INCOME TAX ACT, 1961

Section 37(1)

Capital or revenue expenditure - Computer software with licence - Software only facilitated carrying business more efficiently -

Assessee during the year under consideration claimed deduction of Rs. 61,24,779 towards expenditure incurred on computer software. The assessee capitalised this amount in its books of accounts but claimed it as an expenditure in the computation of income. AO did not agree to the divergent stand taken by the assessee and proceeded to capitalise the said expenditure and granted depreciation @ 60% while completing the assessment. CIT(A) observed that depreciation chart as provided in the Appendix of Income Tax Rules stipulated that if computer was purchased along with enabling software, then both computer as well as software would be eligible for depreciation @ 60%. However, if the software was purchased separately then, the software licence purchased by the assessee falls into the category of intangible asset and therefore, it was eligible for depreciation at 25%.Held: The expenditure incurred by an assessee on purchase of a software which facilitated its trading operations or enabled the management to conduct its business more efficiently or more profitably would not form part of the profit making apparatus of the assessee and would be allowable as a revenue expenditure. Software purchased by the assessee did not form part of its profit making apparatus and only facilitated carrying its business more efficiently, therefore, the same was rightly claimed by it as a revenue expenditure. The AO was directed to allow the software expenses as claimed by the assessee.

Followed:assessee's own case for assessment year 2009-10 in ITA No. 1257/Mum/2014 & 1486/Mum/2014, dated 7-5-2019

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2002-03

INCOME TAX ACT, 1961

Section 145A Section 43B

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