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TMI Blog2004 (7) TMI 602X X X X Extracts X X X X X X X X Extracts X X X X ..... 77 was spent on extensive repairs to the walls, to the hall, to the flooring and roofing, to doors and windows and to the stage sides. The theatre had to be closed during the period the repairs were effected. It was held by the Hon ble Supreme Court that what the assessee did was not mere repairs but a total renovation of the theatre. New machinery, new furniture, new sanitary fittings and new electrical wiring were installed besides extensively repairing the structure of the building. It was further held that by no stretch of imagination could the said repairs qualify as current repairs within the meaning of Income-tax Act. In the instant case the assessee has incurred the expenditure on repairs and maintenance of premises taken on lease by him for business purposes. The nature and magnitude of the expenditure on repairs and maintenance of these leased premises is such that it cannot be said that expenditure was one time, which would result in enduring benefit to the assessee. The case laws relied by the assessee and discussed earlier in our order support the contention of the assessee squarely. Therefore, the addition made by the Assessing Officer and sustained by the CIT(A) on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e allowed in four years. In fact the entire amount incurred ought to have been held as allowable. The adverse findings recorded by the learned CIT(A) are highly illogical and is contrary to well settled proposition of law and facts of the case that the learned ACIT allowed the claim partially and no enhancement was made to such an allowance. 6. That the learned Commissioner of Income Tax (Appeals) has also failed to apply correctly various judicial pronouncements cited by the appellant, wherein it has been held that the benchmark for determining capital or revenue nature should be governed by changing economic realities and nature of assessee's business." 3. The assessee, during the year had purchased a software package from M/s. Sumitomo Corporation, Japan for an amount of Rs. 61,72,800 and had claimed it as revenue expenditure under section 37(1) of the I.T. Act. It was stated before the Assessing Officer that it was an accounting software having features of general accounting systems like vouchers creation, printing of balance sheet, profit and loss account etc. and it could be compared with the MS-Office software. The assessee was using SAS-S2.0 version of the software which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to any depreciation thereon. 4. Aggrieved by this order of the Assessing Officer the assessee went in appeal before the first appellate authority. Before the CIT(A) the assessee reiterated the arguments made before the Assessing Officer and submitted that the expenditure on software was necessitated due to fast changing technology and on the ground of commercial expediency. This expenditure had not resulted in creation of any asset which would generate more business to the assessee. It was also submitted by the AR of the assessee that it was an accepted principle that an expenditure which results in saving of revenue expenditure is itself a revenue expenditure. Further, these expenses were incurred in the course of business and wholly and exclusively for the purposes of business, for better management, smooth processing of information and did not result in any enduring benefits to the assessee company. Reliance was placed by the learned counsel on the ratio of decisions in the cases of Assam Bengal Cement Co. Ltd. v. CIT [1955] 27 ITR 34 (SC); CIT v CIBA of India Ltd. [1968] 69 ITR 692 (SC); Bombay Steam Navigation Co. (1953) (P.) Ltd. v. CIT [1965] 56 ITR 52 (SC); CIT v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... show that even an expenditure incurred for purchase of plant may be a revenue expenditure. According to learned counsel, in the case of Scientific Engg. House (P.) Ltd. v. CIT [1986] 157 ITR 86 (SC). The Hon'ble Apex Court has held that expenditure incurred on acquiring know-how could be regarded as an expenditure on plant and machinery. In the instant case expenditure incurred is nonetheless a revenue expenditure as assessee has not acquired any capital assets and on the contrary by acquiring the accountancy package it has enabled in facilitating the management and conduct of the assessee's business more efficiently and more profitably. It was further submitted that software expenditure was incurred by the assessee for updating, rationalizing the existing data processing system of the company and as such was allowable in view of the ratio of decision of Hon'ble Delhi High Court in the case of CIT v. K & Co. [2003] 181 CTR (Delhi) 378. According to the counsel, the CIT(A) has failed to appreciate that the software expenses were revenue expenditure and have no high obsolescence value and as such, could not be contended to be held to be capital expenditure. It was further submitted t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny could not be basis to hold that the expenditure was capital in nature and it was, therefore, prayed that the entire expenditure incurred on software of Rs. 61,72,800 be held as revenue expenditure. 7. Learned D.R., on the other hand, supported the orders of authorities below and argued that since new software had been purchased by the assessee company which was in the nature of providing enduring benefit to the assessee, the expenditure may be treated as of capital nature. 8. Heard both the parties and perused the record available on file. Case laws relied upon by both the parties were also carefully gone through. We have also gone through the details of software expenses and copy of agreement dated 23rd July, 1999. We are of the considered opinion that the assessee had incurred these expenditures for updating, rationalizing the existing data processing system of the assessee company. In fact by incurring this expenditure he has been able to save recurring expenditure of this nature in earlier years. The software by its own nature is a thing which requires ongoing expenses for its upgradation if it is to be used for efficient functioning of the office work in a business and, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer accordingly capitalized these expenses and allowed depreciation thereon @ 10% applicable to buildings and the balance amount of Rs. 26,40,167 were added to the income of the assessee. 11. Aggrieved, the assessee filed appeal before the first appellate autho-rity. Before the CIT(A) the assessee submitted that the quantum of expenditure had nothing to do with the determination of its nature. Even a major expenditure could be revenue in nature. The predominant intention had to be ascertained by taking an overall view of the situation. Both the above premises were taken on lease and expenditure incurred which resulted in permanent enhancement of the value of the structure were capitalized by the assessee himself, even though, there were numerous decisions where it had been held that expenditure incurred on lease-hold premises could be claimed as revenue expenditure. These decisions were based on the premise that the value of this expenditure ends with the termination of the lease and by incurring this expenditure company saves on the rental outgo, which is revenue in nature. The assessee himself capitalized the expenditure which might result in enhancement of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure. In coming to the conclusion the Apex Court felt that its own earlier decision in Assam Bengal Cement Co. Ltd.'s case (supra) following the English decision in Atherton v. British Insulated & Helsby Cables Ltd. 10 TC 155 (HL), would support its conclusion. A lump sum payment in lieu of an annual business expenditure chargeable against the Revenue, it was felt, could be regarded as normal revenue expenditure relating to business. Contribution for construction of roads in the case of a sugar mill was held to be revenue expenditure in L.H. Sugar Factory & Oil Mills (P.) Ltd. v. CIT [1980] 125 ITR 293 (SC). Contribution to the State Housing Board for construction of tenements for its workers was similarly held to be revenue expenditure in CIT v. Bombay Dyeing & Mfg. Co. Ltd. [1996] 219 ITR 521 (SC). Learned counsel also relied upon the ratio of decisions in the cases of CIT v. Rama Krishna Steel Rolling Mills [1974] 95 ITR 97 (Delhi); Girdhari Dass & Sons (supra), CIT v. Oxford University Press [1977] 108 ITR 166 (Bom.); CIT v. ICI (India) (P.) Ltd. [1983] 139 ITR 105 (Cal.); Addl. CIT v. Delsukhrai Jaidayal [1979] 117 ITR 466 (All.); CIT v. Bhagat Industries Corpn. Ltd. [ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on at its own cost and in view of that assessee got the right to sub-lease the same. The ownership of the constructed property remained with the lessor brick by brick. The rent received by the assessee by sub-letting the said property was held to be assessable as a business income but it was not considered to be the capital expenditure by the revenue. Accordingly, it was prayed that the expenditure incurred by the assessee, be directed to be allowed as business expenditure. 16. Learned D.R., on the other hand, relied on the orders of lower authorities and vehemently argued that the expenditure so incurred on repair and maintenance be capitalized and depreciation be allowed. He also relied on the case law in the case of Ballimal Naval Kishore v. CIT [1997] 224 ITR 414 (SC). 17. In reply, the learned counsel submitted that the case law relied upon by the learned DR was on different facts and was not applicable to the facts of the case. 18. Heard both the parties. Perused the record available on file and have gone through the case laws relied upon by both the parties. We find that the case law relied upon by the learned D.R. is distinguishable on facts. In that case the assessee pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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