Revenue versus capital expenditure classification upheld for web, handset and talk time costs, but software development costs remained capital.

Domain booking charges, web hosting charges and web development charges were treated as revenue expenditure, while software development charges were treated as capital expenditure. In relation to tele-connection costs, handset expenditure was allowed as revenue expenditure because the handsets were issued in the same accounting year and the administrative circular on the telephone scheme supported deduction in the year of payment. Talk time charges were also held to be revenue in nature because they did not result in acquisition of a capital asset. The assessee therefore succeeded on the revenue treatment of domain, hosting, web development, handset and talk time charges, but the capital treatment of software development charges was sustained.

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Issues: Whether the expenditure on domain booking charges, web hosting charges, web development charges, software development charges, handset purchases and talk time charges was to be treated as revenue expenditure or capital expenditure.

Analysis: The expenditure on domain booking charges, web hosting charges and web development charges was held to be revenue in nature. The software development charges were treated as capital expenditure. For tele-connection charges, the handset expenditure was allowed as revenue expenditure because the handsets were issued in the same accounting year and the administrative circular on the telephone scheme supported deduction in the year of payment. The amount paid towards talk time charges was also held to be revenue in nature as it was not incurred for acquisition of any capital asset.

Conclusion: The assessee succeeded on the treatment of domain booking charges, web hosting charges, web development charges, handset expenditure and talk time charges as revenue expenditure, while the disallowance of software development charges as capital expenditure was sustained.

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