Sietz Technologies India Pvt. Ltd, New Delhi V. DCIT, New Delhi

ITA 4833/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 8103 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 23-12-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BANITA DEVI NAOREM
• Assessee Lawyers: ARUN K BHATIA
• Keywords: Capital asset; Depreciation; Opportunity of being heard; Revenue expenditure; Capital expenditure
• Section: 43B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH G DELHI ] BEFORE SHRI I. P. BANSAL, JM SHRI K. D. RANJ AN, AM I. T. APPEAL NO. 4833 (DEL) OF 2009. ASSESSMENT YEAR : 2006-07. M/S. SIETZ TECHNOLOGIES INDIA PVT. LTD., DY. COMMISSIONER OF INCOME-TAX, 202, 1ST FLOOR, OKHLA INDL. ESTATE, PHASE : III, VS. W A R D : 9 (1), N E W D E L H I - 110 020. N E W D E L H I. P A N / G I R NO. AAA CN 0153 A. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI ARUN K. BHATIA, ADV.; DEPARTMENT BY : MS. BANITA DEVI NAOREM, SR. D. R.; O R D E R. PER K. D. RANJAN, AM : THIS APPEAL BY THE ASSESSEE FOR ASSESSMENT YEAR 20 06-07 ARISES OUT OF THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-XI, NEW DE LHI. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE REA D AS FOLLOWS :- ' 1. THAT THE LD. CIT (APPEALS) ERRED BOTH O N FACTS AND IN LAW IN TREATING EXPENDITURE ON SOFTWARE ACQUISITION AS CAPITAL IN N ATURE WHEREAS THE SAME WAS 2 I. T. APPEAL NO. 4833 (DEL) OF 2009. CLEARLY IN THE REVENUE FIELD SINCE SOFTWARE TECHNOL OGY CHANGES RAPIDLY AND IT CANNOT BE SAID THAT THERE IS AN ADVANTAGE OF ENDURI NG NATURE; 2. THAT THE LD. CIT (APPEALS) FURTHER ERRED I N LAW IN DISALLOWING THE DEDUCTION CLAIMED ON ACCOUNT OF EMPLOYEES CONTRIBUT ION TO PROVIDENT FUND AMOUNTING TO RS.2,40,595/-; 3. THAT THE LD. CIT (APPEALS) ALSO ERRED IN LA W IN DISALLOWING THE CLAIM ON ACCOUNT OF DEPRECIATION AMOUNTING TO RS.15,489/- ON THE TUBE WELL INSTALLED AT THE FACTORY SITE AT FARIDABAD. ' 3. THE FIRST ISSUE FOR CONSIDERATION RELATES TO TRE ATING THE EXPENDITURE ON SOFTWARE ACQUISITION AS CAPITAL IN NATURE. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE INCURRED EXPENDITURE OF RS.14,50,000/- ON PURCHASE OF SOFTWARE AND CLAIMED THE SAME AS REVENUE EXPENDITURE. DURING THE COURSE OF ASSESSME NT PROCEEDINGS IT WAS SUBMITTED BY THE ASSESSEE THAT NO CAPITAL ASSET CAME INTO EXISTENCE. HOWEVER, THIS CONTENTION OF THE ASSESSEE WAS REJECTED AND THE AMOUNT OF RS.14,50,000/- WAS T REATED AS CAPITAL EXPENDITURE. 4. ON APPEAL THE LD. CIT (APPEALS) NOTED THAT THERE WAS NO EVIDENCE OF INCURRING SIMILAR EXPENDITURE IN EARLIER YEARS. THE ASSESSEE WILL BE DERIVING ENDURING BENEFIT FROM THE PURCHASE OF SOFTWARE AND, THEREFORE, THE EXPENDITUR E INCURRED ON ACQUISITION OF SOFTWARE WAS CAPITAL IN NATURE. 5.1 WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS COVERED BY THE DECISION OF ITAT, SPECIAL BENCH 'C' NEW DELHI, IN THE CASE OF AMWAY INDIA ENTERPRISES V/S DCIT, IN IT A NO. 72/DEL/2006 FOR ASSESSMENT YEAR 2002-03 ETC. HAD ON OCCASION TO EXAMINE THE ISSUE W HETHER THE EXPENDITURE INCURRED BY ASSESSEE ON ACCOUNT OF COMPUTER SOFTWARE WAS OF REV ENUE NATURE OR CAPITAL NATURE. THE SPECIAL BENCH AFTER CONSIDERING VARIOUS ASPECTS OF THE MATTER HELD AS UNDER :- 3 I. T. APPEAL NO. 4833 (DEL) OF 2009. 59. OUR CONCLUSIONS ON THE ISSUE UNDER CONSIDERATI ON THUS CAN BE SUMMARIZED AS UNDER: (I) WHEN THE ASSESSEE ACQUIRES A COMPUTER SOFTWARE 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 (SUPRA). (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 UTILI TY TO THE ASSESSEE FOR A PERIOD BEYOND TWO YEARS CAN BE CONSIDERED AS ACCRUAL OF BE NEFIT OF ENDURING NATURE. HOWEVER, THAT BY ITSELF WILL NOT MAKE THE EXPENDITU RE INCURRED ON SOFTWARE AS CAPITAL IN NATURE AND THE FUNCTIONAL TEST AS DISCUSSED ABOV E ALSO NEEDS TO BE SATISFIED. (III) ONCE THE TESTS OF OWNERSHIP AND ENDURING BEN EFIT ARE SATISFIED, THE QUESTION WHETHER EXPENDITURE INCURRED ON COMPUTER SOFTWARE I S CAPITAL OR REVENUE HAS TO BE SEEN FROM THE POINT OF VIEW OF ITS UTILITY TO A BUS INESS AND HOW IMPORTANT AN ECONOMIC OR FUNCTIONAL ROLE IT PLAYS IN HIS BUSINESS. IN OT HER WORDS, THE FUNCTIONAL TEST BECOMES MORE IMPORTANT AND RELEVANT BECAUSE OF THE PECULIAR NATURE OF THE COMPUTER SOFTWARE AND ITS POSSIBLE USE IN DIFFERENT AREAS OF BUSINESS TOUCHING EITHER CAPITAL OR REVENUE FIELD OR ITS UTILITY TO A BUSINESS WHICH MAY TOUCH EITHER CAPITAL OR REVENUE FIELD. 60. HAVING LAID DOWN THE CRITERIA FOR DETERMINING T HE NATURE OF EXPENDITURE INCURRED ON ACQUISITION OF SOFTWARE, WHETHER CAPITA L OR REVENUE, WE ARE OF THE VIEW THAT THESE CRITERIA NEED TO BE APPLIED TO DETERMINE THE EXACT NATURE OF EXPENDITURE INCURRED BY THE ASSESSEE IN THE PRESENT CASES FOR A CQUIRING DIFFERENT SOFTWARES. SINCE THIS EXERCISE IS REQUIRED TO BE DONE IN RESPECT OF EACH AND EVERY SOFTWARE INDEPENDENTLY HAVING REGARD TO THE CRITERIA LAID D OWN ABOVE, WE ARE OF THE VIEW THAT THE MATTER NEEDS TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR DOING SUCH EXERCISE. THE ASSESSING OFFICER SHALL EXAMINE THE QUESTION WHETHER EXPENDITURE ON COMPUTER SOFTWARE IS CAPITAL OR REVENUE IN THE LIGH T OF THE CRITERIA LAID DOWN ABOVE AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE A SSESSEE. IF ON SUCH EXAMINATION, THE ASSESSING OFFICER COMES TO THE CONCLUSION THAT THE EXPENDITURE IS CAPITAL 4 I. T. APPEAL NO. 4833 (DEL) OF 2009. EXPENDITURE, THEN THE QUESTION REGARDING ALLOWING D EPRECIATION WILL BE DECIDED IN ACCORDANCE WITH THE PRINCIPLES LAID DOWN IN THE SUB SEQUENT PARAGRAPHS. 5.2 SINCE THE ASSESSEE HAS INCURRED EXPENDITURE ON PURCHASE OF SOFTWARE AND NEITHER THE AO NOR LD. CIT(A) HAD EXAMINED THE ISSUE IN THE LIG HT OF DECISION OF SPECIAL BENCH WE SET ASIDE THE MATTER TO THE FILE OF AO WITH THE DIRECTI ONS TO EXAMINE THE QUESTION WHETHER EXPENDITURE ON COMPUTER SOFTWARE IS CAPITAL OR REV ENUE IN VIEW OF THE CRITERIA LAID DOWN BY ITAT, DELHI SPECIAL BENCH C NEW DELHI IN THE CASE OF AMWAY INDIA ENTERPRISES V/S DCIT AFTER GIVING AN OPPORTUNITY OF BEING HEARD TO THE A SSESSEE. 6. THE NEXT ISSUE FOR CONSIDERATION RELATES TO DISA LLOWING THE DEDUCTION ON ACCOUNT OF EMPLOYEES CONTRIBUTION TO PROVIDENT FUND AMOUNTING TO RS.2,40,595/-. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT AS PER THE TAX AUDIT REPOR T THE AMOUNT OF RS.2,40,595/- FOR THE MONTH OF SEPTEMBER, 2005 WAS PAID ON 31ST OCTOBER, 2005. SI NCE THE PAYMENT WAS MADE BEYOND THE DUE DATE THE ASSESSING OFFICER TREATED THE EMPLOYEE S CONTRIBUTION AS INCOME UNDER SECTION 2(24)(X) READ WITH SECTION 36(1)(VA) OF THE ACT. O N APPEAL THE LD. CIT (APPEALS) UPHELD THE DISALLOWANCE. 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THIS ISSUE IS NOW COVERED BY THE DECIS ION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. P.M. ELECTRONICS LTD. 220 CTR 635 ( DEL). IN THIS CASE HONBLE DELHI HIGH COURT HAS FOLLOWED THE DECISION OF HONBLE MADRAS H IGH COURT IN THE CASE OF CIT VS. NEXUS COMPUTERS PVT. LTD. DATED 18/08/2008 PASSED IN TAX CASE (A) NO. 1192 / 2008 WHEREIN THE HONBLE COURT HAD DISCUSSED THE IMPACT OF DISMISSAL OF SPECIAL LEAVE PETITION BY HON'BLE SUPREME COURT IN THE CASE OF CIT VS. GEORGE WILLIAM SON (ASSAM) LTD. 284 ITR 613 (GAU.) AND CIT VS. VINAY CEMENT 213 ITR 268. THE DIVISION BENCH OF HONBLE MADRAS HIGH COURT HAD EXPLAINED THE EFFECT OF DISMISSAL OF SPECIAL LE AVE PETITION BY A SPEAKING ORDER BY RELYING UPON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF KUNHAYAMMED AND OTHERS VS. STATE OF KERALA AND ANOTHER 119 STC 505 (KER). HON BLE DELHI HIGH COURT ALSO CONSIDERED THE DECISION OF DIVISION BENCH IN THE CASE OF CIT V S. DHARMENDRA SHARMA 297 ITR 320. IT HAS BEEN HELD THAT THE ASSESSEE WILL BE ENTITLED FO R DEDUCTION ON ACCOUNT OF DELAYED PAYMENT OF EMPLOYEES/ EMPLOYERS CONTRIBUTION TOWARDS PROV IDENT FUND WHERE PAYMENTS WERE MADE 5 I. T. APPEAL NO. 4833 (DEL) OF 2009. AFTER DUE DATE PRESCRIBED UNDER RESPECTIVE STATUTE BUT BEFORE THE DUE DATE OF FURNISHING THE RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT. SINCE THE PAYMENT HAS BEEN MADE BEFORE THE DUE DATE OF FILING OF THE RETURN UNDER SECTION 139(1) OF THE ACT, RESPECTFULLY FOLLOWING THE PRECEDENT, IT IS HELD THAT THE ASSESSEE WILL BEEN E NTITLED FOR DEDUCTION U/S 43B OF THE ACT IN RESPECT OF EMPLOYEE'S CONTRIBUTION. ACCORDINGLY IN OUR CONSIDERED OPINION, THE LD. CIT (A) WAS JUSTIFIED IN DELETING THE ADDITION OF RS.2,40 ,595/- ON ACCOUNT OF EMPLOYEE'S CONTRIBUTION FOR THE MONTH OF SEPTEMBER, 2005 PAID ON 31ST OCTO BER, 2005. TO PROVIDENT FUND. 8. THE LAST ISSUE FOR CONSIDERATION RELATES TO DISA LLOWING THE CLAIM ON ACCOUNT OF DEPRECIATION OF RS.15,489/- ON TUBE-WELL INSTALLED AT THE FACTORY SITE AT FARIDABAD. THE ASSESSING OFFICER DISALLOWED THE DEPRECIATION ON TH E GROUND THAT TUBE-WELL WAS USED FOR AGRICULTURAL PURPOSES AND HENCE DEPRECIATION WAS NO T ALLOWABLE. THE LD. CIT (APPEALS) UPHELD THE STAND TAKEN BY THE ASSESSING OFFICER. 9. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED T HAT THE ASSESSEE HAD SEPARATE TUBE-WELL FOR AGRICULTURAL FARM ON WHICH NO DEPRECI ATION WAS CLAIMED. HOWEVER, THE ASSESSEE HAS TUBE-WELL WITHIN THE FACTORY AREA FOR THE PURPO SE OF FACTORY USE AND, THEREFORE, THE TUBE-WELL WAS USED AS A PLANT. THE ASSESSEE HAS, T HEREFORE, RIGHTLY CLAIMED DEDUCTION IN RESPECT OF DEPRECIATION. ON THE OTHER HAND, THE LD . SR. DR SUPPORTED THE ORDER OF THE LD. CIT (APPEALS). 10. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. WE HAVE ALSO GONE THROUGH ANNEXURE IV GIVING THE DE TAILS OF ASSETS ON WHICH DEPRECIATION HAS BEEN CLAIMED. THE ASSESSEE HAS NOT CLAIMED DEP RECIATION ON FARM TUBE-WELL. THE ASSESSEE OWNS ANOTHER TUBE-WELL IN THE FACTORY BUIL DING FOR THE PURPOSE OF FACTORY USE. THE WATER SUPPLIED BY THE TUBE-WELL IS USED IN THE FACT ORY. THEREFORE, THE USE OF TUBE-WELL IN THE FACTORY IS NOT FOR THE PURPOSE OF AGRICULTURAL LAND THE INCOME THEREOF IS EXEMPT FROM TAX. SINCE THE TUBE-WELL FORMS PART OF PLANT AND MACHINE RY INSTALLED IN THE FACTORY BUILDING AND WATER IS USED FOR THE PURPOSE OF FACTORY, IN OUR CO NSIDERED OPINION, THE ASSESSEE IS ENTITLED FOR DEPRECIATION ON TUBE-WELL. ACCORDINGLY, WE SET ASI DE THE ORDER OF THE LD. CIT (APPEALS) AND DIRECT THE AO TO ALLOW DEPRECIATION ON TUBE-WELL IN STALLED IN THE FACTORY PREMISES. 6 I. T. APPEAL NO. 4833 (DEL) OF 2009. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED, FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON : 26TH FEBRUARY, 2010. SD/- S D/- [ I. P. BANSAL ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26TH FEBRUARY, 2010. *MEHTA * COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT. 7 I. T. APPEAL NO. 4833 (DEL) OF 2009. 8 I. T. APPEAL NO. 4833 (DEL) OF 2009.