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2016 (7) TMI 758 - ITAT CHENNAI

2016 (7) TMI 758 - ITAT CHENNAI - TMI - TDS u/s 195 - Disallowance made under section 40(a)(I) - expenditure incurred on subscription paid to nonresidents abroad - Held that:- The authorities below have not checked with the invoices submitted by the assessee as to whether the services rendered by the non-residents are in the nature of fee for technical services or pure business transactions. Under the above facts and circumstances, we set aside the order passed by the ld. CIT(A) and remit the ma .....

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nue. 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 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 .....

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e 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, Accountant Member and Shri Duvvuru RL Reddy, Judicial Member For The Appellant by : Shri P. Radhakrishnan, JCIT For The Respondent : Shri S. Sridhar, Advocate ORDER PER DUVVURU RL REDDY, JUDICIAL MEMBER: The appeal prefer .....

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dents abroad, whereas, the assessee has raised various grounds in the cross objection. 2. Brief facts of the case are that the assessee is engaged in the business of Anti-virus security software development and filed its return of income for the assessment year 2007-08 on 14.11.2007 declaring income of ₹.2,06,690/-. The return filed by the assessee was processed under section 143(1) of the Act on 18.02.2009. The case of the assessee was selected for scrutiny and notice under section 143(2) .....

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llowed the appeal of the assessee. 4. On being aggrieved, the Revenue has filed an appeal before the Tribunal, whereas, the assessee has preferred Cross Objection. 5. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The ld. DR has submitted that the ld. CIT(A) has erred in deleting the disallowance made under section 40(a)(I) of the Act to the extent of ₹.63.58 lakhs towards expenditure incurred on subscription paid to non-resident .....

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t 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 TD .....

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tre (P) Ltd. v. CIT 327 ITR 456 and also the decision of the Tribunal in the case of Wipro Limited 94 ITD 1, the ld. CIT(A) has held that on account of the above payments, TDS is not required to be deducted on these payments and deleted the disallowance made by the Assessing Officer. The ld. DR submits that the bone of contention, is not as to whether the recipients are non residents or otherwise. It is a proven fact that they are non-residents. The issue is therefore, whether the amounts paid a .....

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. In case of technical services, the existence of PE or otherwise, in India, is not a decisive factor on taxation. The assessee claimed that the services provided by the three concerns in USA and one in Israel are not in the nature of technical services and pure business transactions. However, we find that the authorities below have not checked with the invoices submitted by the assessee as to whether the services rendered by the non-residents are in the nature of fee for technical services or p .....

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is found to have been filed late by 81 days in filing before the Tribunal. The assessee filed petition for condonation of delay in filing the appeal in support of affidavit. By referring petition for condonation of delay, the ld. Counsel for 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 fili .....

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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 made addition of ₹.11,24,823/-. 8.1 On appeal, the ld. CI .....

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further contended that merely because an expenditure results in an enduring benefit would not be a sufficient reason to treat the expenditure as capital expenditure and pleaded that the above expenditure should be treated as revenue in nature. 8.3 On the other hand, the ld. DR strongly supported the order passed by the authorities below. 8.4 We have heard both sides, perused the materials on record and gone through the orders of authorities below. The point at issue for adjudication is whether .....

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the assessee is from the said activity. The assessee appears to have entered into an agreement with Arthur Anderson & Associates in the financial year 1996-97 (assessment year 1997-98) for installation of a software application for assistance in areas related to financial accounting, inventory and purchase. It has emerged that an offer was made in respect of such a software application by Arthur Anderson & Associates, which find a reflection in a letter dated 25.06.1996. The said agreem .....

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d 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 f .....

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ewhat trite to say that the test of enduring benefit is not a certain or a conclusive test which the courts can apply almost by rote. What is required to be seen is the real intent and purpose of the expenditure and whether the expenditure results in creation of fixed capital for the assessee. It is important to bear in mind that what is required to be seen is not whether the advantage obtained lasts forever but whether the expense incurred does away with a recurring expense(s) defrayed towards .....

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uld be an expenditure in the nature of revenue expenditure even though the advantage may last for an indefinite period. Test of enduring benefit or advantage would thus collapse in such like cases. It would in our view be only truer in cases which deal with technology and software application, which do not in any manner supplant the source of income or added to the fixed capital of the assessee. [See Alembic Chemical Works Co. Ltd. vs CIT (1989) 177 ITR 377; CIT vs J.K. Synthetics (2009) 309 ITR .....

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which is decidedly the final fact finding authority has after noticing the material on record observed that the expenditure was incurred under various sub-heads, which included licence fee, annual technical support fee, professional charges, data entry operator charges, training charges and travelling expenses. The final figure was a consolidation of expenses incurred under these sub-heads. The Tribunal, in our view, and rightly so, came to the conclusion that none of these resulted in either cr .....

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f 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 resonanc .....

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e incurred in the said assessment year was for removing deficiencies which were found in the software installed in the earlier assessment year, and that, out of a sum of ₹ 1.71 crores a sum of ₹ 49 lacs was incurred to modify, customize and upgrade the software installed, while the balance expenditure was used for development and implementation - it returned a finding that the expenses were incurred to upgrade and run the system. In view of these findings we are of the opinion that a .....

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for which people use computers. Besides these there are two other categories of software, these being: network software and language software. The network software enables groups of computers to communicate with each other, while language software provides with tools required to write programmes. (See Microsoft Computer Dictionary, 5th Edition "Software" at page 489). 12. The aforesaid would show that what the assessee acquired through Arthur Anderson and Associates was an application .....

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nceiving 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 .....

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termining 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 of the ratio laid down by the Hon ble Delhi High Court in the case of CIT v. Asahi India Safety Glass Ltd.(supra), 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 disall .....

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erved that the UPS is an electrical device which can be attached to various other devices and restricted the depreciation at 15%. The ld. CIT(A) confirmed the disallowance made by the Assessing Officer. 9.2 Before us, the ld. Counsel for the assessee strongly contended that the Coordinate Benches of the Tribunal is consistently allowing depreciation at 60% for UPS including in the case of DCIT v. Indian Bank in I.T.A. Nos. 1910 & 1911/Mds/2015 vide order dated 22.01.2016 and pleaded that the .....

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as under: 13. After hearing both sides, we find that similar issue on identical facts has been considered in the Revenue s appeals in I.T.A. No. 2124 & 2125/Mds/2014 for the assessment years 2005-06 and 2007-08 in assessee s own case by the Coordinate Bench of the Tribunal vide its common order dated 30.11.2015, wherein the Tribunal has observed as under: 20. We have heard both sides, perused the materials on record and gone through the orders of authorities below. With regard to allowabilit .....

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ficer 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, .....

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ided the issue in favour of the Revenue and rejected the plea of the assessee for claiming depreciation @ 60% on UPS. However, The Delhi Benches of the Tribunal in the case of Neptune Information Solutions Ltd. in I.T.A. No. 962/Del/2006 vide order dated 21.04.2011 has decided the issue in favour of the assessee by following the decision of the Hon ble Delhi High Court in the case of CIT v. BSES Rajdhani Powers Ltd. vide order dated 31.08.2010 in ITA No. 1266/2010 and also by following the decis .....

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of the firm view that the ld. CIT(Appeals) has rightly directed the Assessing Officer to allow depreciation on UPS @ 60% and we find no infirmity in the order passed by the ld. CIT(Appeals) on this issue. Accordingly, ground raised in both the appeals of the Revenue for the assessment year 2005-06 and 2007-08 is dismissed. 14. Before us, the Revenue could not controvert the above findings of the Tribunal or filed any higher Court decision having modified or reversed the above decision of the Tri .....

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by the assessee is allowed. 10. The next ground raised by the assessee is that the ld. CIT(A) has erred in sustaining the disallowance 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 tha .....

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