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TMI Blog2013 (12) TMI 1160X X X X Extracts X X X X X X X X Extracts X X X X ..... e Financial Year 2002-03. The Assessee provides wireless solutions for mobile consumers and enterprises. The software development relates to the field of instant messaging (IM). It employed and functioned with a team of software professionals. They developed new software and were also involved in continuous improvement in the existing software in terms of improvements, speed, usage, storage and providing enhanced features. The Assessee had signed revenue sharing agreements with mobile service providers like Airtel, Vodafone, etc. ITA 254 of 2013 4. During the Assessment Year 2003-04, the Assessee had capitalized the product development expenses for the new product (software) launched in the relevant assessment year. However, under the head "Product Improvement Expenses", the Assessee has claimed Rs.90,37,605/- as revenue expenditure. 5. The Assessee was asked by the Assessing Officer to explain as to why the expenses incurred on product improvement should not be capitalized. In response, it was submitted that the improvement of the software was a regular feature and since the technology of mobile phoning was one of the fastest changing technologies and to keep pace, the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enditure in the immediate preceding assessment year and in the immediate succeeding assessment year had been allowed and no disallowance had been made towards product improvement expenses for the Assessment Year 2006-07, the ITAT held that the disallowance made in the year under consideration was not justified. 10. The ITAT also noticed the fact that the software was developed in the earlier year and during the year under consideration, improvement was done and on account of which, the Assessee had incurred expenditure towards salary, communication expenses, hosting charges, equipment hire charges, office rent, electrical expenses, legal and professional expenses and consultancy charges. The ITAT held these expenses to be revenue in nature and set aside the findings of the Assessing Officer and CIT (Appeals) that these expenses were capital in nature. 11. The ITAT relied on the decision of the Delhi High Court in the case of CIT VS. ASAHI INDIA SAFETY GLASS LTD. (2012) 346 ITR 329 (DEL.) The Delhi High Court relying on various judgments including decisions of the Supreme Court held as under:- "......the test of enduring benefit is not a certain or a conclusive test which the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the ITAT are factual. The ITAT has held that in the immediately preceding assessment year, total expenditure incurred by the Assessee towards product improvement was of Rs.10,68,788/-, which was allowed by the Assessing Officer and in the succeeding assessment year, expenditure of Rs.1,25,76,145/- was also allowed by the Assessing Officer. Further that the claim of the Assessee of Rs.2,05,43,448/- towards product improvement expenses in the year 2006-07 was also not disallowed. 15. The ITAT has held that in view of the fact that expenditure in the immediate preceding assessment year and in the immediate succeeding assessment year had been allowed and no disallowance had been made towards product improvement expenses for the Assessment Year 2006-07, the disallowance made in the year under consideration is not justified. 16. The ITAT has held that the software was developed in the earlier years and during the year under consideration, improvement was done and on account of which, the Assessee had incurred expenditure towards salary, communication expenses, hosting charges, equipment hire charges, office rent, electrical expenses, legal and professional expenses and consultanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ery small. 20. Expenditure which enables the profit making structure to work more efficiently leaving the source of profit making structure untouched, would be revenue in nature. 21. The facts as noticed herein above show that the Revenue has not disputed the following factual position:- (A) The Assessee was involved in business of software development. (B) The software developed by the Assessee was used in mobile phones and instant messaging. (C) The original cost for development of software was capitalised. The quantum of the said development cost was/is not in dispute or under challenge. (D) The respondent-Assessee incurred product improvement expenses which related to upgradation, improvement, removal of glitches of the existing or already developed software. The quantum of expenses and the nature of character of the expenses incurred i.e. software improvement and upgradation was/is not disputed or questioned by the Revenue. 22. The question raised is whether expenses incurred on upgrading, improving or removing problem areas in an existing old product shall be capitalised or treated as revenue expenditure. The finding of the tribunal is that these upgradations were requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to us that the answer to the questions referred should be on the basis that the financial outlay under the agreement was for the better conduct and improvement of the existing business and should, therefore, be held to be revenue expenditure. Reference may also be made to the observations of this court in CIT v. Ciba of India Ltd. [1968] 69 ITR 692. There is also no single definitive criterion which, by itself, is determinative as to whether a particular outlay is capital or revenue. The 'once for all' payment test is also inconclusive. What is relevant is the purpose, of the outlay and its intended object and effect, considered in a common sense way having regard to the business realities. In a given case, the test of 'enduring benefit' might break down. In CIT v. Associated Cement Companies Ltd. [1988] 172 ITR 257 (SC) at p. 262, this court said: "As observed by the Supreme Court in the decision in Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 (SC), that there may be cases where expenditure, even if incurred for obtaining an advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of endur ..... 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