TMI Blog2016 (5) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... essee is arising out of the final assessment order dated 30.09.2010 u/s 143(3) r.w.s 144C in pursuant to the direction of the Dispute Resolution Panel (hereinafter referred to as DRP ) dated 27.09.2010. 2. The sole issue which we are called upon to decide is Ground No.26 which reads as under:- 26. That on facts and in law, the AO/DRP erred in restricting the depreciation on license fees paid for the use of computer software to 25% of written down value as applicable to intangible assets and holding that such items do not qualify as computer software, thereby reducing the depreciation allowance by ₹ 50,78,450/-. 3. For the sake of completeness, it may be appropriate to bring out that the order dated 8.4.2011 of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee for the limited purpose and upto aforementioned extent. 4. In the said background inviting attention to ground No. 26 raised by the assessee in the present appeal the Ld. AR submitted that the issues raised may be decided in the light of the order of the Special Bench in the case of the Amway India Enterprises vs. DCIT (2008) (SB) 301 ITR 1 (Del). Specific attention was invited to para 61 and 62 of the said order. 5. The Ld. CIT(DR) on the other hand submitted that the AO at page 27 of the assessment order vide para 9 in his order passed u/s 143 r.w.s 144 (c) relying on Sudarshan Chemical Industries Limited , 110 ITD 171 has decided the issue against the assessee. Accordingly it was his stand that the issue stands considered. 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, Recorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim at 25 per cent under Section 32(1)(i) read with Appendix-I, Part-A division III (1) to the I.T. Rules, 1962. With effect from 1.4.2003, Computer Software has been classified as a tangible asset under the heading Plant in Appendix-I to the IT Rules entitled to depreciation at 60 per cent. The assesses would be entitled to depreciation at 60 per cent from 1.4.2003. 62. The argument raised on behalf of the assessees in this context was that the rate of depreciation on computer software from 1.4.1999 should be 60 per cent. The basis of this argument was that depreciation on computers was originally allowed treating them as a plant only at 25 per cent. With effect from 1.4.1999, computers were treated as a different class of asset falling within the description of Plant 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital asset by the assessee as a result of incurring expenditure is a condition. If the expenditure is resulting merely in acquisition or creation of asset without the assessee becoming owner thereof, it cannot be said that the said expenditure is a capital expenditure. The coming into existence of an asset as a result of incurring expenditure along. Thus, it has been summed up that this is not sufficient to treat the said expenditure as of capital nature unless the asset coming into existence is also owned by the assessee. 6.3. Specifically addressing a situation in the case of computer software it has been held that the functional test becomes more important and relevant because of the peculiar nature of a computer software and its possible use in different areas of business 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently. The scope, power, longevity of such a tool and its centrality to the functions of the business will all bear on its treatment. In the case of 'S one of the asesssees it was engaged in the business of software development as well as a training centre to impart specialized training to the students in software technology. If the software were used in this business to impart training to the students, then the same would be part of the profit-making apparatus of the assessee and, consequently, expenditure on software, capital. Another example which could be considered was that of acquisition of Turbo Gold Software for ₹ 17.61 lakhs by the assessee in the instant case. The said software helped in compression of size of e-mails sent through the Lotus Notes Mailing System and it included 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 asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less than 2 years), it may 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 tests 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 software and its possible use in different areas of business touching 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
