2014 (10) TMI 2 - HC - Income Tax

High Court: Software expenses treated as revenue, not capital assets for tax assessment year 2002-03.

Commissioner of Income-tax Versus The Karur Vysya Bank Ltd.

Commissioner of Income-tax Versus The Karur Vysya Bank Ltd. - TMI Issues involved:1. Whether the expenditure on software is capital or revenue in nature for the assessment year 2002-03.Analysis:The case involved two appeals filed by the Revenue against the order of the Income Tax Appellate Tribunal for the assessment year 2002-03. The main issue was whether the expenditure on software should be treated as capital or revenue expenditure. The assessee, a bank, claimed the cost of software as revenue expenditure in their income tax return. However, the Assessing Officer rejected this claim, considering the software as durable for at least four years and treated it as capital expenditure under Section 43(3) of the Income Tax Act. The Commissioner of Income Tax (Appeals) granted relief to the assessee by following a previous decision of the Court. The Revenue then appealed to the Tribunal, which upheld the decision of the Commissioner of Income Tax (Appeals). Consequently, the Revenue approached the High Court with the substantial question of law regarding the treatment of software expenditure.Both the Revenue's standing counsel and the assessee's counsel acknowledged that the issue in the appeals was addressed in a previous decision of the Court. The Court referred to the earlier decision where it was held that software packages, despite providing enduring benefits, do not result in the acquisition of a capital asset. Instead, software enhances productivity and efficiency, making it a revenue expenditure. The Court concluded that based on the previous decision, there was no substantial question of law to consider in the current appeals. Therefore, the tax case appeals were dismissed, and related miscellaneous petitions were closed.