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2016 (6) TMI 1240 - AT - Income TaxSoftware expenditure - nature of expenditure - Held that:- The functional test would become material and if on application of the same, it is found that the expenditure operates to confer benefit in the revenue field, then the same would be revenue expenditure, irrespective of the duration of time for which the assessee acquires rights in a software. It has been held that the period of advantage in the context of computer software should not be viewed from the point of view of different assets or advantage like tenancy or use of know-how because software is a business tool enabling a businessman to run his business. It is thus necessary that in order to treat any expenditure as capital expenditure the same should result in accrual of advantage of enduring benefit and the benefits should accrue to the assessee in the capital field. What is meant by accrual of benefit in the capital field that the said benefit should form part of the profit making apparatus of the assessee’s business. In the facts of the present case, we find there is no discussion on facts. The argument that the issue should be decided on the basis of past precedent cannot be accepted as the issue is purely factual and the relevant discussion on facts both by the taxpayer and the tax authorities is found to be missing. We find that the description of the softwares acquired given before the CIT(A) does not throw any light on the nature, use or purpose of the software which has to be understood in the context of its functional use to the taxpayer’s specific business. Accordingly, for this necessary exercise the issue is restored to the file of the AO. The assessee is given liberty to place necessary supporting evidences in support of its claim. Claim deferred revenue expenditure - Held that:- There is no dispute about the fact that assessee had incurred the expenditure and the expenses are not of capital nature, therefore, as per section 37 of Act, these are allowable in the year in which such expenditure has been incurred. The A.O. had relied upon the judgement of Madras Industrial Corpn. For disallowing a part of expenditure. However, in the judgement of Madras Industrial Investment [1997 (4) TMI 5 - SUPREME Court] had held that expenditure can be spread over a period of time provided the assessee decides to do so and therefore, from the above judgement it can be concluded that right to claim deferred revenue expenditure is given to assessee and not to revenue Deduction as foreign exchange loss allowed.
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