INCOME TAX ACT, 1961

Section 40(a)(i)

Business disallowance under section 40(a)(i) - Non-deduction of tax at source - Applicability of section 40(a)(i) - Depreciation on purchase of software capitalized in books of account

Assessee-company purchased software and capitalized the same in its book of account. Admittedly the assessee did not deduct tax at source on the payment made to non-resident for purchase of software. The assessing officer was of the view that the payment in question was in the nature of royalty and since the assessee did not deduct tax at source as required under section 195 of the Act, the sum claimed as depreciation should be disallowed by invoking the provisions of section 40a(i)/(ia) of the Act. Held: Depreciation is a statutory deduction and after insertion of Explanation 5 to section 32, it is obligatory on part of AO to allow deduction of depreciation on eligible asset, irrespective of any claim made by assessee. Admittedly expenditure in question incurred in respect of purchase of software had been capitalized in books of account and had not been debited to the profit and loss account. Deduction under section 32 is not in respect of amount paid or payable which is subjected to TDS; but it is a statutory deduction on an asset which is otherwise eligible for deduction of depreciation. Depreciation is not an outgoing expenditure and, therefore, section 40(a)(i) does not attract on such deduction.

Relied:SKOL Breweries Ltd. v. Dy. CIT (2013) 29 Taxman.com 111 (Mum-Trib) : 2013 TaxPub(DT0 973 (Mum-Trib) and Mark Auto Industries Ltd., (2013) 358 ITR 43 (P&H) : 2013 TaxPub(DT) 2663 (P&H-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

INCOME TAX ACT, 1961

Section 92C

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