TMI Blog2007 (2) TMI 364X X X X Extracts X X X X X X X X Extracts X X X X ..... onsolidated order for the sake of convenience. A.Y. 1997-98, Assessee s appeal : 2. All the grounds of assessee s appeal deal with only one issue viz., the treatment of Rs. 50,21,969 as capital expenditure and not revenue as claimed by the assessee. 3. Briefly stated the facts of these grounds are that the assessee is engaged in the business of development of packaged Computer Software designed to meet specific needs of the clients. The same business was carried on in earlier years as well. During the year the assessee claimed the following items as revenue expenditure. Software Development Expenditure Rs. 3,53,148 Technology Creation Expenditure Rs. 10,06,166 Purchase of D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Each module was to subscribe separately on the subject and data base for these modules was created till 1995. The expenses on setting up of the software were treated as capital in nature. It was further explained that with a view to provide better software the assessee-company introduced a "CD Jurix". This system of head notes and catch notes in the software was introduced and for the purpose an agreement was entered into with Current Tax Reporter (CTR) in December 1995 and others. It was further explained by the ld. A.R. that initially the PC software was subscribed for Rs. 20,000 and each module on different subject was subscribed from Rs. 45,000 to Rs. 25,000. However, in the financial year 1995-96 "CD Jurix" was introduced with an ini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s customers on subscription. The entire expenditure claimed by the assessee is in relation to the updation of the initially developed CD in February 1996. The first expenditure is software development expenses at Rs. 3,53,148 the details of which is available at page 81 of the paper book. It comprises of seminar expenses at Rs. 3,53,148, foreign travelling expenses at Rs. 2,76,897 and professional fees at Rs. 68,750, totalling Rs. 6,98,795. 50 per cent of this expenditure was claimed in the books as revenue, which fact has not been disputed by the Assessing Officer. It is only the impugning 50 per cent which in the books of account was claimed as capital but in the computation of income as revenue that the Assessing Officer has disputed it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he details of all the expenses it becomes apparent that the assessee had spent the entire amount for the updation of its product, which initially came into existence in the preceding year. Now the question arises as to whether the expenditure of updation is to be deemed as revenue or capital in nature. The ld. D.R. has strongly contended that since the expenditure incurred by the assessee results into enduring benefit, spreading over a number of years, hence it should be taken as capital expenditure. We find that it is not every expenditure of enduring nature which can be taken as capital expenditure. The thin line, which divides the capital and revenue expenditure is the expansion in the capital base resulting from the expenditure of endur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not create an asset in itself but makes the existing product a more compatible and up to date. Under no circumstances this expenditure can be branded as capital in nature. This case can be viewed from an other angle. The re-printing of a book simultaneous with the updation of an edition leads to incurring of the input cost such as re-printing charges, payment to author for updation and proof reading etc. When the revised edition is sold in the market and the sale proceeds are taken as trading receipts, the expenditure incurred towards input costs, as discussed above, is to be allowed as deduction against such sale proceeds. On the same analogy the input cost on the updation of the existing CD on quarterly basis cannot be treated as cap ..... X X X X Extracts X X X X X X X X Extracts X X X X
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