TMI Blog2016 (7) TMI 758X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed capital for the assessee are to be examined. Thus, in view of the ratio laid down by the Hon’ble Delhi High Court in the case of CIT v. Asahi India Safety Glass Ltd.(2011 (11) TMI 2 - DELHI HIGH COURT ), we hold that the software expenses should be treated as revenue in nature and accordingly, we set aside the order of the ld. CIT(A) and direct the Assessing Officer to delete the disallowance made on this account. - Decided in favour of assessee. Disallowance of the claim of depreciation at 60% for UPS attached to computers (restricted to 15%) - Held that:- We direct the Assessing Officer to allow 60% depreciation on UPS. See DCIT v. Indian Bank [2016 (7) TMI 728 - ITAT CHENNAI] TDS u/s 194J - expenses incurred on website development - non-deduction of TDS - Held that:- Website development is nothing but creation of new asset and the entire expenditure was incurred for the future of the company and also for a long term impact, which is of enjoying enduring benefit. Therefore, we find no infirmity in the order passed by the ld. CIT(A). - Decided against assessee. - I.T.A.No.2268/Mds/2012, C.O. No. 65/Mds/2013 - - - Dated:- 13-7-2016 - Shri Chandra Poojari, Accountan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remote server for a fee clearly falls within the ambit of section 9(1)(vii) of the Act and liable to deduct tax under section 195 of the Act. 6. The assessee has claimed under the head subscription in the profit and loss account to the tune of ₹.63,58,575/-. During the course of scrutiny proceedings, the assessee was asked as to why the amount should not be disallowed as TDS has not been deducted as per section 195(1) of the Act. Vide its letter dated 09.11.2009, the assessee has submitted before the Assessing Officer that the payments to various parties were made for the license to use the software which is not customized and is to be the parties who is not having permanent establishment in India. By relying various decisions, the Assessing Officer has concluded that the expenses incurred under the head subscription is liable to TDS and accordingly, he disallowed ₹.63,58,575/-. On appeal, the assessee has submitted elaborately towards non-deduction of TDS on subscriptions. After considering the submissions and other evidences, the ld. CIT(A) has observed that the recipients of the items listed under major heads are non-residents. They do not have a PE in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the assessee has submitted that the assessee was prevented by sufficient cause for not filing the Cross Objection in time before the Tribunal and pleaded that there is no willful delay in filing the Cross Objection and prayed for condonation of delay in filing the Cross Objection. We have perused the records and found that there is sufficient cause for delay in filing the Cross Objection. The ld. DR did not object to the plea of the ld. Counsel for the assessee. Accordingly, we condone the delay and admit the Cross Objection for hearing and adjudication. 8. The first ground raised in the cross objection of the assessee is that the ld. CIT(A) erred in sustaining the disallowance of the claim of deduction towards software purchases. The assessee has charged a sum of ₹.28,12,057/- as revenue expenditure towards purchase of software. The Assessing Officer has found from the ledger account of the assessee that the assessee has purchased a software for a sum of ₹.22,13,975/- from OSR Open Systems Resources a software development tool kit, which has enduring nature and allowed depreciation at 60% as classified under plant and machinery. Accordingly, the Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssociates required the assessee to enter into a licence agreement with oracle titled Master Software Licence and Services Agreement. The assessee was thus, required to pay : apart from the fee to Arthur Anderson Associates qua its agreement with it; licence fee to Oracle. As a matter of fact Oracle also offered support and maintenance services for which a further additional fee was required to be paid to Oracle. 8.1 The assessee thus admittedly in respect of the aforesaid transactions incurred an expenditure to the tune of ₹ 1,36,77,664/- and ₹ 1,70,68,811/- in assessment years 1997-98 and 1998-99 respectively. In the books of accounts for the assessment years 1997-98 the assessee had not written off any sum, while in the succeeding assessment year, i.e., 1998-99 the assessee had written off a part of the expenditure amounting to ₹ 9,91,228/-. 8.2 Given these facts, could it be said that the expenditure incurred by the assessee in the aforementioned assessment years was in the nature of capital expenditure. 9. The revenue in support of its stand has taken recourse to the test of enduring benefit. It is in our view now somewhat trite to say that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew, and rightly so, came to the conclusion that none of these resulted in either creation of a new asset or brought forth a new source of income for the assessee. The Tribunal classified the said expenses as being recurring in nature to upgrade and/or to run the system. 10. In the background of the aforementioned findings, it cannot be said that the expenses brought about in an enduring benefit to the assessee. The assessing officer was perhaps swayed by the fact that in the succeeding financial year, i.e., 1997-98 (assessment year 1998-99), the amount spent was large. First of all, the extent of the expenditure cannot be a decisive factor in determining its nature. As observed by the Tribunal, the assessee in the relevant assessment year had a turnover of ₹ 150 crores and that even without this expenditure it would have continued to achieve the said turnover; though the expenditure incurred in issue would have enabled it to run its business more efficiently. Therefore, the rationale supplied by the assessing officer in support of its order which found resonance in submissions of the learned counsel for the revenue is, in our view flawed and, hence it would have to be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and formulating the accounting standards from time to time, and perhaps also, by reason of the fact that expenses may have to be incurred on account of corruption of the software due to unintended or intended ingress into the system - ought not give a colour to the expenditure incurred as one expended on capital account. Given the fact that there are myriad factors which may call for expenses to be incurred in the field of software applications, it cannot be said that either the extent of the expense or the expense being incurred in close proximity, in the subsequent years, would be conclusively determinative of its nature. The assessing officer has, in our view, erred precisely for these very reasons. 8.5 In the present case, the contention of the Assessing Officer was that the softwares are entirely new and does have enduring benefit. However, the Hon ble Delhi High Court in the above case has observed that The test of enduring benefit is not certain or conclusive test in determining the expenditure as capital or revenue. The real intent of the expenditure and whether the expenditure results in creation of fixed capital for the assessee are to be examined. Thus, in view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be treated as computer restricted the claim of depreciation to 15% as against 60% claimed by the assessee. On appeal, the ld. CIT(A), by following the decision of the Chennai Benches of Tribunal in the case of Indian Overseas Bank in I.T.A. No. 99/Mds/2010 dated 19.03.2013, has held that the UPS attached to the computers are part of computer systems and eligible for depreciation @ 60% and directed the Assessing Officer to allow depreciation on UPS @ 60%. With regard to allowability of depreciation @ 60% on UPS, while considering similar issue raised in the case of Indian Overseas Bank (supra), by following the decision of the Hon ble Delhi High Court in the case of Oriental Ceramics Industries Ltd. 56 DTR (Del) 397, the Tribunal has observed as under: 28. We do not agree with the submissions of the AR that the UPS is an energy saving device, therefore, depreciation @ 80% should be granted. However, we are in consonance with the decision of Hon ble Delhi High Court in the case of Orient Ceramics Industries Ltd. (supra) wherein the Hon ble Court has granted depreciation @ 60% by treating UPS as part of computer hardware. Accordingly, we allow depreciation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance of ₹.3,94,000/- relating to the claim of expenses incurred on website development for non-deduction of TDS under section 194J of the Act. 10.1 The assessee has incurred expenditure towards website development and paid ₹. 3,40,000/- to M/s. Rage Communication Pvt. Ltd. and ₹.54,000/- to M/s. Dotcom Village. The Assessing Officer has observed that the assessee has not deducted TDS in terms of provisions of section 194 of the Act. The assessee has argued that the expenses incurred by the assessee for website development is not covered by the provision of section 194 of the Act. However, by invoking the provisions of section 40(a)(ia) of the Act, the Assessing Officer disallowed the above expenditure. On appeal, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer. 10.2 Before us, the ld. Counsel for the assessee strongly pleaded that the expenditure incurred towards website development should be treated as capital expenditure and therefore, no TDS is required to be deducted on the payments made by the assessee. The ld. DR strongly supported the orders of authorities below. 10.3 We have heard both sides, perused the materials on re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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