2018 (7) TMI 288 - AT - Income Tax

Depreciation on computer software purchased separately (SAP Software) - @ 60% OR 25% - Held that - The computer software so installed albeit separately is a long term software having regard to the special needs of the assessee company - the issue is no longer res integra and is covered in favour of the assessee by the decision of the co-ordinate bench of the Tribunal ACIT vs. Zydus Infrastructure (P.) Ltd. 2016 (8) TMI 696 - ITAT AHMEDABAD as held assessee is eligible for accelerated depreciation year after-year and therefore, higher depreciation in initial years would ultimately lead to lower depreciation in the subsequent years and accordingly, over a period of time, the entire exercise would be revenue neutral. Higher or lower depreciation will not lead to any change in taxable income of the 10-A unit, the entire issue is academic. - licensed software are subject to depreciation @ 60% - Decided against revenue Eligibility of foreign exchange fluctuation gains for the purposes of exemption u/s 10A - Held that - The issue is also settled in favour of the assessee by long line of judicial precedents where a consistent view has been taken that foreign exchange gains arising out of the fluctuation in the rate of foreign exchange cannot be divested from the export business of the assessee. Once export is made, the foreign exchange gains/loss may occur due to variety of reasons at the time of remission of export sale proceeds. Foreign exchange fluctuation gains required to be taken as integral part of the business profits derived from exports. What is required to be determined is profits of the business of the undertaking which is ostensibly wider than profits & gains derived by the undertaking . In short, the profits derived from export have been equated when business profits of the undertaking in view of the formula provided in Section 10AA(7) of the Act - Decided against revenue

Summary

Issues:
1. Eligibility of accelerated depreciation on computer software purchases.
2. Eligibility of foreign exchange fluctuation gains for exemption under s.10A of the Act.

Issue 1: Eligibility of accelerated depreciation on computer software purchases:

The Revenue contested the allowance of depreciation at an accelerated rate of 60% on computer software purchased separately by the assessee, arguing that depreciation should be limited to 25% applicable to intangible assets. The Revenue claimed that the software was not an integral part of the computer system. The assessee, eligible for 100% exemption under s.10A of the Act, asserted that the software was necessary for the company's operations. The Tribunal noted that the higher or lower depreciation would not affect the taxable income of the 10-A unit, making the issue academic. The Tribunal upheld the CIT(A)'s decision, citing a similar case precedent where accelerated depreciation was allowed. The Tribunal dismissed the Revenue's appeal, concluding that no interference was warranted.

Issue 2: Eligibility of foreign exchange fluctuation gains for exemption under s.10A of the Act:

The AO denied the assessee's claim for deduction under s.10AA concerning foreign exchange fluctuation gains, stating that the gains were not derived from export as required by the Act. The CIT(A) reversed the AO's decision, emphasizing that the gains were part of the export sale proceeds and should be considered as business profits eligible for deduction. The Tribunal supported the CIT(A)'s decision, citing judicial precedents and the explicit explanation in s.10AA(7) of the Act. The Tribunal held that foreign exchange gains arising from export business should be integral to business profits derived from exports. Consequently, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision in favor of the assessee.

In conclusion, the Tribunal dismissed the Revenue's appeal in both issues, upholding the CIT(A)'s decisions regarding the eligibility of accelerated depreciation on computer software purchases and foreign exchange fluctuation gains for exemption under s.10A of the Act.