Computer software depreciation and export-linked foreign exchange gains qualify for tax benefits under the cited regime.

SAP software purchased separately was treated as part of an integrated computer system, so it qualified for depreciation at the higher rate applicable to computer software rather than being restricted to treatment as an intangible asset. Foreign exchange fluctuation gain arising from export realisation was also treated as part of the profits of the eligible undertaking, because it was linked to the export transaction and no separate exclusion applied under section 10AA. On that basis, the assessee's claims for higher depreciation and inclusion of exchange gain in the deduction base were accepted, and the Revenue's objections were rejected.

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Issues: (i) Whether SAP software purchased separately qualified for depreciation at 60% as computer software, or was restricted to depreciation as an intangible asset at 25%; (ii) Whether foreign exchange fluctuation gain formed part of eligible profits for deduction under section 10AA.

Issue (i): Whether SAP software purchased separately qualified for depreciation at 60% as computer software, or was restricted to depreciation as an intangible asset at 25%?

Analysis: The depreciation schedule groups computer software with computers and allows depreciation at 60%. The statutory scheme does not make a further distinction between system software and application software for this purpose. SAP was treated as part of an integrated business computer system and not as a separate intangible asset outside the depreciation entry. The Tribunal also followed its earlier view in the assessee's own case that licensed software is eligible for the higher rate.

Conclusion: The claim for depreciation at 60% on SAP software was ; the Revenue's objection failed.

Issue (ii): Whether foreign exchange fluctuation gain formed part of eligible profits for deduction under section 10AA?

Analysis: Foreign exchange gain arose from export realisation and was linked to the export transaction itself. Under section 10AA(7), the profits of the undertaking are computed with reference to business profits, and the legislature did not provide a separate exclusion of exchange fluctuation gain. The gain was therefore treated as part of the profits of the eligible undertaking and as integral to export business receipts.

Conclusion: The exchange fluctuation gain was includible in the deduction base under section 10AA, and the Revenue's disallowance was unsustainable.

Final Conclusion: The appeal was rejected in entirety and the assessee's entitlement to both the higher depreciation claim and the section 10AA deduction was upheld.

Ratio Decidendi: Where software is used as part of the assessee's computer system, it falls within the depreciation entry for computer software, and foreign exchange fluctuation gains arising from export realisation are part of the profits of the eligible export undertaking for section 10AA purposes.

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