2012 (3) TMI 330 - AT - Income Tax

Depreciation - Notification No. 890(E) dated 26.09.2000 - website development cost as software instead allowing the deprecation treating it as an intangible asset - assessee claimed depreciation on website development expenses under the block of intangible assets - Assessing Officer observed that the expenditure incurred by the assessee on development of website was capital in nature - AR of the assessee submitted that as per old Appendix-I applicable for Assessment Years 2003-04 to 2005-06, intangible assets fall under Part-B and are eligible for depreciation @ 25%. In earlier Assessment Years i.e. upto Assessment Years 2001-02 to 2003-04 the Department has allowed depreciation - Website enables companies to do what the printed brochures did but, in a much more efficient manner as well as in a much shorter period of time and covering a much larger set of people worldwide - It would fall under the definition of intangible asset on which depreciation @ 25% is allowable - Appeal is dismissed

Issues Involved:

1. Depreciation on website development cost as software.
2. Classification of website development cost as intangible asset.
3. Deduction of website development cost as revenue expenditure.
4. Consistency in treatment of website development cost in previous assessment years.

Issue-wise Detailed Analysis:

1. Depreciation on Website Development Cost as Software:

The assessee contended that the website development cost should be classified as software and thus eligible for depreciation at the rate of 60% under Section 32 of the Income-tax Act, 1961. The assessee referenced a Central Board of Direct Taxes (CBDT) Notification No. 890(E) dated 26.09.2000, which included website services in the definition of computer software for specific sections (10A, 10B, and 80HHE) of the Act. However, the Tribunal held that this definition could not be imported for the purposes of depreciation under Section 32. The Tribunal concluded that a website, while facilitating business operations, does not qualify as software but falls under the category of intangible assets, thus eligible for depreciation at 25%.

2. Classification of Website Development Cost as Intangible Asset:

The Revenue's appeal challenged the allowance of depreciation on the website development cost, arguing it was not a depreciable asset. The Tribunal noted that the website development cost had been treated as a business asset and allowed for depreciation in previous assessment years (2001-02 to 2003-04). The Tribunal upheld the CIT(A)'s decision to classify the website as an intangible asset, eligible for depreciation at 25%, following the principle of consistency. The Tribunal emphasized that the website, used for business purposes, represents a business asset falling under the block of intangible assets.

3. Deduction of Website Development Cost as Revenue Expenditure:

The assessee argued that the website development cost should be treated as revenue expenditure, referencing the Delhi High Court decision in CIT v. India Visit.Com (P) Limited, which allowed website development expenses as revenue expenditure under Section 37(1) of the Act. However, the Tribunal noted that the assessee had consistently treated the website development cost as a capital asset and claimed depreciation on it. Since the treatment as a capital asset had been accepted in previous years, the Tribunal dismissed the claim for treating it as revenue expenditure for the current year.

4. Consistency in Treatment of Website Development Cost in Previous Assessment Years:

The Tribunal highlighted the need for consistency in the treatment of website development costs. The Revenue had allowed depreciation on the website development cost in previous assessment years (2001-02 to 2003-04). The Tribunal found no justification for the Revenue's change in stance for the current assessment year, reaffirming the CIT(A)'s decision to allow depreciation at 25% on the website development cost, treating it as an intangible asset.

Conclusion:

The Tribunal dismissed both the appeals filed by the Revenue and the assessee. The website development cost was upheld as an intangible asset eligible for depreciation at 25%, and the assessee's claim for treating it as software or revenue expenditure was rejected. The decision emphasized consistency in the treatment of such costs across assessment years.

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