Assessee's Appeal Partially Allowed: Software Fees as Revenue Expenditure The Tribunal partially allowed the assessee's appeal for the assessment year (A.Y.) 2009-10, treating a portion of software license fees as revenue ...
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Assessee's Appeal Partially Allowed: Software Fees as Revenue Expenditure
The Tribunal partially allowed the assessee's appeal for the assessment year (A.Y.) 2009-10, treating a portion of software license fees as revenue expenditure and the rest as capital expenditure. The foreign exchange loss disallowed by the Assessing Officer was allowed following the Supreme Court decision. For A.Y. 2005-06, the Tribunal allowed the assessee's appeal, considering software expenses as revenue expenditure. The Revenue's appeal for A.Y. 2009-10 was dismissed.
1. Expenditure on Software Licence Fees (A.Y. 2009-10):
The assessee, engaged in pre-employment screening, claimed a deduction of Rs. 60,35,642/- for software licence fees. The Assessing Officer (AO) treated this as capital expenditure, arguing that the software provided enduring benefits. The CIT(A) partially agreed, treating Rs. 13,39,834/- as revenue expenditure and the remaining Rs. 46,95,808/- as capital expenditure.
The Tribunal considered the ownership, functionality, and enduring benefit tests as laid out in the ITAT Special Bench decision in Amway India Enterprises. The software was not owned by the assessee, provided no enduring benefit due to obsolescence, and was used for routine business operations. Following the precedent from the assessee’s own case for A.Y. 2010-11 and the Hon'ble Bombay High Court in Raychem RPG Ltd., the Tribunal held that Rs. 55,57,875/- (excluding Rs. 4,77,767/- for a license beyond two years) was revenue expenditure. The remaining Rs. 4,77,767/- was capital expenditure eligible for depreciation.
2. Foreign Exchange Loss (A.Y. 2009-10):
The AO disallowed a foreign exchange loss of Rs. 31,21,769/- on revaluation of foreign currency sundry creditors and debtors, considering it notional. The CIT(A) allowed the claim following the Supreme Court decision in CIT vs. Woodward Governor India P. Ltd.
The Tribunal upheld the CIT(A)’s decision, stating that the loss arose from trade transactions and was thus allowable as per the Supreme Court’s ruling. Consequently, the Revenue’s ground on this issue was dismissed.
3. Software Expenses (A.Y. 2005-06):
The assessee challenged the CIT(A)’s decision treating Rs. 28,62,118/- spent on Windows XP Professional as capital expenditure. The CIT(A) held it provided enduring benefits as it was not renewed annually. The assessee argued it was an application software, thus revenue in nature.
The Tribunal referred to Coordinate Bench decisions in Boots Piramal Healthcare Ltd. and Pennwalt Ltd., which treated similar software expenses as revenue. Applying the tests from Amway India Enterprises, the Tribunal found the expenditure on Windows XP Professional to be revenue as it was for routine office use and became obsolete quickly. The Tribunal reversed the CIT(A)’s finding and directed the AO to delete the disallowance.
Conclusion:
- Revenue’s appeal for A.Y. 2009-10 is dismissed. - Assessee’s appeal for A.Y. 2009-10 is partly allowed. - Assessee’s appeal for A.Y. 2005-06 is allowed.
Order pronounced in the open court on 7th June, 2016.
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