DCIT (LTU), New Delhi V. M/s. Honda Siel Cars Ltd., Greater Noida

ITA 383/DEL/2012

• Counselvise Citation: 38320114 RSA 2012
• Duration Of Justice: 9 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-11-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 26-07-2012
• Assessment Year: 1999-2000
• Appeal Filed On: 24-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Assessee Lawyers: RUPESH J AIN
• Keywords: Capital asset; Depreciation; Revenue expenditure; Capital expenditure
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI C BENC H BEFORE SHRI I.C. SUDHIR, JM & SHRI A.N. PAHUJA, A M ITA NO.383 /DEL/2012 ASSESSMENT YEAR:1999-2000 D.C.I.T.(LTU), NBCC PLAZA, PUSHP VIHAR NEW DELHI V/S . M/S HONDA SIEL CARS LTD., A-1, SECTOR-40-41, SURAJPUR, KASNA ROAD, GREATER NOIDA [PAN : AAACH 1765 Q] CO NO.264 /DEL/2012 ASSESSMENT YEAR:1999-2000 M/S HONDA SIEL CARS LTD.,A-1,SECTOR-40-41, SURAJPUR, KASNA ROAD, GREATER NOIDA V/S . D.C.I.T.(LTU), NBCC PLAZA, PUSHP VIHAR, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI RUPESH JAIN, AR REVENUE BY SHRI R.S. NEGI, DR DATE OF HEARING 18-10-2012 DATE OF PRONOUNCEMENT 09-11-2012 O R D E R A.N.PAHUJA:- THESE CROSS APPEALS FILED ON 24.01.2012 BY THE REVE NUE AND THE CORRESPONDING CROSS-OBJECTION[CO] FILED ON 18.07.20 12 BY THE ASSESSEE AGAINST AN ORDER DATED 31.10.2011 OF THE LD. CIT(A)-LTU, NE W DELHI ,RAISE THE FOLLOWING GROUNDS:- I.T.A. NO.1074/DEL./2008[REVENUE] 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION O F ` ` 1,09,23,694/- BEING AGGREGATE AMOUNT OF EXPENDITURE INCURRED I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 2 AS HIPACK-WARRANTY MODULE HIPACK-SALES MODULES AND HIPACK-PARTS MODULE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE EXPENDITURE REFERRED TO IN GROUND NO.1 ABOVE IS REVENUE EXPENDITURE. 3. THE APPELLANT CRAVES LEAVE TO AND ADD TO ALTER, AMEND OR VARY FROM THE ABOVE GROUNDS OF APPEAL AT OR BEFORE THE T IME OF HEARING. I.T.A. NO.220/DEL./2012[ASSESSEE] 1. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN CO NFIRMING THE DISALLOWANCE OF ` `1,25,11,088/- MADE BY THE ASSESSING OFFICER, IN RESPECT OF LICENCE FEE PAID T O HONDA MOTOR CO.JAPAN(HMCL) FOR PURCHASE OF HIPACK SOFTWARE FACTORY MODULE, MODULE, HOLDING THE SAME T O BE CAPITAL EXPENDITURE. 2. THAT THE CIT(A) ERRED ON FACTS AND IN LAW IN HOL DING THAT FUNCTIONS OF THE FACTORY MODULE PART OF THE SOFTW ARE FACILITATED IN PRODUCTION AND WAS DIRECTLY LINKED W ITH FIXED CAPITAL ITEMS, WITHOUT APPRECIATING THAT SAID MODUL E DID NOT FORM INTEGRAL PART OF THE MANUFACTURING PROCESS OF THE ASSESSEE. 3. WITHOUT PREJUDICE, THAT THE CIT(A) ERRED ON FACT S AND IN LAW IN NOT DIRECTING THE ASSESSING OFFICER TO ALLOW DEPRECIATION ON THE AFORESAID AMOUNT HELD TO BE CAP ITAL EXPENDITURE. 2. FACTS ,IN BRIEF, AS PER RELEVANT ORDERS ARE TH AT ORIGINAL ASSESSMENT IN THIS CASE WAS COMPLETED ON A LOSS OF ` ` 848,61,712/- VIDE ORDER DATED 21.3.2002 U/S 143(3) OF THE INCOME-TAX ACT, 1961 (H EREINAFTER REFERRED TO AS THE ACT) IN PURSUANCE TO RETURN DECLARING LOSS OF ` 14,59,91,000/- FILED ON 29.12.1999..INTER ALIA, AN AMOUNT OF ` 2,34,34,782/- ON ACCOUNT OF PURCHASE OF COMPUTER SOFTWARE EXPENSES(HIPACK) WAS DISALLOWED, BEING CAPITAL EXPENDITURE. SUBSEQUENTLY, THE ASSESSMENT WAS REOPE NED U/S 147 OF THE ACT WITH THE SERVICE OF A NOTICE ISSUED U/S 148 OF THE ACT ON 20.12.2005 AND THE I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 3 REASSESSMENT WAS COMPLETED ON A LOSS OF ` ` 5,59,712/-. ON APPEAL, LOSS WAS DETERMINED AT ` `53,79,620/- VIDE ORDER DATED 5 TH MARCH, 2009 IN PURSUANCE TO ORDER OF THE LD. CIT(A). ON FURTHER APPEAL, THE IT AT VIDE THEIR ORDER DATED 26 TH SEPTEMBER, 2008 SET ASIDE THE ISSUE OF SOFTWARE EXP ENSES OF ` ` 2,34,34,782/- TO THE FILE OF THE AO WITH THE DIRECTIONS TO REDECIDE THE ISSUE IN THE LIGHT OF TESTS LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CA SE OF AMWAY INDIA ENTERPRISES ,111 ITD 112(DELHI)(SB). ACCORDINGLY, THE ASSESSEE POINTED OUT BEFORE THE AO, THE FOLLOWING TESTS LAID DOWN BY THE SPECIAL BENCH :- (A) WHERE THE ASSESSEE ACQUIRES A COMPUTER SOFTWAR E/ LICENCE TO USE SUCH SOFTWARE, THE ASSESSEE ACQUIRES A TANGIBLE ASSET AND BECOMES OWNER THEREOF. (B) WHERE THE LIFE OF COMPUTER SOFTWARE IS SHORTER (SAY LESS THAN TWO YEARS), IT MAY BE TREATED AS REVENUE EXPENDITURE. A NY SOFTWARE HAVING ITS UTILITY TO THE ASSESSEE BEYOND TWO YEARS CAN BE CONSIDERED AS ACCRUAL OF BENEFIT OF ENDURING NATURE ; (C) ONCE THE TEST OF OWNERSHIP AND ENDURING BENEFIT IS SATISFIED, THE QUESTION WHETHER EXPENDITURE ON COMPUTER SOFTWARE I S CAPITAL OR REVENUE IS TO BE SEEN ON A CASE TO CASE BASIS FROM THE POINT OF VIEW OF ITS UTILITY TO A BUSINESSMAN AND HOW IMPORT ANT AN ECONOMIC OR FUNCTIONAL ROLE IT PLAYS IN HIS BUSINESS. 2.1 IN THE LIGHT OF AFORESAID TESTS LAID DOWN BY S PECIAL BENCH, THE ASSESSEE POINTED OUT THE NATURE OF HIPACK SOFTWARE , WHICH HAD FOUR SCHEDULES AND ACCORDING TO THE ASSESSEE, PERFORMED FOLLOWING FUNCTIONS: 1. HIPACK-FACTORY (USER DIVISION- MANUFACTURING & PURCHASING) A) BILL OF MATERIAL FOR CAR PRODUCTION VIZ., MAINTE NANCE OF PARTS LIST ETC. B) PRODUCTION SCHEDULING C) PART ORDERING FOR PRODUCTION I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 4 D) ASSEMBLY LINE CONTROL 2. HIPACK- WARRANTY (USER DIVISION- AFTER SALES) A) CUSTOMER INFORMATION B) WARRANTY CLAIM PROCESSING 3. HIPACK-SALES (USER DIVISION- MARKETING ) A) FINISHED GOODS INVENTORY B) INVOICING TO DEALERS 4. HIPACK-PARTS (USER DIVISION- SPARE PARTS) A) SPARE PARTS INVENTORY B) SPARE PARTS PROCUREMENT C) SPARE PARTS INVOICING 2.2 THE ASSESSEE ALSO EXPLAINED THAT THEY HAD INCU RRED THE EXPENSES OF ` ` 2,34,34,782/- IN CONNECTION WITH THE A LICENSED COM PUTER SOFTWARE CALLED HIPACK[HONDA INTEGRATED PACKAGE] WHICH HAD BEEN DES IGNED BY HONDA MOTORS CO. LTD., JAPAN[HM] FOR USE BY VARIOUS HONDA GROUP COMPANIES WORLDWIDE. IT WAS EXPLAINED THAT THEREAFTER, SOME MODIFICATIONS W ERE MADE EVERY YEAR, WHEN EVER PRICE WAS HIKED .AFTER CONSIDERING THE SUBMISS IONS OF THE ASSESSEE, THE AO CONCLUDED AS UNDER:- .. THUS, IT IS GATHERED FROM THE REPLY OF THE AS SESSEE THAT (I) ASSESSEE ACQUIRES A COMPUTER SOFTWARE FROM ITS HOLDING COMPA NY M/S HONDA MOTOR COMPANY LIMITED, JAPAN AND BECOMES THE OWNER OF THE PACKAGE PURCHASED FROM HMCL LIKE THE SOFTWARE BEING PURCHAS ED FROM MICROSOFT FOR A CONSIDERATION. (II) SOME MODIFICATIONS WERE M ADE TO THE SOFTWARE BUT THE SOFTWARE IS NOT OBSOLETE AND (III) THE SOFTWARE IS IN WORKING IN THE ASSESSEE COMPANY AND THE COMPANY ENSURES IT UTILITY IN THE BUSINESS AS IT I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 5 IS USING SINCE 1999-2000 TO 2002-2003 AS PER REPLY OF ASSESSEE. THUS ALL THESE CONDITIONS HAS BEEN SATISFIED FOR TREATING TH E EXPENSE AS CAPITAL EXPENDITURE. BESIDE IT, ASSESSEE HAS ALSO CITED VAR IOUS CASE LAWS, THE FACTS THEREOF ARE DIFFERENT FROM THE ASSESSEE CASE. FURTHER, THE FACTS OF THE ASSESSEE COMPANY ARE IN COMMENSURATE WITH THE GUIDE LINES FRAMED BY THE ITAT DELHI BENCH IN THE CASE OF AMWAY INDIA ENT ERPRISES. ACCORDINGLY, THE EXPENSES OF ` .2,34,34,782/- IS TREATED AS CAPITAL EXPENDITURE. 3. ON APPEAL, THE LD. CIT(A) ADJUDICATED THE ISSUE IN THE FOLLOWING TERMS:- 3. DURING THE COURSE OF APPELLATE PROCEEDINGS THE AUTHORIZED REPRESENTATIVE OF THE APPELLANT ATTENDED AND FILED THE SUBMISSIONS THE GIST OF WHICH IS AS UNDER: THAT, DURING THE RELEVANT PREVIOUS YEAR, AN EXPEND ITURE OF RS.2, 34, 34, 782 WAS INCURRED IN CONNECTION WITH A LICENSED COMP UTER SOFTWARE CALLED HIPACK (HONDA INTEGRATED PACKAGE) WHICH HAD BEEN DE SIGNED BY HMCL (HONDA MOTOR JAPAN), FOR USE BY VARIOUS HONDA GROUP COMPANIES WORLD. WIDE THE AFORESAID EXPENDITURE WAS CLAIMED AS REVEN UE DEDUCTION .. THAT THEY HAD LICENSE ONLY TO USE THE AFORESAID SOF TWARE AND THE PROPRIETARY, INTELLECTUAL RIGHTS THEREIN CONTINUED TO VEST WITH HMCL THE AFORESAID EXPENDITURE DID NOT RESULT IN ACQUISITION /CREATION OF AN ASSET IN THE CAPITAL FIELD AS THE APPELLANT HAD NO OWNERSHIP RIGHTS THEREIN THE APPELLANT ALSO DID NOT OBTAIN ANY ADVANTAGE OF ENDU RING NATURE, SINCE THE SOFTWARE WAS MODIFIED BY THE APPELLANT, RIGHT SINCE THE BEGINNING, AND FURTHER, FROM TIME TO TIME TO SUIT ITS NEEDS. BESID ES, CERTAIN NEW FEATURES WERE ADDED LOCALLY IN ORDER TO MAKE THE SOFTWARE RE LEVANT/KEEP THE SOFTWARE FROM BECOMING OBSOLETE IN A FAST CHANGING TECHNOLOGY SCENARIO. THEREFORE, THERE IS NO CASE FOR THE SAID EXPENDITUR E TO BE ELIGIBLE FOR CAPITAL FIELD. THERE WAS NO AGREEMENT BETWEEN THE APPELLANT AND H MCL WHICH BINDS HMCL TO PROVIDE UPGRADES OF THE AFORESAID SOFTWARE, EITHER WITH OR WITHOUT COST. THAT EXPENDITURE ON SOFTWARE CANNOT BE CONSIDERED A S EXPENDITURE IN CAPITAL FIELD, AS THE SAME BECOMES OUTDATED IN A VE RY SHORT SPAN OF TIME IN VIEW THE RAPID CHANGES/ADVANCEMENT IN TECHNOLOG Y, ESPECIALLY I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 6 COMPUTER TECHNOLOGY. IN FACT, THE HIPACK SOFTWARE B EING USED BY THE APPELLANT TODAY CANNOT BE SAID TO BE THE SAME ONE A S WAS LICENSED TO THE APPELLANT BY HMCL DURING THE RELEVANT PREVIOUS YEAR AS IT HAS UNDERGONE MANY CHANGES/MODIFICATIONS/ENHANCEMENT ETC., AT THE APPELLANT'S END. THE APPELLANT SUBMITTED VARIOUS FUNCTIONALITIES IN DETAIL PERFORMED BY THE USE OF HIPACK SOFTWARE UNDER ITS FOUR MODULES WHICH FACILITATE APPELLANT DAILY BUSINESS OPERATIONS. HIPACK-FACTORY (USER DIVISION- MANUFACTURING & PURC HASING) - COST RS.12,511,088 A) BILL OF MATERIAL FOR CAR PRODUCTION VIZ., MAINTENAN CE OF PARTS LIST ETC. B) PRODUCTION SCHEDULING C) PART ORDERING FOR PRODUCTION D) ASSEMBLY LINE CONTROL HIPACK-WARRANTY (USER DIVISION- AFTER SALES) - COST RS. 3,888,797. A) CUSTOMER INFORMATION B) WARRANTY CLAIM PROCESSING HIPACK-SALES (USER DIVISION- MARKETING) - COST RS.3 ,952,548 A) FINISHED GOODS INVENTORY B) INVOICING TO DEALERS HIPACK-PARTS (USER DIVISION- SPARE PARTS) - COST RS . 3,082,350 A) SPARE PARTS INVENTORY B) SPARE PARTS PROCUREMENT C) SPARE PARTS INVOICING IT IS SUBMITTED THAT ALL THE MODULES / FUNCTIONS PE RFORMED BY THE HIPACK SOFTWARE ONLY HELPED IN CARRYING OUT THEIR AUXILIAR Y BUSINESS ACTIVITIES LIKE BILLING, INVENTORY MANAGEMENT, CLAIM PROCESSING ETC . AS THE HIPACK SOFTWARE WAS NOT USED WITHIN THE SHOP FLOOR PREMISE S. THEREFORE, THE SAID I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 7 SOFTWARE, DOES NOT, DIRECTLY OR INDIRECTLY, FORM TH E INTEGRAL PART OF THE MANUFACTURING PROCESS ITSELF EVEN THOUGH SUPPORTING THE 'PRE-PRODUCTION', 'PRODUCTION CONTROL' AND THE 'AFTER PRODUCTION' ACT IVITIES. IT, THUS, CANNOT BY ANY STRETCH OF IMAGINATION BE CONSIDERED TO BE P ART OF PROFIT MAKING APPARATUS OF THE APPELLANT. IT IS FURTHER SUBMITTED THAT VARIOUS MODIFICATIONS WERE DONE IN THE VARIOUS MODULES OF HIPACK SOFTWARE IN-HOUSE BY THE APPELLAN T FROM TIME TO TIME SOME OF THE MODIFICATIONS WHICH WERE CARRIED OUT AR E AS UNDER: HIPACK-FACTORY MODULE FY 1999-2000 - PART RECEIPT TAG (PRT) FORMAT CHANGE - COST MASTER TAX CHANGE FY 2000-2001 - INTERFACE WITH ACCOUNTING FUNCTION FY 2001-2002 - INVENTORY CONSUMPTION CHARGING FUNCTION FY 2002-2003 - B SHIFT EXIT CONTROL FOR 2 SHIFT OPERATION THE ABOVE MODIFICATIONS ENABLED THE APPELLANT IN BA R CODE GENERATION PART RECEIPT TAGS, UPDATION OF VARIOUS TAXES (INCL. NEW LEVIES) IN COST MASTS MAINTENANCE OF INVENTORY CONSUMPTION DATA IN HIPACK SOFTWARE, MATCHING ORDER LIST WITH PRT ENABLING VALIDATION OF SUPPLIERS PAYMENT AND CONTROLLING OF EXIT FUNCTION DURING 2 ND SHIFT OPERATION. THE APPELLANT HAS SUBMITTED THAT, BASED ON PRODUCT ION PLAN, HIPACK FACTORY MODULE MONITORS THE DAILY PRODUCTION PLAN, MATERIAL AVAILABILITY AN FIXATION OF ORDERING PLAN IN RELATION THERETO. H ENCE, THE HIPACK SOFTWARE DOES NOT FORM AN INTEGRAL PART OF THE DESI GNING, ENGINEERING OR MANUFACTURING OPERATIONS OF THE ASSESSEE. AS THE FA CTORY MODULE IS NOT USED IN THE SHOP FLOOR AS SUCH. THEREFORE, IT DOES NOT FORM INTEGRAL PART THE MANUFACTURING PROCESS OF THE APPELLANT AND CANN OT BE CONSIDERED A PART OF PROFIT MAKING APPARATUS OF THE APPELLANT. I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 8 HIPACK-WARRANTY MODULE FY 1999-2000 - FREE SERVICE COUPON FY 2000-2001 - PRICE HISTORY KEEPING FOR WARRANTY CLAIMS FY 2001-2002 - WARRANTY CLAIM FORMAT REVISED FY 2002-2003 - CRV WARRANTY CLAIM FUNCTION THE ABOVE MODIFICATIONS IN WARRANTY MODULE ENABLED THE APPELLANT IN TRACKING OF FREE SERVICE COUPON CLAIMS ISSUED TO CU STOMERS, REIMBURSEMENT OF CLAIMS TO DEALERS BASED ON ISSUE P RICE OF PARTS, MAINTAINING INFORMATION OF CLAIMS AND TRACKING CLAI MS IN RELATION TO TRADED CARS. THAT HIPACK'S WARRANTY MODULE FACILITATED IN MANAGI NG CUSTOMER DETAIL AND CLAIM REIMBURSEMENT WHICH HELPED IN CARRYING OU T ROUTINE BUSINESS FUNCTIONS AND CANNOT BE CONSIDERED A PART OF PROFIT MAKING APPARATUS OF THE APPELLANT. HIPACK-'SALES MODULE' FY 1999-2000 - INTERFACE WITH ACCOUNTING SYSTEM FY 2000-2001 - SINGLE INVOICE FOR 4 CARS - PRICE MASTER CHANGE FY 2001-2002 - INTERFACE WITH 3SMIS FY 2002-2003 - CRV SALES FUNCTION I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 9 THE ABOVE MODIFICATIONS IN SALES MODULE ENABLED THE APPELLANT IN POSTING OF CARS SALES FROM HIPACK TO ACCOUNTING SOFTWARE, I NVOICING OF UPTO 4 CARS IN A SINGLE INVOICE, TO ENSURE INVOICING AS PER PRE VALENT PRICES, DEALER ACCESSING INFORMATION ON DISPATCHES MADE AND INVOIC ING OF TRADED CARS. THAT HIPACK'S SALES MODULE FACILITATED IN MANAGING THE MANAGEMENT OF THE APPELLANT'S FINISHED GOODS APART FROM THE BILLI NG TO DEALERS WHICH HELPED IN CARRYING OUT ROUTINE BUSINESS FUNCTIONS O F THE APPELLANT AND CANNOT BE CONSIDERED A PART OF PROFIT MAKING APPARA TUS OF THE APPELLANT. HIPACK-PARTS MODULE - INTERFACE WITH ACCOUNTING SYSTEM FY 2000-2001 - IN-HOUSE PARTS SALES FUNCTION FY 2001-2002 - PRICE MASTER CHANGE THE ABOVE MODIFICATIONS IN THE PARTS MODULE ENABLED THE APPELLANT IN POSTING OF PARTS SALES FROM HIPACK TO ACCOUNTING SO FTWARE, IDENTIFICATION AND MAINTENANCE OF INVENTORY OF TRADED AND FACTORY MANUFACTURED PARTS (FMP) AND TO ENSURE INVOICING AS PER PREVALENT PRIC ES. THAT HIPACK'S PARTS MODULE FACILITATED IN SUPPLIER DELIVERY SCHEDULE, INVENTORY MANAGEMENT AND BILLING TO DEALERS WHICH H ELPED IN CARRYING OUT ROUTINE BUSINESS FUNCTIONS OF THE APPELLANT AND CAN NOT BE CONSIDERED A PART OF PROFIT MAKING APPARATUS OF THE APPELLANT. IT IS SUBMITTED THAT SOFTWARE WAS MODIFIED/ADAPTED FROM TIME TO TIME IN ORDER TO MAKE IT SUITABLE TO THE BUSINESS NEEDS OF THE APPELLANT. BESIDES, THIS SOFTWARE WOULD HAVE LARGELY BEEN UNSUITABLE FO R THE NEEDS OF THE APPELLANT BUT FOR THE MODIFICATIONS DONE BY THE APP ELLANT THUS, THE HIPACK SOFTWARE DID NOT CONTINUE TO BE USED IN ITS ORIGINAL FORM AND SHAPE AS SUCH. THEREFORE, NO ENDURING BENEFIT WHATS OEVER AROSE FROM THE USE OF THE SAID SOFTWARE. I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 10 FINDINGS 4. I HAVE GONE THROUGH THE ABOVE SUBMISSIONS OF THE APPELLANT AND HAVE ALSO PERUSED ITAT'S DECISION IN THE CASE OF AM WAY INDIA ENTERPRISES (111 ITO 112) AND AO'S ORDER. THE ISSUE IS EXAMINED IN THE LIGHT OF THE TESTS NAM ELY ENDURING BENEFITS AND FUNCTIONAL TESTS. 4.1 ON GOING THROUGH THE DETAILS OF THE 4 SOFTWARE ACQUIRED BY THE APPELLANT FROM ITS PARENT COMPANY AND THEIR SUBSEQU ENT NOTIFICATION BY THE APPELLANT IT IS SEEN THAT THE 3 SOFTWARES NA MELY, (A) WARRANTY MODULE (B) SALES MODULE AND (C) PARTS MODULE- RELAT ES TO THOSE ACTIVITIES, WHICH DOESN'T FORM INTEGRAL PART OF MAN UFACTURING PROCESS. THESE SOFTWARES ARE DIRECTLY RELATED TO TH E MAINTENANCE OF BOOKS OF ACCOUNT AND IN GENERATING REPORT FOR MIS E TC. AND PERFORM THE AUXILIARY FUNCTION. BUT THE SAME IS NOT TRUE IN RESPECT OF THE REMAINING 4 TH SOFTWARE NAMELY HIPACK-FACTORY MODULE'. 4.2 THE 'FACTORY MODULE' SOFTWARE AS PER THE DETAIL S SUBMITTED BY THE APPELLANT PERFORMS THE 'PRE-PRODUCTION AND PROD UCTION FUNCTIONS'. THIS SOFTWARE AMONG VARIOUS OTHER FUNCT IONS PERFORM THE BASIC TASKS NAMELY - MAINTENANCE OF PRODUCTION CALENDAR. - MASTER MANAGEMENT (PRODUCTION CAPACITY, DEPTT. M ODEL LINKAGE ETC.). - FIXING OF PRODUCTION PLANS. - PRODUCTION STATUS AND INQUIRY. - ISSUANCE OF DESIGN CHANGE. - ISSUANCE OF PART LIST FOR THE PURPOSE OF ORDERING ETC. 4.3 FROM THE PERUSAL OF SOME OF THE ABOVE FUNCT IONS OF 'FACTORY MODULE' IT IS VERY CLEAR THAT WITHOUT THIS MODULE T HE APPELLANT'S PRODUCTION AND CONTROLLING PRODUCTION SCHEDULE CAN NOT BE SYNCRONISED WITH THE OPERATIONS. THIS 'FACTORY MODU LE' SOFTWARE IN MY HUMBLE VIEW CANNOT BE SAID TO OPERATE IN VACCUM OR STAND ALONE, RATHER IT IS A SIN-QUO-NON OR DIRECTLY LINKE D WITH THE FIXED CAPITAL ITEMS. 4.4 IN VIEW OF THE ABOVE DISCUSSIONS, I HOLD TH AT ON THE BASIS OF FACTS AVAILABLE ON RECORDS AND ON THE BASIS OF TEST S LAID DOWN IN THE I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 11 CASE AMWAY INDIA ENTERPRISE (SUPRA) THE EXPENSES FO R ACQUIRING THE SOFTWARE AT S. NO. (I) TO (III) BELOW BE TREATE D AS REVENUE IN NATURE AND EXPENDITURE FOR ACQUIRING SOFTWARE AT S. NO. (IV) BELOW BE TREATED AS CAPITAL IN NATURE. I. WARRANTY MODULE RS.38,88,797 REVENUE EXPENDITURE II. SALES MODULE RS.39,52,548 REVENUE EXPENDI TURE III. PARTS MODULE RS.30,82,350 REVENUE EXPENDI TURE IV. FACTORY MODULE RS.1,25,11,088 CAPITAL EXPENDITU RE 4.5 THUS ADDITION OF RS.1 ,25,11,088 IS CONFIRME D AND APPELLANT GETS A RELIEF OF RS.1 ,09,23,694 (RS.2,34,34, 782 M INUS RS.1,25,11,088). 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(A), HOLDING THE EXPENDITURE IN RELATION TO WARRANTY MODULE, SALES MODULE AND PARTS MODULE, REVENUE IN NATURE WH ILE THE ASSESSEE DISPUTED HIS FINDINGS IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO FACTORY MODULE. AT THE OUTSET, TO A QUERY BY BENCH, THE LD. AR ON BEHA LF OF THE ASSSESEE DID NOT SUBMIT A COPY OF AGREEMENT WHERE UNDER THE SAID SOF TWARE WAS LICENSED TO THE ASSESSEE AND INSTEAD, AFTER SEEKING A NUMBER OF ADJ OURNMENTS SUBMITTED A CONFIRMATION DATED 6.9.2012 FROM HM. THE LD. AR ON BEHALF OF THE ASSESSEE WHILE CARRYING US THROUGH THE ASSESSMENT ORDER DAT ED 21.3.2002 & PARA 55 AND 59 OF THE DECISION IN THE CASE OF AMWAY INDIA ENTER PRISES(SUPRA) CONTENDED THAT THE ENTIRE EXPENDITURE WAS REVENUE IN NATURE, THE PROPRIETORY RIGHTS IN THE SOFTWARE BEING VESTED IN HM. WHILE REFERRING TO PA RA 12 IN THE DECISION IN THE CASE OF CIT VS. ASAHI INDIA SAFETY GLASS LTD.,203 T AXMAN 277 (DELHI). THE LD. AR ARGUED THAT SINCE THEIR SOFTWARE WAS APPLICATION S OFTWARE AS WAS THE CASE IN THE SAID DECISION WHILE NO ENDURING BENEFIT WAS RECEIVE D ,ACCORDINGLY, EXPENDITURE WAS REVENUE IN NATURE. IT WAS POINTED OUT THAT WITH EVERY PRICE INCREASE, SOFTWARE WAS SUITABLY MODIFIED BY THE ASSESSEE ITSELF. IN A CONFIRMATION DATED 6.9.2012 OBTAINED BY THE ASSESSEE FROM HM, IT IS MENTIONED THAT AFTER STUDYING THE NEED OF ASSESSEE COMPANY, HM GRANTED A LICENSE OF HIPACK TO HSCI, AS PER INVOICE NO..561-E985-01 DATED 19TH JUNE, 1998.THE AFORESAID HIPACK WAS SPECIFICALLY DEVELOPED FOR THE USAGE OF HM AND ITS SUBSIDIARIES WORLDWIDE AND THE OWNERSHIP I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 12 VESTED IN WITH HM ONLY. IT IS ALSO STATED THAT FEE WAS CHARGED FROM THE RESPECTIVE LICENSEES, WHO ENJOY ONLY A RIGHT TO USE HIPACK WHI LE THE OWNERSHIP, AND ALL OTHER INTELLECTUAL PROPERTY RIGHTS I.E. COPYRIGHTS, PATENT RIGHTS AND OTHER SUCH INTERESTS THEREIN WERE VESTED IN HM ONLY. MOREOVER, HSCI WAS PROHIBITED FROM: (I) MAKING ANY COPY OR DUPLICATION OF HIPACK FOR TH E PURPOSE OTHER THAN USING HIPACK IN THE HSCI'S BUSINESS PREMISES, (II) ASSIGNING, TRANSFERRING, OR OTHERWISE DISPOSIN G OF, HIPACK OR ANY RIGHT TO USE. 5.THE LD. DR, ON THE OTHER HAND, WHILE CARRYING US THROUGH THE IMPUGNED ORDER CONTENDED THAT EVEN IF THE SOFTWARE WAS LICENSED BY HM, THE ASSESSEE WAS THE OWNER OF THE SAID SOFTWARE AND DERIVED ENDURING BEN EFIT ON ACCOUNT OF PURCHASE OF AFORESAID LICENSED INTEGRATED SOFTWARE UTILIZED IN MANUFACTURING APPARATUS OF THE ASSESSEE ,FOR MORE THAN TWO YEARS IN TERMS OF T ESTS LAID DOWN IN THE DECISION IN THE CASE OF AMWAY INDIA ENTERPRISES(SUPRA). THUS , THE ENTIRE EXPENDITURE WAS CAPITAL IN NATURE AND THE LD. CIT(A) WAS NOT JUSTIF IED IN REDUCING THE ADDITION. THE LD. DR VEHEMENTLY ARGUED THAT THE ASSESSEE HAVING NOT FURNISHED A COPY OF THE LICENSE AGREEMENT ,A CONFIRMATION FROM HONDA MOTORS COMPANY, JAPAN NOW PLACED BEFORE THE BENCH SHOULD NOT BE ADMITTED IN EVIDENCE . WHILE DISTINGUISHING THE DECISION IN ASAHI INDIA SAFETY G LASS LTD.(SUPRA), THE LD. DR ARGUED THAT THE ENTIRE EXPENDITURE INCURRED ON SOFT WARE WAS CAPITAL IN NATURE. 6. IN HIS REJOINDER, THE LD. AR POINTED OUT THAT TH E SOFTWARE WAS NOT UTILISED IN THE PRODUCTION AND DESIGNING OF CARS. APPLYING THE FUNC TIONAL TEST LAID DOWN IN PARA 58 OF THE JUDGMENT IN AMWAY INDIA ENTERPRISES(SUPR A), THE ENTIRE EXPENDITURE WAS REVENUE IN NATURE, SOFTWARE HAVING NOT BEEN USE D IN DESIGNING OF MOTOR CARS BUT ONLY UTILIZED IN MAINTAINING AND CONTROL OF RAW MATERIAL. I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 13 7. THE LD. DR WHILE REFERRING TO PAGE 4 OF THE IM PUGNED ORDER ADDED THAT FACTORY MODULE IS PART OF PROFIT MAKING APPARATUS O F THE COMPANY, BEING UTILIZED, INTER ALIA, IN ASSEMBLING LINE. 8. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUG H THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON BY THE LD. AR ON BEHALF OF THE ASSESSEE. THE ISSUE BEFORE US IS AS TO WHETHER THE EXPENDITU RE ON INTEGRATED SOFTWARE CALLED HIPACK, CLAIMED TO HAVE BEEN LICENSED BY HM TO THE ASSESSEE ,IS REVENUE OR CAPITAL IN NATURE. IN THE FIRST ROUND, A CO-ORDINATE BENCH VIDE THEIR ORDER DATED 26 TH SEPTEMBER, 2008 SET ASIDE THE ISSUE TO THE FILE O F THE AO WITH THE DIRECTIONS TO REDECIDE THE ISSUE IN THE LIGHT O F TESTS LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA EN TERPRISES (SUPRA). IN THE FACTS OF THE SAID DECISION, THE EXPENDITURE HAD BEEN INCURRED ON OBTAINING LICENSES FOR USE OF THE CERTAIN SOFTWARE, CLAIMED TO BE IN THE N ATURE OF APPLICATION SOFTWARE. THE ASSESSEE CLAIMED EXPENDITURE TO BE OF REVENUE N ATURE AS THE SAME ONLY FACILITATED IN ITS DAY TO DAY OPERATIONS AND IT DID NOT RESULT IN ENDURING BENEFIT. THE AO REJECTED THE CLAIM, TREATING THE SOFTWARE AS PA RT OF THE PLANT AND MACHINERY AND THUS, GAVE ENDURING BENEFIT TO IT, INTER ALIA, DUE TO THE FACT THAT ALL THE APPLICATION SOFTWARE PURCHASED BY THE ASSESSEE HAD LONG-LASTING USE OF MORE THAN THREE-FOUR YEARS AND THE SAME, ACCORDING TO HI M, THUS ,RESULTED IN ENDURING BENEFIT TO IT. ON APPEAL, THE LD. CIT(A) UPHELD THE ACTION OF THE AO. ON FURTHER APPEAL, THE MATTER WAS REFERRED TO SPECIAL BENCH. T HE ITAT(SB) ON PERUSAL OF VARIOUS JUDICIAL PRONOUNCEMENTS OBSERVED THAT THER E CANNOT BE ANY SPECIFIC OR PRECISE TEST, WHICH COULD BE APPLIED CONCLUSIVELY O R UNIVERSALLY FOR DISTINGUISHING BETWEEN CAPITAL AND REVENUE EXPENDITURE. WHILE REFERRING TO DECISIONS OF THE HONBLE APEX COURT IN TATA CONSULTANCY SERVICES V. STATE OF ANDHRA PRADESH [2004] 271 ITR 40 & ASSOCIATED CEMENT CO. LTD. V. COMMISSIONER OF CUS TOMS 2001 (4) SCC 593, THE SPECIAL BENCH OBSERVED THAT A SOFTWARE, WHETHER CUSTOMISED OR NON-CUSTOMISED, SATISFIES ALL THE ATT RIBUTES OF BEING A 'GOODS' AND AS SUCH, THE SAME IS CAPABLE OF BEING BOUGHT AND SO LD AND BECOMES AN OBJECT OF TRADE AND COMMERCE. IT WAS FURTHER OBSERVED THAT TH OUGH AN ASSESSEE I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 14 PURCHASING A SOFTWARE BECOMES OWNER THEREOF; BUT T HE TEST OF OWNERSHIP IN THE COMPUTER SOFTWARE IN THE LIGHT OF THE QUESTION WHET HER THE SAME IS CAPITAL OR REVENUE , HAS TO BE SEEN FROM THE POINT OF ITS UTIL ITY TO BUSINESSMAN AND TO SEE HOW IMPORTANT AN ECONOMIC OR FUNCTIONAL ROLE IT PLA YS IN HIS BUSINESS. IN OTHER WORDS, THE FUNCTIONAL TEST BECOMES MORE IMPORTANT A ND RELEVANT BECAUSE OF THE PECULIAR NATURE OF A COMPUTER SOFTWARE AND ITS POSS IBLE USE IN DIFFERENT AREAS OF BUSINESS TOUCHING EITHER CAPITAL OR REVENUE FIELD . THE MANNER IN WHICH THE COMPUTER SOFTWARE IS USED IS AGAIN PECULIAR. GENERA L MODE IS TO ACQUIRE COMPUTER SOFTWARE ON A LICENSE. THAT BY ITSELF WILL NOT BE SUFFICIENT TO CONCLUDE THAT THE SAID EXPENDITURE IS REVENUE EXPENDITURE, I F ON APPLICATION OF THE FUNCTIONAL TEST, IT IS FOUND THAT THE EXPENDITURE O PERATES TO CONFER A BENEFIT IN THE CAPITAL FIELD. ON THE OTHER HAND, SOME COMPUTER SOF TWARE MAY HAVE A VERY LIMITED ECONOMIC LIFE SO AS TO BE TREATED AS CAPITAL EXPEND ITURE, THOUGH OWNED BY AN ASSESSEE. WHILE REFERRING TO AMENDMENT IN THE LAW, WITH EFFECT FROM 1-4-2003, GRANTING 60 PER CENT DEPRECIATION ON COMPUTER SOFTW ARE, THE SPECIAL BENCH SUMMARIZED THEIR CONCLUSIONS AS UNDER: (I) WHEN THE ASSESSEE ACQUIRES A COMPUTER SOFTWAR E OR FOR THAT MATTER THE LICENSE TO USE SUCH SOFTWARE, HE ACQUIRES A TANGIBLE ASSET AND BECOMES OWNER THEREOF AS HELD ABOVE RELYING ON THE DECISION OF HON'BLE SUPREME CO URT IN THE CASE OF TCS. (II) HAVING REGARD TO THE FACT THAT SOFTWARE BECOME S OBSOLETE WITH TECHNOLOGICAL INNOVATION AND ADVANCEMENT WITHIN A SHORT SPAN OF T IME, IT CAN BE SAID THAT WHERE THE LIFE OF THE COMPUTER SOFTWARE IS SHORTER (SAY LESS THAN 2 YEARS), IT MAY BE TREATED AS REVENUE EXPENDITURE. ANY SOFTWARE HAVING ITS UTILIT Y TO THE ASSESSEE FOR A PERIOD BEYOND TWO YEARS CAN BE CONSIDERED AS ACCRUAL OF BENEFIT O F ENDURING NATURE. HOWEVER, THAT BY ITSELF WILL NOT MAKE THE EXPENDITURE INCURRED ON SO FTWARE AS CAPITAL IN NATURE AND THE FUNCTIONAL TEST AS DISCUSSED ABOVE ALSO NEEDS TO BE SATISFIED. (III) ONCE THE TESTS OF OWNERSHIP AND ENDURING BENE FIT ARE SATISFIED, THE QUESTION WHETHER EXPENDITURE INCURRED ON COMPUTER SOFTWARE IS CAPITA L OR REVENUE HAS TO BE SEEN FROM THE POINT OF VIEW OF ITS UTILITY TO A BUSINESSMAN AND H OW IMPORTANT AN ECONOMIC OR FUNCTIONAL ROLE IT PLAYS IN HIS BUSINESS. IN OTHER WORDS, THE FUNCTIONAL TEST BECOMES MORE IMPORTANT AND RELEVANT BECAUSE OF THE PECULIAR NATU RE OF THE COMPUTER SOFTWARE AND ITS POSSIBLE USE IN DIFFERENT AREAS OF BUSINESS TOUCHIN G EITHER CAPITAL OR REVENUE FIELD OR ITS UTILITY TO A BUSINESSMAN WHICH MAY TOUCH EITHER CAP ITAL OR REVENUE FIELD. I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 15 8.1 THE SPECIAL BENCH FURTHER OBSERVED THAT THE R IGHTS WHICH AN ASSESSEE ACQUIRES BY PURCHASING THE DISK OR MAGNETIC MEDIUM CONTAINING THE COMPUTER SOFTWARE WITH LIMITED OR ABSOLUTE RIGHT TO USE THE SAME BY ITSELF WOULD SATISFY THE REQUIREMENTS OF THE PLANT. THE ASSESSEE'S OWNERSHIP OF LIMITED RIGHT OVER THE TANGIBLE ASSET IS SUFFICIENT TO CONCLUDE THAT THE A SSESSEE IS THE OWNER OF THE PLANT. IT WAS ALSO OBSERVED THAT IN THE CASE OF MAR UTI UDYOG LTD. V. DY. CIT [2005] 92 ITD 119 , RADHA KRISHNA FOODLAND LTD. ; E SCORTS LTD. V. ASSTT. CIT [2006] 8 SOT 167 AND HERO HONDA MOTORS LTD., THE CO NCLUSION THAT THE EXPENDITURE ON PURCHASE OF COMPUTER SOFTWARE WAS CA PITAL PROCEEDED ON THE FOOTING THAT THE PURCHASE WAS AN OUTRIGHT PURCHASE AND THAT SOFTWARE WAS AN INTANGIBLE ASSET. IN THE DECISION IN THE CASE OF AS AHI INDIA SAFETY GLASS LTD.(SUPRA), SONATA INFORMATION TECHNOLOGY LTD. AND IBM INDIA LTD., HOWEVER IT WAS HELD THAT EXPENDITURE ON PURCHASE OF COMPUTER S OFTWARE WAS REVENUE IN NATURE. SUCH A CONCLUSION WAS ARRIVED AT BY THE TRI BUNAL ON THE BASIS THAT THE ASSESSEES WERE MERELY LICENSEES OF THE SOFTWARE AND HAD NOT ACQUIRED ANY OWNERSHIP RIGHTS THEREIN. INTER ALIA, IT WAS POINTE D OUT THAT VARIOUS DECISIONS OF THE HON'BLE HIGH COURTS HAVE TO BE CONSIDERED AS LA YING DOWN GENERAL GUIDELINES AND IN EACH CASE THE FACTS AND OTHER SURROUNDING CI RCUMSTANCES HAVE TO BE TAKEN INTO ACCOUNT BEFORE APPLYING THE RATIO LAID D OWN THEREIN. 8.2 NOW IN THE INSTANT CASE, THE ASSESSEE IS STATED TO HAVE SET UP ITS FIRST MANUFACTURING UNIT AT GREATER NOIDA, COMMENCING OPE RATIONS IN 1997 AS A JOINT VENTURE BETWEEN HONDA MOTOR COMPANY AND USHA INTERN ATIONAL OF SIDDHARTH SHRIRAM GROUP. THE ASSESSEE CLAIMED THAT IT WAS MER ELY A LICENSEE OF THE INTEGRATED SOFTWARE HIPACK AND THE RIGHT TO USE THE SOFTWARE WAS SUBJECT TO THE CONDITIONS MENTIONED IN THE LICENSE AGREEMENT, WHIC H AGREEMENT DESPITE REPEATED ADJOURNMENTS HAS NOT BEEN PLACED BEFORE US BY THE LD. AR ON BEHALF OF THE ASSESSEE NOR ANY REASONS HAVE BEEN ADDUCED AS T O WHY THE SAID AGREEMENT COULD NOT BE FURNISHED. IN THE ABSENCE OF RELEVANT AGREEMENT , IT IS NOT KNOWN AS TO WHETHER OR NOT THERE WAS TRANSFER OR PARTING WIT H SECRET PROCESSES AND TECHNICAL KNOW-HOW TO THE ASSESSEE NOR THE RELEVAN T TERMS AND CONDITIONS IN I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 16 RESPECT OF USE OF SOFTWARE ARE KNOWN. THE ITAT VIDE THEIR ORDER DATED 26 TH SEPTEMBER,2008 SET ASIDE THE ISSUE TO THE FILE OF THE AO WITH THE DIRECTIONS TO REDECIDE THE ISSUE IN THE LIGHT OF TESTS LAID DOWN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES(SUP RA) . IN THE ABSENCE OF TERMS AND CONDITIONS OF THE LICENSE, IT IS NOT KNOWN AS TO HOW THE AO OR THE LD. CIT(A) COULD ASCERTAIN ECONOMIC AND FUNCTIONAL ROLE WHICH THE INTEGRATED SOFTWARE PLAYS IN THE BUSINESS OF THE ASSESSEE. IN TERMS OF THE TE STS LAID DOWN IN THE AFORESAID DECISION, NO DOUBT THE ASSESSEE WHEN PURCHASED A COMPUTER SOFTWARE/ LICENC E TO USE SUCH SOFTWARE, IT ACQUIRED A TANGIBLE ASSET AND BECAME OWNER THEREOF. THE ASSESSEE CLAIMED THAT THE SAID INTEGRATED SOFTW ARE HAD FOUR MODULES; THE IMPUGNED ORDER DOES NOT REVEAL NOR THE LD. AR THRE W LIGHT AS TO WHETHER OR NOT EACH OF THESE FOUR MODULES COULD FUNCTION INDEPENDE NTLY. THE LD. CIT(A) WITHOUT EXAMINING THIS ASPECT CONCLUDED THAT EXPENDITURE IN CURRED ON THREE MODULES OTHER THAN FACTORY MODULE WAS REVENUE IN NATURE WHI LE EXPENDITURE INCURRED ON FACTORY MODULE WAS CAPITAL. THE LD. AR ALSO CLAIMED THAT THE ASSESSEE HAD CARRIED OUT SOME MODIFICATIONS. WHETHER OR NOT THE MODIFICATIONS WERE SUCH THAT ORIGINAL SOFTWARE LOST ITS UTILITY AND IF SO, WHAT WAS THE ROLE OF SUPPLIER HM IN SUCH MODIFICATIONS ,IS ALSO NOT KNOWN. . IT HAS BEE N CLAIMED THAT, THE HIPACK SOFTWARE IS INTEGRATED THAT IS IT CONTAINED SEVERAL APPLICATIONS ROLLED INTO ONE. AS ALREADY STATED WHETHER OR NOT EACH OF THE FOUR MODU LES COULD FUNCTION INDEPENDENTLY, HAS NOT BEEN EXAMINED IN THE LIGHT O F TESTS LAID DOWN IN THE AFORESAID DECISION IN AMWAY INDIA ENTERPRISES.(SUPR A). THIS SOFTWARE IS NOT AVAILABLE OFF THE SHELF. IT HAS BEEN SPECIFICALLY D ESIGNED BY HM FOR INTERNAL USE OF THE SAID COMPANY & ITS SUBSIDIARIES WORLDWIDE. THE ASSESSEE CLAIMED TO HAVE COMMENCED OPERATIONS IN 1997 WHILE SOFTWARE WAS PUR CHASED IN JUNE 1998.IT IS NOT KNOWN WHETHER THE SOFTWARE WAS PART OF PROCESS OF SETTING UP OF THE BUSINESS OF MANUFACTURING CARS IN INDIA. THERE IS NO DISPUTE THAT SOFTWARE IS A CAPITAL ASSET. THERE IS NO DISPUTE THAT SOFTWARE IS AN INTA NGIBLE ASSET. HARDWARE, COMMONLY CALLED AS COMPUTER, IS A TANGIBLE ASSET WH ICH BY ITSELF CANNOT FUNCTION. THE COMPUTER CAN FUNCTION ONLY WITH THE HELP OF SOF TWARE. SOFTWARE IS AKIN TO KNOW-HOW AS HELD BY THE HON'BLE RAJASTHAN HIGH COUR T IN THE CASE OF CIT V. I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 17 ARAWALI CONSTRUCTIONS CO. (P.) LTD. [2003] 259 ITR 30 (RAJ). IN THIS JUDGMENT, IT HAS BEEN CLEARLY HELD THAT EXPENDITURE ON PURCHASE OF SOFTWARE IS A CAPITAL EXPENDITURE. IT MAY BE POINTED OUT THAT 'COMPUTER S OFTWARE', WAS INCLUDED IN THE TABLE IN APPENDIX I TO R. 5 OF THE IT RULES, 1962, FOR AND FROM THE AY 2003-04 AND THE SAID RULE PROVIDES FOR DEPRECIATION ON SOFT WARE AT THE RATE OF 60 PER CENT. 8.3 HERE IT MAY BE POINTED OUT THAT THERE IS N O SINGLE DEFINITIVE CRITERION WHICH, BY ITSELF, IS DETERMINATIVE WHETHER A PARTICULAR OU TLAY IS CAPITAL OR REVENUE. THE 'ONCE FOR ALL' PAYMENT TEST IS ALSO INCONCLUSIVE. W HAT IS RELEVANT IS THE PURPOSE OF THE OUTLAY AND ITS INTENDED OBJECT AND EFFECT, CONS IDERED IN A COMMON-SENSE WAY HAVING REGARD TO THE BUSINESS REALITIES. THE LD. AR ON BEHALF OF THE ASSESSEE HEAVILY RELIED ON THE DECISION IN ASAHI INDIA SAFET Y GLASS(SUPRA).IN THAT DECISION THE ASSESSEE IN THE SAID CASE ACQUIRED A SOFTWARE P ACKAGE PREPARED BY GLOBALLY KNOWN ORACLE CORPORATION, USA. THE SOFTWARE COVERS AREAS OF FINANCIAL ACCOUNTING, INVENTORY AND PURCHASE. THE ASSESSEE EN TERED INTO A LICENSE AGREEMENT WITH ORACLE TITLED 'MASTER SOFTWARE LICEN SE AND SERVICE AGREEMENT'. IT WAS NOTICED THAT THE SOFTWARE WHICH THE ASSESSEE WA S TO INSTALL AND IMPLEMENT WAS NEITHER ATTACHED TO ANY MACHINERY USED IN THE P RODUCTION NOR WAS A PART OF ANY PRODUCTION PROCESS. THE TRIBUNAL AFTER EXAMININ G THE VARIOUS CLAUSES OF THE AGREEMENT POINTED OUT THAT BY ACQUIRING THE LICENSE , THE ASSESSEE DID NOT ACQUIRE ANY TANGIBLE ASSET, MUCH LESS ANY ASSET WHICH PROVI DED ANY NEW SOURCE OF INCOME OR WHICH AUGMENTS THE PRESENT SOURCE OF INCO ME. THE TRIBUNAL ULTIMATELY CONCLUDED THAT THE EXPENDITURE WAS NOT IN THE NATUR E OF A CAPITAL EXPENDITURE. HONBLE HIGH COURT UPHELD THE FINDINGS OF THE TRIBU NAL. AS IS APPARENT FROM THE FACTS IN THE SAID DECISION, THE TRIBUNAL ANALYSED V ARIOUS CLAUSES OF THE AGREEMENT AND THEREAFTER ALONE RECORDED THEIR FINDI NGS. BUT IN THE INSTANT CASE, DESPITE SPECIFIC REQUEST, THE LD. AR DID NOT PLACE A COPY OF THE RELEVANT LICENSE AGREEMENT BEFORE US NOR SEEMS TO HAVE BEEN SUBMITTE D BEFORE THE LOWER AUTHORITIES FOR THEIR EXAMINATION. IN THIS FACT SIT UATION, THE AFORESAID DECISION IN ASAHI INDIA SAFETY GLASS(SUPRA) ,IN OUR OPINION, DO ES NOT FURTHER THE CASE OF THE ASSESSEE. I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 18 8.4 IN AMWAY INDIA ENTERPRISES(SUPRA) , THE SPE CIAL BENCH LAID DOWN THAT THE ADVANTAGE WHICH AN ASSESSEE DERIVES HAS TO BE SEEN IN A COMMERCIAL SENSE. THOUGH IN A CONFIRMATION DATED 6.9.2012,SUBMITTED B EFORE US, HONDA MOTOR CO. LTD.,JAPAN STATED THAT IT GRANTED LICENSE TO THE AS SESSEE AND ITS OTHER SUBSIDIARIES WORLDWIDE TO USE HIPACK SOFTWARE, IT D OES NOT SPELL OUT ANY TERMS AND CONDITIONS OF THE LICENSE. IN OUR VIEW ,A NUM BER OF FACTORS ARE RELEVANT TO DETERMINE WHETHER THE ADVANTAGE OPERATES IN THE CAPITAL FIELD OR REVENUE FIELD. THE NATURE OF BUSINESS OF THE ASSESSEE, AN UNDERST ANDING OF THE BUSINESS FUNCTIONS OR EFFECT OF A CONCERN'S SOFTWARE . SOFTWARE NORMALLY FUNCTIONS AS A TOOL ENABLING BUSINESS TO BE CARRIED ON MORE EFFICIENTLY . THE SCOPE, POWER, LONGEVITY OF SUCH A TOOL AND ITS CENTRALITY TO THE FUNCTIONS OF THE BUSINESS HAVE ALL BEARING ON ITS TREATMENT. GENERALLY, THE MORE EXPENSIVE THE COMPUTER SOFTWARE, THE MORE IT IS LIKELY TO BE A CENTRAL TOOL OF THE BUSIN ESS AND THE MORE ENDURING IS LIKELY TO BE ITS EFFECT ADDING TO THE PROFIT EARNING APPAR ATUS. SIMILARLY, THE DEGREE OF CHANGE INTENDED IN THE WAY OPERATIONS ARE CARRIED O UT AS A RESULT OF THE COMPUTER SOFTWARE. THE MORE RADICAL THE CHANGES, THE MORE LIKELY THE EXPENDITURE WILL BE CAPITAL. BUT ALL THESE FACTORS HAVE NOT EXAMINED IN THE IMPUGNED ORDER IN THE LIGHT OF DECISION IN AMWAY INDIA ENTERPRISES(SUPRA) . 8.5 IN VIEW OF THE FOREGOING, ESPECIALLY WHEN TH E RELEVANT AGREEMENT , LICENSING THE AFORESAID INTEGRATED SOFTWARE HAS NOT BEEN PLAC ED BEFORE US NOR THE LD. CIT(A) EXAMINED AS TO HOW THE ASSESSEE CARRIED ON I TS FUNCTIONS BEFORE ACQUIRING THE AFORESAID INTEGRATED HIPACK SOFTWARE AND NOR EVEN AS TO WHETHER OR NOT THE SAID SOFTWARE WAS PART OF INFRASTRUCTURE FOR COMMENCING THE BUSINESS OPERATIONS IN INDIA AND WHETHER OR NOT EACH OF THE AFORESAID FOUR MODULES COULD FUNCTION INDEPENDENTLY IN THE LIGHT OF AFORESAID EC ONOMIC AND FUNCTIONAL TEST LAID DOWN IN AMWAY INDIA ENTERPRISES(SUPRA) WHILE CONFIR MATION DATED 6.9.2012 OF HONDA MOTORS LTD.,JAPAN WAS NOT BEFORE THE LOWER AU THORITIES, WE CONSIDER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF THE LD. C IT(A) AND RESTORE THE MATTER TO HIS FILE WITH THE DIRECTIONS TO READJUDICATE THE IS SUE IN THE LIGHT OF OUR AFORESAID OBSERVATIONS AFTER OBTAINING A COPY OF LICENSE AGR EEMENT FROM THE ASSESSEE & I.T.A. NO.383/DEL./2012 & CO NO.284/DEL./2012 19 OF COURSE AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES. NEEDLESS TO SAY THAT THE LD. CIT(A) SHALL PASS A SPEAKING ORDER ,K EEPING IN MIND THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT, BRINGING OUT CLEARLY AS TO WHETHER OR NOT EXPENDITURE ON AFORESAID INTEGRATED HIPACK SOFTWARE IS REVENUE OR CAPITAL IN NATURE, IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEM ENTS, INCLUDING THOSE REFERRED TO ABOVE. WITH THESE OBSERVATIONS, GROUND NOS . 1 &2 I N THE APPEAL OF THE REVENUE AS ALSO GROUND NOS. 1 & 2 IN THE CO ARE DISPOSED OF WHILE GROUND NO.3 IN THE CO DOES NOT SURVIVE FOR OUR ADJUDICATION AT THIS STAGE . 9. NO ADDITIONAL GROUND HAVING BEEN RAISED BEFORE US IN TERMS OF RESIDUARY GROUND NO. 3 IN THE APPEAL OF THE REVENUE, ACCORDIN GLY, THIS GROUND IS DISMISSED. 10. NO OTHER PLEA OR ARGUMENT WAS MADE BEFORE US. 11. IN THE RESULT, BOTH THE APPEAL OF THE REVENUE AND THE CORRESPONDING CO ARE ALLOWED BUT FOR STATISTICAL PURPOSES. SD/- SD/- ( I.C. SUDHIR) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS COPY OF THE ORDER FORWARDED TO :- 1. ASSESSEE 2. D.C.I.T.(LTU),NBCC PLAZA, PUSHP VIHAR,NEW DELHI 3. CIT CONCERNED. 4. CIT (A)-LTU, NEW DELHI 5. DR, ITAT,C BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, DELHI ORDER PRONOUNCED IN OPEN COURT