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TMI Blog2015 (11) TMI 917X X X X Extracts X X X X X X X X Extracts X X X X ..... s : "2. On the facts and in the circumstances of the case the learned Commissioner of Income-tax (Appeals) erred in law in holding that 10 per cent. of the total telecommunications expenses are to be allowed as telecommunication expenses for delivery of software out side India instead of 50 per cent., without appreciating that the Assessing Officer had given a substantial finding on this issue and the facts were same for the assessment year 2008-09." 3. The assessee is a company engaged in the business of rendering computer software development services. The assessee is registered with the Software Technology Parks of India (STPI) and has registered office in Bangalore. The assessee was entitled to claim deduction under section 10A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to demonstrate the above position and came to the conclusion that the estimate made by the Assessing Officer was without any basis. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue is in appeal before the Tribunal. 5. Before us, the learned Departmental representative relied on the order of the Assessing Officer. We find that as per the agreement between the assessee and its customers overseas, communication expenses were to be borne by the customer. In such circumstances, there could be no expenses incurred by the assessee for delivery of computer software outside India. Nevertheless, the assessee has on his own, on a conservative approach, disallowed 10 per cent. of the telephone expenses as incurred by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is in nature of a licence paid for usage of the software and the consideration for such licences would fall within the definition of the royalty defined in Explanation to section 9(1)(vi) and hence deduction of tax at source under section 194J should have been done by the assessee." 8. The assessee had during the previous year acquired software by way of purchase. The depreciation on such addition of software was a sum of Rs. 32,36,441. The assessee claimed the aforesaid depreciation as an allowable deduction while computing its income from business. The Assessing Officer, however, noticed that on the purchase of software, the assessee had not deducted tax at source. The Assessing Officer was therefore of the view that the provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation. 11. The Commissioner of Income-tax (Appeals) held as follows : "7.3 In my view there is considerable force in the submissions of the appellant. Even accepting the view of the Assessing Officer that the payment made for obtaining licence for use of software would amount to royalty, it is necessary to note that during the period when the purchase was made, i.e., financial year 2008-09, the assessee did not have the benefit of the clarification brought about by the retro spective amendment that the payment tantamounts to payment for royalty and consequently tax was to be deducted under section 194J. The law as extant on the date when the payment for obtaining the software was made, has not categorically laid down that tax is required ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Mumbai Tribunal. Following were the relevant observations (headnote): "The assessee purchased software, capitalised the payment to the computers account as the software came along with the hardware of computers and claimed depreciation. On the ground that purchase of software is essentially purchase of copyright which attracts tax deduc tion at source under section 194J, the Assessing Officer invoked the provisions of section 40(a)(ia) and disallowed the depreciation claimed. The Commissioner (Appeals), confirmed the action of the Assessing Officer on the ground that the purchase of software amounted to acquisition of intangible asset and therefore, the payment was royalty and disallowable. On appeal : Held, (i) that mere purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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