Software licence and year-end provision treatment: revenue deduction allowed, while duplicate disallowance required factual verification.
Expenditure on software licences, database access, support services and periodic upgrades was treated as revenue expenditure because it did not result in acquisition of copyright, proprietary rights or any independent enduring capital asset; the payment was for efficient business operations, so the Revenue's challenge failed. The repeated addition of the same year-end provision was treated as capable of causing double disallowance, as the assessee had claimed prior disallowance or offer of the same item; the matter required limited factual verification before appropriate relief could be granted, resulting in remand on that issue.
Issues: (i) whether expenditure incurred on software licences, database support and periodic upgrades was capital or revenue in nature; (ii) whether the addition made again in respect of year-end provisions resulted in double disallowance and required verification for appropriate relief.
Issue (i): whether expenditure incurred on software licences, database support and periodic upgrades was capital or revenue in nature
Analysis: The expenditure was found to be predominantly on software licences, database access, support services and periodic upgrades. Such outlay did not create any independent or enduring capital asset and was only for the efficient conduct of business. In the absence of any material showing acquisition of copyright or proprietary rights, the payment remained in the revenue field. The principle that a mere right to use software, without transfer of copyright, does not amount to creation of a capital asset supported this view.
Conclusion: The software expenditure was held to be revenue in nature and the Revenue's challenge failed.
Issue (ii): whether the addition made again in respect of year-end provisions resulted in double disallowance and required verification for appropriate relief
Analysis: The assessee had already disallowed the amount in earlier proceedings and placed reconciliation to show that the same item had been offered or disallowed in earlier years. The subsequent addition of the same sum in the year under appeal would amount to double disallowance if the factual position was verified as claimed. The matter therefore required limited verification rather than summary rejection as academic.
Conclusion: The issue was restored to the Assessing Officer for verification and appropriate relief, and the assessee succeeded for statistical purposes.
Final Conclusion: The Revenue's appeals were rejected on the software expenditure issue, while the assessee obtained limited relief by way of remand on the year-end provision issue, leaving the matter finally concluded with a partial success for the assessee.
Ratio Decidendi: Expenditure on software licences and allied support services, absent acquisition of copyright or proprietary rights, is revenue expenditure; and an addition that repeats the same disallowance for the same item of income is impermissible unless the factual position warrants otherwise on verification.