2010 (2) TMI 869 - AT - Income Tax

Expenditure on software acquisition - Revenue or capital - assessee incurred expenditure on purchase of software - Held that - AO directed to examine the question whether expenditure on computer software is capital or revenue in view of the criteria laid down in the case of Amway India Enterprises after giving an opportunity of being heard to the assessee matter remanded to AO. Disallowance of deduction claimed on account of employees contribution to Provident Fund - Held that - assessee will be entitled for deduction on account of delayed payment of employees /employers contribution towards Provident fund where payments were made after due date prescribed under respective statute but before the due date of furnishing the return of income under section 139(1) of the Act. Since the payment has been made before the due date of filing of the return under section 139(1) of the Act assessee will been entitled for deduction u/s 43B of the Act in respect of employee s contribution CIT (A) was justified in deleting the addition Disallowance of claim on account of depreciation - depreciation on tube-well installed at the factory site - assessee not claimed depreciation on farm tube-well - assessee owns another tube-well in the factory building for the purpose of factory use. The water supplied by the tube-well is used in the factory - Held that - use of tube-well in the factory is not for the purpose of agricultural land the income thereof is exempt from tax. Since the tube-well forms part of plant and machinery installed in the factory building and water is used for the purpose of factory assessee is entitled for depreciation on tube-well. order of the ld. CIT (Appeals) set aside and AO directed to allow depreciation on tube-well installed in the factory premises appeal filed by the assessee is partly allowed for statistical purposes.

Summary

Issues:
1. Expenditure on software acquisition treated as capital in nature.
2. Disallowance of deduction on account of employees' contribution to Provident Fund.
3. Disallowance of claim on account of depreciation on tube-well.

Issue 1: Expenditure on software acquisition treated as capital in nature:
The appeal concerned the assessee's contention that expenditure on software acquisition should be treated as revenue expenditure, not capital. The Assessing Officer treated the expenditure as capital, noting the enduring benefit derived by the assessee. The ITAT, Delhi referred to a Special Bench decision in the case of Amway India Enterprises v/s DCIT, which laid down criteria for determining the nature of such expenditure. The ITAT directed the matter back to the Assessing Officer to apply these criteria and determine if the expenditure on software acquisition should be treated as capital or revenue.

Issue 2: Disallowance of deduction on account of employees' contribution to Provident Fund:
The dispute revolved around the disallowance of deduction on employees' contribution to Provident Fund due to a delayed payment. The ITAT referred to the decision of the Delhi High Court in the case of CIT vs. P.M. Electronics Ltd., which held that deductions are permissible if payments are made before the due date of filing the return under section 139(1) of the Act. Following this precedent, the ITAT held that the assessee was entitled to the deduction on account of delayed payment of employees' contribution to Provident Fund.

Issue 3: Disallowance of claim on account of depreciation on tube-well:
The assessing officer disallowed the claim for depreciation on a tube-well installed at the factory site, stating it was used for agricultural purposes. The ITAT noted that the assessee had a separate tube-well for agricultural use and claimed depreciation only for the tube-well within the factory area used for factory purposes. The ITAT held that since the tube-well was part of the plant and machinery in the factory building and used for factory operations, the assessee was entitled to claim depreciation on it. Consequently, the ITAT directed the Assessing Officer to allow depreciation on the tube-well installed in the factory premises.

In conclusion, the ITAT partially allowed the appeal, addressing each issue comprehensively and providing detailed reasoning based on legal precedents and the specific circumstances of the case.