M/s Sony India Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 4994/DEL/2010

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7694 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 6 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I2
• Next Hearing Date: 19-04-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 12-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A M GOVIL
• Keywords: Capital asset; Depreciation; Wholly owned subsidiary; Revenue expenditure; Capital expenditure
• Section: 143(3); 32; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-2 NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACC OUNTANT MEMBER ITA NO: 4994/DEL/2010 AY : - 2006-07 SONY INDIA PVT. LTD. VS. ADDL. CIT A-31, RANGE-9, MOHAN COOPERATIVE INDUSTRIAL ESTATE NEW DELHI. NEW DELHI - 110 044 PAN AABCS1571Q (APPELLANT) (RESPONDE NT) APPELLANT BY : SHRI NAGESWAR RAO, ADVOCATE RESPONDENT BY : SHRI A.M. GOVIL, CIT( DR) DATE OF HEARING : 19.04.2016 DATE OF PRONOUNCEMENT : 19.05.2016 O R D E R PER SMT. DIVA SINGH, JUDICIAL MEMBER THE PRESENT APPEAL FILED BY THE ASSESSEE IS ARISI NG OUT OF THE FINAL ASSESSMENT ORDER DATED 30.09.2010 U/S 143(3) R.W.S 144C IN PUR SUANT TO THE DIRECTION OF THE DISPUTE RESOLUTION PANEL (HEREINAFTER REFERRED TO A S DRP) DATED 27.09.2010. 2. THE SOLE ISSUE WHICH WE ARE CALLED UPON TO DECID E IS GROUND NO.26 WHICH READS AS UNDER:- 26. THAT ON FACTS AND IN LAW, THE AO/DRP ERRED IN RESTRICTING THE DEPRECIATION ON LICENSE FEES PAID FOR THE USE OF COMPUTER SOFTWARE TO 25% OF WRITTEN DOWN VALUE AS APPLICABLE TO INTANGIBLE ASSETS AND HOLDING THAT SU CH ITEMS DO NOT QUALIFY AS COMPUTER SOFTWARE, THEREBY REDUCING THE DEPRECIATION ALLOWAN CE BY RS.50,78,450/-. 3. FOR THE SAKE OF COMPLETENESS, IT MAY BE APPROPRI ATE TO BRING OUT THAT THE ORDER DATED 8.4.2011 OF THE CO-ORDINATE BENCH IN ITA NO.4 994/DEL/2010 WAS PARTIALLY RECALLED BY ORDER DATED 17 TH APRIL, 2014 IN MA 103/DEL/2011. AS WOULD BE EVIDE NT ITA NO. 4994/DEL/2010 SONY INDIA PVT. LTD. VS. ACIT PAGE 2 OF 9 FROM THE PARA 7 OF THE FOLLOWING EXTRACT OF THE ORD ER PASSED BY THE CO-ORDINATE BENCH THAT THE PARTIAL RECALL OF THE ORDER WAS NOT OBJECT ED TO BY THE REVENUE. FOR READY- REFERENCE, THE RELEVANT EXTRACT IS REPRODUCED HEREU NDER FOR READY-REFERENCE:- 6. LEARNED COUNSEL OF THE ASSESSEE POINTED OUT TH AT IN PARA 21 AND 21.1 OF THE ORDER OF THE TRIBUNAL IN QUESTION, IT HAS BEEN MENT IONED THAT NO PARTICULAR ARGUMENT WAS MADE BY THE ID. COUNSEL OF THE ASSESSE E, HENCE, GROUND NO. 26 OF THE ASSESSEE WAS DISMISSED. THE COUNSEL FURTHER CON TENDED THAT THE ASSESSEE SUBMITTED DETAILED ORAL AND WRITTEN ARGUMENTS ON TH E ISSUE OF GROUND NO. 26 RAISED BY THE ASSESSEE AGAINST THE ORDERS OF THE AU THORITIES BELOW WHICH RESTRICTED THE DEPRECIATION ON LICENSE FEES PAID FO R USE OF COMPUTER SOFTWARE TO 25% OF THE WRITTEN DOWN VALUE BUT THE GROUND WAS D ISMISSED BY OBSERVING THAT NO PARTICULAR ARGUMENT HAS BEEN MADE BY THE ID. COU NSEL OF THE ASSESSEE WHICH IS FACTUALLY INCORRECT AND A MISTAKE APPARENT ON RE CORD. LD. COUNSEL OF THE ASSESSEE PLACED A COPY OF WRITTEN ARGUMENTS SUBMIT TED DURING THE HEARING OF THE ORIGINAL APPEALS BEFORE IT AT 'G' BENCH. 7. REPLYING TO THE ABOVE, ID. DR SUBMITTED THAT IF ARGUMENTS AND SUBMISSIONS OF THE ASSESSEE HAVE NOT BEEN CONSIDERED THEN HE IS UN ABLE TO RESPOND TO THIS ALLEGATION AND IF IT IS FOUND JUST AND PROPER, THEN HE HAS NO SERIOUS OBJECTION IF ORDER IN QUESTION OF THE TRIBUNAL IS RECALLED ONLY FOR ADJUDICATION OF THIS LIMITED ISSUE. 8. IN VIEW OF ABOVE ARGUMENTS OF BOTH THE SIDES, WE ARE OF THE CONSIDERED OPINION THAT DESPITE THE FACT THAT WRITTEN AND ORAL ARGUMENTS WERE ADVANCED BY THE ASSESSEE, THE AUTHOR OF THE ORDER OF THE TRIBUN AL DATED 08.04.2011 (SUPRA) IN PARA 21.1 AT PAGE 55 OF THE ORDER OBSERVED THAT NO PARTICULAR ARGUMENT HAS BEEN MADE BY THE ID. COUNSEL OF THE ASSESSEE AND GR OUND NO. 26 OF THE ASSESSEE HAS BEEN DISMISSED DENYING RELIEF FOR THE ASSESSEE. THIS IS AN APPARENT MISTAKE CROPPED IN PARAS 21 AND 21.1 OF THE ORDER O F THE TRIBUNAL. IN THE LIGHT OF THIS VERY FACT, THE ID. COUNSEL OF THE ASSESSEE SUB MITTED WRITTEN AND ORAL ARGUMENTS DURING THE HEARING OF THE ORIGINAL APPEAL , WHICH DESERVES TO BE RECTIFIED BY RECALLING THE ORDER FOR THIS LIMITED P URPOSE. THEREFORE, SECOND ISSUE OF THE ASSESSEE IS ACCEPTED AND WE ORDER THAT THE O BSERVATIONS AND FINDINGS OF THE TRIBUNAL IN PARA 21 AND 21.1 OF THE ORDER IN RE GARD TO GROUND NO. 26 IN ITA NO. 499I/DEL/2010 OF THE ASSESSEE FOR AY 2006-07 AR E SET ASIDE AND ORDER IN ISSUE IS RECALLED FOR THIS LIMITED PURPOSE AND FOR FRESH ADJUDICATION BY REGULAR BENCH. BEFORE WE PART, WE AGAIN MAKE IT CLEAR THAT WE ARE RECALLING THE ORDER OF THE TRIBUNAL FOR THE ISSUE INVOLVED IN GROUND NO. 2 6 OF THE ASSESSEE FOR THE LIMITED PURPOSE AND UPTO AFOREMENTIONED EXTENT. 4. IN THE SAID BACKGROUND INVITING ATTENTION TO GROU ND NO. 26 RAISED BY THE ASSESSEE IN THE PRESENT APPEAL THE LD. AR SUBMITTED THAT THE ISSUES RAISED MAY BE DECIDED IN THE LIGHT OF THE ORDER OF THE SPECIAL BE NCH IN THE CASE OF THE AMWAY INDIA ITA NO. 4994/DEL/2010 SONY INDIA PVT. LTD. VS. ACIT PAGE 3 OF 9 ENTERPRISES VS. DCIT (2008) (SB) 301 ITR 1 (DEL). SPECIFIC ATTENTION WAS INVITED TO PARA 61 AND 62 OF THE SAID ORDER. 5. THE LD. CIT(DR) ON THE OTHER HAND SUBMITTED THAT THE AO AT PAGE 27 OF THE ASSESSMENT ORDER VIDE PARA 9 IN HIS ORDER PASSED U/ S 143 R.W.S 144 (C) RELYING ON SUDARSHAN CHEMICAL INDUSTRIES LIMITED , 110 ITD 171 HAS DECIDED THE ISSUE AGAINST THE ASSESSEE. ACCORDINGLY IT WAS HIS STAND THAT TH E ISSUE STANDS CONSIDERED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE RECORD SHOWS THAT THE ASSESSEE I.E. SO NY INDIA PVT.LTD. WAS ESTABLISHED IN NOVEMBER 1994 AS A WHOLLY OWNED SUBSIDIARY OF SO NY CORPORATION, JAPAN. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE WAS ENGA GED IN ASSEMBLY AND DISTRIBUTION OF CONSUMER ELECTRONICS PRODUCTS IN INDIA SUCH AS CO LOUR TELEVISIONS, AUDIO PRODUCTS, DVDS, HANDY CAMS, RECORDABLE MEDIA TAPES (RME TAPES ), PLAY STATIONS, PROJECTORS, ETC.. IT HAD AN EXTENSIVE NETWORK OF DEALERS, DISTR IBUTORS, SERVICES CENTRES AND OUTLETS FOR SALE OF ASSEMBLED AND IMPORTED PRODUCTS AND WAS RENDERING ADVISORY SERVICES AND SOFTWARE DEVELOPMENT SERVICES TO ITS ASSOCIATED ENT ERPRISE. THE SHORT ISSUE FOR CONSIDERATION IN THE PRESENT PROCEEDINGS ARISES FRO M THE REJECTION OF ASSESSEES CLAIM OF DEPRECIATION OF RS.87,05,914/- @ 60% ON LICENSE FEES WAS REJECTED LIMITING THE CLAIM TO 25% ON THE FOLLOWING REASONING:- 9. EXCESS CLAIM OF DEPRECIATION ON LICENSE FEES IT WAS SEEN FROM THE APPENDIX II TO TAX AUDIT REPO RT IN FORM 3CD THAT THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS.87,05,914/- @ 60% ON LICENSE FEES. LICENSE IS AN INTANGIBLE ASSETS AS PER PART B O F NEW APPENDIX I OF INCOME TAX RULES (TABLE OF RATES AT WHICH DEPRECIATION IS ADMI SSIBLE). DEPRECIATION STIPULATED BY THIS TABLE IS 25% AS THE ASSESSEE HAD CLAIMED EXCES S DEPRECIATION @ 35% (60-25%) THE SAME IS DISALLOWED. THE EXCESS WORKS OUT TO RS .50,78,450/-. RELIANCE IS ALSO PLACED ON THE CASE ASSESSEE SUDARSHAN CHEMICAL IND USTRIES LIMITED [110 ITD 171]. 6.1. IN THE CONTEXT OF THE ABOVE FINDING, THE LD.AR HAS PLACED RELIANCE ON THE DECISION OF THE SPECIAL BENCH IN AMWAY INDIA ENTERP RISES VS DCIT, CIRCLE-1(1), NEW ITA NO. 4994/DEL/2010 SONY INDIA PVT. LTD. VS. ACIT PAGE 4 OF 9 DELHI [2008] 111 ITD 112 [DEL.] (SB). PARAS 61 AND 62 THEREFORE HAVE SPECIFICALLY BEEN REFERRED TO. THESE ARE REPRODUCED HEREUNDER:- 61. WE HAVE ALREADY DISCUSSED AS TO HOW COMPUTER S OFTWARE IS A TANGIBLE PROPERTY. THOUGH A LICENSEE, THE PERSON PURCHASING THE DISK O R OTHER MEDIUM CONTAINING THE SOFTWARE IS OWNER TO THE EXTENT OF THE RIGHTS COMPR ISED IN THE LICENSE. THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TATA CONSU LTANCY SERVICES (SUPRA) SUPPORTS THE VIEW THAT SOFTWARE CONTAINED IN A DISK IS TANGI BLE PROPERTY BY ITSELF. THE USE BY THE ASSESSEE OF SUCH SOFTWARE IN HIS BUSINESS IS ENOUGH TO ALLOW THE CLAIM FOR DEPRECIATION. THE RIGHTS WHICH AN ASSESSES ACQUIRES BY PURCHASING THE DISK OR MAGNETIC MEDIUM CONTAINING THE COMPUTER SOFTWARE WI TH LIMITED OR ABSOLUTE RIGHT TO USE THE SAME BY ITSELF WOULD SATISFY THE REQUIREMEN TS OF THE PLANT. THE ASSESSEE'S OWNERSHIP OF LIMITED RIGHT OVER THE TANGIBLE ASSET IS SUFFICIENT TO CONCLUDE THAT THE ASSESSEE IS THE OWNER OF THE PLANT. THERE IS THEREF ORE NO DIFFICULTY IN ALLOWING DEPRECIATION CLAIM AT 25 PER CENT UNDER SECTION 32 (1)(I) READ WITH APPENDIX-I, PART-A DIVISION III (1) TO THE I.T. RULES, 1962. WITH EFFE CT FROM 1.4.2003, COMPUTER SOFTWARE HAS BEEN CLASSIFIED AS A TANGIBLE ASSET UNDER THE H EADING 'PLANT' IN APPENDIX-I TO THE IT RULES ENTITLED TO DEPRECIATION AT 60 PER CENT. T HE ASSESSES WOULD BE ENTITLED TO DEPRECIATION AT 60 PER CENT FROM 1.4.2003. 62. THE ARGUMENT RAISED ON BEHALF OF THE ASSESSEES IN THIS CONTEXT WAS THAT THE RATE OF DEPRECIATION ON COMPUTER SOFTWARE FROM 1.4.1999 SHOULD BE 60 PER CENT. THE BASIS OF THIS ARGUMENT WAS THAT DEPRECIATION ON COMPUTERS WAS ORIGINALLY ALLOWED TREATING THEM AS A PLANT ONLY AT 25 PER CENT. WITH EFFECT FR OM 1.4.1999, COMPUTERS WERE TREATED AS A DIFFERENT CLASS OF ASSET FALLING WITHI N THE DESCRIPTION OF PLANT AND DEPRECIATION WAS ALLOWED AT 60%. WITH EFFECT FROM 1 .4.2003, COMPUTER SOFTWARE WAS ALSO INCLUDED ALONG WITH COMPUTERS. THE ARGUMENT OF THE ASSESSES WAS THAT THE AMENDMENT TO THE RULES WAS MERELY CLARIFICATORY AND THEREFORE, EVEN ON COMPUTER SOFTWARE WITH EFFECT FROM 1.4.1999, 60 PER CENT DE PRECIATION SHOULD BE ALLOWED. WE DO NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE I N THIS REGARD. THE AMENDMENT IS PROSPECTIVE. IT IS NOT CLARIFICATORY FOR THE REASON THAT COMPUTER AND COMPUTER SOFTWARE ARE TWO DIFFERENT ITEMS OF ASSETS. IF THE LEGISLATU RE WANTED TO ALLOW DEPRECIATION AT 60 PER CENT WITH EFFECT FROM 1.4.1999 ON COMPUTER SOF TWARE, IT WOULD HAVE SAID SO SPECIFICALLY BY MAKING THE PROVISIONS RETROSPECTIVE . IN THIS REGARD, WE AGREE WITH THE VIEW EXPRESSED BY THE DELHI BENCH OF THE ITAT IN TH E CASE OF MARUTI UDYOG LTD. (SUPRA) WHEREIN SIMILAR VIEW HAS BEEN TAKEN. 6.2. CONSIDERING THE ABOVE IN THE CONTEXT OF THE DE CISIONS RELIED UPON, WE FIND THAT RELEVANT FACTS ARE NOT AVAILABLE IN THE FACTS OF TH E PRESENT CASE. ACCORDINGLY, IN THE ABSENCE OF DISCUSSION ON FACTS IN THE ORDERS OF THE AUTHORITIES BELOW, THE ISSUE CANNOT BE DECIDED. THE SPECIAL BENCH CONSIDERING THE JUDI CIAL PRECEDENT CONCLUDED THAT THERE CANNOT BE ANY SPECIFIC OR PRECISE TEST WHICH CAN BE APPLIED CONCLUSIVELY OR UNIVERSALLY FOR DISTINGUISHING BETWEEN CAPITAL AND REVENUE EXPENDITURE. IT IS A BLURRED ITA NO. 4994/DEL/2010 SONY INDIA PVT. LTD. VS. ACIT PAGE 5 OF 9 AND UNDEFINED AREA IN WHICH ANYONE CAN BE GET LOST. IN THESE CIRCUMSTANCES, IT HAS CORRECTLY BEEN OBSERVED THAT DIFFERENT MINDS MAY CO ME TO DIFFERENT CONCLUSIONS WITH EQUAL PROPRIETY AS THERE IS NO SINGLE DEFINITIVE CR ITERION WHICH BY ITSELF IS DETERMINATIVE AS TO WHETHER A PARTICULAR OUTLAY IS CAPITAL OR REV ENUE AND WHAT IS RELEVANT IS THE PURPOSE OF THE OUTLAY AND ITS INTENDED OBJECT AND E FFECT CONSIDERED IN A COMMON SENSE WAY HAVING REGARD TO THE BUSINESS REALITIES. THE CARDINAL RULE IS THAT THE QUESTION WHETHER A CERTAIN EXPENDITURE IS ON CAPITA L OR REVENUE ACCOUNT SHOULD BE DECIDED FROM THE PRACTICAL AND BUSINESS VIEW-POINT AND IN ACCORDANCE WITH SOUND ACCOUNTANCY PRINCIPLES AND THIS RULE IS OF SPECIAL SIGNIFICANCE IN DEALING WITH EXPENDITURE ON EXPANSION AND DEVELOPMENT OF BUSINES S. THE SPECIAL BENCH HAS OBSERVED THAT WHILE DEALING WITH THIS COMPLEX ISSUE , THREE TESTS ARE GENERALLY APPLIED TO DECIDE THE NATURE OF EXPENDITURE AS TO WHETHER I T IS CAPITAL OR REVENUE, THEY ARE: THE TEST OF ENDURING BENEFIT; OWNERSHIP TEST; AND F UNCTIONAL TEST; APPLYING THE SAID TESTS, EXPENDITURE IS TREATED AS CAPITAL EXPENDITUR E EITHER WHEN IT RESULTS IN ACQUISITION OF CAPITAL ASSET BY THE ASSESSEE AS OWNER THEREOF O R WHEN IT RESULT IN ACCRUAL OF ADVANTAGE OF ENDURING NATURE TO THE ASSESSEE IN THE CAPITAL FILED. IN THE FIRST SITUATION, THE OWNERSHIP TEST ASSUMES GREATER SIGNI FICANCE BECAUSE THE ACQUISITION OF CAPITAL ASSET BY THE ASSESSEE AS A RESULT OF INCURR ING EXPENDITURE IS A CONDITION. IF THE EXPENDITURE IS RESULTING MERELY IN ACQUISITION OR C REATION OF ASSET WITHOUT THE ASSESSEE BECOMING OWNER THEREOF, IT CANNOT BE SAID THAT THE SAID EXPENDITURE IS A CAPITAL EXPENDITURE. THE COMING INTO EXISTENCE OF AN ASSET AS A RESULT OF INCURRING EXPENDITURE ALONG. THUS, IT HAS BEEN SUMMED UP THAT THIS IS NOT SUFFICIENT TO TREAT THE SAID EXPENDITURE AS OF CAPITAL NATURE UNLESS THE AS SET COMING INTO EXISTENCE IS ALSO OWNED BY THE ASSESSEE. ITA NO. 4994/DEL/2010 SONY INDIA PVT. LTD. VS. ACIT PAGE 6 OF 9 6.3. SPECIFICALLY ADDRESSING A SITUATION IN THE CAS E OF COMPUTER SOFTWARE IT HAS BEEN HELD THAT THE FUNCTIONAL TEST BECOMES MORE IMPORTAN T AND 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 OR ITS UTILITY TO A BUSINESSMAN WHICH MAY TOUCH EITHER CAPITAL OR REVENUE FIELD. THE MANN ER IN WHICH THE COMPUTER SOFTWARE IS USED IT HAS BEEN NOTED IS AGAIN PECULIAR. GENER AL MODE IS TO ACQUIRE COMPUTER SOFTWARE ON A LICENSE. THAT BY ITSELF WILL NOT BE S UFFICIENT TO CONCLUDE THAT THE SAID EXPENDITURE IS REVENUE EXPENDITURE, IF ON AN APPLIC ATION OF THE FUNCTIONAL TEST, IT IS FOUND THAT THE IT CONFERS A BENEFIT IN THE CAPITAL FIELD. ON THE OTHER HAND, SOME COMPUTER SOFTWARE MAY HAVE A VERY LIMITED ECONOMIC LIFE SO AS TO BE TREATED AS CAPITAL EXPENDITURE, THOUGH OWNED BY AN ASSESSEE. LF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSESSEE'S TRADING OPERATIONS OR E NABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSEE'S BUSINESS TO BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPE NDITURE WOULD BE ON REVENUE ACCOUNT, EVEN THOUGH THE ADVANTAGE MAY ENURE FOR AN INDEFINITE FUTURE. IN OTHER WORDS, THE FUNCTIONAL TEST WOULD BECOME MATERIAL AN D IF ON APPLICATION OF THE SAME, IT IS FOUND THAT THE EXPENDITURE OPERATES TO CONFER BE NEFIT IN THE REVENUE FIELD, THEN THE SAME WOULD BE REVENUE EXPENDITURE, IRRESPECTIVE OF THE DURATION OF TIME FOR WHICH THE ASSESSEE ACQUIRES RIGHTS IN A SOFTWARE. THE PERIOD OF ADVANTAGE IN THE CONTEXT OF COMPUTER SOFTWARE SHOULD NOT BE VIEWED FROM THE POI NT OF VIEW OF DIFFERENT ASSETS OR ADVANTAGE LIKE TENANCY OR USE OF KNOW-HOW BECAUSE S OFTWARE IS A BUSINESS TOOL ENABLING A BUSINESSMAN TO RUN HIS BUSINESS. 6.4. ACCORDINGLY IT HAS BEEN HELD THAT THE ADVANTAGE WHICH AN ASSESSEE DERIVES IS WHAT HAS TO BE SEEN. THE NATURE OF ADVANTAGE HAS TO BE SEEN IN A COMMERCIAL SENSE. ITA NO. 4994/DEL/2010 SONY INDIA PVT. LTD. VS. ACIT PAGE 7 OF 9 IF ADVANTAGE IS IN THE CAPITAL FIELD, THEN THE SAME WOULD BE CAPITAL EXPENDITURE. IF THE ADVANTAGE CONSISTS MERELY IN FACILITATING THE ASSES SEE'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF ASSESSEE'S BUSINESS T O BE CARRIED ON MORE EFFICIENTLY OR MORE PROFITABLY, WHILE LEAVING THE FIXED CAPITAL UNTOUCHED, THE EXPENDITURE WOULD BE ON REVENUE ACCOUNT. HOWEVER, IF ASSET/ADVANTAGE IS PART OF PROFIT-EARNING APPARATUS, IT IS CAPITAL. 6.5. WE FIND THAT THIS EXERCISE HAS NOT BEEN DONE E ITHER BY THE ASSESSEE OR BY THE TAX AUTHORITIES. ACCORDINGLY, THE ISSUE WILL NEED TO BE REMANDED BACK. 6.6. WHILE SO HOLDING IT WOULD NOT BE OUT OF PLACE TO HIGHLIGHT THE FACT THAT THE SPECIAL BENCH LAID DOWN THAT THE FOLLOWING FACTORS WOULD BE RELEVANT TO DETERMINE WHETHER THE ADVANTAGE OPERATES IN THE CAPITAL FIELD OR REVENUE FIELD :- (I) NATURE OF BUSINESS OF THE ASSESSEE : IT IS NECESSAR Y TO OBTAIN AN UNDERSTANDING OF THE BUSINESS FUNCTION OR EFFECT OF A CONCERN'S S OFTWARE. SOFTWARE NORMALLY FUNCTIONS AS A TOOL ENABLING BUSINESS TO BE CARRIED ON MORE EFFICIENTLY. THE SCOPE, POWER, LONGEVITY OF SUCH A TOOL AND ITS CENT RALITY TO THE FUNCTIONS OF THE BUSINESS WILL ALL BEAR ON ITS TREATMENT. IN THE CASE OF 'S ONE OF THE ASESSSEES IT WAS ENGA GED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AS WELL AS A TRAINING CENTRE TO IMPART SPECIALIZED TRAINING TO THE STUDENTS IN SOFTWARE TECHNOLOGY. IF THE SOFTWARE WERE USED I N THIS BUSINESS TO IMPART TRAINING TO THE STUDENTS, THEN THE SAME WOULD BE PART OF THE PR OFIT-MAKING APPARATUS OF THE ASSESSEE AND, CONSEQUENTLY, EXPENDITURE ON SOFTWARE , CAPITAL. ANOTHER EXAMPLE WHICH COULD BE CONSIDERED WAS THAT OF ACQUISITION OF TURBO GOLD SOFTWARE FOR RS.17.61 LAKHS BY THE ASSESSEE IN THE INSTANT CASE. THE SAID SOFTWARE HELPED IN COMPRESSION OF SIZE OF E-MAILS SENT THROU GH THE LOTUS NOTES MAILING SYSTEM AND IT INCLUDED LICENSES FOR 150 USERS WHO WERE USI NG LOTUS NOTES MAILING SYSTEM AND SOFTWARE LICENSE FOR RUNNING ON ITS SERVER. IF USE OF THIS SOFTWARE IN THE BUSINESS OF THE ASSESSES WAS LIMITED TO FACILITATE MERELY AN EFFECT IVE AND FAST COMMUNICATION IN ORDER TO INCREASE ITS ORGANIZATIONAL EFFICIENCY, THE SAME COULD NOT BE TREATED AS FORMING PART OF THE PROFIT-MAKING APPARATUS OF THE ASSESSEE. ON THE OTHER HAND, IF SUCH SOFTWARE WAS BEING USED BY AN ASSESSEE ENGAGED IN THE BUSINE SS OF PLACEMENT AGENCY WHERE THE APPLICATIONS FROM PERSONS SEEKING JOBS WERE INV ITED THROUGH E-MAIL AND WERE ALSO FORWARDED TO THE CONCERNED CLIENTS THROUGH E-MAIL, THE SAME MIGHT FORM PART OF PROFIT- MAKING APPARATUS OF THE ASSESSEE'S BUSINESS OF PLAC EMENT AGENCY AND COULD BE TREATED AS A CAPITAL ASSET. (II) AS A GENERAL RULE, IT MAY BE STATED THAT THE MORE E XPENSIVE THE COMPUTER SOFTWARE THE MORE IT IS LIKELY TO BE A CENTRAL TOOL OF THE BUSINESS AND THE MORE ENDURING IS LIKELY, TO BE ITS EFFECT ADDING TO THE PROFIT-EARNING APPARATUS. IF THERE ARE ASSOCIATED CAPITAL EXPENDITURE LIKE PURCH ASE OF NEW COMPUTER EQUIPMENT FOR RUNNING THE SOFTWARE DEVELOPED UNDER A PROJECT, THEN IT CAN BE ITA NO. 4994/DEL/2010 SONY INDIA PVT. LTD. VS. ACIT PAGE 8 OF 9 CONSIDERED AS CAPITAL EXPENDITURE. THIS IS ESPECIAL LY THE CASE WHERE THE NEW HARDWARE IS NOT MERELY DESIRABLE BUT NECESSARY FOR THIS PURPOSE. (III) DEGREE OF ASSOCIATED ORGANIZATIONAL CHANGE : SIMILA RLY THE DEGREE OF CHANGE INTENDED IN THE WAY OPERATIONS ARE CARRIED OUT AS A RESULT OF THE COMPUTER SOFTWARE, FOR EXAMPLE, SAVINGS IN THE NUMBER, AND C HANGES IN THE LOCATION, OF STAFF USED TO PROVIDE SERVICES TO CUSTOMERS, WILL H AVE A BEARING. THE MORE RADICAL THE CHANGES, THE MORE LIKELY THE EXPENDITUR E WILL BE CAPITAL. THESE CHANGES ARE LIKELY TO BE MOST RADICAL WHEN OPERATIO NS PREVIOUSLY CARRIED ON MANUALLY ARE COMPUTERISED. (IV) IT HAS TO BE BORNE IN MIND THAT COMPUTER SOFTWARE I NDUSTRY IS OF A FAST CHANGING NATURE. THEREFORE, WHATEVER SOFTWARE IS PU RCHASED BY AN ASSESSEE WOULD BECOME OUTDATED MUCH EARLIER THAN EXPECTED. T HE ASSESSEE HAS, THEREFORE, TO UPGRADE HIS SOFTWARE. AN ELEMENT OF U PGRADING DOES NOT AUTOMATICALLY MAKE THE EXPENDITURE CAPITAL. THE PRE SENCE OF AN ELEMENT OF UPGRADING, THEREFORE, WILL NOT NECESSARILY CAUSE TH E EXPENDITURE IN QUESTION TO BE CAPITAL. 6.7. THE FOLLOWING CONCLUSIONS SUMMARISING THE ISSU ES BY THE SPECIAL BENCH ARE EXTRACTED HEREUNDER FOR READY-REFERENCE: (I) WHEN THE ASSESSEE ACQUIRES A COMPUTER SOFTWARE OR FOR THAT MATTER THE LICENSE TO USE SUCH SOFTWARE, HE ACQUIRES A TANGIBL E ASSET AND BECOMES OWNER THEREOF. (II) HAVING REGARD TO THE FACT THAT SOFTWARE BECOMES O BSOLETE 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 UTILITY TO THE ASSESSEE FOR A PERIOD BEYOND TWO YEARS, CAN BE CONS IDERED AS ACCRUAL OF BENEFIT OF ENDURING NATURE. HOWEVER, THAT BY ITSELF WILL NOT MAKE THE EXPENDITURE INCURRED ON SOFTWARE AS CAPITAL IN NATU RE AND THE FUNCTIONAL TEST ALSO NEEDS TO BE SATISFIED. (III) ONCE THE TESTS OF OWNERSHIP AND ENDURING BENEFIT A RE 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 BUSINESSMAN AND HOW IMPORTANT AN ECONOMIC OR FUNCTIONAL ROLE IT PLAYS I N HIS BUSINESS. IN OTHER WORDS, THE FUNCTIONAL TEST BECOMES MORE IMPORTANT A ND RELEVANT BECAUSE OF THE PECULIAR NATURE OF THE COMPUTER SOFTWARE AND IT S POSSIBLE USE IN DIFFERENT AREAS OF BUSINESS TOUCHING EITHER CAPITAL OR REVENU E FIELD OR ITS UTILITY TO A BUSINESSMAN WHICH MAY TOUCH EITHER CAPITAL OR REVEN UE FIELD. 6.8. THE ABOVE EXERCISE IT IS SEEN HAS NOT BEEN DON E AND IS REQUIRED TO BE DONE IN RESPECT OF EACH AND EVERY SOFTWARE INDEPENDENTLY HA VING REGARD TO THE ABOVE SAID CRITERIA, THE MATTER ACCORDINGLY HAS TO BE RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR DOING SUCH AN EXERCISE. THE ASSESSING O FFICER WOULD EXAMINE THE QUESTION ITA NO. 4994/DEL/2010 SONY INDIA PVT. LTD. VS. ACIT PAGE 9 OF 9 WHETHER THE EXPENDITURE ON COMPUTER SOFTWARE WAS CA PITAL OR REVENUE IN THE LIGHT OF THE CRITERIA LAID DOWN ABOVE AFTER GIVING AN OPPORT UNITY OF BEING HEARD TO THE ASSESSEES. IF ON SUCH EXAMINATION, THE ASSESSING OFF ICER WOULD COME TO THE CONCLUSION THAT THE EXPENDITURE WAS CAPITAL EXPENDI TURE, THEN THE QUESTION REGARDING ALLOWING DEPRECIATION WOULD BE DECIDED IN ACCORDANC E WITH THE PRINCIPLES LAID DOWN IN THE SUBSEQUENT PARAGRAPHS. 6.9. ACCORDINGLY WHEN CONSIDERED IN THE LIGHT OF TH E MANDATE OF THE SPECIAL BENCH, WE FIND THAT THE REQUISITE CONSIDERATION OF FACTS H AS NOT BEEN DONE BY THE TAX AUTHORITIES AS THERE IS NO DISCUSSION WHATSOEVER ON THE SOFTWARE. THE ISSUE IS RESTORED BACK TO THE AO FOR THE NECESSARY EXERCISES . 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 19 TH OF MAY, 2016. SD/- SD/- (L.P.SAHU) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER *VEENA/AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR, ITAT NEW DELHI