2024 (6) TMI 876 - ITAT BANGALORE

Disallowance of depreciation claimed on purchases of software u/s. 40(a)(i) / (ia) - Assessee purchased certain software from resident and non-resident vendors that was capitalised in the books of accounts and depreciation at 60% was claimed u/s. 32 - AO disallowed the depreciation of software by invoking the provisions of section 40(a)(i)/(ia) of the act for non-deduction of tax at source as of the opinion that the software purchased by the assessee were copyrights and therefore the payments were in the nature of royalty -.AO further made disallowance in respect of depreciation claimed by the assessee on servers / network equipments by restricting the depreciation at 15%. HELD THAT - Under section 40(a)( i) any interest (not being interest on loan issued for public before 1/4/1938), royalty fee for technical services or sum chargeable under this Act which is payable outside India or inside India to a non-resident not being a company or to a foreign company on which tax is deductible at source and such tax has not been deducted or, after deduction, has not been paid during the previous year or in the subsequent before the expiry of the time prescribed under sub-section (1) of section 200 shall not be allowed as deduction while computing the income chargeable under the head Profit and gains of business or profession . There is a difference between the expenditure and other kind of deduction. The other kind of deduction which includes any loss incidental to carrying on the business, bad debts etc., which are deductible items itself not because an expenditure was laid out and consequentially any sum has gone out; on the contrary the expenditure results a certain sums payable and goes out of the business of the assessee. Thus, in our view, section 40 refers to the outgoing amount chargeable under the act, and subject to TDS under Chapter XVII-B. On the contrary, depreciation is a statutory deduction and after the insertion of Explanation 5 to sec. 32, it is obligatory on the part of the assessing officer to allow the deduction of depreciation on the eligible asset, irrespective of any claim made by the assessee. Therefore, depreciation is a mandatory deduction on the asset which is wholly or partly owned by the assessee and used for the purpose of business or profession which means the depreciation is a deduction for an asset owned by the assessee and used for the purpose of business and not for incurring of any expenditure. Hon ble Supreme Court 2021 (3) TMI 138 - SUPREME COURT held that, only if some right to use, without the right to commercially exploit the intellectual property in respect of a patent, invention, model, design, secret formula, process, copyright, literary or scientific work, are transferred, it cannot be regarded as royalty. There is nothing on record brought by the revenue in support of this argument. We therefore do not find any force in the argument advanced by the Ld.DR on this issue and the same stands rejected. Assessee appeal allowed. Depreciation claimed on server / network equipment - We note that identical issue has been considered in assessee s own case for A.Y. 2009-10 2017 (3) TMI 1948 - ITAT BANGALORE wherein by following decision of Dinamalar 2016 (9) TMI 506 - MADRAS HIGH COURT Tribunal has allowed the claim of assessee by granting the depreciation on peripherals at 60%. Nothing contrary to the above has been brought on record by the Ld. DR. Decided against revenue.