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TMI Blog2016 (5) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... the Co-ordinate Bench in ITA No.4994/Del/2010 was partially recalled by order dated 17th April, 2014 in MA 103/Del/2011. As would be evident from the para 7 of the following extract of the order passed by the Co-ordinate Bench that the partial recall of the order was not objected to by the Revenue. For readyreference, the relevant extract is reproduced hereunder for ready-reference:- "6. Learned counsel of the assessee pointed out that in para 21 and 21.1 of the order of the Tribunal in question, it has been mentioned that no particular argument was made by the Id. counsel of the assessee, hence, ground no. 26 of the assessee was dismissed. The counsel further contended that the assessee submitted detailed oral and written arguments on the issue of ground no. 26 raised by the assessee against the orders of the authorities below which restricted the depreciation on license fees paid for use of computer software to 25% of the written down value but the ground was dismissed by observing that no particular argument has been made by the Id. counsel of the assessee which is factually incorrect and a mistake apparent on record. Ld. counsel of the assessee placed a copy of written argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 6. We have heard the rival submissions and perused the material available on record. The record shows that the assessee i.e. Sony India Pvt.Ltd. was established in November 1994 as a wholly owned subsidiary of Sony Corporation, Japan. During the year under consideration, the assessee was engaged in assembly and distribution of consumer electronics products in India such as colour televisions, audio products, DVDs, handy cams, Recordable Media Tapes (RME tapes), play stations, projectors, etc.. It had an extensive network of dealers, distributors, services centres and outlets for sale of assembled and imported products and was rendering advisory services and software development services to its associated enterprise. The short issue for consideration in the present proceedings arises from the rejection of assessee's claim of depreciation of Rs. 87,05,914/- @ 60% on "License Fees" was rejected limiting the claim to 25% on the following reasoning:- 9. Excess claim of depreciation on license fees "It was seen from the appendix II to tax audit report in form 3CD that the assessee had claimed depreciation of Rs. 87,05,914/- @ 60% on "License Fees". 'License' is an "intangible ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and depreciation was allowed at 60%. With effect from 1.4.2003, computer software was also included along with computers. The argument of the assesses was that the amendment to the rules was merely clarificatory and therefore, even on computer software with effect from 1.4.1999, 60 per cent depreciation should be allowed. We do not agree with the submissions of the assessee in this regard. The amendment is prospective. It is not clarificatory for the reason that computer and computer software are two different items of assets. If the Legislature wanted to allow depreciation at 60 per cent with effect from 1.4.1999 on computer software, it would have said so specifically by making the provisions retrospective. In this regard, we agree with the view expressed by the Delhi Bench of the ITAT in the case of Maruti Udyog Ltd. (supra) wherein similar view has been taken." 6.2. Considering the above in the context of the decisions relied upon, we find that relevant facts are not available in the facts of the present case. Accordingly, in the absence of discussion on facts in the orders of the authorities below, the issue cannot be decided. The Special bench considering the judicial pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s touching either capital or revenue field or its utility to a businessman which may touch either capital or revenue field. The manner in which the computer software is used it has been noted is again peculiar. General mode is to acquire computer software on a license. That by itself will not be sufficient to conclude that the said expenditure is revenue expenditure, if on an application of the functional test, it is found that the it confers a benefit in the capital field. On the other hand, some computer software may have a very limited economic life so as to be treated as capital expenditure, though owned by an assessee. lf the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may enure for an indefinite future. In other words, the functional test would become material and if on application of the same, it is found that the expenditure operates to confer benefit in the revenue field, then the same would be revenue ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncluded licenses for 150 users who were using Lotus Notes Mailing System and software license for running on its server. If use of this software in the business of the assesses was limited to facilitate merely an effective and fast communication in order to increase its organizational efficiency, the same could not be treated as forming part of the profit-making apparatus of the assessee. On the other hand, if such software was being used by an assessee engaged in the business of placement agency where the applications from persons seeking jobs were invited through e-mail and were also forwarded to the concerned clients through e-mail, the same might form part of profitmaking apparatus of the assessee's business of placement agency and could be treated as a capital asset. (ii) As a general rule, it may be stated that the more expensive the computer software the more it is likely to be a central tool of the business and the more enduring is likely, to be its effect adding to the profit-earning apparatus. If there are associated capital expenditure like purchase of new computer equipment for running the software developed under a project, then it can be considered as capital ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing either capital or revenue field or its utility to a businessman which may touch either capital or revenue field." 6.8. The above exercise it is seen has not been done and is required to be done in respect of each and every software independently having regard to the above said criteria, the matter accordingly has to be restored back to the file of the Assessing Officer for doing such an exercise. The Assessing Officer would examine the question whether the expenditure on computer software was capital or revenue in the light of the criteria laid down above after giving an opportunity of being heard to the assessees. If on such examination, the Assessing Officer would come to the conclusion that the expenditure was capital expenditure, then the question regarding allowing depreciation would be decided in accordance with the principles laid down in the subsequent paragraphs. 6.9. Accordingly when considered in the light of the mandate of the Special Bench, we find that the requisite consideration of facts has not been done by the tax authorities as there is no discussion whatsoever on the software. The issue is restored back to the AO for the necessary exercises. 7. In the re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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