days than it was when the above observations were made. Therefore, upgradation of technology is the order of the day and to treat the outlay on such up-gradation in the realm of capital would not be proper. It would be like taking a step backward on a conveyor belt which is moving ahead. The observations of the Supreme Court with regard to non-partibility, confidentiality and secrecy and also with regard to the mere right to use are equally applicable to the facts of the present case. Thus, we allow the claim of the assessee on software development expenses as revenue expenditure. We need not re-emphasize that the turnover of the company which hovered around Rs. 150 crores during those years would have reached at that level even without this outlay. It has only benefited the company to run its business more efficiently.
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