CIT v. Renuga Textiles Mills Ltd.

SUBSCRIBE FOR FULL CONTENT


The Tax Publishers2013 TaxPub(DT) 0032 (Mad-HC) : (2013) 051 (I) ITCL 0100 : (2014) 366 ITR 0649 : (2012) 254 CTR 0423 : (2012) 077 DTR 0355 INCOME TAX ACT, 1961 --Capital or revenue expenditure--Development of software Expenditure therefore--The issue involved was whether in facts and circumstances of case, tribunal was right in holding that development of software was a revenue expenditure and not a capital expenditure. *Held:* Expenditure on development of software constituted revenue expenditure. Therefore, order of Tribunal was confirmed. Income Tax Act, 1961 Section 37(1) In the Madras High Court Chitra Venkataraman & K. Ravichandra Baabu, JJ. CIT v. Shri Renuga Textiles Mills Ltd. Tax Case (Appeal) No. 1282 of 2005 A.Y. 1994-95 18 June, 2012 Income-tax Act, 1961, s. 37(1) In favour of: Assessee Circular F. No. 15/5/63-ITA-l, dated 13-12-1963 Appellan by : T. Ravi Kumar Respondent: Anitha Sumanth JUDGMENT *Mrs. Chttra Venkataraman, J.* The Revenue is on appeal as against the order passed by Tribunal relating to the assessment year 1994-95. Following are the questions of law raised for consideration : '(i) Whether in the facts and circumstances of the case, the Tribunal was right in holding that the amalgamated company is eligible for the benefit of exemption under section 10B which was granted to the amalgamating company in respect of an export-oriented unit set up by it ? (ii) Whether in the facts and circumstances of the case, the Tribunal was right in holding that development of software is a revenue expenditure and not a capital expenditure ?' 2. As far as the second question of law involved in development of software is concerned, in the decision reported in CIT v. Southern Roadways Ltd. (2008) 304 ITR 84 (Mad) : 2008 TaxPub(DT) 759 (Mad-HC) , this Court considered the similar question. In the said decision, following the decision of the apex Court reported in Alembic Chemical Works Co. Ltd. v. CIT: (1989) 177 ITR 377 (SC) : 1989 TaxPub(DT) 1096 (SC) , this Court held that up-gradation of computers by changing certain parts, thereby enhancing the configuration of the computers for improving their efficiency, was only a revenue expenditure. The said view was again followed by this Court in CIT v. Southern Roadways Ltd. (2007) 288 ITR 15 (Mad) : 2007 TaxPub(DT) 682 (Mad-HC). Following the above decisions, we confirm the order of the Tribunal in respect of second question of law. 3. As far as the first question of law on the claim on section 10B of the Income Tax Act, is concerned, following details need to be seen. The assessment year under consideration is 1994-95. The assessee herein was the holding company and Renuga Soft-X Towels (P) Ltd. was a 100 per cent a subsidiary of the holding company. By a scheme of merger effective from 1-1-1993, the subsidiary company stood merged with the assessee company herein. The scheme of amalgamation was sanctioned by this Court under order dated 7-4-1993. Consequent to the merger, Renuga Soft X Towels Ltd. continues to have the 100 per cent EOU status as an undertaking of the assessee company vide E.O. 254 of 1992, dated 8-4-1994 received from Government of India, Ministry of Industry, Department of Industrial Development, Secretariat for Industrial Approvals (EOU section). Based on the said recognition granted, the assessee sought for exemption of income earned by 100 per cent EOU under section 10B of the Act. The Income Tax Officer rejected the contention of the assessee for claim of exemption under section 10B of the Act on the ground that there was no provision for granting of the allowance on the basis of the ownership of the new undertaking. Further, the subsidiary company had opted out the exemption granted under section 10B of the Act for the assessment year 1993-94. Thus, when once the assessee claimed deduction under section 80-1, there could be no further claim under section 1QB. Thus, the claim of the assessee was rejected. Aggrieved by this, the assessee went on appeal before the Commissioner (Appeals). The Commissioner (Appeals) pointed out that consequent on the amalgamation, the EOU status has passed on from the amalgamating company to the hands of the amalgamated company. This arrangement was approved by the Government by its order dated 8-4-1994. Referring to section 10B(2)(iii) of the Act, the Commissioner (Appeals) held that there was no violation of the said provision. Hence, the only question was as to whether the assessee was granted deduction under section 80-I of the Act. The Commissioner (Appeals) directed the assessing officer to verify the same. Otherwise, it agreed with the assessees contention that it was entitled to claim under section 10B of the Act. Aggrieved by this, the Revenue went on appeal before the Tribunal, which upheld the order of the Commissioner (Appeals). The Tribunal pointed out that Renuga Soft X Towels (P) Ltd. had amalgamated with the assessee company. The amalgamating company was 100 per cent EOU and after amalgamation, Ministry of Industries, Government of India recognized the status of the assessee as 100 per cent EOU. Considering the fact that the relief was attached to the industrial undertaking, there being no violation of the provisions of section 10B of the Act too, the Tribunal allowed the claim. Apart from that, it also referred to the CBDT Circular No. 378 dated 3-3-1984 ((1984) 41 CTR (TLT) 77) and held that benefit was attached to the undertaking and not to the ownership, thus, the claim was allowed. Aggrieved by this, present appeal by the Revenue. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0032 (Mad-HC) : (2013) 051 (I) ITCL 0100 : (2014) 366 ITR 0649 : (2012) 254 CTR 0423 : (2012) 077 DTR 0355

INCOME TAX ACT, 1961

--Capital or revenue expenditure--Development of software Expenditure therefore--The issue involved was whether in facts and circumstances of case, tribunal was right in holding that development of software was a revenue expenditure and not a capital expenditure. Held: Expenditure on development of software constituted revenue expenditure. Therefore, order of Tribunal was confirmed.

Income Tax Act, 1961 Section 37(1)

In the Madras High Court

Chitra Venkataraman & K. Ravichandra Baabu, JJ.

CIT v. Shri Renuga Textiles Mills Ltd.

Tax Case (Appeal) No. 1282 of 2005

A.Y. 1994-95

18 June, 2012

Income-tax Act, 1961, s. 37(1) In favour of: Assessee

Circular F. No. 15/5/63-ITA-l, dated 13-12-1963

Appellan by : T. Ravi Kumar

Respondent: Anitha Sumanth

JUDGMENT

Mrs. Chttra Venkataraman, J.

The Revenue is on appeal as against the order passed by Tribunal relating to the assessment year 1994-95. Following are the questions of law raised for consideration :

'(i) Whether in the facts and circumstances of the case, the Tribunal was right in holding that the amalgamated company is eligible for the benefit of exemption under section 10B which was granted to the amalgamating company in respect of an export-oriented unit set up by it ?

(ii) Whether in the facts and circumstances of the case, the Tribunal was right in holding that development of software is a revenue expenditure and not a capital expenditure ?'

2. As far as the second question of law involved in development of software is concerned, in the decision reported in CIT v. Southern Roadways Ltd. (2008) 304 ITR 84 (Mad) : 2008 TaxPub(DT) 759 (Mad-HC) , this Court considered the similar question. In the said decision, following the decision of the apex Court reported in Alembic Chemical Works Co. Ltd. v. CIT: (1989) 177 ITR 377 (SC) : 1989 TaxPub(DT) 1096 (SC) , this Court held that up-gradation of computers by changing certain parts, thereby enhancing the configuration of the computers for improving their efficiency, was only a revenue expenditure. The said view was again followed by this Court in CIT v. Southern Roadways Ltd. (2007) 288 ITR 15 (Mad) : 2007 TaxPub(DT) 682 (Mad-HC). Following the above decisions, we confirm the order of the Tribunal in respect of second question of law.

3. As far as the first question of law on the claim on section 10B of the Income Tax Act, is concerned, following details need to be seen. The assessment year under consideration is 1994-95. The assessee herein was the holding company and Renuga Soft-X Towels (P) Ltd. was a 100 per cent a subsidiary of the holding company. By a scheme of merger effective from 1-1-1993, the subsidiary company stood merged with the assessee company herein. The scheme of amalgamation was sanctioned by this Court under order dated 7-4-1993. Consequent to the merger, Renuga Soft X Towels Ltd. continues to have the 100 per cent EOU status as an undertaking of the assessee company vide E.O. 254 of 1992, dated 8-4-1994 received from Government of India, Ministry of Industry, Department of Industrial Development, Secretariat for Industrial Approvals (EOU section). Based on the said recognition granted, the assessee sought for exemption of income earned by 100 per cent EOU under section 10B of the Act. The Income Tax Officer rejected the contention of the assessee for claim of exemption under section 10B of the Act on the ground that there was no provision for granting of the allowance on the basis of the ownership of the new undertaking. Further, the subsidiary company had opted out the exemption granted under section 10B of the Act for the assessment year 1993-94. Thus, when once the assessee claimed deduction under section 80-1, there could be no further claim under section 1QB. Thus, the claim of the assessee was rejected. Aggrieved by this, the assessee went on appeal before the Commissioner (Appeals). The Commissioner (Appeals) pointed out that consequent on the amalgamation, the EOU status has passed on from the amalgamating company to the hands of the amalgamated company. This arrangement was approved by the Government by its order dated 8-4-1994. Referring to section 10B(2)(iii) of the Act, the Commissioner (Appeals) held that there was no violation of the said provision. Hence, the only question was as to whether the assessee was granted deduction under section 80-I of the Act. The Commissioner (Appeals) directed the assessing officer to verify the same. Otherwise, it agreed with the assessees contention that it was entitled to claim under section 10B of the Act. Aggrieved by this, the Revenue went on appeal before the Tribunal, which upheld the order of the Commissioner (Appeals). The Tribunal pointed out that Renuga Soft X Towels (P) Ltd. had amalgamated with the assessee company. The amalgamating company was 100 per cent EOU and after amalgamation, Ministry of Industries, Government of India recognized the status of the assessee as 100 per cent EOU. Considering the fact that the relief was attached to the industrial undertaking, there being no violation of the provisions of section 10B of the Act too, the Tribunal allowed the claim. Apart from that, it also referred to the CBDT Circular No. 378 dated 3-3-1984 ((1984) 41 CTR (TLT) 77) and held that benefit was attached to the undertaking and not to the ownership, thus, the claim was allowed. Aggrieved by this, present appeal by the Revenue.