2021 (11) TMI 680 - AT - Income Tax

Depreciation on the Policy Administration Software ( PAS ) - @ 60% against the rate of 25% allowed by the Assessing Officer treating the same as an intangible assets - DR vehemently argued that Ld. CIT(A) was not justified in allowing the claim of depreciation @ 60% as the software was customized and could be used without the operation of computer - HELD THAT - The issue is no more res integra. The issue has already been decided in catena of judgments in favour of the assessee by allowing the depreciation @ 60%. See case of CIT vs. Computer Age Management Services (P.) Ltd. 2019 (7) TMI 1153 - MADRAS HIGH COURT decided the issue in favour of the assessee by allowing depreciation @ 60%. Also see AMWAY INDIA ENTERPRISES. VERSUS DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE - 1(1) NEW DELHI. 2008 (2) TMI 454 - ITAT DELHI-C - Decided against revenue.

Summary

Issues:
1. Whether depreciation @ 60% on Policy Administration Software (PAS) is permissible against the rate of 25% for intangible assets.

Analysis:
1. The appeal concerns the assessment year 2014-15 where the Revenue challenges the Ld. CIT(A)'s decision allowing depreciation @ 60% on PAS, contrary to the Assessing Officer's 25% rate for intangible assets.

2. The Assessing Officer disallowed the higher depreciation claim, leading to an addition of &8377; 2,45,22,452 to the assessee's total income. However, the Ld. CIT(A) overturned this decision in favor of the assessee, prompting the Revenue's appeal.

3. The main argument against the higher depreciation rate was that the software, being customizable and operable without a computer, should be classified as an intangible asset eligible for 25% depreciation. Conversely, the assessee contended that the software was essential for its mortgage guarantee business and should be considered a tangible asset for depreciation purposes.

4. The Ld. CIT(A) relied on various judicial precedents and upheld the assessee's claim, emphasizing that the software's functionality was intertwined with the computer, justifying the higher depreciation rate.

5. The Revenue's appeal before the Tribunal reiterated the argument for 25% depreciation, citing the software's standalone usability. However, the assessee's counsel supported the Ld. CIT(A)'s decision, referencing favorable judgments and the software's integral role in the business operations.

6. After thorough consideration, the Tribunal affirmed the Ld. CIT(A)'s ruling, emphasizing the binding precedents and the software's essential nature for the business. Consequently, the Revenue's appeal was dismissed, upholding the higher depreciation rate of 60% for the PAS.

7. The decision highlighted the importance of the software's functionality in conjunction with the computer system, warranting the higher depreciation rate. The judgment aligned with established legal interpretations and upheld the assessee's position based on the specific usage and necessity of the software for business operations.