DCIT, New Delhi V. M/s. Visesh Infotecnics Ltd., New Delhi

ITA 6091/DEL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3410 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 09-01-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 11-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: UMESH CHAND DUBEY
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A .NO. 6091/DEL/2013 ASSESSMENT YEAR-2008-09 I.T.A .NO. 6092/DEL/2013 ASSESSMENT YEAR-2009-10 DCIT, CIRCLE-17(1), NEW DELHI. (APPELLANT) VS VISESH INFOTECNICS LTD., 508, ARUNACHAL BUIDLING, BARAKHAMBA ROAD, NEW DELHI-110001 (PAN: AAACV4805B) (RESPONDENT) APPELLANT BY SHRI UMESH CHAND DUBEY, SR. DR RESPONDENT BY SHRI R.S. SINGHVI, SATYAJIT GOEL, CA ORDER PER SUDHANSHU SRIVASTAVA, JM BOTH THESE APPEALS ARE PREFERRED BY THE DEPARTMENT. ITA NO. 6091/DEL/2013 PERTAINS TO ASSESSMENT YEAR 2008- 09 WHEREAS ITA NO. 6092/DEL/2013 PERTAINS TO ASSESSMEN T YEAR 2009-10. BOTH THE APPEALS HAVE A COMMON ISSUE. THEY WERE HEARD TOGETHER AND THEY ARE BEING DISPOSED OF THROU GH THIS COMMON ORDER. I.T.A. NOS. 6091 & 6092/DEL/2013 ASSESSMENT YEARS 2008-09 & 2009-10 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PUBLIC LIMITED COMPANY ENGAGED IN THE BUSINESS OF DEVELOPM ENT OF SOFTWARE FOR VARIOUS APPLICATIONS SOFTWARE, CUSTOMI SED AND NON- CUSTOMISED, ERP PRODUCTS, ERP TOOLS ETC. THE ASSESS EE ALSO DEALS IN COMPUTER HARDWARE PRODUCTS. THE ASSESSEE FILED I TS RETURN OF INCOME FOR ASSESSMENT YEAR 2008-09 DECLARING A LOSS OF RS. 46,74,272/-. THE AO, WHILE COMPLETING THE ASSESSMEN T UNDER SECTION 143 (3) OF THE INCOME TAX ACT, 1961 (THE A CT) MADE AN ADDITION OF RS. 141,629,253/- ON ACCOUNT OF PARTIAL DISALLOWANCE OF DEPRECIATION ON SOFTWARE AND INTELLECTUAL PROPER TY RIGHTS (IPR) BY REDUCING THE DEPRECIATION ALLOWANCE AT THE RATE OF 60%, AS CLAIMED BY THE ASSESSEE, TO 25% ON THE BASIS OF THE LAST ASSESSMENT FRAMED UNDER SECTION 143 (3) OF THE ACT FOR ASSESSMENT YEAR 2006-07. SIMILARLY, IN ASSESSMENT Y EAR 2009- 10, AN ADDITION OF RS. 56,651,701/- WAS MADE BY RED UCING THE DEPRECIATION ALLOWANCE CLAIMED AT 60% BY THE ASSESS EE BUT REDUCED TO 25% BY THE ASSESSING OFFICER. 2.1 AGGRIEVED, THE ASSESSEE HAD PREFERRED APPEALS F OR BOTH THE YEARS BEFORE THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) WHO DELETED THE ADDITIONS IN BOTH THE YEARS. NOW THE DE PARTMENT HAS I.T.A. NOS. 6091 & 6092/DEL/2013 ASSESSMENT YEARS 2008-09 & 2009-10 3 APPROACHED THE ITAT AND HAS RAISED THE FOLLOWING GR OUNDS OF APPEAL 2.2 GROUNDS IN ITA 6091/DEL/2013 1. LD. CIT (A) ERRED IN LAW AND ON THE FACTS OF TH E CASE IN DELETING THE ADDITION OF RS.14 ,16,29,253/- MADE BY THE AO ON ACCOUNT OF DEPRECIATION ON SOFTWARE BY REDUCING DEPRECIATION ALLOWANCE @ 25% AS AGAINST 60% CLAIMED BY THE ASSESSEE. 2. THE APPELLANT CRAVES, LEAVE OR RESERVING THE RIG HT TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 2.3 GROUNDS IN ITA NO. 6092/DEL/2013 1. LD. CIT(A) ERRED IN LAW AND ON THE FACTS OF TH E CASE IN DELETING THE ADDITION OF RS.5,66,51,701/- MADE BY THE AO ON ACCOUNT OF DEPRECIATION ON SOFTWARE BY REDUCING DEPRECIATION ALLOWANCE @ 25% AS AGAINST 60% CLAIMED BY THE ASSESSEE. 2. THE APPELLANT CRAVES, LEAVE OR RESERVING THE RI GHT TO AMEND MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED TH AT UP TO ASSESSMENT YEAR 2004-2005, THE ASSESSEE HAD CLAIMED DEPRECIATION ON INTELLECTUAL PROPERTY RIGHTS AT THE RATE OF 25% AND THE CHANGE WAS MADE W.E.F. ASSESSMENT YEAR 2005-200 6 BY CLAIMING DEPRECIATION AT THE RATE OF 60%. THE LD. D EPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE WAS ASKE D TO SHOW I.T.A. NOS. 6091 & 6092/DEL/2013 ASSESSMENT YEARS 2008-09 & 2009-10 4 CAUSE AS TO WHY THE DEPRECIATION SHOULD NOT BE REST RICTED TO 25% ONLY AND THE RESPONSE OF THE ASSESSEE WAS NOT ACCEP TED BY THE AO BECAUSE INTELLECTUAL PROPERTY RIGHTS WERE KIND O F PATENT RIGHTS WHICH CAME UNDER INTANGIBLE ASSETS AND THE ELIGIBLE RATE OF DEPRECIATION WAS 25%. THE LD. DEPARTMENTAL REPRESEN TATIVE SUBMITTED THAT THE LD. CIT (APPEALS) HAD ERRED IN I GNORING THIS FINDING OF THE AO AND HAD, THUS, ERRED IN DELETING THE ADDITION. THE LD. DR VEHEMENTLY ARGUED THAT THE IMPUGNED ADDI TIONS OUGHT TO BE RESTORED FOR BOTH THE YEARS. 4. THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSEE HAD BEEN PURCHASING SOFTWARES FROM VARIOUS DEVELOPERS AND ALSO DEVELOPED SOFTWARE IN-HOUSE AND WAS IN THE PRACTICE OF CAPITALISING THE SAME UNDER THE SUBHEAD SOFTWARE A ND INTELLECTUAL PROPERTY RIGHTS UNDER THE HEAD INTAN GIBLES IN ITS AUDITED FINANCIAL STATEMENTS PREPARED AS PER THE PR OVISIONS OF THE COMPANIES ACT, 1956. IT WAS FURTHER SUBMITTED T HAT THE ASSESSEE HAD SHOWN THE SAME UNDER THE HEAD INTANGIB LES AS THERE WAS NO CLASS OF ASSET DEFINED AS SOFTWARE IN THE PRESCRIBED SCHEDULE XIV OF THE COMPANIES ACT, 1956 AND ALSO A S REQUIRED BY ACCOUNTING STANDARD AS 26 ACCOUNTING FOR INTA NGIBLE ASSETS ISSUED BY THE INSTITUTE OF CHARTERED ACCOUN TANTS OF INDIA. I.T.A. NOS. 6091 & 6092/DEL/2013 ASSESSMENT YEARS 2008-09 & 2009-10 5 THE LD. AR FURTHER SUBMITTED THAT IN RESPONSE TO TH E SHOW CAUSE NOTICE IT WAS SUBMITTED THAT SOFTWARE HAS BEEN CLAS SIFIED AS A TANGIBLE ASSET UNDER THE HEAD PLANT IN APPENDIX I TO INCOME TAX RULES WHICH IS ENTITLED TO DEPRECIATION AT THE RATE OF 60% W.E.F. 01/04/2003 AND, THEREFORE, THE ASSESSEE WAS ENTITLED TO DEPRECIATION AT THE RATE OF 60% FROM THE SAID DATE. IT WAS FURTHER SUBMITTED THAT IT WAS SUBMITTED BEFORE THE AO THAT DEPRECIATION ON COMPUTER SOFTWARE WAS ALLOWABLE AT THE RATE OF 6 0% AND THE ASSESSEE HAD NOT INCURRED ANY EXPENSE ON ACQUIRING ANY INTELLECTUAL PROPERTY RIGHT LIKE COPYRIGHT, PATENT ETC. BUT ALL THE EXPENDITURE WAS INCURRED ON PURCHASE AND DEVELOPMEN T OF SOFTWARE ONLY. IT WAS FURTHER SUBMITTED THAT THE AO HAD MISCONCEIVED THAT THE SOFTWARE PURCHASED AS WELL AS DEVELOPED IN-HOUSE WAS AN INTELLECTUAL PROPERTY RIGHT. THE LD . AR FURTHER SUBMITTED THAT THE AMOUNT CAPITALISED CONSISTED OF EXPENSES INCURRED ON PURCHASE OF SOFTWARE FROM VARIOUS LENDE RS, WHICH WERE USED AS PLATFORM FOR DEVELOPING NEW SOFTWARE A ND THE PATENT/COPYRIGHT OF SUCH PURCHASE WAS REGISTERED IN THE NAME OF THE CREATOR OF SUCH SOFTWARE. FURTHER, THE AMOUNT C APITALISED ALSO INCLUDED EXPENSES INCURRED ON DEVELOPING ERP TOOLS, SOFTWARE ETC DEVELOPED IN-HOUSE BUT NOT REGISTERED IN THE NAME O F THE I.T.A. NOS. 6091 & 6092/DEL/2013 ASSESSMENT YEARS 2008-09 & 2009-10 6 ASSESSEE. THUS, THE ASSESSEE COMPANY HAD ONLY SOFTW ARE AND DID NOT HAVE ANY INTELLECTUAL PROPERTY RIGHT. IT WAS FU RTHER SUBMITTED THAT THE HEADING WAS IN ADVERTENTLY MENTIONED AS S OFTWARE AND INTELLECTUAL PROPERTY RIGHT IN THE FIXED ASSETS SC HEDULE WHICH SHOULD HAVE BEEN SOFTWARE ONLY. THE LD. AR ALSO D REW OUR ATTENTION TO APPENDIX I OF THE RULE 5 OF THE INCOME TAX RULES AND SUBMITTED THAT THE ELIGIBLE RATE OF DEPRECIATION FO R COMPUTERS UNDER ITEM NO. 5 IN THE HEAD PLANT AND MACHINERY WAS 60%. THE LD. AR ALSO RELIED ON THE ORDER OF THE ITAT CHENNAI BENCH IN ITA NO. 107/MDS/2012 IN THE CASE OF LASER SOFT INFOSYST EMS LTD VERSUS ITO WHEREIN, VIDE ORDER DATED 31/01/2013, TH E BENCH OF THE ITAT HAD HELD THAT COMPUTER SOFTWARE WAS A TANG IBLE ASSET AND AS PER CLAUSE III (5) OF NEW APPENDIX I READ WI TH RULE 5 OF THE INCOME TAX RULES, 1962, THE RATE OF DEPRECIATION AS APPLICABLE ON COMPUTER SOFTWARE WAS 60%. IT WAS SUBMITTED THAT IN VIEW OF THE FACTS AS WELL AS THE SETTLED JUDICIAL PRECEDENTS, T HE ASSESSEE WAS ELIGIBLE FOR DEPRECIATION AT THE RATE OF 60% AND, T HEREFORE, THE IMPUGNED ORDERS SHOULD BE UPHELD. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALS O PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS UNDISPUTED T HAT THE EXPENDITURE INCURRED ON THE DEVELOPMENT OF SOFTWARE AS WELL AS I.T.A. NOS. 6091 & 6092/DEL/2013 ASSESSMENT YEARS 2008-09 & 2009-10 7 PURCHASE OF SOFTWARE IS CAPITAL IN NATURE AND THE O NLY DISPUTE IS REGARDING THE RATE OF DEPRECIATION, THAT IS, WHETHE R DEPRECIATION IS TO BE ALLOWED AT THE RATE OF 25% OR AT THE RATE OF 60%. IF WE WERE TO PERUSE THE DEFINITIONS OF COMPUTER SOFTWARE AND INTELLECTUAL PROPERTY RIGHTS, IT WILL BE EVIDENT THAT COMPUTER S OFTWARE AND INTELLECTUAL PROPERTY RIGHTS ARE ALTOGETHER TWO DIF FERENT TYPES OF ASSETS. APPENDIX I OF THE INCOME TAX RULES TREATS C OMPUTER SOFTWARE AS A TANGIBLE ASSET WHEREAS INTELLECTUAL P ROPERTY RIGHTS ARE TREATED AS INTANGIBLE ASSETS. IT IS UNDISPUTED THAT THE SOFTWARE PURCHASED DEVELOPED IN-HOUSE CAN BE TREAT ED AS INTELLECTUAL PROPERTY RIGHT ONLY WHEN THE SAID SOFT WARE IS REGISTERED IN THE NAME OF THE PERSON APPLYING FOR S UCH REGISTRATION AS PER THE PROVISIONS OF THE PATENTS A CT, 1970 (AS AMENDED BY (PATENT (AMENDMENT) ACT, 2005), THE COPY RIGHT ACT, 1957 OR ANY OTHER RELEVANT ACT. IT IS UNDISPUTED TH AT THE ASSESSEE COMPANY HAS NOT GOT REGISTERED THE SOFTWARE PURCHAS ED OR DEVELOPED IN-HOUSE AS A PATENT OR A COPYRIGHT AND, THEREFORE, THE QUESTION OF IT ACQUIRING THE STATUS OF INTELLECTUAL PROPERTY RIGHT DOES NOT ARISE. IT IS ALSO PERTINENT TO NOTE THAT T HE INCOME TAX ACT, 1961 AND THE INCOME TAX RULES, 1962 PRESCRIBE THE RATE OF DEPRECIATION ON COMPUTER SOFTWARE AT THE RATE OF 60 % FROM I.T.A. NOS. 6091 & 6092/DEL/2013 ASSESSMENT YEARS 2008-09 & 2009-10 8 01/04/2003, PRIOR TO WHICH THE RATE OF DEPRECIATION WAS 25% ONLY. HENCE, AS PER THE RATE PRESCRIBED BY THE INCO ME TAX RULES, THE ASSESSEE IS ENTITLED TO DEPRECIATION AT THE RAT E OF 60% AND THE ACTION OF THE ASSESSEE IN CLAIMING THE DEPRECIATION ON THE BASIS OF THE AMENDED RATE OF DEPRECIATION ON SOFTWARE CANNOT BE FAULTED WITH AND THE SAME CANNOT BE RESTRICTED TO 25% MEREL Y ON THE GROUND THAT DEPRECIATION WAS CLAIMED AT THE RATE OF 25% TILL ASSESSMENT YEAR 2003-2004. ALTHOUGH, THE ASSESSEE H AS CLASSIFIED THE SOFTWARE UNDER COMPUTER SOFTWARE AN D INTELLECTUAL PROPERTY RIGHTS, IT IS VERY WELL SETTLED THAT NOME NCLATURE CANNOT BE CONCLUSIVE AND DECISIVE REGARDING THE NATURE OF TRANSACTION AND IT IS THE SUBSTANCE OF THE MATTER WHICH SHOULD BE LOOKED INTO RATHER THAN THE FORM OR THE NOMENCLATURE BY WHICH T HE SAME MIGHT HAVE BEEN CALLED. THEREFORE, WE FIND NO REASO N TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (APPEALS) IN BOTH THE YEARS UNDER APPEAL AND WE UPHOLD THE SAME WHILE DISMISSING THE GROUNDS RAISED BY THE DEPARTMENT. 6. IN THE FINAL RESULT BOTH THE APPEALS OF THE DEPA RTMENT STAND DISMISSED. I.T.A. NOS. 6091 & 6092/DEL/2013 ASSESSMENT YEARS 2008-09 & 2009-10 9 ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH APRIL, 2017. SD/- SD/- (N. K. SAINI) (SUDHANSHU SRIVAST AVA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11TH APRIL 2017 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSTT. REGISTRAR ITAT NEW DELHI