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2016 (6) TMI 592 - AT - Income TaxExpenditure on Software Licence Fees - revenue v/s capital - Held that - In the light of the factual and legal matrix of the case and respectfully following the ratio of the decisions of the Hon ble Bombay High Court in the case of Raychem RPG Ltd. (2011 (7) TMI 953 - Bombay High Court ) and Amway India Enterprises (2008 (2) TMI 454 - ITAT DELHI-C ) and the finding of facts rendered in the assessee s own case for A.Y. 2010-11 we hold and direct that out of expenditure claim for software licence fees amounting to ₹ 60,35,642/-, the amount of ₹ 55,57,875/- (i.e. ₹ 60,36,642/- less ₹ 4,77,767/-) is incurred in respect of application software acquired which is in the nature of revenue expenses. The remaining expenditure of ₹ 4,77,767/- paid to Fadv Corporation for acquiring True UP Licences Fees being for a period of 36 months is held to be expenditure capital in nature as it results in enduring benefit to the assessee and we direct the AO to allow the assessee eligible depreciation thereon in accordance with law. Foreign Exchange Loss - Held that - On an appreciation of the facts of the case on hand, it is seen that the foreign exchange loss has arisen on account of trade transactions entered into by the assessee and is with respect to the revaluation of foreign currency sundry debtors and creditors as on 31.03.2009. In our view, the claim of the assessee in the case on hand in respect of loss on account of foreign exchange sundry debtors and creditors is allowable as it is covered in favour of the assessee by the decision of the Hon ble Apex Court in the case of CIT vs. Woodward Governor India P. Ltd. (2009 (4) TMI 4 - SUPREME COURT ).- Decided in favour of assessee. Software Expenses - revenue v/s capital - Held that - Since the expenditure was incurred for purchase of Windows XP Professional, an application software for its office use and becomes obsolete very fast, it cannot be treated as capital asset and therefore the same is to be treated and allowed as revenue expenditure.- Decided in favour of assessee.
Issues Involved:
1. Expenditure on Software Licence Fees (A.Y. 2009-10) 2. Foreign Exchange Loss (A.Y. 2009-10) 3. Software Expenses (A.Y. 2005-06) Detailed Analysis: 1. Expenditure on Software Licence Fees (A.Y. 2009-10): The assessee, engaged in pre-employment screening, claimed a deduction of ?60,35,642/- for software licence fees. The Assessing Officer (AO) treated this as capital expenditure, arguing that the software provided enduring benefits. The CIT(A) partially agreed, treating ?13,39,834/- as revenue expenditure and the remaining ?46,95,808/- as capital expenditure. The Tribunal considered the ownership, functionality, and enduring benefit tests as laid out in the ITAT Special Bench decision in Amway India Enterprises. The software was not owned by the assessee, provided no enduring benefit due to obsolescence, and was used for routine business operations. Following the precedent from the assessee’s own case for A.Y. 2010-11 and the Hon'ble Bombay High Court in Raychem RPG Ltd., the Tribunal held that ?55,57,875/- (excluding ?4,77,767/- for a license beyond two years) was revenue expenditure. The remaining ?4,77,767/- was capital expenditure eligible for depreciation. 2. Foreign Exchange Loss (A.Y. 2009-10): The AO disallowed a foreign exchange loss of ?31,21,769/- on revaluation of foreign currency sundry creditors and debtors, considering it notional. The CIT(A) allowed the claim following the Supreme Court decision in CIT vs. Woodward Governor India P. Ltd. The Tribunal upheld the CIT(A)’s decision, stating that the loss arose from trade transactions and was thus allowable as per the Supreme Court’s ruling. Consequently, the Revenue’s ground on this issue was dismissed. 3. Software Expenses (A.Y. 2005-06): The assessee challenged the CIT(A)’s decision treating ?28,62,118/- spent on Windows XP Professional as capital expenditure. The CIT(A) held it provided enduring benefits as it was not renewed annually. The assessee argued it was an application software, thus revenue in nature. The Tribunal referred to Coordinate Bench decisions in Boots Piramal Healthcare Ltd. and Pennwalt Ltd., which treated similar software expenses as revenue. Applying the tests from Amway India Enterprises, the Tribunal found the expenditure on Windows XP Professional to be revenue as it was for routine office use and became obsolete quickly. The Tribunal reversed the CIT(A)’s finding and directed the AO to delete the disallowance. Conclusion: - Revenue’s appeal for A.Y. 2009-10 is dismissed. - Assessee’s appeal for A.Y. 2009-10 is partly allowed. - Assessee’s appeal for A.Y. 2005-06 is allowed. Order pronounced in the open court on 7th June, 2016.
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