TaxTMI 
TaxTMI 
2018 (12) TMI 988
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....s and circumstances of the case, the Appellate Tribunal was right to hold that the expenditure incurred in nature when the software on which expenses are incurred neither has an enduring benefit not does it amount to creation of a new asset? (iii) Whether the Tribunal ought not to have considered the nature of the expenses for the purpose of determining whether it is allowable expenditure or not irrespective of the way it was dealt with by the assessee for the purpose of its accounts?" 3.The assessee filed return of income for the relevant years and claimed expenditure towards development of two types of softwares and they claimed deduction to be a revenue expenditure. The two softwares which were developed by the assessee were called Spectrum 2000 and Options Explorer. The assessee had treated the expenditure towards the product development in capitalizing the same in the books of accounts and while presenting the returns, the expenditure was claimed as revenue expenditure under Section 37(1) of the Act. The Assessing Officer rejected the contentions of the assessee and disallowed the same. Aggrieved by the order, the assessee preferred appeals to the Commissioner of Income Tax....
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....a existing software. This was with the reason to compete in the market and for the improvement of the existing product. Therefore, the Tribunal erred in applying the said decision and consequently, erred in allowing the appeal filed by the Revenue. The CITA after taking into consideration the facts of the case, in our opinion rightly held that the products are not similar to development of specific new products and it is in respect of the expenditure incurred in improving of the existing product and the work was initiated for securing the market over others in the field of business and the assessee's business is developing of software and expenditure incurred on a project which was perceived to be of great potential cannot be disallowed because such potential has not been realised. Further, it was pointed out that it is not necessary that every expenditure results in taxable income and it cannot be held that unless income is generated, expenditure cannot be allowed. 7.The above conclusion arrived by us is supported by the decision relied upon by the learned counsel for the appellant in the case of CIT Vs. Southern Roadways Limited, T.C.(A).No.2454 of 2006, dated 07.10.2006, wh....
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.... for improving their efficiency but without making any structural alterations is not of an enduring nature. The expenditure incurred by the assessee has therefore to be treated as revenue expenditure. 10. Similar view has been taken by this Court in T. C. Nos. 1397 and 1398 of 2005, by judgment dated 20-1-2006 (CIT v. Southern Roadways Ltd. (2006) 282 ITR 379 (Mad)). Accordingly, the second question is answered in the affirmative, against the revenue and in favour of the assessee. 8.In Commissioner of Income Tax vs. The Lakshmi Vilas Bank Ltd. in T.C.A.Nos.210 and 211 of 2018, the substantial question of law framed for consideration was whether the Tribunal was right in hold that software expenditure is to be treated as a revenue expenditure and not as a capital expenditure? The revenue placed reliance on the decision of the Delhi High Court in Bharti Televentures Ltd. vs. Additional Joint Commissioner of Income Tax[2013 (81) DTR 0225] and held that the expenditure was to be treated as a revenue expenditure due to advanced technology, the software becomes obsolete. The Court referred to the decision in the case of Empire Jute Co. Ltd. vs. CIT [1980 (124) ITR 1 (SC)] and also hel....
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.... we have also referred to the decision of the Bombay High Court in Zenith Steel Pipes Ltd. vs. CIT (supra), wherein it has been held that putting up of a barbed wire fence was a revenue expenditure. 6.3 When an identical question whether the expenses incurred for replacing the old barbed wire fence around the compound by a compound wall is a revenue expenditure or capital expenditure came up for consideration before the Karnataka High Court in CIT vs. B.V. Ramachandrappa & Sons (1991) 97 CTR (Kar) 180 : (1991) 191 ITR 34 (Kar), applying the wellsettled principles laid down by the House of Lords, Privy Council, apex Court as well as by the decision of several other High Courts, referred supra, the Karnataka High Court held as follows: " .. The purpose of the fence around the business premises was to prevent trespassers and thieves from entering into the business premises; the dominant purpose was to safeguard the property in the premises. The materials in the premises were part of the business assets of the assessee. In this context, the compound wall could not be treated in isolation. It was part of the business premises and when only a part of the premises was replaced, prim....
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....n question No. 1 above, are applicable in all fours to questions 3 and 4 also. 7.2 That apart, this Court in CIT vs. Southern Roadways Ltd. (2006) 202 CTR (Mad) 279 : (2006) 282 ITR 379 (Mad), applying the ratio laid by the apex Court in the case of Alembic Chemical Works Co. Ltd. vs. CIT (supra), cited supra, held that upgradation of computers by changing certain parts, thereby enhancing the configuration of the computers for improving their efficiency, but, without making any structural alterations is not of an enduring nature and hence, the expenditure incurred by the assessee has to be treated as revenue expenditure. The said view was again followed by this Court in CIT vs. Southern Roadways Ltd. (2007) 288 ITR 15 (Mad). 7.3 In view of the above settled proposition, we hold that the Tribunal has rightly held the expenditure incurred on replacement of UPS and printer as a revenue expenditure. For the foregoing reasons, we find no question of law much less substantial question of law that arises for our consideration in these appeals. Accordingly, the tax case appeals stand dismissed. Consequently, M.P.Nos. 1 of 2007 in Tax Case (Appeal) Nos. 701 to 704 of 2007 are also dismi....