2011 (6) TMI 749 - AT - Income Tax

Summary

Issues involved:
1. Allowance of exemption u/s. 10A of the IT Act
2. Treatment of expenditure on purchase of software

Issue 1: Allowance of exemption u/s. 10A of the IT Act
The appellant Revenue challenged the Ld. Commissioner of Income Tax (Appeals)'s decision to allow the claim of exemption u/s. 10A of the IT Act. The assessee company claimed exemption u/s 10A amounting to Rs. 1,18,05,695, supported by a registration issued by STPI. The Assessing Officer rejected the claim stating that only the Inter Ministerial Standing Committee can grant approval for deduction u/s. 10. The Ld. Commissioner of Income Tax (Appeals) referred to a tribunal decision and held that the STPI registration was valid for deduction u/s 10B, similar to the present case, and thus allowed the exemption u/s. 10A. The ITAT upheld the Ld. Commissioner's decision, citing consistency and precedent, dismissing the Revenue's appeal.

Issue 2: Treatment of expenditure on purchase of software
The second issue pertained to the disallowance of Rs. 11,80,232 treated as capital expenditure on software purchase by the Assessing Officer. The assessee contended that this amount was for software supportive of running the main software, not for acquiring an asset. The Ld. Commissioner of Income Tax (Appeals) referred to a case law where it was held that software requiring regular upgrades does not create a capital asset. Consequently, the Ld. Commissioner held the expenditure as revenue expenditure. The ITAT, after considering the nature of expenditure and business, upheld the Ld. Commissioner's decision, dismissing the Revenue's appeal.