TMI Blog2007 (6) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... rred on software packages as revenue expenditure and for the assessment years 1995-96 and 1996-97, he disallowed the claim of expenditure incurred on construction of new compound wall removing the existing barbed wires as revenue expenditure. For the assessment year 1995-96, the Assessing Officer disallowed the claim of expenditure on replacement of UPS and for the assessment year 1996-97, he disallowed the claim of expenditure incurred on replacement of printer and treated the said expenditure as capital expenditure. Aggrieved by the same, the assessee preferred appeals before the Commissioner of Income-tax (Appeals), who, partly allowed the appeals. Against the order of the Commissioner (Appeals), both the assessee and the Revenue preferred appeals before the Income-tax Appellate Tribunal, which, by a common order dated August 30, 2005, held all the issues in favour of the assessee holding the expenditure incurred on software packages, on construction of compound wall, on replacement of UPS and on replacement of printer as revenue expenditure. Hence, the present tax case appeals by the Revenue raising the following substantial questions of law : "1. Whether, on the facts and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he expenditure has been incurred. In the said case, the apex court has further held as follows (page 10) : "There may be cases where expenditure, even if incurred for obtaining advantage of enduring benefit, may, none the less, be on revenue account and the test of enduring benefit may break down. It is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of the advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. The test of enduring benefit is, therefore, not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstances of a given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of the assessee that such wire fencing would not last for many years and the nature of advantage by safeguarding the asset in the strict sense would merely facilitate the assessee's trading operations and enable the management to conduct its business in a more efficient and profitable manner while leaving the fixed capital untouched, held that the expenditure incurred on putting up of barbed wire fencing was allowable as revenue expenditure. 12. That apart, this court in an unreported decision in T. C. (A) No. 1048 of 2006 (between CIT v. Loyal Super Fabrics— since reported in [2008] 304 ITR 78 (Mad)), where the assessee claimed the expenditure incurred while shifting his factory premises from Kovilpatti to Cuddalore, as revenue expenditure, which was disallowed by the Revenue, by judgment dated August 21, 2006, applying the law laid down by the House of Lords in Atherton (H. M. Inspector of Taxes) v. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, 192 (HL), observed as follows (page 83 of 304 ITR) : ". . . the expression 'enduring advantage' availed of by the respondent/assessee by shifting the factory from Kovilpatti to Cuddalore, is a relative te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee to carry on its business operations effectively, efficiently, smoothly and profitably. However, such software itself does not work on a stand alone basis. It has to be fitted to a computer system to work. Such software enhances the efficiency of the operation. It is an aid in the manufacturing process rather than the tool itself. Therefore, the payment for such application software, though there is an enduring benefit, does not result in acquisition of any capital asset and it merely enhances the productivity or efficiency and hence, has to be treated as revenue expenditure. 15. In view of the above, we hold that the Tribunal had rightly held that the expenditure incurred on software packages as a revenue expenditure. Question No. 2 : "Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the expenditure incurred on construction of compound wall in the place of barbed wire fencing is a revenue expenditure ?" 16. This issue relates to the assessment years 1995-96 and 1996-97, during which the claim of the assessee with respect to the expenditure incurred on construction of compound wall in the place of barbed wire fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as brought to another decision of the Karnataka High Court in Senapathy Synams Insulations P. Ltd. v. CIT [2001] 248 ITR 656, where the assessee replaced the existing compound wall with a new foundation and claimed the expenditure incurred on the construction of the wall as revenue expenditure. In the said case, the Karnataka High Court held that the Revenue had rightly treated the expenditure as capital expenditure because the compound wall had been built to provide enduring safety to the assessee. But, we find that the ratio laid down by the House of Lords, Privy Council, apex court as well as by other High Courts, referred supra, were not brought for consideration by the Karnataka High Court while deciding the question raised in the said case. 20. Therefore, since the decision of the Karnataka High Court in CIT v. B. V. Ramachandrappa and Sons [1991] 191 ITR 34, is fully supported by the ratio laid down by the House of Lords, Privy Council, apex court as well as by other High Courts, referred supra, in our considered opinion, in the case on hand, the Tribunal has rightly held that the expenditure incurred on the construction of the compound wall in the place of barb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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