Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2008 (11) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2008 (11) TMI 432 - AT - Income TaxNature of expenses - software expenses incurred by the assessee - capital or revenue expenditure - Disallowance of expenditure incurred on lease hold improvements - Addition charged to VP-1 stock, to the P & L account. Nature of expenses - software expenses incurred by the assessee - capital or revenue expenditure - functionality test - Whether the expenditure on license is capital or revenue in nature - HELD THAT:- The issue was considered by the Special Bench in the assessee’s own case which was reported in Amway India Enterprises v. Dy. CIT [2008 (2) TMI 454 - ITAT DELHI-C] and it was held that computer software in a disc is tangible asset, tests of enduring benefit, ownership test and the functional test are to be applied to decide the nature of expenditure. AO will examine the question whether expenditure on computer software is capital or revenue expenditure in the light of the principles laid down by the Special Bench. After hearing the assessee, AO will decide the question whether the expenditure is capital or revenue expenditure. If on such examination, AO comes to the conclusion that the expenditure is capital expenditure, then the question regarding allowing depreciation will be decided in accordance with the principles laid down - Therefore, matter is restored back to the file of the AO. Disallowance of expenditure incurred on lease hold improvements - HELD THAT:- The expenditure was claimed u/s 37(1) which provide that any expenditure, not in the nature described under sections 30 to 36 and not being in the nature of capital expenditure or personal expenditure and which is laid out wholly and exclusively for the purpose of business, shall be allowed in computing the income chargeable under the head "Profit and gains of business and profession". The nature of expenditure which was on account of refurbishment, wooden partition/panelling, flooring, plumbing work, electric work, laying down of cables etc., are essentially revenue in nature. As the expenditure were incurred on lease hold premises, assessee did not get any enduring benefit on account of such expenditure. The expenditure so incurred could not be removed or reused at the time of vacating the leased premises. In case of Modi Spg. & Wvg. Mills Co. Ltd.[1992 (10) TMI 76 - DELHI HIGH COURT], observed that where assessee had taken two flats of the building for a period of 11 months, but renewable for 10 periods of 11 months each, the expenditure incurred by the assessee on items like fixing false ceiling, painting, making some structural changes, fixing of doors in the common walls between the flats etc. it was held to be incurred for the purpose of facilitating carrying out of its business, accordingly revenue in nature - Therefore, there are no merit in the action of lower authorities for disallowing assessee’s claim for expenditure incurred on improvement of the lease hold premises, except the expenditure incurred on air-conditioning unit and furniture - This ground taken by the revenue is also restored back to decided afresh after taking into account the principles laid down by the Special Bench in assessee’s own case, as discussed hereinabove. Addition charged to VP-1 stock, to the P & L account - contention of the assessee was that VP-1 was an application docket, which was purchased by distributors to enroll their prospects as new distributors with the company - HELD THAT:- We have found that VP-1 form was nothing but a set of papers and is essentially part of printing and stationery. As the stock of printing and stationery was consumed during the year itself, there was no reason to disallow the same. The CIT(A) also recorded the detailed finding at his appellate order which has not been controverted by the Ld. D.R. We, therefore, do not find any reason to interfere in the order of CIT(A) for deleting the addition. In the result, both the appeals of the assessee and the revenue are allowed in part.
|