TMI Blog2010 (12) TMI 880X X X X Extracts X X X X X X X X Extracts X X X X ..... -C) - Held that: fact that software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where the life of the computer software is shorter (say less than 2 years), it may be treated as revenue expenditure - Since the functionality test is to be examined with reference to the items of licensed software purchased/expenditure claimed in the interest of justice - Appeal is allowed by way of remand to AO Regarding web-hosting expenditure - The advance of technology and the wide spread use of the internet has provided a very powerful medium to companies to publicize their activities to a larger spectrum of people at a much lower cost - Since the details of expenditure were not examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of expenditure from the paper book page No.9 to 11 and submitted that the expenditure in the list upto Item No.28 pertain to expenditure which was claimed in earlier year but shown in the books of account as opening balance and the expenditure pertaining to Item No.29 to 56 pertain to the year of expenditure. It was his submission that the expenditure pertains to the purchase of licences/packages of computer programs which are application programmes/upgrading the programs. He referred to the details of the nature of expenditure stating that most of the expenditure pertain to M/s. Windows XP Professional and Anti Virus software, Office Win 32, Office 2003, etc. to submit that the nature of expenditure is revenue only and not capital expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advantage and as per Rules its depreciation was rightly allowed. He referred to para 4 of the CIT(A)'s order in confirming the action of the A.O. 4. We have considered the issue. As seen from the records the assessee is following the consistent practice of writing off the software for a period of 12 to 24 months in the business of 'comprehensive, systematic, consistent, object, well documented quest research pre-employment screening program'. From the details furnished in the paper book it is noticed that most of the expenditure is towards acquiring licences of Micro Soft XP application packages including some Windows 2000 packages, Office Packages and Anti Virus Packages. It is also noticed that certain licences packages acquired are m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as revenue expenditure. Any software having its utility to the assessee for a period beyond two years, can be considered as accrual of benefit of enduring nature. However, that by itself will not make the expenditure incurred on software as capital in nature and the functional test also needs to be satisfied. (iii) Once the test of ownership and enduring benefit are satisfied, the question whether expenditure incurred on computer software is capital or revenue has to be seen from the point of view of its utility to a businessman and how important an economic or functional role it plays in his business. In other words, the functional test becomes more important and relevant because of the peculiar nature of the computer softwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fresh. Ground is considered allowed for statistical purpose. 6. Ground No. 2 pertains to the treatment of web-hosting expenditure of Rs.1,29,598/- as capital expenditure. The A.O. considered that that expenditure is capital in nature but since no asset was created depreciation was not allowed. Before the CIT(A) it was contended that it has not acquired any ownership right in respect of this item as it is merely a licence to use a particular space of server and put its data on the space provided to use it in the business and the amount is allowable as revenue expenditure under section 37(1) of the I.T. Act. The CIT(A) considered that the expenditures were incurred of a particular space of server without which the web-site cannot be hoste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March small amounts were paid towards firewall and server hosting, etc. including maintenance charges. Thus, as can be seen except the amounts of Rs.3,750/- and Rs.13,275 which directly pertain to the web hosting expenses balance of the expense is revenue in nature being charges paid for maintenance, antivirus and band width charges which cannot be considered as capital in nature. Now even with reference to the web hosting expenditure, Hon'ble Delhi High Court has considered the expenditure whether it is revenue or capital and held as under:- "Just because a particular expenditure may result in an enduring benefit would not make such an expenditure of a capital nature. What is to be seen is what is the real intent and purpose of the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X
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