2020 (5) TMI 264 - HC - Income Tax

Stay of demand - CIT-A disposed of the application with a direction to the assessee to pay 10% of the disputed amount - HELD THAT - Authority while deciding on the application for stay was required to take note of the judgments passed in an appropriate manner. Guidelines are not exhaustive and discretion that is available to the Assessing Officer or the Authority considering the application for stay could be exercised taking note of the facts made out and the strength of the case made out in the appeal. It would be appropriate to modify the order. The submission of learned counsel for the assessee that partial modification of the order of stay would be acceptable, the impugned orders are modified making it clear that the observations made herein are not to be treated as findings on merits. Accordingly, the orders are set aside. There would be a stay of demand for the Assessment Year 2017 2018 during the pendency of the appeal filed challenging the order of assessment of the year 2017 -2018, subject to the assessee paying 10% of the demand out of which 5% would be paid within 31.03.2020 and the remaining 5% would be paid in two equal installments in the months of April 2020 and May 2020.

Summary

Issues:
Challenge to order for stay of demand based on software licensing fee as revenue expenditure.

Analysis:
The petitioner, engaged in providing Engineering Procurement and Construction Management services to Oil and Gas Companies, challenged an order dated 11.03.2020 by the Principal Commissioner of Income Tax. The order required the petitioner to pay 10% of the disputed amount by 16.03.2020 and the remaining in two installments. The total income was determined at &8377; 8,38,67,334 with a demand of &8377; 2,31,79,894. The petitioner argued that the software licensing fee should be treated as revenue expenditure. The petitioner relied on past judgments where similar expenditures were treated as revenue. The Revenue contended that a similar issue was pending and referred to guidelines for officers. The Court noted previous judgments treating such expenditure as revenue and modified the order for stay, setting aside the previous orders and allowing a stay of demand subject to payment terms.

The petitioner argued that the software licensing fee should be treated as revenue expenditure based on the terms of the commercial agreement. The Court referenced past judgments where similar software licensing fees were treated as revenue expenditure. The Revenue highlighted guidelines for officers but the Court emphasized the discretion available to the Assessing Officer based on the strength of the case. The Court modified the order for stay, setting aside previous orders and allowing a stay of demand subject to specific payment terms.

In conclusion, the Court modified the order for stay of demand, setting aside previous orders and allowing a stay of &8377; 2,31,79,894 for the Assessment Year 2017-2018 subject to specific payment terms. The Court clarified that the observations made should not be treated as findings on merits. The petition was accordingly disposed of, providing relief to the petitioner regarding the treatment of software licensing fee as revenue expenditure.