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2015 (11) TMI 68 - AT - Income TaxAddition on account of license fees connectivity charges and co-ordination charges for the use of Vision plus software - revenue v/s capital expenditure - Software only is not the soul of assessee s business as argued by the ld. DR. - Held that - In the case of southern Switchgear Ltd. (1997 (12) TMI 105 - SUPREME Court ) the technical knowledge and information remained with the assessee even after termination of agreement which constituted enduring benefit to the assessee whereas in the present case the software in question is an application software and after termination of license agreement said software was to be delivered back to the licensor and the same cannot be made to use by the assessee in any manner. Similarly in the case of Jones Woodhead and Sons (1997 (2) TMI 4 - SUPREME Court) relied on by the Assessing Officer is also distinguishable on facts inasmuch as in that case the agreement between the assessee and the foreign collaborator was in relation to setting up of a new business and the foreign collaborator besides furnishing information and technical know-how rendered valuable assistance in setting up of the factory itself. No such situation arises in the present case. In view of this discussion and relying on various decisions cited by assessee we are of the considered opinion that the license fee etc. paid by the assessee to M/s. GECC(USA) is revenue expenditure deductible u/s. 37 of the Act. Decided in favour of assessee. Depreciation @ 60% on printer switches networking equipments batteries pen drives etc. - Held that - A perusal of impugned order shows that the ld. CIT(A) after following direct decision of jurisdictional High Court in the case of M/s. BSES Rajdhani Powers Ltd. 2010 (8) TMI 58 - DELHI HIGH COURT has observed that the matter is already settled and the printers switches networking equipments UPS and pen drives are held as integral part of the computer system and hence eligible for depreciation @ 60%. - Decided in favour of assessee.
Issues Involved:
1. Treatment of license fees, connectivity charges, and coordination charges for the use of Vision Plus software as capital or revenue expenditure. 2. Allowance of depreciation on printers, switches, networking equipment, batteries, and pen drives. Detailed Analysis: Issue 1: Treatment of License Fees, Connectivity Charges, and Coordination Charges The primary issue revolves around whether the payments made by the assessee for the use of Vision Plus software should be classified as capital expenditure or revenue expenditure. The Assessing Officer (AO) treated these payments as capital expenditure, citing that the assessee obtained a distinct right to use the software, which provided enduring benefits and exclusive rights in India. The AO relied on Supreme Court decisions in Jonas Woodhead and Sons (India) Ltd. vs. CIT and Southern Switch Gear Ltd. vs. CIT to support this view. The assessee argued that the payments were for the right to use the software for a limited period, without any ownership rights or enduring benefits. The software was used for day-to-day business operations, and the payments were periodic and not linked to acquisition. The assessee cited various judicial decisions, including CIT vs. Asahi India Safety Glass Ltd., Empire Jute Company vs. CIT, and CIT vs. Amway India Enterprises, to argue that the expenditure was revenue in nature. The Tribunal analyzed the end-user license agreement and found that the assessee had only limited rights to use the software, with significant restrictions on copying, transferring, or commercially exploiting it. The agreement also allowed for termination, requiring the assessee to return the software. The Tribunal concluded that the payments were for the use of the software, not for acquiring a capital asset, and thus should be treated as revenue expenditure. Consequently, the appeal of the assessee was allowed, and the expenditure was deemed deductible under Section 37 of the Act. Issue 2: Depreciation on Printers, Switches, Networking Equipment, Batteries, and Pen DrivesThe second issue involved the rate of depreciation applicable to printers, switches, networking equipment, batteries, and pen drives. The AO allowed depreciation at 15%, treating these items as plant and machinery. The assessee claimed depreciation at 60%, arguing that these items were integral parts of the computer system. The CIT(A) followed the decision of the jurisdictional High Court in M/s. BSES Rajdhani Powers Ltd., which held that such items are integral parts of the computer system and eligible for 60% depreciation. The Tribunal found no contrary law or material presented by the Revenue to challenge this view and upheld the CIT(A)'s decision, allowing depreciation at 60%. Conclusion:In conclusion, the Tribunal ruled in favor of the assessee on both issues. The payments for the use of Vision Plus software were treated as revenue expenditure, deductible under Section 37 of the Act. Additionally, the Tribunal upheld the allowance of 60% depreciation on printers, switches, networking equipment, batteries, and pen drives, as these were considered integral parts of the computer system. The appeal of the assessee was allowed, and the appeal of the Revenue was dismissed. Order pronounced in the open court on 16.10.2015.
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