2014 (4) TMI 107 - AT - Income Tax

TDS on V-ST charges Deletion of disallowance u/s 40(a)(ia) Held that - payment of V-SAT charges covered by decision of Bombay High Court in CIT v/s Kotak Securities Ltd. 2011 (10) TMI 24 - Bombay High Court - Therefore, there was no requirement for deducting TDS and consequently no disallowance under section 40(a)(ia) can be made - Set aside issue of transaction charges to file of Assessing Officer, to verify, whether in earlier years transactions charges have been paid and any disallowance has been made in earlier years or not - If assessee has paid transaction charges in earlier years and no disallowance has been made by Department, then in view of the decision of Jurisdictional High Court in case of Kotak Securities Ltd. 2011 (10) TMI 24 - Bombay High Cour no disallowance should be made in this year because in that way it constitute a reasonable cause for not deducting TDS in this year also - Matter is restored to file of Assessing Officer - Decided partly in favour of Revenue. Disallowing Expenditure as capital expenditure - software expenditures - Held that - software application expenses are nothing, but up-gradation of efficient working of operations through computers in day-to-day business management, which keeps on changing periodically and thus any expenditure on such an upgradation or buying of software is revenue expenditure only - Even though Rules have provided rate of depreciation on computer software, but that does not lead to any kind of drawing legal inference that all softwares have to be characterized as capital asset - Grounds raised by assessee in cross objection treated as allowed - Decided in favor of assessee.

Summary

Issues:
1. Disallowance of V-SAT and transaction charges under section 40(a)(ia) for assessment year 2007-08.
2. Disallowance of computer software purchase as capital expenditure.

Issue 1: Disallowance of V-SAT and transaction charges under section 40(a)(ia):

The Revenue challenged the deletion of disallowance made under section 40(a)(ia) for V-SAT and transaction charges paid to Stock Exchange. The Assessing Officer disallowed the charges as technical services, requiring TDS deduction. The Commissioner (Appeals) allowed the appeal citing precedents. The Tribunal noted that V-SAT charges did not require TDS as per High Court rulings. Regarding transaction charges, the Tribunal directed the Assessing Officer to verify past disallowances to determine if a reasonable cause existed for non-TDS deduction, aligning with Kotak Securities Ltd. decision. The Revenue's appeal was partly allowed.

Issue 2: Disallowance of computer software purchase as capital expenditure:

The Assessing Officer disallowed the claim for computer software purchase as revenue expenditure, treating it as capital expense due to enduring benefit. The Commissioner (Appeals) upheld the decision based on new Appendix-I rules. The assessee argued that software expenses are essential for daily business operations and do not provide enduring benefits. They cited the Delhi High Court's decision in a similar case. The Departmental Representative argued that depreciation rules indicated capital nature of software expenses. The Tribunal held that software expenses, essential for business efficiency, do not automatically qualify as capital expenditure due to depreciation rates. They emphasized that software applications enhance operational efficiency and are revenue expenses. The cross objection by the assessee was allowed.

In conclusion, the Revenue's appeal was allowed for statistical purposes, while the assessee's cross objection was treated as allowed. The Tribunal provided detailed analysis and legal reasoning for each issue, ensuring a fair and comprehensive judgment based on relevant precedents and legal interpretations.