2002 (2) TMI 1351 - AT - Income Tax

ITAT allows software expenses as revenue; recognizes business losses on unit sales as business losses

The ACIT 4 (2) (2), Mumbai Versus M/s. S.S. Kantilal Ishwarlal Securities Ltd.

The Income Tax Appellate Tribunal (ITAT) partially allowed the Revenue's appeal, permitting software expenses to be treated as revenue expenditure and ... - Issues:1. Treatment of software expenses as revenue expenditure.2. Allowance of business loss on sale of Canexpo and Bank of India units.3. Consideration of loss on sale of Canexpo units as business loss.Issue 1: Treatment of software expenses as revenue expenditure:The Assessing Officer (AO) considered computer software as part of a capital asset, hence treated it as capital expenditure. The appellant argued that software, due to its limited life and need for constant updates, should be treated as revenue expenditure. The Commissioner of Income Tax (Appeals) allowed the software expenses as revenue expenses. The Income Tax Appellate Tribunal (ITAT) directed the AO to decide the matter in light of a Special Bench decision after giving an opportunity to the assessee.Issue 2: Allowance of business loss on sale of Canexpo and Bank of India units:The AO disallowed a business loss of &8377; 42,82,000 arising from transactions in Bank of India and Canexpo units, treating them as long-term capital loss. The appellant contended that units of mutual funds are not shares and do not fall under the explanation to Sec. 73 of the IT Act, citing relevant case law. The appellant argued that the investment in Canexpo was made in the course of business as a broker, relying on precedents. The CIT(A) allowed the claim as a business loss, emphasizing commercial expediency and the nature of the investment.Issue 3: Consideration of loss on sale of Canexpo units as business loss:The Revenue appealed the allowance of a loss of &8377; 17,16,550, explaining business losses related to transactions with specific parties. The ITAT noted that the issue was covered by relevant decisions and dismissed the Revenue's appeal. The ITAT upheld the business loss treatment based on the circumstances of the transactions and the commercial expediency involved.In conclusion, the ITAT partially allowed the Revenue's appeal, addressing various issues related to the treatment of expenses and losses, emphasizing the commercial nature of transactions and the applicability of relevant legal provisions and precedents.