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TMI Blog2018 (5) TMI 933X X X X Extracts X X X X X X X X Extracts X X X X ..... ination charges paid to a US based company M/s GE Capital Corporation for use of 'Vision Plus' software holding the same as revenue in nature and allowable u/s 37 of the Act. 3. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not following the decision of his predecessor CIT(A) for the assessment year 2007-08, who had held the same as capital expenditure. 2. The brief facts of the case are that the assessee company is engaged in carrying out back end operations of this activity, i.e, transaction processing on cards, billing, updating of collections, statements of account, resolving cardmembers queries etc. The case was referred to TPO 1(5) for determining Arm's Length Price u/s. 92CA(3) in respect of international transactions entered into by the assessee during the financial year 2009-10. The TPO, after examining the records, did not record any adverse inference and accordingly, the Assessing Officer completed the assessment. During the course of hearing the Assessing Officer observed that the assessee had shown total receipts of Rs. 193,95,54,582/- on which total TDS was made of Rs. 5,67,76,413/-. The Assessee had shown in its profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount has not been disclosed in the profit and loss account as per section 198 of the IT Act and added to the income of the assessee. 4. Further, the ld. Assessing Officer observed that the assessee has paid Rs. 3,69,40,306/- to GE capital Corporation USA for use of Vision Plus Software as per end user license agreement dated 07.07.2000. the AO was of the view that the license to the software provides enduring benefit to the assessee and therefore, held the payments in pursuance of the end user license agreement as capital in nature and therefore, disallowed the license fee and data service management charges paid to GE Capital Corporation, USA for use of software aggregating to Rs. 3,69,40,306/- and completed the assessment. Aggrieved by the above two additions, the assessee appealed before the first appellate authority who after considering the submissions of the assessee and remand report called from the Assessing Officer, deleted both the additions. Aggrieved by the order of ld. CIT(A), the Revenue is in appeal before the ITAT. 5. The learned DR relied on the order of the Assessing Officer and submitted that the assessee has disclosed less amount in his revenue account wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat all taxes have been duly paid to the credit of the Government Treasury and that all income has been duly offered to tax in the return of income e-filed by the Appellant. There is, therefore, no underreporting of income by the Appellant in the books of accounts and the contention of the Ld. AO in this regard is misplaced. 8.3.3. As regards the contentions of the Ld. AO that the receipts on account of cost allocation are not reflected in the financial statements of the Appellant Company, the Ld. AO disregarded the fact that in terms of the cost sharing arrangements entered into by the Appellant with other companies, Appellant incurred costs on behalf of these companies and subsequently recovered the costs allocated on cost to cost basis from these companies without any margin, since this was a convenient arrangement and the appellant is not engaged in such a business. Such receipts have been duly accounted for by the Appellant Company in the ledger and the same have been netted off against the recoveries being not pertaining to the appellant company as income or an expense as per Note 2(d) of Schedule 12 of the financial statements, which were duly audited by statutory auditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hile deciding on the appeals for these years, on careful examination of the EULA between the Appellant and GECC, I had observed that GECC holds a global license for the software which is widely used and is available 'off the shelf' pursuant to its agreement with Pay Sys. This software enables carrying out of accounting and processing -of credit card transactions. Vision plus is an 'Application Software' which manages aspects of credit cards right from the time of the application for credit card is made, evaluated, account is 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 has received the right to use the software internationally including its group entities for its business. It does not have any right to commercially exploi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The reliance of the AO on various judicial pronouncements has been distinguished by the-Appellant on facts. 3.3 As the facts for AY 2011-12 are similar to the facts of AY 2008- 09 and AY 2010-11, I thereby hold that my findings in the order passed for AY 2008-09 would stand equally applicable here. 3.4 In view on the same, hold that the impugned payment of Rs. 3,70,98,989/- on account of license fee and data management service charges for use of the 'Vision Plus' software Was revenue 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 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight either to sell it or alienate in any other manner. The relevant clauses No. 2.2 and 2.3 of the license agreement are reproduced as under : "2.2. GECC shall provide the Licensed Program, any revisions to the Licensed Program and any updates to the Licensed Program to GECBPMS for its business use only in accordance with this agreement." 2.3. GECBPMS undertakes 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 Licensed Program and/or exploit commercially the Licensed Program in any manner whatsoever." Similarly, clause 5 and its sub-clauses give the right of termination of license agreement to either parties under various circumstances. It is worthwhile to note that in case of default, if any, committed by the assessee, the rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 accounting purposes. Therefore, in view of decisions in the case of CIT vs. Asahi India Safety Glass Ltd (supra) and CIT vs. Amway India Enterprises (supra), we are of the considered opinion that the right to use the vision plus software program does not have any effect of providing enduring benefit and the payment made to GECC(USA) is only the license fees and not the price for acquisition of capital asset. The assessee did not acquire any ownership on the software and after termination of license agreement, 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 Rs. 152.88 crores whereas the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute in the present appeal, relating to deletion of addition of Rs. 3,70,98,989/- made on account of license fee is squarely covered by the aforesaid decision of the ITAT, hence, we respectfully follow the aforesaid decision of the ITAT and decide the issue against the Revenue. Even otherwise, we also note that Ld. 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 paymentof Rs. 3,70,98,989/- on account of license fee and data management service charges for use of the 'Vision Plus' software was rightly held as revenue in nature and allowable u/s 37 of the Act. We further note that the factual finding of the Ld. CIT(A) on the issue in dispute also could not be controverted by the department during the proceedings before us and we, therefore, find no reason to interfere with the findings of the Ld. CIT(A) on this issue as well and while upholding the same." 10. Respectfully following the above decision of co-ordinate bench, grounds Nos. 2 & 3 of the Revenue's appe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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