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TMI Blog2012 (12) TMI 787X X X X Extracts X X X X X X X X Extracts X X X X ..... e as per agreed specification and also complied with order by the lessor UB Vest. The software as well as hardware were made an integral part of the arrangement. The software apparently caters to the hardware. In this case, it is necessary for the kind of software to cater to diverse activities such as billing regarding user and analyzing such like activities to promote speed and efficiency. That the parties chose to have a composite arrangement is one factor which the Tribunal was entitled to take into consideration. The Tribunal in our opinion correctly held that the test to discern whether the expenditure incurred by the assessee in this regard was capital or revenue did not in any manner differ from the content or character which were applicable while considering issue No.1 - no reason to differ from the Tribunal - in favour of the revenue. Write off as bad debt as a business loss - Held that:- As held by Tribunal MOA & AOA shows sufficiently the intention of the assessee to pursue certain main objects. The frequency of the activity is sought to be highlighted as giving rise to a continuous and organized activity. As held by AO the main activity of the assessee company was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing officer noticed that the cost of plant and machinery given on lease by the assessee was Rs.10,57,25,094/- which was reflected in the balance sheet of the assessee under the head plant and machinery given on lease . That apart the assessee had incurred an expenditure to the tune of Rs.1,35,05,869/- towards installation of these plant and machinery; in addition to it had incurred a sum of Rs.2,69,35,669/- towards software expenses. The assessee claimed the installation expenses as a deduction, debiting it to the profit and loss account. The software expenses on the other hand were treated in the accounts as deferred revenue expenditure and a sum of Rs.15,05,446/- was written off in the previous order. In the computation of income accompanying the return the software expenses of Rs.2,69,35,669/- were claimed as a deduction. The assessing officer disallowed both these amounts. The assessee carried the matter unsuccessfully in appeal. As far as the first issue i.e. installation expenses were concerned. The CIT (Appeals) confirmed the assessing officer‟s order holding that the expenditure fell properly in the capital field. The Tribunal confirmed the same. 3. Learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see which was an important aspect that escaped the notice of both the authorities below. It was urged that at the end of the lease period the equipment had to be dismantled and it had to be reassembled and such expenditure had to be spent time and again and it properly fell in the revenue and not in the capital field. Learned counsel for the revenue resisted the submissions and stated that no substantial question of law arises and that the expenditure incurred for installation of the plant and machinery was intrinsically connected with the plant and machinery. The counsel in other words stated that the machinery was incapable of use without being installed. The installation cost, therefore was part of actual cost that went into the setting up of the machinery and in turn had to be treated as capital expenditure. Therefore, it was rightly disallowed by the lower authorities. 5. This Court has considered the submissions made on behalf of the assessee. The test of enduring benefit which was perceived as the true and applicable test to judge whether an expenditure fell in capital field has been, over the years, considered as a self-limiting one. The Courts have held that a proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e agreement entered between the assessee and M/s. UB Vest (Usha Bethron Ltd.) whereby the latter agreed to license its software. The assessee‟s claim was noticed by the Tribunal who extracted it in the following terms: - The hardware equipment supplied by Erricson are BSCs (Base Station Control) and MSC (Master Station Control). The BSCs comprises of towers and call receiving and recording equipments, whereas MSC comprises of equipments controlling the BSCs. These are the primary equipments for managing the cellular services in the region of Himachal Pradesh. The software required for updating and accounting of cellular phone calls is independent of the functioning of hardware equipments. In absence of the software acquired, a large number of manpower would have been deployed to monitor each BSCs and MSCs. This would have resulted in delayed informations, for accounting and billing of cellular services. The software supplied by Erricson was to carry out the following functions: - (i) Collect online information in regard to CDRs (i.e. Call detection records) at BSC; (ii) Compiling of the CDRs online at MSC in regard to CD House received at each BSC. The software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the Tribunal and accordingly the second question is answered in favour of the revenue and against the assessee. 9. The third question which the assessee sought to urge is with regard to the amount of Rs.2,33,76,761/- which it had claimed to write off as bad debt and alternatively as a business loss. The submissions in this regard were that the assessee was also engaged in the business of lending money through inter-corporate deposits in the course of such business which generated substantial interest during the assessment years. Certain amounts could not be recovered and were treated as bad debt. The assessee wrote off the unrecoverable amount and claimed it to be treated as bad debt. 10. Counsel for the assessee had urged that the Tribunal fell into error in holding that the memorandum of association of the assessee could not bind the income tax authorities which had to discern what was its real and true business. Counsel emphasised the fact that the term business is wide. He relied upon the decisions in Krishna Prasad Co. Ltd. v. CIT, (1955) 27 ITR 49 (SC); CIT v. Tamil Nadu Dairy Development Corporation Ltd., (1955) 216 ITR 535 (Mad.), wherein the Madras High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee was not that of money lending, it cannot be said that the sum in question represents money lent in the ordinary course of the business of money lending carried on by the assessee. Therefore, the claim of the assessee did not fall within the parameters of provisions of section 36(1)(vii) read with section 36(2) of the Act. The alternative claim of the assessee that the sum in question should be allowed as a deduction as a business loss cannot also be accepted, since the sum in question was not incurred as expenditure in the ordinary course of business of the assessee. The sum in question has, therefore, to be considered as a capital loss and the assessee was not entitled to claim the same as deduction. It may also be mentioned here that everything associated or connected with the business cannot be said to be incidental thereto. It is not enough if there is some close proximity of the deposit to the business carried on by the assessee, as such but it should also be an integral part of the carrying on of the business. For the reasons stated above, we are of the view that the disallowance made by the assessing officer was proper and the CIT (Appeals) was justified in confirming ..... X X X X Extracts X X X X X X X X Extracts X X X X
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