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2017 (9) TMI 244 - AT - Income TaxAddition on account of license fee and Data service management charges - allowable business expenditure - AO treating the same as Capital expenditure as providing enduring benefit - Held that - CIT(A) has held that as the facts for AY 2011-12 are similar to the facts of AY 2008- 09 and AY 2010-11 therefore he held that his findings in the order passed for AY 2008-09 would stand equally applicable here and accordingly in view of the same the impugned payment on account of license fee and data management service charges for use of the Vision Plus software was rightly held as revenue in nature and allowable u/s 37 of the Act. We further note that the factual finding of the Ld. CIT(A) on the issue in dispute also could not be controverted by the department during the proceedings before us and we therefore find no reason to interfere with the findings of the Ld. CIT(A) on this issue as well and while upholding the same. - Decided against revenue
Issues Involved:
1. Deletion of addition of ?3,70,98,989/- made on account of license fee. Issue-wise Detailed Analysis: 1. Deletion of addition of ?3,70,98,989/- made on account of license fee: The Revenue filed an appeal against the order of the CIT(A)-IV, New Delhi, which deleted the addition of ?3,70,98,989/- made by the AO on account of license fee. The AO had classified the license fee and data service management charges paid to GE Capital Corporation (GECC) for the use of the 'Vision Plus' software as capital in nature, providing an enduring benefit to the assessee, and thus disallowed the amount. The CIT(A) allowed the appeal of the assessee by following the orders for AY 2008-09 and 2010-11 in the assessee's own case, where it was held that the payments were revenue in nature. The CIT(A) observed that the 'Vision Plus' software is an application software used for credit card transactions processing by multinational banks and financial institutions. The software is available 'off the shelf' and GECC holds a global license for it. The EULA between the assessee and GECC only provided a limited right to use the software, without any exclusive or enduring benefit to the assessee. The CIT(A) noted several key points from the EULA: - The assessee had a limited right to use the software during the agreement period without any exclusivity. - The license fee was paid quarterly, subject to renewal and revision every calendar year. - The assessee was forbidden from copying, selling, or commercially exploiting the software. - The agreement could be terminated for non-payment, requiring the assessee to return the software and remove it from their systems. The CIT(A) concluded that the payment was for the limited use of the software and did not provide any enduring benefit or irrevocable transfer of rights to the assessee, making it revenue in nature and allowable under section 37 of the Act. This decision was supported by the ITAT's orders for AY 2007-08 and 2008-09, which also held that the license fee was revenue expenditure. The ITAT upheld the CIT(A)'s decision, noting that the issue was already decided in favor of the assessee in previous years. The ITAT emphasized that the software was an application software used for routine business operations, and the payments were for its usage, not for acquiring a capital asset. The ITAT found no reason to interfere with the CIT(A)'s findings and dismissed the Revenue's appeal. Conclusion: The ITAT confirmed that the license fee and data management service charges paid for the 'Vision Plus' software were revenue in nature and allowable under section 37 of the Income Tax Act. The appeal filed by the Revenue was dismissed.
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