TMI Blog2018 (5) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... held that his findings in the order passed for AY 2008- 09 would stand equally applicable here and accordingly, in view of the same, the impugned payment on account of license fee and data management service charges for use of the 'Vision Plus' software was rightly held as revenue in nature and allowable u/s 37. We further note that the factual finding of the CIT(A) on the issue in dispute also could not be controverted by the department during the proceedings before us and we, therefore, find no reason to interfere with the findings of the Ld. CIT(A) on this issue as well and while upholding the same - ITA No. 6836/Del./2014 - - - Dated:- 5-10-2017 - Shri H.S. Sidhu, Judicial Member And Shri L.P. Sahu, Accountant Member For the Appellant : Sh. Naveen Chandra, CIT/DR For the Respondent : Sh. Tushar Jarwal, Advocate Sh. Rahul Satija, Advocate ORDER Per L.P. Sahu, A.M.: This is an appeal filed by the Revenue against the order of the CIT(A)- XV, New Delhi dated 19.09.2014 for the assessment year 2010-11 on the following grounds : 1. Whether on the facts and circumstances of the case and law, the Ld. CIT(A) erred in deleting the addition of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersonal cost of SBI Cards and on account of operating and other expenses of ₹ 45,04,64,924/- aggregating to total expenses of ₹ 76,59,47,341/-, as the same were reduced from the profit and loss account as per schedule 10 11. Regarding balance of ₹ 9,98,65,912/-, the assessee submitted written reply which is as under : That the expenses on account of reimbursement of personnel cost from SB/ cards and payment services ₹ 31,54,82,407/- and on account of operating and other expense of ₹ 45,04,64,934/- aggregating to total expenses at ₹ 76,59,47,341/- has been reduced from the expenses as evident from the P L Account wherein both the amounts has been reduced as per schedule 10 11 of the P L account. Therefore this amount of ₹ 76,59,47,341/- is clearly appearing in the P L account and tantamount to receipts disclosed in the P L account Regarding balance amount of Rs, 9,98,65,912/- the AR of the assessee filed written reply detailed below: During the subject year, the assessee had entered into certain cost sharing arrangement with other companies. In terms of the said arrangement assesses incurs costs on behalf of these companies and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the first appellate authority has decided the issue involved in ground No. 1, at para 8.3 of the impugned order. For the sake of convenience, the same is reproduced as under : 8.3 Ground II - I have carefully consideration the facts, based on perusal of the submissions dated July 21, 2014 and September 4, 2014 in response to the remand report furnished by the Ld. AO and submissions made before during the course of appellate proceedings, I find that the Ld. AO has failed to appreciate the accounting treatment given by the appellant . Based on this, I hold that the receipts under consideration for which addition has been made by the Ld. AO cannot be held as undisclosed receipt by the Appellant as these receipts represent the service tax charged on the receipts, which do not form part of the profit loss account of the Appellant as the same has been shown as a balance sheet item. I find that the Appellant Company has duly disclosed the cost allocated by it to other companies in its books of account by netting off the same in the respective expense ledger, in accordance with accounting policy of the company consistently followed by it and as verified by the auditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s account of the assessee and the same has been shown it as a balance sheet items. The assessee has provided reconciliation statement of service tax liability and it has been reconciled with Form No. 26AS. The assessee has also submitted service tax return before the ld. CIT(A) on which due service tax has been paid to the Government. Therefore, there is no under reporting in the profit and loss account of the assessee of ₹ 9.98 crores and odds. After going through the impugned order, we find that the ld. First appellate authority has rightly deleted the addition made by the AO and therefore, we decide the issue involved in ground No. 1 against the revenue and in favour of the assessee by upholding the impugned order on this ground. 9. As regards the issue involved in grounds Nos. 2 3 regarding addition of ₹ 3.69 crores and odds on account of license fee connectivity charges and coordination charges paid to US based company, M/s. GE Capital Corporation for use of Vision Plus Software, we find that the issue is covered in favour of the assessee by the decision of co-ordinate Bench in the case of assessee itself for assessment year 2011-12 (supra), wherein the ITAT h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... GECC to receive license fee from the Appellant on quarterly basis (refer in this regard clause 3.1 of the EULA). The agreement provides for periodic payment for use of software to GECC which has been subject matter of renewal and revision-every calendar year. iv) The Appellant is specifically forbidden from making the copies of the software and make it available to any other person or use the license for any purpose other than the purposes defined at clause 2.2 of the EULA, or sell it or alienate in any other manner, or duplicate, market license or compete with the licensed program commercially, in any manner. (Refer in this regard clause 2.3 of the EULA). (v) The agreement is subject to termination where there is any breach in material terms including on the periodical payments for user , i.e., if there is a default in payment, then the agreement and consequentially, the right of the Appellant to use the software stands terminated forthwith. (Refer in this regard clause 5.1 (a) of the EULA). (vi) Upon termination, the right to use the licensed program shall end and the Appellant is required to with immediate effect deliver the licensed program to GECC and the Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parties. From the above narration of facts, we find that the arguments advanced by both the parties rest on the vital question whether under the facts and circumstances of the case, the payment of license fee, connectivity charges and co-ordination charges amounting to ₹ 2,19,60,467/- made by the assessee to GECC(USA) under the end-user agreement shall fall within the category of capital expenditure or revenue expenditure? The stand of the assessee is that it is in the nature of revenue expenditure and deductible u/s. 37(1) of the Act whereas the ld. Authorities below have put it in the category of capital expenditure and disallowed the claim of assessee. The basic reasons of Assessing Officer for giving the license fee a treatment of capital expenditure are that the agreement provides exclusive right to use vision plus software which provides enduring benefits to the assessee; that the consideration is in respect of grant of license and that the information was not only in relation to use of license, but co-ordination and connectivity services were also provided by GECC(USA). He, therefore, held that the acquisition of license granted by the licensor in itself is a capita as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for any reason cannot be delivered to GECC. In addition, an officer of GECBPMS shall certify in writing to GECC that all proprietary material relating to the Licensed Program has been delivered to GECC or purged and that the use of the Licensed Program and any portion thereof has been discontinued. Under clause 3.1, the license agreement allows GECC to receive license fee from assessee on quarterly basis as mutually agreed upon. The agreement provides for periodic payment for use of software to GECC, which is subject matter of renewal and revision every calendar year. No case is made out by the department to assume that the periodic payments made by the assessee were the installments for acquisition of such software and the payment was not for mere usage of software. It is a matter of fact on record that M/s. GECC (USA) itself has received the right to use the software internally including its group entities for its business and it does not have any right to commercially exploit the software. The assessee is vested with limited right to use the licensed program during the currency of license agreement. The agreement nowhere provides any exclusive right to the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elivered back to the licensor and the same cannot be made to use by the assessee in any manner. Similarly in the case of Jones Woodhead and Sons (India) (supra) relied on by the Assessing Officer is also distinguishable on facts inasmuch as in that case the agreement between the assessee and the foreign collaborator was in relation to setting up of a new business and the foreign collaborator besides furnishing information and technical know-how, rendered valuable assistance in setting up of the factory itself. No such situation arises in the present case. In view of this discussion and relying on various decisions cited by assessee, we are of the considered opinion that the license fee etc. paid by the assessee to M/s. GECC(USA) is revenue expenditure deductible u/s. 37 of the Act. The appeal of the assessee is accordingly allowed. ITA No. 2124/Del./2013 (By Revenue): 8. The vital issue involved in this appeal is deletion of disallowance of ₹ 2,42,58,933/- made by the Assessing Officer on account of license fee, connectivity charges and co-ordination charges paid to US based company M/s. GE Capital Corporation for use of vision plus software holding the same as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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