TaxTMI 
TaxTMI 
2014 (12) TMI 1107
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....oftware, which was an intangible asset as defined u/s. 32 of the I.T. Act? 3. The appellant craves leave, to add, alter or amend any ground of appeal raised above at the time of the hearing." 3. The brief facts of the case are that the assessee is engaged in the business of manufacturing of gears, synchronizers, transmission components etc. for road vehicles. During the assessment proceedings, the AO observed that in terms of an agreement dated 18.12.2007, the assessee had been allowed use of the brand name, "Oerlikon" by its parent company, M/s OC Oerlikon Corpn. AG, Switzerland. Under the agreement, the assessee was required to pay trademark fees @1.5% of the turnover. Vide subsequent agreement dated 30.12.2010, this fees was reduced to 1%. The AO held the above fee as capital in nature in view of the amended provisions of Section 32(1)(ii) and allowed depreciation thereon @25%. Secondly, the AO also capitalized an amount of Rs. 8,61,374/- on account of license fee paid by the assesee towards purchase of computer software for its users and disallowed the same. 4. Against the order of the Ld. AO, assessee appealed before the Ld. CIT(A), who vide impugned order dated30.7.2....
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....es that G4F has the right to enforce, or to enjoy the benefit of any term of this agreement which is expressly or impliedly in favour of G4F. In clause 4.6 of the sub license agreement, it has been provided that on termination or expiration of the sub license agreement, the assessee shall return all G4F knowhow obtained in pursuant to the Agreement. At Clause 4.7 it has been provided that on termination or expiration of the agreement, the appellant/assessee shall not thereafter make any use of the trade mark, trade name or G4F knowhow and shall forthwith change its corporate and/or trade names. 9. From the terms of the agreement it is noticed that this arrangement was for a period of 5 years, which may be extended by another period of 5 years unless either party gives 6 months notice to the other party prior to the end of such 5 years period. The payment of commission @ 1% was based on the net sales and not lumpsum. On the termination of expiration of the sub license agreement, the assessee was to return all G4F knowhow obtained pursuant to the said agreement. Not only that, the assessee was not even entitled to make use of the trade mark name or G4F knowhow and was forthwith to....
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....f royalty was also to be on year to year basis on the net sales of the assessee and at no point of time the assessee was entitled to become the exclusive owner of the technical knowhow and the trade mark. Hence, the expenditure incurred by the assessee as royalty is revenue expenditure and is therefore, relatable under Section 37(1) of the Act. We thus, answer the question in favour of the Assessee and against the Revenue and consequently dismiss all the three appeals." 7.1 In view of above, we are of the considered view that above issue is exactly the similar to the issue involved in the present appeal and covered by the aforesaid decision. Hence, respectfully following the above precedent, we decide the issue in dispute in favor of the Assessee and against the Revenue. 7.2 As regards Ground No. 2 is concerned, the Revenue has challenged the impugned Order of the Ld. CIT(A) in deleting the disallowance of license fee of Rs. 3,44,550/- by holding it as revenue expenditure and without considering that the assessee had acquired proportionate rights to use the software, which was an intangible asset as defined u/s. 32 of the I.T. Act. After hearing both the parties on the issue ....
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....the nature of capital expenditure. 9. The revenue in support of its stand has taken recourse to the test of enduring benefit. It is in our view now somewhat trite to say that the test of enduring benefit is not a certain or a conclusive test which the courts can apply almost by rote. What is required to be seen is the real intent and purpose of the expenditure and whether the expenditure results in creation of fixed capital for the assessee. It is important to bear in mind that what is required to be seen is not whether the advantage obtained lasts forever but whether the expense incurred does away with a recurring expense(s) defrayed towards running a business as against an expense undertaken for the benefit of the business as a whole. In other words, the expenditure which is incurred, which enables the profit making structure to work more efficiently leaving the source of the profit making structure untouched, would in our view be an expense in the nature of revenue expenditure. Fine tuning business operations to enable the management to run its business effectively, efficiently and profitably; leaving the fixed assets untouched would be an expenditure in the nature of revenue....
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....ing officer in support of its order which found resonance in submissions of the learned counsel for the revenue is, in our view flawed and, hence it would have to be rejected. 10.1. Secondly, the mere fact that the assessing officer records that the expenditure, in financial year 1997-98 (assessment year 1998-99), was incurred towards what he terms as an "on-going project‟ would not ipso facto give it a colour of capital expenditure. A careful reading of the Tribunal's judgment show that after noticing the submission of the assessee that the expenditure incurred in the said assessment year was for removing deficiencies which were found in the software installed in the earlier assessment year, and that, out of a sum of Rs. 1.71 crores a sum of Rs. 49 lacs was incurred to modify, customize and upgrade the software installed, while the balance expenditure was used for development and implementation - it returned a finding that the expenses were incurred to upgrade and run the system. In view of these findings we are of the opinion that assessing officer discovered an erroneous principle on the basis of which he denied the exemption to the assessee. 11. Software is nothing ....