INCOME TAX ACT, 1961

Section 37(1)

Capital or revenue expenditure - Salary paid to personnel for development of new software platform - AO alleging enduring benefit - Software developed but never put to use because of change in technology

Assessee was in the business of on-line advertisement, for which it developed a software platform, which could be used from desktop. It incurred various expenditures, including salary and marketing expenses for conducting feasibility study of the new product in USA to gauge the effect of new software platform among customers and also to start popularising this software platform. But, due to rapid change of technology and shifting of advertisement from desktop to mobile platform, software being developed by assessee was abandoned and closed since the product was very unusable. Further, at no point of time, this new platform was put to use. Assessee claimed deduction of salary paid to personnel for development of new software platform. AO held the same to be of capital in nature giving enduring benefit to assessee. Held: When product was in development stage during the year under consideration and same had never been put to use even in subsequent financial year and finally abandoned, then it could not be termed that an independent product came into existence, which gave enduring benefit to assessee to treat expenditure incurred on development of said product to be in capital in nature. Accordingly, expenditure in question was duly allowable as revenue expenditure under section 37(1).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2015-16 & 2016-17

INCOME TAX ACT, 1961

Section 37(1)

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