TaxTMI 
TaxTMI 
2022 (1) TMI 282
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....e assessee as per the normal computation provisions under the Act was less than the computation of total income on the basis of books profits under section 115JB of the Act and therefore the total income of the assessee was determined in terms of section 115JB of the Act. While computing the total income of the assessee as per the normal provisions of the Act, the AO made several additions to the total income declared by the assessee. Against those additions, the assessee preferred an appeal before the CIT(A) and by order dated 19.05.2011, the CIT(A) deleted certain additions made by the AO and confirmed certain additions made by the AO. Against the additions that were confirmed by the CIT(A), the assessee filed appeal before the Tribunal and against the relief allowed by the CIT(A), the Revenue preferred appeal before the CIT(A). The appeal of the Revenue was ITA No.733/Bang/2011 and the appeal of the assessee was ITA No.748/Bang/2011. The Tribunal passed common order dated 28.08.2014 deciding the appeals of the assessee and of the Revenue. The Tribunal allowed assessee's appeal and dismissed the Revenue's appeal. 3. The Revenue filed appeal before the Hon'ble High Court agains....
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....assessee. Therefore, in view of contentions raised by both the parties before us, we deem it appropriate to quash the order passed by the tribunal so far as it pertains to findings of substantial question of law No.1 and remit the matter to the tribunal for decision afresh in accordance with law after considering the rival submissions made on both sides. Therefore, the first substantial question of law is answered accordingly." 5. It can be thus seen from the order of the Hon'ble High Court that the Hon'ble High Court remanded only the question with regard to eligibility of the claim of the assessee for deduction of a sum of Rs. 23,05,49,466/- as revenue expenditure and all other grounds have been dismissed. Consequently the only issue that survives for consideration before the Tribunal is the issue remanded by the High Court which is ground Nos.7 to 10 of the grounds of appeal of the assessee in ITA No.748/Bang/2011. The Registry has however erroneously restored ITA No.733/Bang/2011 also which does not survive for consideration as it has already been decided by the Tribunal and confirmed by the Hon'ble High Court. Consequently, ITA No.733/Bang/2011 is dismissed as not required ....
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....LE 2. A.T. Kearney Ltd 2,58,15,000 Project consultant / program manager, who gives advise and guide the bank and the solution vendors so that the core banking solution is rolled out as per the requirement of the bank's prioritized business projects. 3. IBM 8,40,00,000 For customizing the PROFILE as per the requirements of Indian Banking Procedures and helping in implementing the software at the 4. Bangalore Labs 16,17,000 Fborar npcrhoevsi.ding networking software for the project Total 23,05,49,466 9. Apart from the above, the assessee also incurred a sum of Rs. 3,35,16,164/-towards purchase of computer systems from IBM in connection with the above project. This amount was capitalized by the assessee and there is no dispute in this regard. The assessee claimed the expenditure of Rs. 23,05,49,466/- as detailed above, towards purchase of software as Revenue Expenditure. The contention of the assessee was that the bank has only purchased software license and not the ownership. Further, it was the case of the assessee that the software enables smooth running of the business of the assessee. Since the software is an ap....
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....ific to any particular application. Examples of system software would include the operating system, compilers, editors and sorting programs. Examples of application programs would include an accounts package or a CAD program. Other broad classes of application software include real-time software. business software, scientific and engineering software, embedded software. personal computer software and artificial intelligence software". 13. It has been contended by the learned counsel for the assessee before us that the difference between the system software and application software is as follows: Differences between System Software and Application Software System software is meant to manage the system resources. It serves as the platform to run application software. Application software helps perform a specific set of functions for which they have been designed. System software is developed in a low-level language (assembly language for example) Application software is developed in a high-level language such as Java. C++, .net and VB. System software automatically starts running once the system is turned on and stops when the system is shut down. ....
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.... 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 expenditure even though the advantage would thus collapse in such like cases. It would be only truer in cases which deal with technology and software application which do not in any manner supplant the source of income or added to the fixed capital of the assessee. 17. The learned DR while relying on the order of the CIT(A), pointed out that the assessee by incurring expenses on the project "Vysyamulya" linked 125 branches with a Centralized Processing Solution. The expenses would provide an enduring benefit to the assessee. He submitted that computerization through utilization of modern know-how would give a permanent benefit to the assessee. He submitted that the assessee was allowed depreciation at 25% of the expenses incurred and would get the benefit of deduction of the entire expenses over a period of 4 years. According to him the legislature in its wisdom has allowed higher depreciation on computers/co....
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....y (India Branch), New Delhi, a company incorporated in India, who possess the requisite expertise, fully qualified and experienced person to design, develop and implement the assessee's CBS project, was engaged by the assessee under an Agreement dated 21.2.2000 (copy at page 67 to 124 of assessee's paper book). This agreement gives a picture of what problem the assessee faces in its business and the objective behind undertaking the CBS project. The problem statement says that the assessee wants to gain and exploit technology advantage to be able to provide anytime anywhere, any channel banking services to its clients and compete with international banks and new private sector banks operating in India. The technology solution was desired to have (i) customer centric approach to provide full range of customer, deposit and loan applications and providing on-line batch services to meet the assessee's transaction processing and financial management requirements. (ii) to meet mandatory functional needs of the bank and regulators, (iii) support overall IT strategy of the Bank and (iv) make it reasonably future-proof meaning that it is based on open systems, standards confirms to usage of ....
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.... as per the Act and rules on the expenditure incurred on computer software. Alternatively, the AO held that since the benefit of the expenditure would be available to the assessee for atleast 10 years, the assessee can deduction of the entire expenses in equal amount over a period of 10 Assessment years. 24. Before we specifically deal with the issue in this appeal whether expenditure incurred in implementation of CBS project is to be regarded as Capital Expenditure or Revenue expenditure, it would be relevant to dwell upon the general guidelines and principles laid down by the various higher Courts including the Hon'ble Apex Court for deciding the nature of any expenditure whether capital or revenue. Lord Denning in Heather v. P.E. Consulting Group Ltd. (1972) 48 TC 293 made the following still very pertinent observations at page 321 A: "The question revenue expenditure or capital expenditure - is a question which is being repeatedly asked by men of business, by accountants and by lawyers. In many cases the answer is easy; but in others it is difficult. The difficulty arises because of the nature of the question. It assumes that all expenditure can be put correctly....
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....nditure would be disallowable on an application of this test. In the case of CIT v. Ciba of India. Ltd. 69 ITR 692, the assessee had acquired under the agreement merely the right to draw for the purpose of carrying on its business as a manufacturer and dealer of pharmaceutical products, upon the technical knowledge of the Swiss company for a limited period and since the Swiss company did not part with any asset of its business nor did the assessee acquire any asset or advantage of enduring nature for the benefits of its business, the payment made by the assessee to Swiss company under the agreement was held by the Hon'ble Supreme Court to be towards revenue expenditure observing that the nature of receipt as capital or revenue is not always determinative of the nature of this outgoing in the hands of the person who receives it. Explaining further, it was observed by the Hon'ble Apex Court that the license was for a period of five years liable to be terminated in certain events and since the object of the agreement was to obtain the benefit of the technical assistance for running the business of the assessee the expenditure in question was of revenue nature. 26. A resume ....
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....h either capital or revenue field. 28. Tested on the touchstone of the principles laid down as above, we find that the objective of CBS project was to gain and exploit technology advantage to be able to provide anytime anywhere, any channel banking services to its clients and compete with international banks and new private sector banks operating in India. Towards this end the assessee acquired license to use software "profile" which was to maintain loan and deposit account of customers from Sanchez. It engaged the services of a consultant to design, develop and implement CBS project and the purpose or objectives are already given in paragraph-20 of this order and are not repeated. IBM was engaged to develop a Data Centre and Bangalore Labs Private Limited carried out networking of all the branches of the assessee with Head office through Data Centre. The objective of CBS project is that the assessee wants to gain and exploit technology advantage to be able to provide anytime anywhere, any channel banking services to its clients and compete with international banks and new private sector banks operating in India. The technology solutions were to support retail banking, corporate....
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....are, on the other hand, is a type of software or program that is designed to complete a specific task. For example, Microsoft Word is application software, and it allows you to write documents. An internet browser like Google Chrome is also an application software because it allows you to complete a specific task - like conduct Google searches. The software in respect of which the assessee acquired license from Sanchez is an application software. The Hon'ble Karnataka High Court in the case of IBM Ltd. (supra) taken the view that payment of application software though there is an enduring benefit, it does not result into acquisition of any capital asset and merely enhances the productivity or efficiency and hence has to be treated as revenue expenditure. 31. Another important aspect that needs to be addressed is the stand of the revenue that under clause 5.1 of the license agreement between assessee and Sanchez, the license to use the software is in perpetuity and therefore the assessee has acquired a capital asset which also provides enduring benefit to the assessee. As we have already observed the tests for deciding the question whether an expenditure is capital or revenue in ....