TaxTMI 
TaxTMI 
2008 (11) TMI 432
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....) : (a )That on facts and in law the CIT(A) erred in confirming the disallowance of Rs. 24,79,134 incurred by the appellant for acquiring application software treating it as capital expenditure. (b )Without prejudice to the above, the CIT(A) erred on facts and in law in upholding the action of the Assessing Officer in not allowing depreciation on such software at the rate of 60 per cent being the rate at which computer hardware is eligible for depreciation under the Income-tax Rules, 1962. (c )That the CIT(A) has erred in not dealing with the ground concerning the action of the Assessing Officer in not allowing depreciation amounting to Rs. 5,04,623 [being 60 per cent of Rs. 8,41,039 (WDV-Rs.2,004,105 - Rs. 1,163,066)] in respect of expenditure incurred on application software amounting to Rs. 2,004,105 for assessment year 2001-02 held as capital expenditure by the Assessing Officer." The grounds taken in I.T.A. No. 128 are as under : "1.On the facts and in the circumstances of the case Ld. CIT(A) has erred facts as well as in law in treating the expenditure on leasehold improvement of Rs. 11,98,062 as revenue in nature and holding that Explanation 1 to section 32(1)....
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....nature of advantage has to be seen in a commercial sense. If the advantage is in the capital field then the same would be capital expenditure. If the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of assessee's business to be carried on more efficiently or more profitably, while leaving the fixed capital untouched, the expenditure would be on revenue account. The following factors would be relevant to determine whether the advantage operates in the capital field or revenue field. (i )Nature of Business of the assessee : It is necessary to obtain an understanding of the business function or effect of a concern's software. Software normally functions as a tool enabling business to be carried on more efficiently. The scope, power, longevity of such a tool and its centrality to the functions of the business will all bear on its treatment. (ii )As a general rule it may be stated that the more expensive the computer software the more it is likely to be a central tool of the business and the more enduring is likely to be its effect adding to the profit earning apparatus. If there are associated capital expenditur....
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....agnetic medium containing the computer software with limited or absolute right to use the same by itself would satisfy the requirements of the Plant. The assessee's ownership of limited right over the tangible asset is sufficient to conclude that the assessee is the owner of the Plant. There is therefore no difficulty in allowing depreciation claim at 25 per cent under section 32(1)(i) read with Appendix-I, Part-A Division III(1) to the Income-tax Rules, 1962. With effect from 1-4-2003. Computer Software has been classified as a tangible asset under the heading "Plant" in Appendix-I to the Income-tax Rules entitled to depreciation at 60 per cent. The assessee would be entitled to depreciation 60 per cent from 1-4-2003. The Assessing Officer will examine the issue in the light of the principle laid down by the Special Bench as above and affording the assessee opportunity of being heard decide the issue afresh." 3. In view of above, the matter is restored back to the file of the Assessing Officer for deciding as per the observations made by the Special Bench in the aforesaid order, as discussed hereinabove. 4. A common ground has been taken both by assessee and revenue with ....
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....nt such as wooden partition, panelling, flooring, plumbing etc., he contended that these expenses were incurred in respect of leased premises from where assessee did not get any enduring benefit. Our attention was also drawn to the clause in the lease deed according to which vacant possession was required to be given to the landlord, meaning thereby whatever temporary renovation/refurbishment was done, was required to be removed while giving possession back to the landlord. Reliance was placed on the decision of Hon'ble Supreme Court in case of Empire Jute Co. Ltd. v. CIT [1980] 124 ITR 1 wherein it was observed that even if a benefit spread over a number of years, the expenditure would be on revenue account, where the expenditure merely facilitate assessee's trading operation or enabling the management and control of the assessee's business to be carried on more efficiently and more profitability while leaving the physical capital untouched, such expenditure would be on revenue account even though the advantage may endure for an indefinite future. Accordingly, test of enduring benefit was held to be not to apply blindly and mechanically without regard to the particular facts....
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....r-conditioning duct, networking for computer purposes, electric wiring etc. As the assessee company was operating as per concept of multinational companies, there were no concept of providing separate rooms and only wooden partition were provided. After going through the nature of expenditure so incurred, we found that by incurring these expenditure except expenditure. Air-conditioning duct and furniture, no new asset has come into existence and the expenditure so incurred was on account of commercial expediency and for the commercial use of the lease hold premises and to give proper outlook to the office and to create international standard of good working environment on multinational work culture. The expenditure was claimed under section 37(1) which provide that any expenditure, not in the nature described under sections 30 to 36 and not being in the nature of capital expenditure or personal expenditure and which is laid out wholly and exclusively for the purpose of business, shall be allowed in computing the income chargeable under the head "Profit and gains of business and profession". The nature of expenditure which was on account of refurbishment, wooden partition/panelling,....
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....s either to pay compensation and taken over the improvement or to permit the lessee to take away and remove the improvement. We do not think, having regard to the nature of the tenure of the lessee in the premises and the internal structural changes made therein, and particularly the sole aim and purpose of such changes, that it can be successfully claimed, what is sought to be claimed by the revenue, that the expenses are of capital nature. . . ." 9. Even the expenditure on construction of rooms and improvements for enjoyment of lease hold premises, the Hon'ble Madras High Court in case of Malabar Mills 288 ITR 815 (sic) held that expenditure so incurred was of revenue in nature as the assessee carried some improvements for better enjoyment of the property. Since the benefits derived by the assessee were co-terminus with the lease, there could not be any; enduring benefit to the assessee, the same was therefore, held to be deductible as revenue expenditure. Contention of the revenue to allow the claim of depreciation was dismissed. 10. A fine distinction was made by the Ld. A.R. with respect to the expenditure incurred on 'repairs' and 'current repairs'. He submitted that un....