2008 (7) TMI 600 - AT - Income Tax

Expenditure on foreign travel - whether related to purchase of capital asset or business expenditure - held that - The travelling expenditure by the assessee for the purpose of business therefore same are allowable expenditure. The revenue has failed to establish that the expenditure incurred by the assessee is for the purpose of assets therefore the Assessing Officer s view is not acceptable. - Decided in favor of assessee. Capital expenditure or revenue expenditure - technical service charges paid to FBS Software towards software upgradation modification and customization charges. - held that - the facts of the case are required to examine in the light of the above decision of ITAT SB Delhi in Amway India Enterprises (2008 -TMI - 64346 - ITAT DELHI-C ). - Matter remanded back. Depreciation - whether POS terminals and Automated Teller Machine ATM come under computer or come under plant and machinery for the purpose of depreciation. - The Institute of Chartered Accountants of India in its study material PEE II Information Technology Paper VI has defined the term computer - held that - POS terminals and ATMs are not treated to be as computer and therefore the lower authorities have rightly allowed depreciation at the rate of 25 per cent which is applicable to plant and machinery. The rate of 60 per cent which is applicable to computers is not applicable to POS terminals and ATMs. - Decided against the assessee.

Summary

Issues Involved:
1. Disallowance of technical service charges.
2. Treatment of foreign travel expenditure.
3. Depreciation rate on POS terminals and ATMs.

Detailed Analysis:

1. Disallowance of Technical Service Charges:
The assessee contested the disallowance of Rs. 2,45,46,000 paid to FBS Software Inc., USA for software upgradation, modification, and customization, which was treated as capital expenditure by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) reasoned that the expenditure represented the cost to customize the software for specific business requirements, thus providing a long-term enduring benefit. The ITAT referred the matter back to the AO to re-examine it in light of the ITAT Special Bench Delhi decision in Amway India Enterprises v. Dy. CIT [2008] 111 ITD 112.

2. Treatment of Foreign Travel Expenditure:
The assessee incurred Rs. 13,99,568 as foreign travel expenses for employees of a foreign collaborator visiting India to assist in software modification/customization. The AO treated this as capital expenditure, but the CIT(A) disagreed, stating that the assessee was only a licensee of the software, not the owner. The CIT(A) directed the AO to treat the expenditure as revenue expenditure. The ITAT upheld the CIT(A)'s decision, noting that the travel expenses were for business purposes and not for acquiring an asset.

3. Depreciation Rate on POS Terminals and ATMs:
The assessee claimed depreciation at 60% on POS terminals and ATMs, arguing that these were akin to computers. The AO allowed only 25% depreciation, treating them as plant and machinery. The CIT(A) for the assessment year 1999-2000 accepted the assessee's claim, but for the assessment year 2001-02, the CIT(A) upheld the AO's decision. The ITAT confirmed the AO's view, stating that POS terminals and ATMs do not qualify as computers. The ITAT emphasized that these devices are not data processing machines but rather specialized equipment used for specific functions, thus not eligible for the higher depreciation rate applicable to computers.

Conclusion:
- The disallowance of technical service charges was remanded to the AO for re-examination.
- The treatment of foreign travel expenditure as revenue expenditure was upheld.
- The lower depreciation rate of 25% on POS terminals and ATMs was confirmed, rejecting the claim for a 60% rate applicable to computers.

In summary, the ITAT provided a detailed analysis and upheld the CIT(A)'s decisions on foreign travel expenditure while remanding the technical service charges issue for further examination and confirming the lower depreciation rate on POS terminals and ATMs.