TaxTMI 
TaxTMI 
TaxTMI 
2013 (4) TMI 315
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....2,522/- on account of depreciation since the amendment to section 43(6) was introduced in Parliament to show intention of legislature as clearly mentioned in Hon'ble finance Minister's speech in Parliament and accepting the decision will defeat the purpose of legislature. 3. That on the facts and circumstances of the case, Ld. CIT(A)-IV, Kolkata has erred in law in deleting the addition of 20,00,000/- incurred by the assessee on software development expense treating it as revenue expenditure, without appreciating the fact that software development is not restricted to only one year and the assessee will get enduring benefit just like a capital goods. 4. That on the facts and circumstances of the case, Ld. CIT(A)-IV, Kolkata has erred in law in directing the A.O. to allow deductions of 3,82,45,000/- being provision for diminution in the value of investment and 1,35,78,000/- being provision for contingency written back to ascertain book profit u/s. 115JB without appreciating the fact that both the deductions are not admissible in computing Book Profit u/s. 115JB. 5. That on the facts and circumstances of the case, Ld. CIT(A)-IV, Kolkata has erred in law in directing the A.O. to co....
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....ndustries Ltd. -vs- CIT 270 ITR 167 in favour of the assessee. The decision of the Hon'ble High Court is binding on us. In view of this fact, we dismiss the ground no.1 taken by the Revenue. 4. Ground no.2 relates to the claim of depreciation by the assessee. The AO refused to allow the assessee's claim on the ground that the entire depreciation at the relevant rate was allowed in computing the business income to which Rule 8 was applied. The AO even noted the decision of the Hon'ble Supreme Court in the case of CIT-vs- Doom Dooma India Ltd. 310 ITR 392 but observed that the section 43(6) was amended by the Parliament by Finance Act 2009 but the amendment was clarificatory in nature and therefore, he disallowed part of the depreciation claimed by the assessee. When the matter went in appeal before the CIT(A), the CIT(A) allowed the claim of the assessee by observing as under: "5. I have considered the submissions of the A/Rs; perused the judgment of the Apex Court & the provisions of Sec. 43(6) as amended by Finance (No.2) Act 2006. In my opinion the amendment to Sec. 43(6) of the Act was not clarificatory in nature. Provisions of Finance (No.2) Bill 2009; Memorandum accompanying ....
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....ns at the gardens the appellant adopts technological tools such as computers. The expenditure on developing computer software was incurred to enable the appellant to utilize its existing computer net-work more efficiently and effectively so that operational efficiencies could be improved. It is not the case of the AO that the assessee acquired and installed entirely new computer hardware and software. As claimed by the assessee it was already using computers at its Tea Gardens. The expenditure on computer software development incurred during the year enabled the appellant to co-ordinate networking of its existing computer operations at all gardens. The software merely coordinated operations of the Computers located in different gardens which were earlier working on stand alone basis & thereby improved the operational efficiency. The development of software was an on going process because the systems needed improvement & upgradation from time to time keeping in view the constant improvement in technology in the field of computer science. I also find force in the A/R's submission that by incurring expenditure on software development appellant had not acquired any capital asset nor an....
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....t in the revenue field, then the same would be revenue, irrespective of the duration of time for which the assessee acquires rights in a software. The period of advantage in the context of computer software should not be viewed from the point of view of different assets or advantage like tenancy or use of know-how because Software is a business tool enabling a businessmen's ability to run his business. Whether the expenditure operates to add the profit earning apparatus of the assessee (Functional Test): 57. The advantage which an assessee derives has to be seen. The 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, however, if assets/advantage is part of profit earning apparatus, it is capital. 58. The following factors would be relevant to determine whether the advantage Operates in the capital field or....
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....asset. (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 expenditure like purchase of new computer equipment for running the software developed under a project, then it can be considered as capital expenditure. This is especially the case where the new hardware is not merely desirable but necessary for this purpose. (iii) Degree of associated organizational change; similarly the degree of change intended in the way operations are carried out as a result of the Computer software, for example, savings in the number, and changes in the location, of staff used to provide services to customers will have a bearing. The more radical the changes, the more likely the expenditure will be capital. These changes are likely to be most radical when operations previously carried on manually are computerized. (iv) It has to be borne in mind that computer software industry is of a fast changing nature. Therefore whatever software purchased by an assessee would become outdated much ea....
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....here could be improvement in efficiency. The assessee has not acquired any capital asset nor any benefit of enduring nature. The assessee was already using the computer at its tea gardens. The expenses incurred in the software development enabled the assessee to coordinate its existing computer operations at all tea gardens more effectively and efficiently. Development of the software is on going process because the system requires upgradation from time to time due to change and improvement in the technology. The expenses so incurred are merely the revenue expenses. In this regard, reliance was placed on the decision of Amway India Enterprises -Vs- DCIT 111 ITD 112 Delhi Special Bench. It was also pointed out that the decision of the Delhi Special Bench was confirmed by Hon'ble Delhi High Court in the case of CIT -vs- Amway India Enterprises 346 ITR 341. 9. We have heard the rival submissions and carefully considered the same. We noted that the assessee has incurred the expenses on the upgradation of the computer hardware and the software. The expenditure has not been incurred for starting new hardware or software. The upgradation of the computer will not make the expenditure to b....
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....nt earlier belonged to Eveready Industries (I) Ltd. and it was transferred to the appellant consequent to sanction of the scheme of arrangement approved by the Calcutta High Court which came in force from 1.4.2004. M/s. George Williamson (Assam) Ltd was amalgamated with the appellant with effect from 1.4.2005 after obtaining approval from the Calcutta & Gauhati High Courts. It appeared from the information furnished by the A/R that Provision for Contingency was created by M/s. Eveready Industries (India) Ltd in its financial books for the year ended 31 March 2001. In the income tax return filed for the A.Y. 200 1- 02 in computing "book profit" u/s 115 JB M/s. Eveready Industries (India) Ltd did claim deduction for Provision for Contingency. In other words, the "book profit" of Eveready Industries (I) Ltd for A.Y. 2001-02 were assessed without allowing deduction for Provision for Contingency. Out of the Provision created in A.Y.2001-02 for which no deduction was allowed in arriving at book profit u/s 115 JB, the appellant wrote back Rs.1,35,78,000/- to its Profit & Loss A/c for the year ended 31.3.2007. As regards Provision for diminution in value of investment written back in the P....
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.... compel us to take a view different from the CIT(A). In view of the Explanation 1(i) of section 115JB, in our opinion, no interference is called for in the order of the CIT(A). We accordingly, dismiss this ground no.4. 12. Ground no.5 relates to the deletion of interest receipt of Rs.1,59,90,313/- by the CIT(A), 40% of which was added by the AO as part of assessee's income of growing and manufacturing of tea, while determining the profit under section 115JB. Brief facts of the case are that the assessee used part of the business funds, which was temporarrily surplus, in granting loans and deposits for which the assessee earned the interest income. In the Profit & Loss a/c., the assessee has debited gross interest paid on borrowed funds and separately credited gross interest received on the funds advanced. The AO did not agree with the assessee that as per Rule 8, the entire net profit as disclosed by the assessee in its Profit & Loss a/c. was to be apportioned in the ratio of 60:40 and only 40% of the net profit was to be considered as book profit under section 115JB of the Act. The AO further held that nowhere in section 2 of the Act, interest to be considered to be the agricultu....
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....tional Calcutta High Court in the case of Eveready Industries (I) Ltd in 1TA Nos 123 of 2000 dated 22.12.2009. In that case also the assessee engaged in business of growing and manufacture of tea had derived interest income which was assessed subject to application of Rule-8. In the regular income tax assessments, the AO did not assess interest income separately but considered the interest to be part of the composite business of growing and manufacture of tea & thereby assessed only 40% of such income under central income tax assessment. The C I T in his order u/s 263 directed to AO to assess gross interest received as fully chargeable to tax under Central Income Tax. The Order of the CIT u/s 263 was upheld by the Tribunal. On further appeal, the Calcutta High Court however held that the interest income was rightly treated by the AO to be part of assessee's business of growing and manufacture of tea subject to Rule - 8 and therefore only 40% of interest income could be brought to Central Income Tax. 15. The decision of the Calcutta High Court squarely answers the question raised in Ground No. 6 of the present appeal. In appellant's case also after netting of interest received agai....
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....f such interest income will be regarded to be the agricultural income and the assessee will be entitled for deduction, in view of Explanation 1(ii) to section 115JB. 15. The ld. D.R. before us vehemently relied that the interest income earned by the assessee on the surplus funds cannot be regarded to be the income derived from the sale of tea grown and manufactured. In this regard, he relied on the decisions of the Hon'ble Supreme Court in the cases of Liberty India -vs- CIT 317 ITR 218 as well as CIT-vs- Orchev Pharma (P) Ltd. 25 Taxmann.com 815(SC). The reliance was also placed on the decision of the Hon'ble Supreme Court in the case of Pandian Chemicals Ltd. -vs- CIT 262 ITR 278. We noted that the Hon'ble Supreme Court has noted in the case of Liberty India that the deduction available under section 80-IB for the assessment year 2001-02 with the word "derived from" is narrower in connotation as compared to the words "attributable to" in the case of Pandian Chemicals -vs- CIT 262 ITR 278, the Hon'ble Supreme Court has considered the word "derived from" when the question arises whether the interest earned by the assessee in respect of deposits made with the Electricity Board for ....
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....annot be regarded to be the income derived from the sale of tea grown and manufactured by the assessee. This income may be regarded to be the income derived from the business of the assessee but it does not have a direct linkage with the income derived from the sale of tea grown and manufactured. The ld. A.R., even though vehemently relied before us on the decision of the Hon'ble Kolkata High Court in the case of Eveready Industries India Ltd. in ITA No. 123 of 2000. In this case, we noted that the Hon'ble High Court has held at page 16 and 17 as under: "As we have already narrated above that the assessee in this case procured loans from banks and other financial institutions for its tea growing and manufacturing business and part of such fund remain temporarily unutilized. The assessee, instead of keeping the amount idle, invested the surplus fund in short-term interest hearing fixed deposits and earned interest. The main activity of the assessee is growing, manufacturing and selling of teas and not that of earning interest by investing in short-term fixed deposits. The assessee earned interest on such short-term fixed deposits made out of the business fund available with the asse....