AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2017 (4) TMI 819
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....o 507/2002 - CIT vs. Wipro Ltd and followed in Wipro Ltd vs. DCIT, Central Circle 1(3) reported in 236 Taxmann 209 and decisions of other High Courts which apply to the facts of the case that amounts paid for purchase of packaged software cannot be royalty. 4. The learned CIT(A) has erred in relying upon the decision of the jurisdictional High Court in Samsung Electronics Ltd (2011) 345 ITR 494 to hold that payment made to the software vendor as royalty, when the said case is not applicable to the facts of this case. 5. The learned CIT (A) erred in holding that appellant was obliged to deduct tax at source in the previous Year 2007-08 and 2008-09 on the payment made to the vendor for acquisition of license, increase in users and extension of license when such payment was held not to be royalty by the jurisdictional tribunal. 6. The learned CIT (A) erred in concluding that amount in the nature of royalty cannot be capitalised. 7. The CIT (A) has erred in including professional fees of Rs. 7,17,744 for implementation, interest paid to bank and other expenses connected with implementation Rs. 5,81,618 capitalised under software of Rs. 34,52,190 as royalty to be disallowed by t....
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.... i n the block of computer asset. Once the assessee capitalized the payment and has not claimed the same as an expenditure against the profits of the business of the assessee, then, the question arises whether the depreciation which is a statutory deduction as per the section 32 of the Act can be disallowed by invoking the provisions of section 40(a)(i) of the Act. At the outset, it is to be noted that on the similar set of facts anidentical issue has been dealt by the ITAT, Mumbai Bench in the case of SKOL Breweries Ltd. (supra), wherein it was held in paras 16.1 to 16.4 as under :- " 16.1 As regards the alternative plea of the ld Sr counsel for the assessee that since the assessee has not claimed the entire amount as revenue expenditure; but has capitalized the same and claimed only depreciation u/s 32(1)(ii); therefore, provisions of sec. 40(a)((i) shall not apply. Section 40(a)(i) contemplates that any interest, royalty, fee for technical services or other sum chargeable under this act, which is payable outside India as it is relevant for the case in hand on which tax is deductible at source under Chapter XVII -B and such tax has not been deducted or, after deduction, has no....
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....l services or other sums chargeable under this Act shall not be deducted while computing the income under the head profit and gain of business or profession on which tax is deductible at source; but such tax has not been deducted. The expression 'amount payable' which is otherwise an allowable deduction refers to the expenditure incurred for the purpose of business of the assessee and therefore, the said expenditure is a deductible claim. Thus, section 40 refers to the outgoing amount chargeable under this Act and subject to TDS under Chapter XVII-B. There is a difference between the expenditure and other kind of deduction. The other kind of deduction which includes any loss incidental to carrying on the business, bad debts etc., which are deductible items itself not because an expenditure was laid out and consequentially any sum has gone out; on the contrary the expenditure results a certain sums payable and goes out of the business of the assessee. The sum, as contemplated under sec. 40(a)(i) is the outgoing amount and therefore, necessarily refers to the outgoing expenditure. Depreciation is a statutory deduction and after the insertion of Explanation 5 to sec. 32, it is....
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.... know-how was capitalized and it was not claimed as revenue expenditure. Therefore, there was also no reason to disallow depreciation on such capitalized amount as the aforesaid provision does not deal with deduction of depreciation. Having considered arguments from both the sides, we are of the view that there is no error in the order of the learned CIT(A) which requires correction from us. Thus, this ground is also dismissed." 6. Learned counsel for the revenue was unable to substantiate that in the absence of any requirement of law for making deduction of tax out of the expenditure on technical know how which was capitalized and no amount was claimed as revenue expenditure, the deduction could be disallowed under Section 40(a)(i) of the Act. Accordingly, no infirmity could be found in the order passed by the Tribunal which may warrant interference by this Court. Thus, both the questions are answered against the revenue and in favour of the assessee." 16.4 In view of the above discussion as well as following the decision of the Hon'ble Punjab & Haryana High Court, we decide this issue in favour of the assessee and against the revenue." 7. As it is clear from the abov....