Software Depreciation Ruling: 60% Allowed, Non-Resident Payments Not Royalty

The Tribunal allowed the appeal filed by the assessee, admitting the appeal for adjudication after condoning a 12-day delay in filing. It held that computer software qualifies for 60% depreciation as an integrated part of a computer system, not 25% as considered by the authorities. Additionally, payments to a non-resident for the purchase of software were not considered royalty, exempting them from TDS deduction under section 195 of the IT Act, 1961. The AO was directed to allow depreciation at 60% and delete the disallowance of payments to the non-resident.

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Issues:
1. Condonation of delay in filing appeal before the Tribunal.
2. Disallowance of excess depreciation on computer software.
3. Disallowance of payment made to a non-resident for purchase of software.

Condonation of Delay:
The appellant sought condonation of a 12-day delay in filing the appeal before the Tribunal, citing administrative activities associated with merger activities as the reason for the delay. The Tribunal considered the reasons provided and concluded that the delay was unintentional, falling under a reasonable cause for condonation of delay. The appeal was admitted for adjudication.

Disallowance of Excess Depreciation on Computer Software:
The dispute revolved around the depreciation claimed on computer software by the assessee at 60%, while the AO restricted it to 25% as applicable to intangible assets. The Tribunal determined that computer software, including Windows and operating systems, qualifies as an integrated part of a computer system eligible for 60% depreciation, not 25% as considered by the authorities. The AO and CIT(A) were found to be in error, and the AO was directed to allow depreciation at 60% as claimed by the assessee.

Disallowance of Payment to Non-Resident for Purchase of Software:
The issue involved the disallowance of payment made to a non-resident for the purchase of software due to non-deduction of tax at source under section 195 of the IT Act, 1961. The AO treated the payment as royalty, citing a Karnataka High Court decision. However, the Tribunal disagreed, stating that the payment was for a copyrighted article, not a copyright itself, falling outside the definition of Royalty under section 9(1)(vii). Legal principles, including court decisions, were cited to support the distinction between a copyrighted article and copyright. The Tribunal directed the AO to delete the disallowance of payments made to the non-resident for the purchase of software.

In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing the eligibility of computer software for higher depreciation rates and clarifying that payments for copyrighted articles do not constitute royalty, thus not requiring TDS deduction under section 195 of the IT Act, 1961.

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