Modi Mundipharma Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 4086/DEL/2015

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 4852 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 22-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAMES SINGSON SENIOR
• Keywords: Depreciation; Revenue expenditure; Capital expenditure
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.4086/DEL./2015 (ASSESSMENT YEAR : 2010-11) M/S. MODI MUNDIPHARMA PVT. LTD., VS. ADDL.CIT, 98, NEHRU PLACE, RANGE 5, NEW DELHI 110 019. NEW DELHI. (PAN : AAACM2303F) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANAT KAPOOR, ADVOCATE REVENUE BY : SHRI JAMES SINGSON, SENIOR DR DATE OF HEARING : 24.10.2018 DATE OF ORDER : 25.10.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. MODI MUNDIPHARMA PVT. LTD. (HEREINAFTER REFERRED TO AS THE ASSESSEE) BY FIL ING THE PRESENT APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATE D 29.04.2015 PASSED BY LD. CIT (APPEALS)-6, NEW DELHI QUA THE AS SESSMENT YEAR 2010-11 ON THE GROUNDS INTER ALIA THAT :- ON THE FACTS OF AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) - VI, NEW DELHI ['CIT(A)'] HAS: ITA NO.4086/DEL./2015 2 1. ERRED IN PASSING AN ORDER WHICH IS BAD IN LAW BY CONFIRMING THE DISALLOWANCE MADE BY THE LD. AO AMOUNTING TO RS. 1,35,954 ON ACCOUNT OF REPAIRS AND MAINTENANCE EXPENSES CONSIDERING THEM AS CAPITAL EXPENDITURE PROVIDING ENDURING BENEFITS. 1.1 ERRED IN NOT APPRECIATING THAT THE SAID EXPENDITURE WAS INCURRED ON PURCHASE OF MS OFFICE 2007 SOFTWARE WHICH IS USED ON COMPUTER SYSTEMS INSTALLED IN THE OFFICE OF THE APPELLANT AND NEED T O BE UPGRADED ON A REGULAR BASIS WITH THE CHANGE IN THE TECHNOLOGY AND HENCE, DO NOT PROVIDE ANY ENDURING BENEFITS TO THE APPELLANT. 1.2 WITHOUT PREJUDICE TO THE ABOVE, THE LD. CIT(A) EVEN AFTER HOLDING THAT MS OFFICE 2007 SOFTWARE IS COVERED BY THE HEAD 'COMPUTERS INCLUDING COMPUTER SOFTWARE' AS PER APPENDIX - I TO INCOME TAX RULES, 1962 HAS ERRED IN NOT ALLOWING DEPRECIATION ON MS OFFICE 2007 SOFTWARE AT HIGHER RATES (60%) AS APPLICABLE TO THE SAID HEAD AS PER THE APPENDIX - I TO INCOME TAX RULES, 1962. 2. ERRED IN PASSING AN ORDER AND CONFIRMING A DISALLOWANCE MADE IN THE ASSESSMENT ORDER BOTH OF WHICH ARE PERVERSE. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICA TION OF THE CONTROVERSY AT HAND ARE : ASSESSING OFFICER HAD MAD E DISALLOWANCE OF RS.1,35,954/- OUT OF TOTAL EXPENDITURE OF RS.1,8 1,272/- INCURRED BY THE ASSESSEE ON MS OFFICE 2007 SOFTWARE BY TREAT ING THE SAME AS TANGIBLE ASSET UNDER SL.III MACHINERY AND PLANT, COMPUTERS INCLUDING COMPUTER SOFTWARE BY APPLYING THE NEW AP PENDIX-1 EFFECTIVE FROM AY 2006-07 ONWARDS. ITA NO.4086/DEL./2015 3 3. ASSESSEE CARRIED THE MATTER BY WAY OF APPEAL BEF ORE THE LD. CIT (A) WHO HAS CONFIRMED THE ADDITION BY DISMISSIN G THE APPEAL. FEELING AGGRIEVED, THE ASSESSEE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. THE LD. AR FOR THE ASSESSEE CHALLENGING THE IMPU GNED ORDER CONTENDED THAT THE ASSESSEE HAS ACQUIRED ONLY LICEN CE TO USE THE SOFTWARE AND THE SAME IS ELIGIBLE FOR DEDUCTION U/S 37 (1) OF THE ACT AND RELIED UPON THE CASES OF ORIENTAL BANK OF COMMERCE VS. ADDL.CIT (2018) 93 TAXMANN.COM 432 (DELHI) AND CTI VS. ASAHI INDIA SAFETY GLASS LTD. (2011) 15 TAXMANN.C OM 382 (DELHI) . HOWEVER, ON THE OTHER HAND, LD. DR FOR THE REVEN UE RELIED UPON THE FINDINGS RETURNED BY LD. CIT (A) IN PARA 4.2.2 AT PAGE 12 OF THE IMPUGNED ORDER. 6. IT IS NOT THE CASE OF THE REVENUE THAT THE ASSES SEE IS CARRYING ON THE BUSINESS OF SOFTWARE. IT IS ALSO NOT IN DIS PUTE THAT THE ASSESSEE IS USING THE SOFTWARE FOR CARRYING OUT ITS DAY-TO-DAY BUSINESS ACTIVITIES. THE ASSESSEE HAS ALSO PLACED ON FILE JOURNAL ITA NO.4086/DEL./2015 4 VOUCHER QUA 10 NOS.MS OFFICE 2007 STD SINGL OLPNL & 1 NO.MS OFFICE 2007 STD MEDIA KIT FOR RS.1,81,272/-. 7. HONBLE HIGH COURT OF DELHI IN ORIENTAL BANK OF COMMERCE (SUPRA) DEALT WITH THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE BY RETURNING FOLLOWING FINDINGS :- 5. THIS COURT IS COGNIZANT AT THE VERY OUTSET OF T HE FACT THAT THE NATURE OF THE ARTICLES ACQUIRED ARE L ICENSES. THEY DO NOT CONFER ANY ENDURING RIGHT MUCH LESS A PERMANENT RIGHT AS IN THE NATURE OF ACQUISITION OF PROPERTY. THESE COPYRIGHT LICENSES ARE USED FOR THE DURATION, SPELT OUT BY THE LICENSOR/INTELLECTUAL PR OPERTY OWNER. FURTHERMORE AND IMPORTANTLY, THE BANKS OBJECTIVE IS NOT TO CARRY ON SOFTWARE BUSINESS, RAT HER IT USES THE COMPUTER SOFTWARE AS A TOOL TO MAXIMISE IT S PERFORMANCE AND STREAMLINE ITS EFFICIENCY. IN ASAHI INDIA SAFETY GLASS LTD. (SUPRA) THE DIVISION BENCH OF THIS COURT AFTER CONSIDERING THE PREVIOUS JUDGMENTS INCLUDING ALEMBIC CHEMICALS WORKS (SUPRA) ENUNCIATE D THE CORRECT TEST AND PRINCIPLES AS FOLLOWS: IT IS IMPORTANT TO BEAR IN MIND THAT WHAT IS REQUIRED TO BE SEEN IS NOT WHETHER THE ADVANTAGE OBTAINED LASTS FOREVER BUT WHETHER 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-MAKING 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 EFFECTIVELY, EFFICIENTLY AND PROFITABLY; LEAVING THE FIXED ASSETS UNTOUCHED WOULD BE AN EXPENDITURE IN THE NATURE OF REVENUE EXPENDITURE EVEN THOUGH THE ADVANTAGE WOULD THUS COLLAPSE IN SUCH LIKE CASES. IT WOULD, IN OUR ITA NO.4086/DEL./2015 5 VIEW, BE ONLY TRUER IN CASES WHICH DEAL WITH TECHNOLOGY AND SOFTWARE APPLICATION & CONNECTED APPEALS WHICH DO NOT IN ANY MANNER SUPPLANT THE SOURCE OF INCOME OR ADDED TO THE FIXED CAPITAL OF THE ASSESSEE. 8. WHEN IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS ONLY PURCHASED LICENCE FOR OPERATING 10 NUMBERS OF MS OFFICE 2007 SOFTWARE FOR CARRYING OUT ITS BUSINESS ACTIVITIES AS IS EVIDENT FROM A NOTE GIVEN ON JOURNAL VOUCHER DATED 22.04.2009, PLACED ON FILE BY THE ASSESSEE, AND ASSESSEE IS NOT IN A POSITION TO FURT HER TRANSFER ITS RIGHT TO USE THE SOFTWARE, THE SAME CANNOT BE A TAN GIBLE ASSET ATTRACTING ANY ENDURING RIGHTS. MOREOVER, THE ASSE SSEE IS NOT INTO THE SOFTWARE BUSINESS AND AS SUCH, SOFTWARE EXPENSE S ARE LIABLE TO BE ALLOWED U/S 37(1) OF THE ACT. SO, FOLLOWING THE DECISION RENDERED BY HONBLE HIGH COURT OF DELHI IN ORIENTAL BANK OF COMMERCE (SUPRA), THE ADDITION OF RS.1,35,954/- MAD E BY AO AND CONFIRMED BY LD. CIT (A) ON ACCOUNT OF PURCHASE OF COMPUTER SOFTWARE IS ORDERED TO BE DELETED. CONSEQUENTLY, A PPEAL FILED BY THE ASSESSEE IS HEREBY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 25 TH DAY OF OCTOBER, 2018. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 25 TH DAY OF OCTOBER , 2018/TS ITA NO.4086/DEL./2015 6 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-6, NEW DELHI 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.