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TMI Blog2014 (12) TMI 1107X X X X Extracts X X X X X X X X Extracts X X X X ..... knowhow and the trade mark - hence, the expenditure incurred by the assessee as royalty is revenue expenditure and is therefore, relatable u/s 37(1) – Decided against revenue. Disallowance of license fee deleted – Revenue expenses or not - assessee had acquired proportionate rights to use the software, which was an intangible asset as defined u/s. 32 or not – Held that:- CIT(A) rightly deleted the disallowance of license fee by holding it as revenue expenditure and without considering that the assessee had acquired proportionate rights to use the software, which was an intangible asset as defined u/s. 32 – Following the decision in COMMISSIONER OF INCOME TAX Versus M/s ASAHI INDIA SAFETY GLASS LTD. [2011 (11) TMI 2 - DELHI HIGH COURT] - it cannot be said that the expenses brought about in an enduring benefit to the assessee - the mere fact that the assessing officer records that the expenditure, in financial year 1997-98 (assessment year 1998-99), was incurred towards what he terms as an “on-going project” would not ipso facto give it a colour of capital expenditure - after noticing the submission of the assessee that the expenditure incurred in the AY was for removing deficien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of license fee paid by the assesee towards purchase of computer software for its users and disallowed the same. 4. Against the order of the Ld. AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated30.7.2013 has statistically allowed the appeal of the assessee. 5. Aggrieved with the order of the Ld. CIT(A), Revenue is in appeal before us. 6. At the time of hearing, Ld. Counsel of the assessee stated that the issues in disputes in the present appeal have already been adjudicated and decided in favor of the assessee by the Hon ble Jurisdictional High Court. He has filed the relevant copies of the orders of the Hon ble High Court and requested that the appeal filed by the Revenue may be dismissed. 6.1 On the other hand, Ld. DR relied upon the order passed by the Assessing Officer. 7. We have heard both the counsel and perused the records. As regards Ground No. 1 is concerned, the Revenue has challenged the impugned Order of the Ld. CIT(A) in deleting the disallowance of ₹ 55,70,045/- on account of trade mark fee by holding that it was a revenue expenditure and without considering that right to use the trade mark acquired by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the sub license agreement, the assessee was to return all G4F knowhow obtained pursuant to the said agreement. Not only that, the assessee was not even entitled to make use of the trade mark name or G4F knowhow and was forthwith to change its corporate and/or trade names. All rights and knowhow, therefore, continued to vest in G4F and it was only the right to use the knowhow that was made available to the assessee and that too based on its net sales. That means all the royalty paid in the shape of 1% of net sales for the use of trade mark and right to use knowhow could not be considered to be of enduring nature and thus capital expenditure. The expenditure was to be of revenue nature. In the case of Jonas Wood Head and Sons Vs. CIT, 117 ITR 55, it was held that the question regarding capital or revenue expenditure depends on the terms of agreement in each case. In the case of CIT Vs. Gujarat Carbon Ltd., 254 ITR 294, it was held that the payment of revenue under the agreement was directly relatable to services which were in the revenue field and were allowable as revenue expenditure. In the case of Goodyear (I) Ltd. Vs. ITO 73 ITD 189(Delhi), the assessee had not acquired ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holding it as revenue expenditure and without considering that the assessee had acquired proportionate rights to use the software, which was an intangible asset as defined u/s. 32 of the I.T. Act. After hearing both the parties on the issue in dispute as well as after going through the orders passed by the Revenue Authorities alongwith order dated 04.11.2011 passed by the Hon ble Jurisdictional High Court in the case of CIT vs. Asahi India Safety Glass Ltd. in ITA NOS. 1110/2006 1111/2006 wherein the Hon ble High Court has adjudicated the matter as under:- 8. Having heard the learned counsel for the parties, what has emerged on facts as found by the authorities below is as follows: The assessee is in the business of manufacturing safety glass which is used in automobiles. Thus the main source of income of the assessee is from the said activity. The assessee appears to have entered into an agreement with Arthur Anderson Associates in the financial year 1996-97 (assessment year 1997- 98) for installation of a software application for assistance in areas related to financial accounting, inventory and purchase. It has emerged that an offer was made in respect of such a software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be an expense in the nature of revenue expenditure. Fine tuning business operations to enable the management to run its business effectively, efficiently and profitably; leaving the fixed assets untouched would be an expenditure in the nature of revenue expenditure even though the advantage may last for an indefinite period. Test of enduring benefit or advantage would thus collapse in such like cases. It would in our view be only truer in cases which deal with technology and software application, which do not in any manner supplant the source of income or added to the fixed capital of the assessee. [See Alembic Chemical Works Co. Ltd. vs CIT (1989) 177 ITR 377; CIT vs J.K. Synthetics (2009) 309 ITR 371 at page 412 and CIT Vs. Indian Visit.com (supra)]. 9.1. This is the approach which the Supreme Court has applied even in cases where there is a once for all or a lump sum payment. What is to be seen in the facts of this case, as already noticed by us hereinabove, that the assessing officer as a matter of fact has returned a finding that the expenditure undertaken was for overhauling the accountancy of the assessee and to efficiently train the accounting staff of the assessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding that the expenses were incurred to upgrade and run the system. In view of these findings we are of the opinion that assessing officer discovered an erroneous principle on the basis of which he denied the exemption to the assessee. 11. Software is nothing but another word for computer programmes, i.e., instructions, that make the hardware work. Software is broadly of two types, i.e., the systems software, which is also known as the operating system which controls the working of the computer; while the other being applications such as word processing programs, spread sheets and data base which perform the tasks for which people use computers. Besides these there are two other categories of software, these being: network software and language software. The network software enables groups of computers to communicate with each other, while language software provides with tools required to write programmes. (See Microsoft Computer Dictionary, 5th Edition Software at page 489). 12. The aforesaid would show that what the assessee acquired through Arthur Anderson and Associates was an application software which, enabled it to execute tasks in the field of accounting, purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X
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