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2013 (2) TMI 127 - AT - Income TaxPurchase of computer software - Capital v/s Revenue - CIT(A) treated the expenses as revenue expenditure - Held that - As decided in CIT and Another v Toyota Kirloskar Motors Pvt. Ltd. 2013 (2) TMI 108 - KARNATAKA HIGH COURT when the life of a computer software is less than two years and the right to use it is for a limited period, the fee paid for the acquisition of the right is allowable as revenue expenditure and if the software is licensed for a particular period, fresh license fee is to be paid for utilizing it for subsequent years. Therefore, without renewing the license or without paying the fee for such renewal, it is not possible to use the software. In such circumstances, the fee paid for obtaining the software and the licence for renewing it was revenue expenditure. Thus in the instant case, the license fees paid was for renewal of the usage of software and for a limited period for less than two years thus held to be in nature of revenue - In favour of assessee. Computation of deduction u/s 10B - Exclusion of telecommunication expenses from the total turnover - Held that - As decided in CIT and another v Tata Elxsi Ltd 2011 (8) TMI 782 - KARNATAKA HIGH COURT there should be uniformity in the ingredients of both the numerator and the denominator of the formula. It is intended to provide incentives to promote exports. If the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover - in favour of assessee. Disallowance of set off of carried forward losses and unabsorbed Depreciation prior to allowing deduction under section 10B - Held that - As decided in Yokogowa India Ltd. 2011 (8) TMI 845 - KARNATAKA HIGH COURT deduction under section 10B is to be granted prior to setting off of brought forward business loss and unabsorbed depreciation. No brought forward depreciation - Held that - As the assessee has vouched a sum available as brought forward depreciation for the relevant assessment year & had filed a comprehensive statement of available unabsorbed depreciation AO is therefore, directed to verify the correctness and the authenticity of the claim of the assessee of availability of brought forward depreciation and to take appropriate decision in accordance with law - in favour of assessee for statistical purposes.
Issues Involved:
1. Treatment of software purchase as revenue or capital expenditure. 2. Reduction of travel expenses, professional charges, and other expenses from total turnover for computing deduction under section 10B. 3. Exclusion of telecommunication expenses from total turnover. 4. Set off of carried forward losses and unabsorbed depreciation prior to allowing deduction under section 10B. 5. Reduction of expenses incurred in foreign currency and communication expenses from export turnover for computing deduction under sections 10B and 10AA. Detailed Analysis: 1. Treatment of Software Purchase as Revenue or Capital Expenditure: The revenue contended that the purchase of computer software amounting to Rs.1,88,66,731/- should be treated as capital expenditure, allowing depreciation at 60%. The CIT(A) held it as revenue expenditure, citing that the software was application software with a limited license period of one year, thus not creating a new asset. The Tribunal upheld this view, stating that since the software license was for a limited period and did not result in an enduring benefit, it should be treated as revenue expenditure. The Tribunal also referenced the Karnataka High Court's decision in Toyota Kirloskar Motors Pvt. Ltd., which supports treating software with a life of less than two years as revenue expenditure. 2. Reduction of Travel Expenses, Professional Charges, and Other Expenses from Total Turnover: The revenue's appeal on this ground was dismissed as the Assessing Officer had not excluded these expenses from the export turnover. Hence, the issue was deemed non-maintainable. 3. Exclusion of Telecommunication Expenses from Total Turnover: The CIT(A) directed that telecommunication expenses reduced from export turnover should also be reduced from total turnover, following the Karnataka High Court's decision in Tata Elxsi Ltd. The Tribunal upheld this decision, emphasizing the need for uniformity between the numerator (export turnover) and denominator (total turnover) to avoid anomalies, as per the High Court's ruling. 4. Set Off of Carried Forward Losses and Unabsorbed Depreciation Prior to Allowing Deduction Under Section 10B: The Assessing Officer had set off carry forward losses and unabsorbed depreciation before allowing the deduction under section 10B. The CIT(A), following the High Court's judgment in Yokogowa India Ltd., held that the deduction under section 10B should be allowed before setting off brought forward losses and unabsorbed depreciation. The Tribunal affirmed this view, directing the Assessing Officer to verify the availability of brought forward depreciation and allow the claim accordingly. 5. Reduction of Expenses Incurred in Foreign Currency and Communication Expenses from Export Turnover for Computing Deduction Under Sections 10B and 10AA: The assessee argued that such expenses should not be reduced from export turnover or, alternatively, should also be reduced from total turnover if excluded from export turnover. The CIT(A) accepted the alternative plea, following the Tata Elxsi Ltd. judgment. The Tribunal upheld this decision for section 10B, allowing the assessee to raise the issue before appropriate authorities if needed. For section 10AA, the Tribunal restored the issue to the Assessing Officer to examine the entitlement to carry forward unabsorbed depreciation. Conclusion: Both the department's and assessee's appeals were partly allowed for statistical purposes, with directions for the Assessing Officer to verify and appropriately decide on the issues of brought forward depreciation and its set-off. The Tribunal's decisions were largely guided by precedents set by the jurisdictional High Court, ensuring consistency and adherence to established legal principles.
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