9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2020 (12) TMI 470 - AT - Income TaxDeduction u/s 10A - whether expenses that were reduced from export turnover should also be reduced from the total turnover or not? - HELD THAT - CIT(A) allowed the claim of the assessee by following the decision rendered in the case of CIT Vs. Tata Elxsi Ltd. 2011 (8) TMI 782 - KARNATAKA HIGH COURT upheld by HCL TECHNOLOGIES LTD. 2018 (5) TMI 357 - SUPREME COURT held when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from export turnover must also be excluded from total turnover , since one of the components of total'. Disallowance of provision towards software expenses - above said amount included provision for software expenses - whether the provision for software expenses is a contingent liability or not? - addition u/s 40(a)(i) of the Act for non-deduction of tax at source - HELD THAT - There is no dispute with regard to the fact that the assessee is following mercantile system of accounting. The assessee being a company, it is required to follow accounting standards prescribed by ICAI and also by the Central Government under the Income Tax Act. As per accounting standard-1 prescribed by the Central Government, the assessee is required to make provision for all known liabilities and losses even though the amount cannot be determined with certainty. Assessee has explained the basis for creating the provision for expenses. The Ld. A.R. also submitted that the accounts of the assessee have been audited by the statutory auditors and they did not find any fault with the quantum of provision for software expenses created by the assessee. Hence it is not a case that there was no basis for creating the Provision for software purchases. Accordingly, we are of the view that the provision for software expenses created by the assessee cannot be considered as contingent liability. Disallowance u/s 40(a)(i) is liable to be deleted for the year under consideration. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance. Disallowance of Software expenses u/s 40(a)(i) - HELD THAT - Since the year under consideration falls prior to the date of decision rendered by Hon ble Karnataka High Court in the case of Samsung Electronics Ltd 2011 (10) TMI 195 - KARNATAKA HIGH COURT following the decision rendered by the co-ordinate bench in the case of Infineon Technologies India Pvt. Ltd 2020 (8) TMI 808 - ITAT BANGALORE we hold that no disallowance u/s 40(a)(i) is required to be made during the year under consideration. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance. Disallowance of software expenses treating the same as capital in nature - HELD THAT - We notice that in the case of Toyota Kirloskar Motors (P) Ltd 2008 (9) TMI 254 - CESTAT BANGALORE has held that, when the life of a computer or software is less than two years and the right to use it is for a limited period, the fee paid for acquisition of right is allowable as revenue expenditure and if the software is licensed for a particular period, fresh license fee is to be paid for utilizing it for subsequent years - Accordingly, we are of the view that the nature of software expenses, i.e., whether it is capital or revenue in nature, has to be determined by following the decision above - we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for examining it afresh.
Issues Involved:
1. Disallowance of Provision for Software Expenses 2. Disallowance of Software Expenses under Section 40(a)(i) of the Income Tax Act 3. Disallowance of Software Expenses Treating Them as Capital in Nature 4. Incorrect Allowance of TDS Credit 5. Deduction Allowed under Section 10A of the Income Tax Act 6. Authority of CIT(A) to Remit the Issue of Disallowance of Software Expenses Treating It as Capital Expenditure to the File of AO Detailed Analysis: 1. Disallowance of Provision for Software Expenses The assessee claimed a deduction of ?3.89 crores as a provision for software expenses. The AO disallowed this provision, considering it a contingent liability. The CIT(A) confirmed this disallowance, also invoking Section 40(a)(i) of the Act for non-deduction of tax at source, referencing the decision in IBM India Pvt. Ltd. The assessee argued that the provision was made as per accounting standards and was an ascertained liability, citing the Supreme Court's decision in Rotork Controls India Pvt. Ltd. The Tribunal found that the provision was based on known liabilities and was not contingent. It set aside the orders of the tax authorities, ruling the provision as an ascertained liability. 2. Disallowance of Software Expenses under Section 40(a)(i) of the Income Tax Act The AO disallowed ?1.35 crores for non-deduction of tax at source from payments for software purchases. The Tribunal noted that the financial year in question was prior to the Karnataka High Court's decision in Samsung Electronics, which classified such payments as royalty. Citing the decision in Infineon Technologies India Pvt. Ltd., the Tribunal held that the assessee could not be held liable for TDS based on subsequent legal changes. The disallowance was deleted. 3. Disallowance of Software Expenses Treating Them as Capital in Nature The AO treated ?19.71 crores of software expenses as capital in nature, allowing depreciation at 60%. The CIT(A) remanded the issue to the AO, directing that software licenses valid for up to two years should be treated as revenue expenditure, while perpetual licenses should be capitalized. The Tribunal referenced the Karnataka High Court decisions in Toyota Kirloskar Motors and IBM India Ltd., which allowed software expenses as revenue expenditure if the validity was less than two years. The Tribunal remanded the issue to the AO for fresh examination based on these guidelines. 4. Incorrect Allowance of TDS Credit This issue was not explicitly detailed in the judgment, so no specific analysis is provided. 5. Deduction Allowed under Section 10A of the Income Tax Act The revenue contested the deduction under Section 10A, arguing that communication expenses should be deducted only from export turnover and not total turnover. The CIT(A) allowed the assessee's claim, following the Karnataka High Court's decision in Tata Elxsi Ltd., which was upheld by the Supreme Court in HCL Technologies Ltd. The Tribunal found no reason to interfere with the CIT(A)'s decision, as it conformed to the Supreme Court's ruling. 6. Authority of CIT(A) to Remit the Issue of Disallowance of Software Expenses Treating It as Capital Expenditure to the File of AO The revenue questioned the CIT(A)'s authority to remit the issue back to the AO. The Tribunal noted that the CIT(A) had directed the AO to allow software expenses as revenue expenditure if the licenses were valid for up to two years, following the Karnataka High Court's decisions. The Tribunal upheld the CIT(A)'s directions but remanded the issue to the AO for fresh examination in light of the High Court's guidelines. Conclusion The Tribunal allowed the assessee's appeal for statistical purposes and partly allowed the revenue's appeal. The decision addressed the nature of software expenses, the applicability of TDS provisions, and the correct computation of deductions under Section 10A, providing detailed guidelines for the AO's fresh examination of the remanded issues.
|
