Tribunal directs revenue treatment for MS Office license but remits investment value and bad debts issues for re-examination.

M/s ILink Multitech Solutions Pvt. Ltd. C/o M/s Ramesh And Ramachandran Chartered Accountants Versus The Deputy Commissioner of Income Tax, Corporate Circle 2 (2), Chennai

M/s ILink Multitech Solutions Pvt. Ltd. C/o M/s Ramesh And Ramachandran Chartered Accountants Versus The Deputy Commissioner of Income Tax, Corporate ... Issues:
1. Treatment of expenditure incurred for MS Office software license.
2. Diminution in value of investment in subsidiary company.
3. Bad debts written off to sister concern.

Analysis:

1. Treatment of expenditure for MS Office software license:
The appellant claimed expenditure on MS Office software license as revenue under Section 37 of the Income-tax Act, 1961, while the Assessing Officer treated it as capital expenditure. The appellant cited judgments from various High Courts to support their claim. The Tribunal observed that the ownership of the software remained with Microsoft, and the licensee (appellant) had to periodically renew the license. The Tribunal held that the expenditure cannot be considered capital as the software provided enduring benefit in the course of earning profit. The Tribunal set aside the lower authorities' orders and directed the Assessing Officer to treat the expenditure as revenue.

2. Diminution in value of investment in subsidiary company:
The appellant claimed diminution in value of investment in a UK subsidiary due to continuous losses, seeking it as a revenue expenditure. The Departmental Representative argued that the loss on diminution in value of investment in the UK subsidiary was not allowable as income from the subsidiary was exempted from taxation in India. The Tribunal noted that control and management of the subsidiary company in India and the Double Taxation Avoidance Agreement between UK and India were not considered by the lower authorities. The matter was remitted back to the Assessing Officer for re-examination.

3. Bad debts written off to sister concern:
The appellant claimed bad debts for an amount advanced to its sister concern, which could not be recovered due to the sister concern closing its business. The Departmental Representative contended that the amount advanced was not a debt and was not written off in the books. The Tribunal found that the claim was not verified for write-off in the books and whether it constituted a business loss. The issue was remitted back to the Assessing Officer for further examination.

In conclusion, the Tribunal partially allowed the appeal for statistical purposes and allowed the other appeals related to the treatment of expenditure for MS Office software license. The issues regarding diminution in value of investment and bad debts written off to the sister concern were remitted back to the Assessing Officer for re-examination based on the observations made.