JACOBS ENGINEERING INDIA P. LTD, MUMBAI V. ADDL CIT R G 8(2), MUMBAI

ITA 997/MUM/2010

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8662 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 04-10-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 08-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P K SHUKLA
• Keywords: Depreciation; Revenue expenditure

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES I , MUMBAI BEFORE SHRI P.M.JAGTAP , AM AND SHRI AMIT SHUKLA , JM ITA NO. 997 / MUM/ 20 1 0 ( ASSESSMENT YEAR : 200 5 - 200 6 ) M/S JACOBS ENGINEERING INDIA PRIVATE LIMITED, JACOBS HOUSE, RAM KRISHNA MANDIR KONDIVITA, ANDHERI (EAST), MUMBAI - 400 059 VS. ADDL. CIT RANGE - 8(2), MUMBAI - 400 020. PAN/GIR NO . : AAAC H 0456 J ( APPELLANT ) .. ( RESPONDENT ) /APPELLANT BY : MR. KANCHUN KAUSHAL & MR. DHANESH BAFNA /RESPONDENT BY : MR. P.K.SHUKLA D ATE OF HEARING : 4 TH OCT., .2012 DATE OF PRONOUNCEMENT : 10 TH OCT.,2012 O R D E R PER AMIT SHUKLA , J M : THIS APPEAL HAS BEEN PREFERRED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 17 - 11 - 2009 , PASSED BY THE CIT(A) - 17 MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143 (3) FOR THE ASSESSMENT YEAR 2005 - 0 6 ON THE FOLLOWING GROUNDS OF APPEAL : - 1 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) HAS ERRED IN LAW BY CO NFIRMING THE DISALLOWANCE OF RS.5,33,76,581/ - IN RESPECT OF EXPENDITURE INCURRED ON ACCOUNT OF SOFTWARE HIRE CHARGES AND MAINTENANCE CHARGES BEING ALLEGED TO BE CAPITAL IN NATURE. ITA NO. 997 /20 10 2 2. AT THE OUTSET, SHRI KANCHUN KAUSHAL, LEARNED COUNSEL APPEARING ON BEHA LF OF THE ASSESSEE SUBMITTED THAT THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN THE ORDER PASSED FOR SUBSEQUENT YEAR I.E. 2006 - 2007 BY THE TRIBUNAL IN ITA NO. 3946/MUM/2011 IN THE CASE OF ASSESSEE , VIDE ORDER DATED 29 - 8 - 2012, WHEREIN IT HAS BEEN HELD THAT SOFTWARE EXPENSES IN THE CASE OF THE ASSESSEE ARE REVENUE EXPENDITURE. FURTHER LEARNED COUNSEL DREW OUR ATTENTION TO THE VARIOUS DETAILS OF COMPUTER EXPENSES INCLUDING SOFTWARE MAINTENANCE CHARGES . FROM THESE DETAILS, HE POINTED OUT THAT LOOKING TO THE NATURE OF EXPENDITURE S , INCLUDING SOFTWARE HIRE CHARGES, IT WILL BE SEEN THAT THEY WERE PURELY REVENUE IN NATURE. REGARDING PAYMENT OF SOFTWARE HIRE CHARGES, HE SUBMITTED THAT SINCE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING ENGINEERING CO NSULTANCY SERVICE S BOTH IN INDIA AND ABROAD, IT HAS TO UPDATE ITS SOFTWARE FROM TIME TO TIME. IT IS VERY DIFFICULT TO B U Y A SOFTWARE EVERY TIME AS PROGRAMMES IN THE SOFTWARE TECHNOLOGY KEEPS ON CHANGING VERY F AST , THEREFORE, THE ASSESSEE USED TO HIRE THE S OFTWARE FOR ITS BUSINESS PURPOSES AND SUCH HIRE CHARGES ARE, THEREFORE, REVENUE IN NATURE AND IS TO BE ALLOWED AS REVENUE EXPENDITURE. 3. ON THE OTHER HAND, LEARNED DR RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER. 4 . AFTER CAREFULLY CONSIDERING T HE RIVAL SUBMISSIONS OF THE PARTIES AS WELL AS MATERIAL PLACED ON RECORD AND THE FINDINGS GIVEN BY THE CIT(A) ITA NO. 997 /20 10 3 AS WELL AS ASSESSING OFFICER, WE FIND THAT THE ASSESSEE HAS INCURRED SOFTWARE EXPENDITURE ON ACCOUNT OF FOLLOWING CHARGES : - I) SOFTWARE HIRE CHAR GES - RS. 4,64,81,794 II) COMPUTER SOFTWARE EXPENSES - RS.68,94,787 TOTAL RS.5,33,76,581 THE ASSESSEES CONTENTION HAS BEEN THAT THESE EXPENSES ARE IN RESPECT OF SOFTWARE ONLY WHICH ARE USED ON DAY - TO - DAY OPERATION OF ITS BUSINESS AND CAN BE USED ON LY FOR A SPECIFIED LIMITED PERIOD. THE ASSESSING OFFICER REJECTED THE SAID CONTENTION SOLELY ON THE GROUND THAT THE EXPENDITURE INCURRED WAS H UGE, WHICH CANNOT BE TREATED AS REVENUE EXPENDITURE OR MEANT FOR LIMITED PERIOD ONLY. A CCORDINGLY, HE TREATED THE SAID EXPENDITURE AS CAPITAL AND ALLOWED DEPRECIATION AT THE RATE OF 25%. THE CIT(A) THOUGH REJECTING THE ASSESSEES CLAIM FOR REVENUE EXPENDITURE, HOWEVER, RELYING UPON THE DECISION OF THE ITAT SPECIAL BENCH IN THE CASE OF AMWAY ENTERPRISES, HELD THAT THE DEPRECIATION SHOULD BE ALLOWED AT THE RATE OF 60% INSTEAD OF 25%. THE REASONING BEHIND HIS CONCLUSION WAS THAT IN THE DEPRECIATION TABLE CHART , COMPUTER HARDWARE AND SOFTWARE HAVE BEEN PROVIDED FOR ENTITLEMENT OF DEPRECIATION WHICH MEANS THE SAME ARE CAPIT AL EXPENDITURE. 5 . FROM THE PERUSAL OF THE DETAILS AND SOFTWARE HIRE CHARGES AGREEMENT FILED BY THE LEARNED COUNSEL, WE FIND THAT MOST OF THE AMOUNT HAVE BEEN PAID TOWARDS SOFTWARE HIRE CHARGES AND SOFTWARE MAINTENANCE CHARGES AND THESE ARE NOT FOR ACQUI RING ANY NEW SOFTWARE , BUT ARE FOR UPGRADATION AND ANNUAL MAINTENANCE WITHOUT BRINGING ANY ADDITION OF NEW ASSET INTO EXISTENCE. IN ANY CASE, T HIS ISSUE HAS BEEN ITA NO. 997 /20 10 4 DECIDED BY THE TRIBUNAL IN THE SUBSEQUENT YEAR, WHEREIN ON SAME FACTS AND ON SIMILAR NATURE OF EXPENSES, IT HAS BEEN HELD THAT SOFTWARE EXPENSES IN THE CASE OF THE ASSESSEE ARE REVENUE IN NATURE. THE RELEVANT FINDING AND THE CONCLUSION DRAWN BY THE TRIBUNAL ARE REPRODUCED HEREIN BELOW : - 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS MATER IAL AVAILABLE ON RECORD. ON CAREFUL PERUSAL OF THE DETAILS AND INVOICES REGARDING THE EXPENDITURE OF RS.15,60,017/ - WE FIND THAT THE ASSESSEE HAS INCURRED US DOLLARS 50,222/ - FOR RENEWAL OF THE SOFTWARE WHICH IS AGAIN FOR ONE YEAR USAGE PERIOD. THEREFORE, IT IS CLEAR THAT THE PAYMENT WAS FOR ANNUAL RENEWAL OF THE SOFTWARE AND NOT FOR ACQUIRING OF ANY NEW SOFTWARE. SIMILARLY US DOLLARS 1176.47 WAS INCURRED FOR ANNUAL SOFTWARE MAINTENANCE. THEREFORE, THESE TWO ITEMS WHICH WERE DISALLOWED BY THE CIT(APPEALS) A RE CLEARLY REVENUE IN NATURE AND DOES NOT RESULT INTO ANY NEW ASSET OR ADVANTAGE OF ENDURING NATURE. IT IS EVIDENT THAT THE EXPENDITURE WAS INCURRED FOR ANNUAL MAINTENANCE AND RENEWAL OF THE SOFTWARE WHICH IS RECURRING IN NATURE AND ONLY FOR A PE RIOD OF ON E YEAR. IN THE FACTS AND CIRCUMSTANCES, WE DELETE THE ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(APPEALS) TO THE EXTENT OF RS.15,60,017/ - AND ALLOW THE CLAIM OF THE ASSESSEE. 6 . IN VIEW OF THE AFORESAID FINDING, AND RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT THE SOFTWARE EXPENDITURE INCURRED BY THE ASSESSEE ARE REVENUE IN NATURE AND ARE LIABLE TO BE ALLOWED. THUS, THE GROUND RAISED BY THE ASSESSEE STANDS ALLOWED. 7 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED ON THIS 10 TH DAY OF OCTOBER , 2012. TH OCTOBER, 2012 SD/ - SD/ - ( ) ( P.M.JAGTAP ) ( ) ( AMIT SHUKLA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 10 TH OCTOBER , 2012. P KM , PS ITA NO. 997 /20 10 5 COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / T HE RESPONDENT. 3. / THE CIT(A) - X, MUMBAI. 4. / CIT 5. / DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// / BY ORD ER, ( DY./ASSTT. REGISTRAR) / ITAT, MUMBAI *