TaxTMI 
TaxTMI 
2011 (7) TMI 303
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.... of software expenses." 2. The facts of the case are that the assessee-company filed nil return on 31.10.2005. The return was processed u/s 143(1) on 15.02.2007. Thereafter, statutory notices u/s 143(2) and 142(1) were issued on 17.08.2006 and 15.06.2007 respectively for scrutinizing the return. It was found that the assessee is engaged in the business of manufacturing and trading in rubber hoses. Coming to the point of dispute, it is mentioned that the assessee claimed deduction of software expenses amounting to Rs.5,74,674/-. The assessee was required to justify the claim. In response, the details of expenses were filed and it was submitted that the expenses are revenue in nature on account of high obsolescence of the softwares. The Assessing Officer considered the facts. It has been mentioned that software packages are intangible assets as they are used in the process of business and included in fixed assets. The issue of obsolescence is taken care of by providing a high rate of depreciation @60%. Thus, the expenditure of Rs.5,74,674/- has been held to be capital expenditure. After deducting depreciation of Rs.3,44,804/-, addition of Rs.2,29,870/- has been made to the ....
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....are 11th May, 2004 575/- TDS software 7th June, 2004 575/- Mcafee anti virus 29th October, 2004 178,524/- Support charges and installation for Anti Virus 45,000/- Software purchased 27th October, 2004 7,700/- Total Software purchases 1,661,402/- Less: Capitalized during the year 1,086,728/- Closing Balance as 31st March, 2005 574,674/- 2.3 Coming to the findings of the lower authorities, it has been mentioned that functional test has not been considered by them and the addition has been upheld because no evidence could be brought on record to show that useful life was less than two years. In view of the fact that the substantial expenditure had been capitalized by the assessee itself, it is argued that the claim in respect of revenue expenditure should be allowed. 2.4 In reply, the learned DR submitted that a software package is intangible asset, as held in the case of Maruti Udyog Limited (supra). The Act or the Rules do not make any distinction between a capital asset or revenue expenditure in so far as intangible assets are concerned. The assessee has not placed any evid....
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....he expenditure incurred for purchase of various softwares like Card Scanner novell netware and group software, MS Project 2003, Autocad, Microsoft Visal Professional, Leap Software, Microsoft Office etc. The submissions of the assessee are similar to the submissions made in the proceedings for assessment year 2005-06. The Assessing Officer capitalized the expenditure and allowed depreciation @60%, leading to net addition of Rs.14,855/-. The learned CIT(A) upheld the decision as in earlier assessment year 2005-06. The submissions of the learned counsel and the learned DR before us are also the same as in assessment year 2005-06. We find that no data whatsoever has been furnished in respect of useful life of the softwares and the purpose for which they are used. In assessment year 2005-06, the assessee had capitalized the expenditure in respect of card scanner software. This has been claimed as revenue expenditure in this year. In absence of the details above the nature, use and useful life of the softwares, it is held that the lower authorities were right in capitalizing the expenditure, as the burden cast on assessee u/s 37 has not been discharged. Thus, this ground is dismissed. &....
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....uring pendency of agreement; iv) agreement is of short tenure; v) on expiry of agreement no residual right remains with the assessee. 3.2 He also considered the decision in the case of Jonas Woodhead and Sons (India) Ltd. vs. CIT, 224 ITR 342 and Southern Switch Gear limited vs. CIT and Others, 232 ITR 359. On the basis of these decisions, he culled out the proposition, which support the view that the expenditure is capital in nature. These are as overleaf:- i) the technical assistance covers establishment of factory and operation of thereof; ii) even after termination of agreement the assessee is entitled to continue manufacture if goods; iii) the right to make or manufacture certain goods exclusively in India itself is an independent right secured by assessee from foreign company. 3.3 Finally, it has been held that the terms of agreement are quite comprehensive and the whole technical know-how to set up the business has been provided by the Gates Corporation, USA. The assessee has been given indivisible non-transferable and exclusive license to assemble and manufacture products and parts in the territory of Ind....
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....seen whether the benefit is in capital field or in revenue field. 4.1 With this preliminary remark, we examine the contents of the agreement dated 24.08.2004. The recital to the agreement shows that there was a pre existing agreement dated 03.02.1996, which expired on 14.05.2003. The instant agreement is stated to be made substantially on the same terms for granting right or license to manufacture, use and sell the licensed products. In article 1, various terms used in this agreement have been defined. In particular, "technical information" has been defined to mean and include the existing patented and un-patented technological knowledge and inventions, trade secrets, formulae manufacturing process and methods for the manufacture of licensed products such as designs, assembly data and drawings; models; methods; process specifications; product engineering; material specifications; operational, engineering and manufacturing data; norms of productivity and scrap; and quality parameters at all stages of production. Under article 2, the assessee has been granted sole right to manufacture and sell the licensed products using industrial property rights and technical information ....
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....e terms as agreed upon in the earlier agreement dated 03.02.1996. In view thereof, it can also be concluded that the technical knowledge which was being provided under the old agreement will be provided under the instant agreement albeit including assistance in the areas newly discovered by the Gates Corporation. Such up gradation is inherently necessary in view of rapid innovation in every field of technology. But for such innovations the business will not survive. This by itself does not lead to benefit of enduring nature as expenses like product innovations etc. in the existing business are revenue in nature. The agreement is exclusive in terms of manufacturing in the territories of India but non-exclusive in terms of sale all over the world. The exclusive license to manufacture in India without such exclusivity in sale territory by itself does not lead to benefit of enduring nature. The learned DR was specifically requested to point towards any article in the agreement which grants benefit to the assessee to continue to use technical information, trade mark or brand name after expiry of the agreement. He was not able to do so. The agreement does not contain any article regardin....