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TMI Blog2016 (6) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... rt 'the Act') and the case was subsequently taken up for scrutiny. The assessment was completed under section 143(3) of the Act vide order dated 28.12.2011, wherein the income of the assessee was determined at Rs. 10,25,27,150/- in view of the following disallowances/additions: - i) On account of software Licence Fee Rs. 60,35,642/- ii) On account of foreign exchange loss Rs. 32,21,769/- 2.2.2 Aggrieved by the order of assessment for A.Y. 2009-10 dated 28.12.2011, the assessee preferred an appeal before the CIT(A)-19, Mumbai. The learned CIT(A) disposed off the appeal vide the impugned order dated 26.07.2012 allowing the assessee partial relief. Both Revenue and the assessee are aggrieved by this order of the CIT(A) and have preferred cross appeals raising the following grounds: - 2.2.3 Assessee's appeal in ITA No. 6407/Mum/2012 for A.Y. 2009-10 "1) The learned Commissioner of Income Tax (Appeals) erred in treating software licenses of Rs. 49,95,808/- (Rs.60,35,642/- less Rs. 13,39,834/-) as Capital Expenditure. 2) The Appellant crave leave to alter, amend and/or add any another ground of appeal." 2.2.4 Revenue's appeal in ITA No. 5990/Mum/2012 for A.Y. 2009-10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Amway India Enterprises 111ITD 112 (SB) (Del) which is pending disposal. 3.2.2 In respect of ground No. 1 of the assessee's appeal, the learned D.R. supported the impugned order of the learned CIT(A) in holding that the expenditure or Rs. 46,95,808/- on account of software licence fees was expenditure of capital nature. 3.3.1 Per contra, the learned A.R. for the assessee, in respect of Revenue's ground No. 1 supported the finding of the learned CIT(A) that an amount of Rs. 13,39,834/- was rightly held to be revenue expenditure by the learned CIT(A) in the impugned order. 3.3.2 In respect of ground No. 1 of the assessee's appeal, the learned A.R. for the assessee submitted that the issue of whether the expenses incurred on software licence fees, were revenue or capital in nature was decided by a Coordinate Bench of this Tribunal in the assessee's own case for A.Y. 2010- 11 in ITA No. 6659/Mum/2013 dated 30.06.2015 and prayed that following the same the issue may be decided in favour of the assessee. According to the learned A.R. for the assessee, the expenditure was not incurred for purchase of capital assets/software owned by the assessee and did not result in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59/Mum/2013 has decided this issue in favour of the assessee's claim that the expenditure on software licence fees as being revenue in nature following the decision of the Hon'ble Bombay High Court in Raychem RPG Ltd. (2012) 346 ITR 138 (Bom) and of the Special Bench of the ITAT Delhi in Amway India Enterprises 111 ITD 112 (SB) (Del.). At paras 8 and 9 of its order of A.Y. 2010-11 the Coordinate Bench (supra) held as under: - "8. In keeping with the tests as laid down by the Special Bench of the ITAT, in the case of CIT vs. Amway India Enterprises, 111 ITD 112[SB] (Delhi), three tests have to be met in order to pass the expenditure incurred on account of software expenses as capital, or otherwise. These are the ownership test, the enduring benefit test and the functionality test. In the present case, as rightly considered by the ld. CIT(A), none of these tests fails the claim of the assessee. The software was not owned by the assessee. The assessee acquired the license only to use the same. The license fee was not paid for obtaining any right qua the transfer of the software. Then, obsolescence also does not prove any enduring benefit to the assessee. It is not the case of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the second test laid down, obsolescence of these items also do not provide enduring benefit to the assessee, except in the case of licence fee of Rs. 4,77,767/- paid to Fadv Corporation which is for a period of beyond two years. In respect of the functionality test, the Revenue has not refuted the fact that the software licences were taken by the assessee to carry out its routine operations in a more efficient manner. In fact, the expenses were either for antivirus software or payments for support service for maintenance of firewalls or software for filing TDS returns, fees for maintenance of licences, etc. 3.4.5 In the light of the factual and legal matrix of the case and respectfully following the ratio of the decisions of the Hon'ble Bombay High Court in the case of Raychem RPG Ltd. (supra) and of the Special Bench of the ITAT Delhi in Amway India Enterprises (supra) and the finding of facts rendered by the Coordinate Bench of this Tribunal in the assessee's own case for A.Y. 2010-11 (supra), we hold and direct that out of expenditure claim for software licence fees amounting to Rs. 60,35,642/-, the amount of Rs. 55,57,875/- (i.e. Rs. 60,36,642/- less Rs. 4,77,767/-) is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he decision of the Hon'ble Apex Court in the case of CIT vs. Woodward Governor India P. Ltd. (supra). Respectfully following this aforesaid decision of the Hon'ble Apex Court (supra) we uphold the impugned order of the learned CIT(A) on this issue. Consequently, ground No. 2 of Revenue's appeal is dismissed. 5. The grounds at S.No. 2 of the assessee's appeal and grounds at S.Nos. 3 & 4 of Revenue's appeal for A.Y. 2009-10 being general in nature, no adjudication is called for thereon. 6. In the result, Revenue's appeal for A.Y. 2009-10 is dismissed and the assessee's cross appeal for A.Y. 2009-10 is partly allowed. 7. Assessee's appeal in ITA No. 6408/Mum/2012 for A.Y. 2005-06 7.1 In this appeal, the assessee has raised the following grounds: - "1) The learned Commissioner of Income Tax (Appeals) erred in treating software expenses of 28,62,118/- being expenditure on Windows XP Professional as Capital Expenditure. 2) The Appellant crave leave to alter, amend and/or add any other ground of appeal." 8. Ground No. 1 - Software Expenses 8.1 In this ground, the assessee assails the finding of the learned CIT(A) in the impugned order in holding that the software expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dows being application software cannot be treated as capital assets and therefore any license fee paid for the purchase of windows has to be allowed as revenue expenditure as the software has to be updated every year. We accordingly set aside the findings of the ld. CIT(A) and direct the AO to delete the addition. Ground No. 1 is allowed." 8.3.2 We have also carefully perused the decision of another Coordinate Bench of ITAT, Mumbai in the case of Pennwalt Ltd. in ITA No. 1752/Mum2009 dated 24.09.2010, wherein after considering identical issue in respect of expenditure incurred for purchase of MS Windows 98, and MS Word 2000 had held that this expenditure is revenue in nature. At paras 15 and 16 of its order, the Coordinate Bench held as under: - "15. Ground No. 5 pertains to the issue of disallowance of software expenditure. Assessee purchased MS Windows 98 and MS Word 2000 packages for its software purposes and the A.O. disallowed the same holding it as capital expenditure. The CIT(A) agreed with the A.O. that these expenses are incurred to obtain user licence and confirmed the same. It was the contention of the assessee that these software, MS Windows 98 and MS Word 2000 have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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