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2022 (1) TMI 282 - AT - Income TaxNature of expenditure - Allowable revenue expenditure u/s 37 - expenditure towards purchase of software - assessee submitted that the expenditure incurred by the assessee is towards purchase of Core Banking Solutions (CBS) software which is an application software - whether expenditure incurred on “Vysyamulya Project” which is a project by which the assessee wanted to link its 125 branches networked with a Centralized Processing Solution? - HELD THAT:- With passage of time, a perpetual license purchased 10 years ago may not be compatible on that brand new computer that a person may buy. So, every few years, one has to purchase new software to ensure that one remains up-to-date, compatible with new hardware and with other people’s operating systems. In fact, there was a time in which perpetual license agreements were the only ones that existed regarding software. That has since changed, and now many software companies provide subscription services or annual licenses. Therefore the business model adopted by the licensor to grant licenses only on the basis of perpetual license cannot be the basis to hold that the expenditure incurred by the assessee is capital expenditure. Notwithstanding the use of the term perpetual, the license agreement between the assessee and Sanchez provides for annual maintenance and upgrade fee also. Therefore it is not possible to look into the clause in the license agreement in isolation to come to a conclusion that because the license is in perpetuity, the expenditure incurred is capital expenditure. We hold that advantage of an enduring benefit, need not be on capital account. If the advantage consists merely in facilitating the assessee's trading operations or enabling him to manage and conduct his business more efficiently or more profitably while leaving the fixed capital untouched, the same cannot be regarded as on capital account. In order to treat any expenditure as capital expenditure, the same should result in accrual of advantage of enduring benefit and such benefit should accrue to the assesses in the capital field. Such accrual of benefit in the capital field would mean that the said benefit should form part of the profit-making apparatus of the assessee’s business. The expenditure in question only facilitates carrying on the business of the assessee more profitably without touching the profit making apparatus of the bank which is receiving deposits and lending/investing them for profit. Therefore the expenditure in question has to be regarded as revenue expenditure. Thus the relevant grounds of appeal are allowed.
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