2017 (8) TMI 73

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....mmon order. 2. The brief facts of the case are that the assessee is a public limited company engaged in the business of development of software for various applications software, customised and noncustomised, ERP products, ERP tools etc. The assessee also deals in computer hardware products. The assessee filed its return of income for assessment year 2008-09 declaring a loss of Rs. 46,74,272/-. The AO, while completing the assessment under section 143 (3) of the Income Tax Act, 1961 ("the Act") made an addition of Rs. 141,629,253/- on account of partial disallowance of depreciation on software and intellectual property rights (IPR) by reducing the depreciation allowance at the rate of 60%, as claimed by the assessee, to 25% on the basis of....

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....ve submitted that up to assessment year 2004-2005, the assessee had claimed depreciation on intellectual property rights at the rate of 25% and the change was made w.e.f. assessment year 2005-2006 by claiming depreciation at the rate of 60%. The Ld. Departmental Representative submitted that the assessee was asked to show cause as to why the depreciation should not be restricted to 25% only and the response of the assessee was not accepted by the AO because intellectual property rights were kind of patent rights which came under intangible assets and the eligible rate of depreciation was 25%. The Ld. Departmental Representative submitted that the Ld. CIT (Appeals) had erred in ignoring this finding of the AO and had, thus, erred in deleting....

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....rred on purchase and development of software only. It was further submitted that the AO had misconceived that the software purchased as well as developed in-house was an intellectual property right. The Ld. AR further submitted that the amount capitalised consisted of expenses incurred on purchase of software from various lenders, which were used as platform for developing new software and the Patent/Copyright of such purchase was registered in the name of the creator of such software. Further, the amount capitalised also included expenses incurred on developing ERP tools, software etc developed in-house but not registered in the name of the assessee. Thus, the assessee company had only software and did not have any intellectual property ri....

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....vident that computer software and intellectual property rights are altogether two different types of assets. Appendix I of the Income Tax Rules treats computer software as a tangible asset whereas intellectual property rights are treated as intangible assets. It is undisputed that the software purchased developed in-house can be treated as intellectual property right only when the said software is registered in the name of the person applying for such registration as per the provisions of the Patents Act, 1970 (as amended by (Patent (Amendment) Act, 2005), the Copyright Act, 1957 or any other relevant act. It is undisputed that the assessee company has not got registered the software purchased or developed in-house as a Patent or a Copyrigh....