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TMI Blog2015 (5) TMI 951X X X X Extracts X X X X X X X X Extracts X X X X ..... curred expenditure for the improvement of new leasehold premises which has been taken on lease from Technopark- STPI of Kerala to the tune of Rs. 55,74,348 and claimed as revenue expenditure. The Assessing Officer considered it as capital expenditure and allowed depreciation only at 10 per cent., which worked out to Rs. 55,74,348. On appeal, the Commissioner of Income-tax (Appeals) observed that the expenditure incurred by the assessee is purely temporary erections such as wooden structures and allowed 100 per cent. depreciation treating it as revenue expenditure. Against this, the Revenue is in appeal before us. 4. The learned Departmental representative submitted that the improvement or extension on leasehold business premises were basically of capital in nature since such improvements were made on "permanent structures". These expenditures are in the nature of capital such as, furniture, electrical fittings, etc., adding value to a building and only 10 per cent. deprecation to be allowed. 5. On the other hand, the learned authorised representative submitted that these expenses were incurred for the purpose of providing partitions, vinyl flooring, interior decoration etc. for m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ] 355 ITR 418 (Mad), wherein it was held that the expenditure incurred by the assessee for design, layout and material construction, fabrication works in leased premises are deductible as revenue expenditure. It was also clarified by the jurisdictional High Court in the case of Thiru Arooran Sugars Ltd. v. Deputy CIT in Tax Case (Appeal) No. 197 of 2005 dated July 26, 2011 [2013] 350 ITR 324 (Mad), that Explanation 1 to section 32(1) of the Income-tax Act, 1961, which was inserted with effect from April 1, 1988, is an exceptional one which permits depreciation in cases where the assessee does not own a building in respect of which, the assessee incurs capital expenditure on the construction of any structure or doing of any work, in or in relation to, and by way of renovation or extension of, or improvement to the building. Further, it was held that the temporary structure by means of false ceiling and office renovation had not resulted in any capital expenditure. The benefit of the above decision, applies to the facts of the present case. Accordingly, we are inclined to dismiss this ground taken by the Revenue. 7. The next common ground in the above appeals is with regard to restr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to direct the Assessing Officer to exclude the telecommunication charges both from the export turnover as well as from the total turnover while computing the deduction under section 10B of the Act. This ground is partly allowed. 12. The next common ground taken in the above appeals is with regard to directing the Assessing Officer to verify whether such gain is on account of delay in realisation of export proceeds or on account of EEFC account and allow the assessee's claim accordingly. 13. The facts of the issue as narrated in I. T. A. No. 697/Mds/2011 are that the assessee submitted that gain on exchange fluctuation is derived from the undertaking and considered as part of export turnover and fully exempt from tax and that exchange fluctuation arises primarily on account of the export of computer software. The assessee further submitted that as per accounting standards, forex transactions are to be accounted on the exchange rates prevailing on the date of transaction and the difference, if any, on realisation should be taken to exchange fluctuation account. The assessee also submitted that the Chennai "C" Bench of the Tribunal in the assessee's own case, has passed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se expenditures are primarily licences to use the software based on the terms of purchase. The Assessing Officer held that the assessee gets the right to use the software and has the licence for a long period of time and hence gets an enduring benefit. Thus, this expenditure is not revenue but capital in nature. The Assessing Officer held that the assessee is eligible for depreciation at 25 per cent. as applicable to intangible asset, he disallowed the balance claim and added Rs. 4,94,219 to the total income. The Commissioner (Appeals) observed that in view of the fact that "computer software" has been included in the deprecation table along with "computer" from the assessment year 2003-04, as per the provisions of rule 5, a higher rate of depreciation at 60 per cent. is allowed and the assessee is not eligible to claim software expenses as revenue expenditure. Accordingly, he directed the Assessing Officer to allow depreciation at 60 per cent. instead of 25 per cent. allowed him. Against this, the Revenue is in appeal before us. 18. We have heard both sides and perused the material on record. Appendix I, Rule 5 as entry No. (5) from the assessment year 2006-07 onwards, suggests t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears 2005-06 and 2007-08 (supra). The learned authorised representative has also drawn support from the judgment of the hon'ble Karnataka High Court in the case of CIT v. Yokogawa India Ltd. [2012] 341 ITR 385 (Karn). On the other hand, the learned Departmental representative has relied on the latest decision of the hon'ble apex court in the case of CIT v. Himatasingike Seide Ltd. [2006] 286 ITR 255 (Karn). The hon'ble Supreme Court of India dismissed the appeal of the assessee and has upheld the judgment of the hon'ble Karnataka High Court. The hon'ble High Court has held that the brought forward depreciation has to be adjusted against the profits of the EOU before computing the exemption allowable under section 10B. The provisions of section 10A are pari materia with the provisions of section 10B of the Act. We find that as far as un-absorbed depreciation is concerned, the hon'ble Supreme Court of India in the case of CIT v. Himatasingike Seide Ltd. [2006] 286 ITR 255 (Karn), has upheld the findings of the hon'ble Karnataka High Court and as such, unabsorbed depreciation has to be set-off before computing the exemption allowable under section10A. In re ..... 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