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DCIT, Circle 10 (1) , New Delhi Versus M/s GE Capital Business Process Management Services Pvt. Ltd.

2017 (9) TMI 244 - ITAT DELHI

Addition on account of license fee and Data service management charges - allowable business expenditure - AO treating the same as Capital expenditure as providing enduring benefit - Held that:- CIT(A) has held that as the facts for AY 2011-12 are similar to the facts of AY 2008- 09 and AY 2010-11, therefore, he held that his findings in the order passed for AY 2008-09 would stand equally applicable here and accordingly, in view of the same, the impugned payment on account of license fee and data .....

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-9-2017 - SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Revenue : Sh. Vijay Verma, CIT(DR) For The Assessee : S h . Rohit Garg, Adv. ORDER PER H.S. SIDHU : JM The Revenue has filed this Appeal against the impugned Order dated 28.5.2015 of the Ld. CIT(A)-IV, New Delhi relevant to assessment year 2011-12. 2. The grounds raised in this Appeal read as under:- 1. On the facts and circumstances of the case the Ld. CIT(A)-4 has erred in deleting the addition of .....

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2) of the Act alongwith questionnaire under section 142(1) was issued on 12.8.20132 and 30.10.2014. Due to change of incumbency AO issued notice u/s. 142(1) on 20.11.2014. In response to the notices, the assessee s AR attended the proceedings from time to time and filed the details. The assessee company is engaged in the business of providing business of process management services to credit card companies, in particular SBI Cards and Payment Services Private Limited in respect of payment produc .....

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of the said Vision Plus software program. During the assessment proceedings u/s. 143(3) of the Act, the AO was of the view that the license to this software provides enduring benefit to the assessee and therefore, held the payments and in pursuance of the EULA as capital in nature and therefore, disallowed license fee and data service management charges paid to GECC for use of Vision Plus software aggregating to ₹ 3,70,98,989/- and completed the assessment at ₹ 24,50,23,860/- u/s. 14 .....

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the contrary, Ld. Counsel of the assessee has relied upon the order of the Ld. CIT(A) and stated he has passed a well reasoned order which does not need any interference. At the time of hearing, Ld. Counsel of the assessee stated that Ld. CIT(A) has deleted the addition in dispute by respectfully following the order of the Ld. CIT(A) for the assessment year 2007-08, 2008-09 and 2010-11. He further stated that the ITAT vide order dated 16.10.2015 passed in assessee s own case in ITA No. 2806/Del/ .....

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nd perused the relevant records, especially the impugned order. For the sake of convenience, we are reproducing herewith the relevant portion of the impugned order passed by the Ld. CIT(A):- 6.3 Regarding Ground II of the appeal relating to treatment of license fee paid to GECC as capital in nature, I find that the same issue have been discussed in detail in the appellate order passed by me in the Appellant's case for AY 2008- 09 and AY 2010-11. While deciding on the appeals for these years, .....

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s created, transactions are authorized, raising disputes, sending statements, customer services and online payments processing. The software is mainly for credit card transactions processing by multinational banks and transaction processing companies. Various banks and financial institutions use this application software to store and process credit card, debit card, prepaid closed end loan accounts and process financial transactions which is available off the shelf. I also find that GECC itself .....

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rovide any exclusive use to the Appellant. (ii). GECC is a global license holder of the vision plus software and the Appellant is one of the users of such software license which in itself implies that there is no 'exclusivity that the Appellant is entitled to. (iii) The EULA allows GECC to receive license fee from the Appellant on quarterly basis (refer in this regard clause 3.1 of the EULA). The agreement provides for periodic payment for use of software to GECC which has been subject matte .....

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e there is any "breach in material terms including on the periodical payments for user", i.e., if there is a default in payment, then the agreement and consequentially, the right of the Appellant to use the software stands terminated forthwith. (Refer in this regard clause 5.1 (a) of the EULA). (vi) Upon termination, the right to use the licensed program shall end and the Appellant is required to with immediate effect deliver the licensed program to GECC and the Appellant is required t .....

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any irrevocable transfer of bundle of rights on it. On the other hand, the Appellant is bound by various conditions in respect of the manner of use of the license. Keeping in view the same, the Appellant Company's case gets squarely covered by the Hon'ble SC in the case of MIs Empire Jute Co. Ltd. (supra) and other cases cited by the Appellant in its defence, since no enduring benefit has been acquired by the Appellant through the payment of license fee for the limited use of the license .....

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ue in nature and allowable u/s 37 of the Act. Accordingly, this ground is allowed in favour of the Appellant. The alternative plea of the Appellant thus, become infructuous. 6.1. We further find that ITAT, C Bench, New Delhi vide its order dated 16.10.2015 passed in ITA No. 2806/Del/2011 (AY 2007-08) in the matter of assessee i.e. GE Capital Business Process Management Services Pvt. Ltd. and in ITA No. 2124/Del/2013 (AY 2008-09) in the case of ACIT vs. GE Capital Business Process Management Serv .....

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d circumstances of the case, the payment of license fee, connectivity charges and co-ordination charges amounting to ₹ 2,19,60,467/- made by the assessee to GECC(USA) under the end-user agreement shall fall within the category of capital expenditure or revenue expenditure? The stand of the assessee is that it is in the nature of revenue expenditure and deductible u/s. 37(1) of the Act whereas the ld. Authorities below have put it in the category of capital expenditure and disallowed the cl .....

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ranted by the licensor in itself is a capita asset, being intangible asset , which having long validity is capital in nature. We have gone through the End-User license agreement dated 07.07.2000 and we do not find substance in the conclusion arrived at by the ld. Authorities below. It is notable that in terms of clause 2.2 and 2.3, the assessee company is specifically restricted to make copies of the software and make it available to any other period. There is also a bar on the assessee for use .....

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kes that it shall not; (a) make the licensed program or any part thereof available to any period other than its employees on a need to know basis; (b). copy the Licensed Program or any part thereof, other than for archival backup purposes; (c). use the Licensed Program for any purpose other than as permitted by clause 2.2 of license, sell or otherwise alienate the Licensed Program in any manner whatsoever; or (d). Duplicate, market, license or develop software programs that compete with the Lice .....

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emoving the same from its systems on termination of agreement. Clause 5.5 of the agreement reads as under : 5.5. Upon termination of this Agreement the right to use the Licensed Program shall end and GECBPMS shall, with immediate effect : (a) deliver to GECC the Licensed Program; and (b) purge all copies of the licensed program stored in any CPU or other storage medium or facility, which for any reason cannot be delivered to GECC. In addition, an officer of GECBPMS shall certify in writing to GE .....

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ent to assume that the periodic payments made by the assessee were the installments for acquisition of such software and the payment was not for mere usage of software. It is a matter of fact on record that M/s. GECC (USA) itself has received the right to use the software internally including its group entities for its business and it does not have any right to commercially exploit the software. The assessee is vested with limited right to use the licensed program during the currency of license .....

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ring benefit for holding the same as capital in nature. The ld. DR has failed to rebut the contention of the assessee that the impugned software is an application software and is being used for accounting purposes. Such software are used by various banks and financial institutions. Moreover, the ld. CIT(A) in succeeding assessment years 2008-09, 2010-11 and 2011-12 has categorically gave finding of fact that the software is a application software which is routine in nature and used for accountin .....

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ment, all the rights and title remained with GECC (USA). The ld. DR failed to dislodge the findings of the ld. CIT(A) given in the orders passed for subsequent years after considering the same license agreement and various decisions of Hon ble High courts and Supreme Court. It is also a matter of record that the assessee has returned its income for the relevant previous year at ₹ 152.88 crores whereas the amount expended towards use of routine application software is ₹ 2.19 croes whi .....

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icensor and the same cannot be made to use by the assessee in any manner. Similarly in the case of Jones Woodhead and Sons (India) (supra) relied on by the Assessing Officer is also distinguishable on facts inasmuch as in that case the agreement between the assessee and the foreign collaborator was in relation to setting up of a new business and the foreign collaborator besides furnishing information and technical know-how, rendered valuable assistance in setting up of the factory itself. No suc .....

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icense fee, connectivity charges and co-ordination charges paid to US based company M/s. GE Capital Corporation for use of vision plus software holding the same as capital expenditure. This issue has been decided in favour of the assessee while deciding the appeal of the assessee for the assessment year 2007-08 in the foregoing part of this order. There being no change in the facts and circumstances of the case and the disallowance being based on the same license agreement, we decide the issue i .....

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