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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 ..... thereon in accordance with law. Foreign Exchange Loss - Held that:- On an appreciation of the facts of the case on hand, it is seen that the foreign exchange loss has arisen on account of trade transactions entered into by the assessee and is with respect to the revaluation of foreign currency sundry debtors and creditors as on 31.03.2009. In our view, the claim of the assessee in the case on hand in respect of loss on account of foreign exchange sundry debtors and creditors is allowable as it is covered in favour of the assessee by the decision of the Hon'ble Apex Court in the case of CIT vs. Woodward Governor India P. Ltd. (2009 (4) TMI 4 - SUPREME COURT ).- Decided in favour of assessee. Software Expenses - revenue v/s capital - Held that:- Since the expenditure was incurred for purchase of Windows XP Professional, an application software for its office use and becomes obsolete very fast, it cannot be treated as capital asset and therefore the same is to be treated and allowed as revenue expenditure.- Decided in favour of assessee. - ITA No. 5990/Mum/2012, ITA Nos. 6407 & 6408/Mum/2012 - - - Dated:- 7-6-2016 - Shri Jason P. Boaz, Accountant Member And Shri Sandeep Go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter is pending in Hon'ble Supreme Court. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in allowing ₹ 31,21,769/- as expenditure on account of foreign exchange loss without appreciating the fact that this is a notional loss which assessee has not even incurred. 3. The appellant prays that the order of the CIT(A) on the grounds be set aside and that of the Assessing Officer be restored. 4. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 3. Ground No. 1 (assessee s appeal)/Ground No. 1 (Revenue s appeal) - Expenditure on Software Licence Fees 3.1 The facts of the matter are that the assessee-company is engaged in the business of pre-employment screening on behalf of the employers. In the year under consideration, it claimed deduction of ₹ 60,35,642/- on account of software licence fees. According to the Assessing Officer (AO), the installation and use of the aforesaid software would result in benefit of enduring nature accruing to the assessee. The AO observed that expenditure incurred to acquire the software applications was for exclusive purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench cited (supra), the learned A.R. for the assessee also placed reliance on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Raychem RPG Ltd. (2012) 346 ITR 138 (Bom.). 3.4.1 We have heard the rival contentions of both the parties and perused and carefully considered the material on record. The details of expenses on software licence fee of ₹ 60,35,642/- claimed by the assessee in the year under consideration and placed before the AO in assessment proceedings vide letter dated 28.06.2011 are as under: - S. No. Party Name Description of the software Amount Licence Period Period in month 1 Planet India TDS Filing Software 1,300 12 2 Spectrum Business Support Ltd. Annual Licence Renewal chgs for Grand Jurix 9,000 1 Jul 2008 - 30 Jun 2009 12 3 Network Tech Lab (1090828) AMC for Sonicwall firewall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the Department that the longevity of the software is any more than two years. Rather, it has not been disputed that all but one of the items of expenditure have a life much less than two years. Apropos the functionality test, the Department again does not refute the fact that the software license was acquired by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 ₹ 60,35,642/-, the amount of ₹ 55,57,875/- (i.e. ₹ 60,36,642/- less ₹ 4,77,767/-) is incurred in respect of application software acquired which is in the nature of revenue expenses. The remaining expenditure of ₹ 4,77,767/- paid to Fadv Corporation for acquiring True UP Licences Fees being for a period of 36 months is held to be expenditure capital in na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue. 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 expenses of ₹ 28,62,118/- expended on Windows XP Professional as capital in nature, for the reason that it is an operating system which provided enduring benefit to the assessee as it is not required to be renewed every year. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 become obsolete very fast and the expenditure is revenue in nature and this claim is in line with the principle established by the Hon'ble Special Bench of the ITAT Amway India Enterprise vs. CIT 111 ITD 112 (De ..... X X X X Extracts X X X X X X X X Extracts X X X X
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