2007 (10) TMI 641 - HC - Income Tax

Summary

Issues Involved:
The judgment involves the assessment year 1998-99, where the Income-tax Appellate Tribunal dismissed the revenue's case. The revenue raised four questions of law, including the treatment of software expenses against the book profit u/s 115JA of the Act.

Question (a), (b), and (c):
The Court noted that based on the decision in CIT v. Woodward Governor (India) (P.) Ltd., no substantial question of law arises regarding these issues. The position was admitted, and the questions were not considered significant.

Question (d):
The main issue was whether the Tribunal was correct in allowing software expenses as revenue expenditure against the book profit computed u/s 115JA of the Act. The Tribunal concluded that expenses on software used in computers are revenue expenditure since software becomes obsolete quickly and needs regular updates, making it not an enduring asset.

Legal Interpretation:
The Court was informed about section 38 of the Income-tax Act, 1961, which mentions intangible assets entitled to depreciation. However, the amendment to section 32, which is not retrospective, was not seen as assisting the revenue's case. The Court opined that no substantial question of law arises in this matter.

Conclusion:
The Court upheld the Tribunal's decision and dismissed the appeal, stating that the software expenses were rightly treated as revenue expenditure. The judgment was based on the nature of software as a non-enduring asset that requires regular updates, aligning with the Tribunal's reasoning.