ACIT, CHENNAI V. M/s. K7 Computing Pvt. Limited, CHENNAI

ITA 2268/CHNY/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8944 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 05-05-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 17-12-2012
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Assessee Lawyers: S SRIDHAR
• Keywords: Depreciation; Permanent establishment; Condonation of delay; Revenue expenditure; Capital expenditure
• Section: 143(3); 194C

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , . , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , J UDICIAL MEMBER ./ I.T.A.NO. 2268/MDS/2012 / ASSESSMENT YEAR : 20 07 - 08 & C.O. NO. 65 /MDS/201 3 [IN I.T.A. NO. 2268 /MDS/201 2 ] THE ASSISTANT COMMISSIONER OF INCOME TAX, CO MPANY CIRCLE II(4 ), NEW BLOCK, 5 TH FLOOR, 1 21, M.G. ROAD, NUNGAMBA KKAM , CHENNAI 600 034. VS. M/S. K7 COMPUTING PVT. LTD., 14, NORTH MADA STREET, SRINAGAR COLONY, SAIDAPET, CHENNAI 600 01 5 . [PAN: A A B C K9584D ] ( APPELLANT ) ( RESPONDENT /CROSS OBJECTOR ) / APPELLANT BY : SHRI P. RADHAKRISHNA N , JCIT / RESPONDENT BY : SHRI S. SRIDHAR , ADVOCATE / DATE OF HEARING : 0 5 . 0 5 .201 6 / DATE OF P RONOUNCEMENT : 13 . 0 7 .201 6 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : THE APPEAL PR EFERRED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) III , CHENNAI DATED 30 .0 9 .201 2 FOR THE ASSESSMENT YEAR 20 07 - 08 . THE ONLY EFFECTIVE GROUND RAISED IN THE APPEA L OF THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE UNDER SECTION 40(A)(I) OF THE INCOME TAX ACT, 1961 [ ACT IN SHORT] TO THE EXTENT OF I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 2 .63.58 LAKHS TOWARDS EXPENDITURE INCURRED ON SUBSCRIPTION PAID TO NON - RESIDENTS ABROAD , WHEREAS, THE ASSESSEE HAS RAISED VARIOUS GROUNDS IN THE CROSS OBJECTION . 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF ANTI - VIRUS SE CURITY SOFTWARE DEVELOPMENT AND FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2007 - 08 ON 14.11.2007 DECLARING INCOME OF .2,06,690/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT ON 18.02.2009. THE CASE OF THE ASSESSE E WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 24.07.2008. IN RESPONSE THERETO, THE ASSESSEE FILED ALL THE DETAILS. AFTER CONSIDERING THE DETAILS FURNISHED BY THE ASSESSEE, THE ASSESSING OFFICER HAS COMPLETED THE ASSES SMENT UNDER SECTION 143(3) OF THE ACT ON 30.11.2009 BY ASSESSING TOTAL TAXABLE INCOME OF THE ASSESSEE AT .73,46,265/ - AFTER MAKING VARIOUS DISALLOWANCES. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. ON BEING AGGRIEVED, THE REVENUE HAS FILED AN APPEAL BEFORE THE TRIBUNAL, WHEREAS, THE ASSESSEE HAS PREFERRED CROSS OBJECTION. I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 3 5. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE LD. DR HAS SUBMITTED THAT THE LD . CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE MADE UNDER SECTION 40(A)(I) OF THE ACT TO THE EXTENT OF .63.58 LAKHS TOWARDS EXPENDITURE INCURRED ON SUBSCRIPTION PAID TO NON - RESIDENTS . THE LD. DR FURTHER SUBMITS THAT THE NATURE OF PAYMENTS WERE STATED TO BE SUBSCRIPTION WHICH IS OTHERWISE A LICENSE TO USE THE SOFTWARE STORED ON A REMOTE SERVER FOR A FEE CLE ARLY FALLS WITHIN THE AMBIT OF SECTION 9(1)(VII) OF THE ACT AND LIABLE TO DEDUCT TAX UNDER SECTION 195 OF THE ACT. 6. THE ASSESSEE HAS CLAIMED UNDER THE HEAD SUBSCRIPTION IN THE PROFIT AND LOSS ACCOUNT TO THE TUNE OF .63,58,575/ - . DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE ASSESSEE WAS ASKED AS TO WHY THE AMOUNT SHOULD NOT BE DISALLOWED AS TDS HAS NOT BEEN DEDUCTED AS PER SECTION 195(1) OF THE ACT. VIDE ITS LETTER DATED 09.11.2009, THE ASSESSEE HAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE PAYMENTS TO VARIOUS PARTIES WERE MADE FOR THE LICENSE TO USE THE SOFTWARE WHICH IS NOT CUSTOMIZED AND IS TO B E THE PARTIES WHO IS NOT HAVING PERMANENT ESTABLISHMENT IN INDIA. BY RELYING VARIOUS DECISIONS, THE ASSESSING OFFICER HAS CONCLUDED THAT THE EXPEN SES INCURRED UNDER THE HEAD SUBSCRIPTION IS LIABLE TO TDS AND ACCORDINGLY , HE DISALLOWED .63,58,575/ - . ON APPEAL, THE ASSESSEE HAS SUBMITTED ELABORATELY TOWARDS NON - DEDUCTION OF TDS ON SUBSCRIPTIONS. AFTER CONSIDERING THE SUBMISSIONS I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 4 AND OTHER EVIDENCES , THE LD. CIT(A) HAS OBSERVED THAT THE RECIPIENTS OF THE ITEMS LISTED UNDER MAJOR HEADS ARE NON - RESIDENTS. THEY DO NOT HAVE A PE IN INDIA AND THE PAYMENTS WERE MADE OUTSIDE INDIA AND THEREFORE, BY CONSIDERING THE RATIO LAID DOWN BY THE HON BLE SUPREME COUR T IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) LTD. V. CIT 327 ITR 456 AND ALSO THE DECISION OF THE TRIBUNAL IN THE CASE OF WIPRO LIMITED 94 ITD 1, THE LD. CIT(A) HAS HELD THAT ON ACCOUNT OF THE ABOVE PAYMENTS, TDS IS NOT REQUIRED TO BE DEDUCTED ON THESE PAYMENTS AND DELETED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. THE LD. DR SUBMITS THAT T HE BONE OF CONTENTION, IS NOT AS TO WHETHER THE RECIPIENTS ARE NON RESIDENTS OR OTHERWISE. IT IS A PROVEN FACT THAT THEY ARE NON - RESIDENTS. THE ISSUE IS THEREFORE , WHETHER THE AMOUNTS PAID ARE IN THE NATURE OF TECHNICAL SERVICES OR NOT. IF IT WERE IN THE NATURE OF TECHNICAL SERVICES, THE EXISTENCE OF PE OR OTHERWISE, WILL NOT DETERMINE THE TAXABILITY. THIS CONDITION TO EXCLUDE, IN CASE OF NON EXISTENCE OF PE IS EXT ENDABLE ONLY IN RESPECT OF ANY INCOME ACCRUING OR ARISING, WHETHER DIRECTLY OR INDIRECTLY THROUGH OR FROM ANY BUSINESS CONNECTIONS IN INDIA. THE CASE UNDER CONSIDERATION DOES NOT RELATE TO INCOME CONTAINED IN SECTION 9(1)(I), BUT TECHNICAL SERVICES COVERED UNDER 9(1)(VII). IN CASE OF TECHNICAL SERVICES, THE EXISTENCE OF PE OR OTHERWISE, IN INDIA, IS NOT A DECISIVE FACTOR ON TAXATION. THE ASSESSEE CLAIMED THAT THE SERVICES PROVIDED BY THE THREE CONCERNS IN USA AND ONE IN ISRAEL ARE NOT IN THE NATURE OF TECHN ICAL SERVICES AND PURE BUSINESS TRANSACTIONS. HOWEVER, WE FIND THAT THE AUTHORITIES BELOW I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 5 HAVE NOT CHECKED WITH THE INVOICES SUBMITTED BY THE ASSESSEE AS TO WHETHER THE SERVICES RENDERED BY THE NON - RESIDENTS ARE IN THE NATURE OF FEE FOR TECHNICAL SERVICES OR PURE BUSINESS TRANSACTIONS. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, WE SET ASIDE THE ORDER PASSED BY THE LD. CIT(A) AND REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE NATURE OF SERVICES RENDERED BY THE NON - RESIDENTS AND DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. THUS, THE GROUND RAISED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 7. COMING TO THE CROSS OBJECTION FILED BY THE ASSESSEE, THE C.O. OF THE ASSESSEE IS F OUND TO HAVE BEEN FILED LATE BY 81 DAYS IN FILING BEFORE THE TRIBUNAL. THE ASSESSEE FILED PETITION FOR CONDONATION OF DELAY IN FILING THE APPEAL IN SUPPORT OF AFFIDAVIT. BY REFERRING PETITION FOR CONDONATION OF DELAY , THE LD. COUNSEL FOR THE ASSESSEE HAS S UBMITTED THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FOR NOT FILING THE CROSS OBJECTION IN TIME BEFORE THE TRIBUNAL AND PLEADED THAT THERE IS NO WILLFUL DELAY IN FILING THE CROSS OBJECTION AND PRAYED FOR CONDONATION OF DELAY IN FILING THE CROSS OBJ ECTION. WE HAVE PERUSED THE RECORDS AND FOUND THAT THERE IS SUFFICIENT CAUSE FOR DELAY IN FILING THE CROSS OBJECTION . THE LD. DR DID NOT OBJECT TO THE PLEA OF THE LD. COUNSEL FOR THE ASSESSEE. ACCORDINGLY, WE CONDONE THE DELAY AND ADMIT THE CROSS OBJECTION FOR HEARING AND ADJUDICATION. I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 6 8. THE FIRST GROUND RAISED IN THE CROSS OBJECTION OF THE ASSESSEE IS THAT THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE OF THE CLAIM OF DEDUCTION TOWARDS SOFTWARE PURCHASES. THE ASSESSEE HAS CHARGED A SUM OF .28,12, 057/ - AS REVENUE EXPENDITURE TOWARDS PURCHASE OF SOFTWARE. THE ASSESSING OFFICER HAS FOUND FROM THE LEDGER ACCOUNT OF THE ASSESSEE THAT THE ASSESSEE HAS PURCHASED A SOFTWARE FOR A SUM OF .22,13,975/ - FROM OSR OPEN SYSTEMS RESOURCES A SOFTWARE DEVELOPMENT TOOL KIT, WHICH HAS ENDURING NATURE AND ALLOWED DEPRECIATION AT 60% AS CLASSIFIED UNDER PLANT AND MACHINERY . ACCORDINGLY, THE ASSESSING OFFICER MADE ADDITION OF .11,24,823/ - . 8.1 ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFI CER. 8.2 ON BEING AGGRIEVED, THE ASSESSEE RAISED THE GROUND IN THE CROSS OBJECTION. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE S OFTWARE TECHNOLOGY IS VERY RAPIDLY CHANGING AND HENCE THERE IS NO ENDURING BENEFIT. THE S OFTWARE WAS INSTALLED FO R CARRYING ON THE ASSESSEE S BUSINESS MORE EFFICIENTLY AND THE EXPENDITURE HAS NOT BROUGHT INTO EXISTENCE ANY ASSET WHICH IS CAPABLE OF BEING SOURCE OF INCOME. THE LD. COUNSEL FOR THE ASSESSEE FURTHER CONTENDED THAT MERELY BECAUSE AN EXPENDITURE RESULTS IN AN ENDURING BENEFIT WOULD NOT BE A SUFFICIENT REASON TO TREAT THE EXPENDITURE I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 7 AS CAPITAL EXPENDITURE AND PLEADED THAT THE ABOVE EXPENDITURE SHOULD BE TREATED AS REVENUE IN NATURE . 8.3 ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDER PASSED BY T HE AUTHORITIES BELOW. 8.4 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE POINT AT ISSUE FOR ADJUDICATION IS WHETHER THE EXPENDITURE INCURRED BY THE ASSESSEE ON SOFTWARE PURCHASES IS REVENUE EXPENDITURE OR CAPITAL EXPENDITURE. ON SIMILAR ISSUE, THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. ASAHI INDIA SAFETY GLASS LTD. [2012] 346 ITR 329 HAS HELD AS UNDER: 8. HAVING HEARD THE LEARNED COUNSEL FOR THE PARTIES, WHAT HAS EMERGED ON FACTS A S 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 APPLICATION BY ARTHUR ANDERSON & ASSOCIATES, WHICH FIND A REFLECTION IN A LETTER DATED 25.06.1996. THE SAID AGREEMENT BETWEEN THE ASSESSEE AND ARTHUR ANDERSON & ASSOCIATES ALSO REQUIRED THE ASSESSEE TO ENTER INTO A BA CK - TO - BACK AGREEMENT WITH ORACLE. THE REASONS PERHAPS BEING THAT THE SOFTWARE APPLICATION SUPPLIED BY THE AURTHOR ANDERSON & ASSOCIATES WORKED ON ORACLE APPLICATION. IT IS PRECISELY FOR THIS REASON THAT ARTHUR ANDERSON & ASSOCIATES REQUIRED THE ASSESSEE TO ENTER INTO A LICENCE AGREEMENT WITH ORACLE TITLED MASTER SOFTWARE LICENCE AND SERVICES AGREEMENT. THE ASSESSEE WAS THUS, REQUIRED TO PAY : APART FROM THE FEE TO ARTHUR ANDERSON & ASSOCIATES QUA ITS AGREEMENT WITH IT; LICENCE FEE TO ORACLE. AS A MATTER OF FACT ORACLE ALSO OFFERED SUPPORT AND MAINTENANCE SERVICES FOR WHICH A FURTHER ADDITIONAL FEE WAS REQUIRED TO BE PAID TO ORACLE. 8.1 THE ASSESSEE THUS ADMITTEDLY IN RESPECT OF THE AFORESAID TRANSACTIONS INCURRED AN EXPENDITURE TO THE TUNE OF RS 1,36,77,6 64/ - AND RS 1,70,68,811/ - I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 8 IN ASSESSMENT YEARS 1997 - 98 AND 1998 - 99 RESPECTIVELY. IN THE BOOKS OF ACCOUNTS FOR THE ASSESSMENT YEARS 1997 - 98 THE ASSESSEE HAD NOT WRITTEN OFF ANY SUM, WHILE IN THE SUCCEEDING ASSESSMENT YEAR, I.E., 1998 - 99 THE ASSESSEE HAD WRIT TEN OFF A PART OF THE EXPENDITURE AMOUNTING TO RS 9,91,228/ - . 8.2 GIVEN THESE FACTS, COULD IT BE SAID THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN THE AFOREMENTIONED ASSESSMENT YEARS WAS IN THE NATURE OF CAPITAL EXPENDITURE. 9. THE REVENUE IN SUP PORT OF ITS STAND HAS TAKEN RECOURSE TO THE TEST OF ENDURING BENEFIT. IT IS IN OUR VIEW NOW SOMEWHAT TRITE TO SAY THAT THE TEST OF ENDURING BENEFIT IS NOT A CERTAIN OR A CONCLUSIVE TEST WHICH THE COURTS CAN APPLY ALMOST BY ROTE. WHAT IS REQUIRED TO BE SEEN IS THE REAL INTENT AND PURPOSE OF THE EXPENDITURE AND WHETHER THE EXPENDITURE RESULTS IN CREATION OF FIXED CAPITAL FOR THE ASSESSEE. IT IS IMPORTANT TO BEAR IN MIND THAT WHAT IS REQUIRED TO BE SEEN IS NOT WHETHER THE ADVANTAGE OBTAINED LASTS FOREVER BUT W HETHER THE EXPENSE INCURRED DOES AWAY WITH A RECURRING EXPENSE(S) DEFRAYED TOWARDS RUNNING A BUSINESS AS AGAINST AN EXPENSE UNDERTAKEN FOR THE BENEFIT OF THE BUSINESS AS A WHOLE. IN OTHER WORDS, THE EXPENDITURE WHICH IS INCURRED, WHICH ENABLES THE PROFIT M AKING STRUCTURE TO WORK MORE EFFICIENTLY LEAVING THE SOURCE OF THE PROFIT MAKING STRUCTURE UNTOUCHED, WOULD IN OUR VIEW BE AN EXPENSE IN THE NATURE OF REVENUE EXPENDITURE. FINE TUNING BUSINESS OPERATIONS TO ENABLE THE MANAGEMENT TO RUN ITS BUSINESS EFFECTI VELY, 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 CI T (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 TRIBUNAL, WHICH IS DECIDEDLY THE FINAL FACT FINDING AUTHORITY HAS AFTER NOTICING THE MATERIAL ON RECORD OBSERVED THAT THE EXPENDITURE WAS INCURRED UNDER VARIOUS SUB - HEADS, WHICH INCLUDED LICENCE FEE, ANNUAL TECHNICAL SUPPORT FEE, PROFESSIONAL CHARGES, DATA ENTRY OPERATOR CHARGES, TRAINING CHARGES AND TRAVELLING EXPENSES. THE FINAL FIGURE WAS A CONSOLIDATION OF EXPENSES INCURRED UNDER THESE SUB - HEADS. THE TRIBUNAL, IN OUR VIEW, AND RIGHTLY SO, CAME TO THE CONCLUSION THA T NONE OF THESE RESULTED IN EITHER CREATION OF A NEW ASSET OR I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 9 BROUGHT FORTH A NEW SOURCE OF INCOME FOR THE ASSESSEE. THE TRIBUNAL CLASSIFIED THE SAID EXPENSES AS BEING RECURRING IN NATURE TO UPGRADE AND/OR TO RUN THE SYSTEM. 10. IN THE BACKGROUND OF THE AFOREMENTIONED FINDINGS, IT CANNOT BE SAID THAT THE EXPENSES BROUGHT ABOUT IN AN ENDURING BENEFIT TO THE ASSESSEE. THE ASSESSING OFFICER WAS PERHAPS SWAYED BY THE FACT THAT IN THE SUCCEEDING FINANCIAL YEAR, I.E., 1997 - 98 (ASSESSMENT YEAR 1998 - 99), THE AMO UNT SPENT WAS LARGE. FIRST OF ALL, THE EXTENT OF THE EXPENDITURE CANNOT BE A DECISIVE FACTOR IN DETERMINING ITS NATURE. AS OBSERVED BY THE TRIBUNAL, THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR HAD A TURNOVER OF RS 150 CRORES AND THAT EVEN WITHOUT THIS EXP ENDITURE IT WOULD HAVE CONTINUED TO ACHIEVE THE SAID TURNOVER; THOUGH THE EXPENDITURE INCURRED IN ISSUE WOULD HAVE ENABLED IT TO RUN ITS BUSINESS MORE EFFICIENTLY. THEREFORE, THE RATIONALE SUPPLIED BY THE ASSESSING OFFICER IN SUPPORT OF ITS ORDER WHICH FOU ND RESONANCE IN SUBMISSIONS OF THE LEARNED COUNSEL FOR THE REVENUE IS, IN OUR VIEW FLAWED AND, HENCE IT WOULD HAVE TO BE REJECTED. 10.1. SECONDLY, 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. A CAREFUL READING OF THE TRIBUNALS JUDGMENT SHOW THAT AFTER NOTICING THE SUBMISSION OF THE ASSESSEE THAT THE EXPENDITURE INCURRED IN THE SAID ASSESSMENT YEAR WAS FOR REMOVING DEFICIENCIES WHICH WERE FOUND IN THE SOFTWARE INSTALLED IN THE EARLIER ASSESSMENT YEAR, AND THAT, OUT OF A SUM OF RS 1.71 CRORES A SUM OF RS 49 LACS WAS INCURRED TO MODIFY, CUSTOMIZE AND UPGRADE THE SO FTWARE INSTALLED, WHILE THE BALANCE EXPENDITURE WAS USED FOR DEVELOPMENT AND IMPLEMENTATION - IT RETURNED A FINDING THAT THE EXPENSES WERE INCURRED TO UPGRADE AND RUN THE SYSTEM. IN VIEW OF THESE FINDINGS WE ARE OF THE OPINION THAT ASSESSING OFFICER DISCOV ERED 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 SYS TEMS 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 PR OGRAMMES. (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, PURCHASES AND INVENTORY I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 10 MAINTENANCE. THE FACT THAT THE APPLICATION SOFTWARE WOULD HAVE TO BE UPDATED FROM TIME TO TIME BASED ON THE REQUIREMENTS OF THE ASSESSEE IN THE CONTEXT OF THE ADVANCEMENT OF ITS BUSINESS AND/OR ITS DIVERSIFICATI ON, IF ANY; THE CHANGES BROUGHT ABOUT DUE TO STATUTORY AMENDMENTS BY LAW OR BY PROFESSIONAL BODIES LIKE THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA, WHICH ARE GIVEN THE RESPONSIBILITY OF CONCEIVING AND FORMULATING THE ACCOUNTING STANDARDS FROM TIME TO TIME, AND PERHAPS ALSO, BY REASON OF THE FACT THAT EXPENSES MAY HAVE TO BE INCURRED ON ACCOUNT OF CORRUPTION OF THE SOFTWARE DUE TO UNINTENDED OR INTENDED INGRESS INTO THE SYSTEM - OUGHT NOT GIVE A COLOUR TO THE EXPENDITURE INCURRED AS ONE EXPENDED ON CAPI TAL ACCOUNT. GIVEN THE FACT THAT THERE ARE MYRIAD FACTORS WHICH MAY CALL FOR EXPENSES TO BE INCURRED IN THE FIELD OF SOFTWARE APPLICATIONS, IT CANNOT BE SAID THAT EITHER THE EXTENT OF THE EXPENSE OR THE EXPENSE BEING INCURRED IN CLOSE PROXIMITY, IN THE SUB SEQUENT YEARS, WOULD BE CONCLUSIVELY DETERMINATIVE OF ITS NATURE. THE ASSESSING OFFICER HAS, IN OUR VIEW, ERRED PRECISELY FOR THESE VERY REASONS. 8.5 IN THE PRESENT CASE, THE CONTENTION OF THE ASSESSING OFFICER WAS THAT THE SOFTWARES ARE ENTIRELY NEW AN D DOES HAVE ENDURING BENEFIT. HOWEVER, THE HON BLE DELHI HIGH COURT IN THE ABOVE CASE HAS OBSERVED THAT THE TEST OF ENDURING BENEFIT IS NOT CERTAIN OR CONCLUSIVE TEST IN DETERMINING THE EXPENDITURE AS CAPITAL OR REVENUE. THE REAL INTENT OF THE EXPENDITURE AND WHETHER THE EXPENDITURE RESULTS IN CREATION OF FIXED CAPITAL FOR THE ASSESSEE ARE TO BE EXAMINED. THUS, IN VIEW OF THE RATIO LAID DOWN BY THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. ASAHI INDIA SAFETY GLASS LTD.(SUPRA), WE HOLD THAT THE SOFTWARE EXPENSES SHOULD BE TREATED AS REVENUE IN NATURE AND ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE MADE ON THIS ACCOUNT. THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 11 9. THE NEXT GROUND RAISED BY THE ASSESSEE IS THAT THE LD. CIT(A) IS ERRED IN SUSTAINING THE DISALLOWANCE OF THE CLAIM OF DEPRECIATION AT 60% FOR UPS ATTACHED TO COMPUTERS (RESTRICTED TO 15%). 9.1 THE ASSESSEE HAS CLAIMED DEPRECIATION AT 60% FOR UPS. THE ASSESSEE HAS GIVEN WRITTEN ARGUMENTS STATING THAT UPS IS ATTACH TO THE COMPUTERS AND THEREFORE, LIABLE FOR 60% DEPRECIATION. HOWEVER, THE ASSESSING OFFICER HAS OBSERVED THAT THE UPS IS AN ELECTRICAL DEVICE WHICH CAN BE ATTACHED TO VARIOUS OTHER DEVICES AND RESTRICTED THE DE PRECIATION AT 15%. THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 9.2 BEFORE US, T HE LD. COUNSEL FOR THE ASSESSEE STRONGLY CONTENDED THAT THE COORDINATE BENCHES OF THE TRIBUNAL IS CONSISTENTLY ALLOW ING DEPRECIATION AT 60% FOR UP S INCLUDING IN THE CASE OF DCIT V. INDIAN BANK IN I.T.A. NOS. 1910 & 1911/MDS/2015 VIDE ORDER DATED 22.01.2016 AND PLEADED THAT THE SAME SHOULD BE FOLLOWED . 9.3 ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A) AND RELIED ON TH E DECISION DECISION OF THE DELHI BENCHES OF ITAT IN THE CASE OF NESTLE INDIA LTD. V. DCIT 111 TTJ 498. 9.4 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD. ON AN IDENTICAL ISSUE IN SIMILAR FACTS AND CIRCUMSTANCES, THE COORDINATE BENCH OF I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 12 THE TRI BUNAL IN THE CASE OF DCIT V. INDIAN BANK (SUPRA) DECIDED THE ISSUE AGAINST THE REVENUE, WHEREIN THE TRIBUNAL HAS OBSERVED AS UNDER: 13. AFTER HEARING BOTH SIDES, WE FIND THAT SIMILAR ISSUE ON IDENTICAL FACTS HAS BEEN CONSIDERED I N THE REVENUE S APPEALS IN I.T.A. NO. 2124 & 2125/MDS/2014 FOR THE ASSESSMENT YEARS 2005 - 06 AND 2007 - 08 IN ASSESSEE S OWN CASE BY THE COORDINATE BENCH OF THE TRIBUNAL VIDE ITS COMMON ORDER DATED 30.11.2015, WHEREIN THE TRIBUNAL HAS OBSERVED AS UNDER: 20. WE HAVE HEARD BOTH SIDES , PERUSED THE MATERIALS ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WITH REGARD TO ALLOWABILITY OF 60% DEPRECIATION ON THE UPS, THE ASSESSING OFFICER HAS HELD THAT THESE CANNOT BE TREATED AS COMPUTER RESTRICTED THE CLAIM OF DEPRECIATION TO 15% AS AGAINST 60% CLAIMED BY THE ASSESSEE. ON APPEAL, THE LD. CIT(A), BY FOLLOWING THE DECISION OF THE CHENNAI BENCHES OF TRIBUNAL IN THE CASE OF INDIAN OVERSEAS BANK IN I.T.A. NO. 99/MDS/2010 DATED 19.03.2013, HAS HELD THAT THE UPS ATTACHED TO THE COMPUT ERS ARE PART OF COMPUTER SYSTEMS AND ELIGIBLE FOR DEPRECIATION @ 60% AND DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON UPS @ 60%. WITH REGARD TO ALLOWABILITY OF DEPRECIATION @ 60% ON UPS, WHILE CONSIDERING SIMILAR ISSUE RAISED IN THE CASE OF INDI AN OVERSEAS BANK (SUPRA), BY FOLLOWING THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF ORIENTAL CERAMICS & INDUSTRIES LTD. 56 DTR (DEL) 397, THE TRIBUNAL HAS OBSERVED AS UNDER: 28. WE DO NOT AGREE WITH THE SUBMISSIONS OF THE AR THAT THE UPS IS AN ENERGY SAVING DEVICE, THEREFORE, DEPRECIATION @ 80% SHOULD BE GRANTED. HOWEVER, WE ARE IN CONSONANCE WITH THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF ORIENT CERAMICS & INDUSTRIES LTD. (SUPRA) WHEREIN THE HON BLE COURT HAS GRANTED DEPRECIA TION @ 60% BY TREATING UPS AS PART OF COMPUTER HARDWARE. ACCORDINGLY, WE ALLOW DEPRECIATION @ 60% ON UPS AND PARTLY ALLOW THE GROUND OF APPEAL OF THE ASSESSEE. 21. AT THE TIME OF HEARING, THE LD. DR HAS RELIED ON THE DECISION IN THE CASE OF NESTLE INDIA LTD. V. DCIT (SUPRA), WHEREIN THE DELHI BENCHES OF THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE REVENUE AND REJECTED THE PLEA OF THE ASSESSEE FOR CLAIMING DEPRECIATION @ 60% ON UPS. HOWEVER, THE DELHI BENCHES OF THE TRIBUNAL IN THE CASE OF NEPTUNE INFORMATION SOLUTIONS LTD. IN I.T.A. NO. 962/DEL/2006 VIDE ORDER DATED 21.04.2011 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY FOLLOWING THE DECISION OF THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT V. BSES RAJDHANI POWERS LTD. VIDE ORDER DATED 31. 08.2010 IN ITA NO. 1266/2010 AND ALSO BY I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 13 FOLLOWING THE DECISION OF THE ITAT DELHI IN THE CASE OF EXPEDITORS INTERNATIONAL (INDIA) (P) LTD. V. CIT (2008) 118 TTJ 652 AND DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION @ 60% TO UPS. THEREFORE, WE FIND N O FORCE IN THE ARGUMENTS OF THE LD. DR. 22. FURTHER, THE TRIBUNAL, IN THE CASE OF INDIAN OVERSEAS BANK V. DCIT IN I.T.A. NO. 1949/MDS/2012 DATED 18.06.2014, HAS ALSO ALLOWED DEPRECIATION ON UPS AT THE RATE OF 60%. ACCORDINGLY, IN VIEW OF THE ABOVE DECIS IONS OF THE COORDINATE BENCHES OF TRIBUNAL, WE ARE OF THE FIRM VIEW THAT THE LD. CIT(APPEALS) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON UPS @ 60% AND WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(APPEALS) ON THIS ISSUE. ACCORDINGLY, GROUND RAISED IN BOTH THE APPEALS OF THE REVENUE FOR THE ASSESSMENT YEAR 2005 - 06 AND 2007 - 08 IS DISMISSED. 14. BEFORE US, THE REVENUE COULD NOT CONTROVERT THE ABOVE FINDINGS OF THE TRIBUNAL OR FILED ANY HIGHER COURT DECISION HAVING MODIFIED OR REVERSED THE ABOVE DECISION OF THE TRIBUNAL. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL IN ASSESSEE S OWN CASE FOR EARLIER ASSESSMENT YEARS VIDE ITS COMMON ORDER DATED 30.11 .2015, WE CONFIRM THE ORDER PASSED BY THE LD. CIT(APPEALS) ON THIS ISSUE AND DISMISS THE GROUND RAISED BY THE REVENUE FOR BOTH THE ASSESSMENT YEARS 2006 - 07 AND 2008 - 09. 9.5 RESPECTFULLY FOLLOWING THE ABOVE RATIO OF THE COORDINATE BENCH OF THIS TRIBUNAL, WE DIRECT THE ASSESSING OFFICER TO ALLOW 60% DEPRECIATION ON UPS. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 10. THE NEXT GROUND RAISED BY THE ASSESSEE IS THAT THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF .3,94,000/ - RELAT ING TO THE CLAIM OF EXPENSES INCURRED ON WEBSITE DEVELOPMENT FOR NON - DEDUCTION OF TDS UNDER SECTION 194J OF THE ACT. 10.1 THE ASSESSEE HAS INCURRED EXPENDITURE TOWARDS WEBSITE DEVELOPMENT AND PAID . 3,40,000/ - TO M/S. RAGE COMMUNICATION PVT. LTD. AND . 54,000/ - TO M/S. DOTCOM VILLAGE. THE ASSESSING OFFICER HAS OBSERVED THAT THE I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 14 ASSESSEE HAS NOT DEDUCTED TDS IN TERMS OF PROVISIONS OF SECTION 194 OF THE ACT. THE ASSESSEE HAS ARGUED THAT THE EXPENSES INCURRED BY THE ASSESSEE FOR WEBSITE DEVELOPMENT IS NOT C OVERED BY THE PROVISION OF SECTION 194 OF THE ACT. HOWEVER, BY INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT, THE ASSESSING OFFICER DISALLOWED THE ABOVE EXPENDITURE. ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFIC ER. 10.2 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE STRONGLY PLEADED THAT THE EXPENDITURE INCURRED TOWARDS WEBSITE DEVELOPMENT SHOULD BE TREATED AS CAPITAL EXPENDITURE AND THEREFORE, NO TDS IS REQUIRED TO BE DEDUCTED ON THE PAYMENTS MADE BY THE ASSESSE E. THE LD. DR STRONGLY SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 10.3 WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS ON RECORD. THE ASSESSEE HAS INCURRED EXPENDITURE TOWARDS WEBSITE DEVELOPMENT AND CONTENDED THAT THE PAYMENTS ARE NOT FOR PROFESSIONAL OR TECHNICAL SERVICES AS CONTEMPLATED UNDER SECTION 194J OF THE ACT. IT WAS ALSO SUBMITTED THAT THE PROVISIONS OF SECTION 194C OF THE ACT ARE ALSO NOT APPLICABLE FOR THESE PAYMENT AS THEY ARE NOT FOR CARRYING OUT ANY WORK AS CONTEMPLATED UNDER SECTION 194C OF THE ACT. WE ARE OF THE OPINION THAT WEBSITE DEVELOPMENT IS NOTHING BUT CREATION OF NEW ASSET AND THE ENTIRE EXPENDITURE WAS INCURRED FOR THE FUTURE OF THE COMPANY AND ALSO FOR A LONG TERM IMPACT, WHICH IS OF ENJOYING ENDURING BENEFIT. THEREFORE, WE FIN D NO INFIRMITY IN THE ORDER PASSED I.T.A. NO . 2268 /M/ 1 2 & C.O. NO. 65 /M/1 3 15 BY THE LD. CIT(A). ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE IS DISMISSED. 11 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS P ARTLY ALLOWED . ORDER PRONOUNCED ON THE 13 TH JULY , 20 16 AT CHENNAI. SD/ - SD/ - ( CHANDRA POOJARI ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 13 . 0 7 .201 6 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.