TMI Blog2015 (11) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... ides furnishing information and technical know-how, rendered valuable assistance in setting up of the factory itself. No such situation arises in the present case. In view of this discussion and relying on various decisions cited by assessee, we are of the considered opinion that the license fee etc. paid by the assessee to M/s. GECC(USA) is revenue expenditure deductible u/s. 37 of the Act. Decided in favour of assessee. Depreciation @ 60% on printer, switches, networking equipments, batteries, pen drives etc. - Held that:- A perusal of impugned order shows that the ld. CIT(A) after following direct decision of jurisdictional High Court in the case of M/s. BSES Rajdhani Powers Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT ] has observed that the matter is already settled and the printers, switches, networking equipments, UPS and pen drives are held as integral part of the computer system and hence eligible for depreciation @ 60%. - Decided in favour of assessee. - ITA No. 2806/Del./2011, ITA No. 2124/Del./2013 - - - Dated:- 16-10-2015 - Shri I. C. Sudhir, Judicial Member And Shri L. P. Sahu, Accountant Member For the Petitioner : Shri Sanjeev Sabharwal, Sr. Adv For the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. CIT(A) has erred in allowing depreciation @ 60% on printers, switches, networking equipments, batteries and pen drives etc. 2. Since both the appeals were heard together and common questions of law and facts are involved therein, both these appeals are being disposed of by this consolidated order for the sake of convenience and brevity. We first take up assessee s appeal. 3. The brief facts of the case are that the assessee company is engaged in the business of process management services for credit cards. During the course of assessment proceedings, the Assessing Officer noticed that the assessee has shown to have paid a sum of ₹ 1,76,76,000/- towards license fee, ₹ 33,47,207/- towards connectivity charges and ₹ 9,41,260/- towards co-ordination charges to GE Capital Corporation USA [hereinafter referred to as GECC(USA) ] and claimed deduction u/s. 37 of the Act as Revenue Expenditure. The AO vide notice dated 06.11.2009 asked the assessee to show cause as to why said expenditure should not be disallowed treating the same as capital expenditure. In response, the assessee explained that license fee was due to M/s. GECC, USA for use of vision plus so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputer are plant and machinery eligible for depreciation @ 15% instead of 60% as claimed by the assessee. Therefore, the excess claim of depreciation to the extent of ₹ 83,49,188/- was added to the income of the assessee. The assessee challenged the assessment order in appeal before the ld. CIT(A), who vide impugned order confirmed the addition of ₹ 2,19,60,467/- made by the Assessing Officer treating the same as capital expenditure. However, the ld. CIT(A), deleted the addition of ₹ 83,89,188/- made by the Assessing Officer on account of excess depreciation claimed by the assessee. Aggrieved, the assessee has come up in this appeal before us. 5. The ld. AR of the assessee argued that the license was acquired only to use the software for its day to day running of the business activities and there was no outright purchase of software giving ownership to the assessee. It was submitted that the payments made towards connectivity charges and co-ordination fees payable to GECC(USA) are relatable to facilities/services provided by the assessee to undertake the business operations and are not relatable to acquisition of any know-how and enduring benefit to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... He submitted that holder of intangible asset, i.e., licensor, user of license/service provider, i.e., assessee and receiver of services of the licensed program, i.e., M/s. SBI Cards and Payment Services Pvt. Ltd. are sister concerns. He submitted that the use of software which is subject matter of End-User License Agreement dated 07.07.2000 is vital for the business of assessee, as the vision plus software is the soul of assessee s business. Referring to clause No. 3.1 of the agreement, the ld. DR contended that lump sum amounts have been agreed to be paid by the assessee quarterly and that the software is not linked with the turnover or actual usage. He submitted that signing of agreement and deciding the rate of payment per quarter were mere paper formalities and significant portion of the payment under consideration is for providing benefits of enduring nature to the assessee and hence, it is capital in nature. The ld. DR has also tried to distinguish the decisions cited by the ld. Counsel for the assessee. 7. We have considered the rival submissions, perused the orders of the authorities below, material available on record and gone through the case laws cited by both the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ckup purposes; (c). use the Licensed Program for any purpose other than as permitted by clause 2.2 of license, sell or otherwise alienate the Licensed Program in any manner whatsoever; or (d). Duplicate, market, license or develop software programs that compete with the Licensed Program and/or exploit commercially the Licensed Program in any manner whatsoever. Similarly, clause 5 and its sub-clauses give the right of termination of license agreement to either parties under various circumstances. It is worthwhile to note that in case of default, if any, committed by the assessee, the rights of assessee to use the software would stand terminated forthwith. Under clause 5.5, the assessee is required to deliver the licensed program back immediately to GECC(USA) after removing the same from its systems on termination of agreement. Clause 5.5 of the agreement reads as under : 5.5. Upon termination of this Agreement the right to use the Licensed Program shall end and GECBPMS shall, with immediate effect : (a) deliver to GECC the Licensed Program; and (b) purge all copies of the licensed program stored in any CPU or other storage medium or facility, which fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the payment made to GECC(USA) is only the license fees and not the price for acquisition of capital asset. The assessee did not acquire any ownership on the software and after termination of license agreement, all the rights and title remained with GECC (USA). The ld. DR failed to dislodge the findings of the ld. CIT(A) given in the orders passed for subsequent years after considering the same license agreement and various decisions of Hon ble High courts and Supreme Court. It is also a matter of record that the assessee has returned its income for the relevant previous year at ₹ 152.88 crores whereas the amount expended towards use of routine application software is ₹ 2.19 croes which is 1.43%. This shows that implies that this software only is not the soul of assessee s business as argued by the ld. DR. In the case of southern Switchgear Ltd. (supra), the technical knowledge and information remained with the assessee even after termination of agreement which constituted enduring benefit to the assessee whereas in the present case, the software in question is an application software and after termination of license agreement, said software was to be delivered back ..... X X X X Extracts X X X X X X X X Extracts X X X X
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