TMI Blog2017 (4) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... 57 on computer software is against law, facts of the case and weight of evidence. 2. The CIT(A) has erred in sustaining disallowance of depreciation of ₹ 10,35,657 on the ground that amount paid to obtain computer software has been held by the jurisdictional High Court as in the nature of royalty and hence cannot be added to block of assets of computer. 3. The learned CIT(A) has erred in not following the decisions of the jurisdictional High Court in ITA No 507/2002 - CIT vs. Wipro Ltd and followed in Wipro Ltd vs. DCIT, Central Circle 1(3) reported in 236 Taxmann 209 and decisions of other High Courts which apply to the facts of the case that amounts paid for purchase of packaged software cannot be royalty. 4. The learned CIT(A) has erred in relying upon the decision of the jurisdictional High Court in Samsung Electronics Ltd (2011) 345 ITR 494 to hold that payment made to the software vendor as royalty, when the said case is not applicable to the facts of this case. 5. The learned CIT (A) erred in holding that appellant was obliged to deduct tax at source in the previous Year 2007-08 and 2008-09 on the payment made to the vendor for acquisition of li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the coordinate bench of this Tribunal in the case of M/s. Kavasaki Microelectronics Inc., (supra) in para 6 to 8 as under: 6. We have considered the rival submissions as well as relevant the material on record. The issue before us is limited only with respect to the disallowance of depreciation by invoking the provisions of section 40(a)(i) of the Act. There is no dispute that the assessee has made the payment in question to a non-resident for purchase of software and the said payment has been capitalized by the assessee i n the block of computer asset. Once the assessee capitalized the payment and has not claimed the same as an expenditure against the profits of the business of the assessee, then, the question arises whether the depreciation which is a statutory deduction as per the section 32 of the Act can be disallowed by invoking the provisions of section 40(a)(i) of the Act. At the outset, it is to be noted that on the similar set of facts anidentical issue has been dealt by the ITAT, Mumbai Bench in the case of SKOL Breweries Ltd. (supra), wherein it was held in paras 16.1 to 16.4 as under :- 16.1 As regards the alternative plea of the ld Sr counsel for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation. -For the purposes of this sub-clause,- royalty shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; 16.2 It is manifest from the plain reading of provisions of sec. 40(a)(i) that an amount payable towards interest, royalty, fee for technical services or other sums chargeable under this Act shall not be deducted while computing the income under the head profit and gain of business or profession on which tax is deductible at source; but such tax has not been deducted. The expression 'amount payable' which is otherwise an allowable deduction refers to the expenditure incurred for the purpose of business of the assessee and therefore, the said expenditure is a deductible claim. Thus, section 40 refers to the outgoing amount chargeable under this Act and subject to TDS under Chapter XVII-B. There is a difference between the expenditure and other kind of deduction. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had not claimed deduction for the amount paid, the provisions contained in section 40(a) (i) were not attracted. The learned DR could not find any fault with this direction of the CIT(A) also although she referred to page 4 of the assessment order, where it was mentioned that the tax deducted in respect of the payment was made over to the Government in the subsequent year and, therefore, depreciation could not be deducted on the capital expenditure incurred by the assessee. In reply, the learned counsel pointed out that the expenditure by way of technical know-how was capitalized and it was not claimed as revenue expenditure. Therefore, there was also no reason to disallow depreciation on such capitalized amount as the aforesaid provision does not deal with deduction of depreciation. Having considered arguments from both the sides, we are of the view that there is no error in the order of the learned CIT(A) which requires correction from us. Thus, this ground is also dismissed. 6. Learned counsel for the revenue was unable to substantiate that in the absence of any requirement of law for making deduction of tax out of the expenditure on technical know how which was c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, the AO was not justified in disallowing 50 percent of depreciation on the ground that provisions of section 40(a)(i) were applicable. However, the AO will verify the fact whether the assets in respect of which expenditure has been capitalized have been used in business for period more than 180 days. If the assets have been used for more than 180 days, the AO will allow full depreciation, as claimed by the assessee. The AO is directed accordingly . 8. Therefore, in the facts and circumstances of the case as well as by following the decisions of the co-ordinate benches of the ITAT, we are of the opinion that once the assessee has capitalized the payment in question though the assessee has not deducted the tax at source on such payment, Section 40(a)(i) cannot be invoked for disallowance of depreciation. Accordingly, we set aside the orders of the authorities below and the addition made by the Assessing Officer is deleted. 5. Following the earlier orders of this Tribunal, we are of the considered opinion that once the assessee has capitalized the payment in question, then even the assessee has not deducted tax at source on such payment, the provisions of section 40(ia) c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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