ITAT Upholds Revenue Expenditure Decision, Confirms 25% Depreciation Rate

The ITAT upheld the CIT(A)'s decision to treat foreign travel expenditure as revenue expenditure and confirmed the lower depreciation rate of 25% on POS terminals and ATMs, rejecting the claim for a 60% rate. The disallowance of technical service charges was remanded to the AO for re-examination in light of relevant case law.

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Issues Involved:
1. Disallowance of technical service charges.
2. Treatment of foreign travel expenditure.
3. Depreciation rate on POS terminals and ATMs.

Detailed Analysis:

1. Disallowance of Technical Service Charges:
The assessee contested the disallowance of Rs. 2,45,46,000 paid to FBS Software Inc., USA for software upgradation, modification, and customization, which was treated as capital expenditure by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) reasoned that the expenditure represented the cost to customize the software for specific business requirements, thus providing a long-term enduring benefit. The ITAT referred the matter back to the AO to re-examine it in light of the ITAT Special Bench Delhi decision in Amway India Enterprises v. Dy. CIT [2008] 111 ITD 112.

2. Treatment of Foreign Travel Expenditure:
The assessee incurred Rs. 13,99,568 as foreign travel expenses for employees of a foreign collaborator visiting India to assist in software modification/customization. The AO treated this as capital expenditure, but the CIT(A) disagreed, stating that the assessee was only a licensee of the software, not the owner. The CIT(A) directed the AO to treat the expenditure as revenue expenditure. The ITAT upheld the CIT(A)'s decision, noting that the travel expenses were for business purposes and not for acquiring an asset.

3. Depreciation Rate on POS Terminals and ATMs:
The assessee claimed depreciation at 60% on POS terminals and ATMs, arguing that these were akin to computers. The AO allowed only 25% depreciation, treating them as plant and machinery. The CIT(A) for the assessment year 1999-2000 accepted the assessee's claim, but for the assessment year 2001-02, the CIT(A) upheld the AO's decision. The ITAT confirmed the AO's view, stating that POS terminals and ATMs do not qualify as computers. The ITAT emphasized that these devices are not data processing machines but rather specialized equipment used for specific functions, thus not eligible for the higher depreciation rate applicable to computers.

Conclusion:
- The disallowance of technical service charges was remanded to the AO for re-examination.
- The treatment of foreign travel expenditure as revenue expenditure was upheld.
- The lower depreciation rate of 25% on POS terminals and ATMs was confirmed, rejecting the claim for a 60% rate applicable to computers.

In summary, the ITAT provided a detailed analysis and upheld the CIT(A)'s decisions on foreign travel expenditure while remanding the technical service charges issue for further examination and confirming the lower depreciation rate on POS terminals and ATMs.

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