INCOME TAX ACT, 1961

Section 37(1)

Business expenditure - Allowability - Expenses relating to product development - Whether, assessee acquired any copyright/ownership in respect of products sold developed

Assessee was a private limited company registered under software technology parks in India. During year under consideration, assessee was engaged in rendering software development and related services. It incurred expenses relating to product development which was capitalised along with opening work-in-progress. AO disallowed the same on allegation that even though said development expenditure was capitalised in books, the same was claimed as admissible deduction while computation of income. Assessee contended that expenditure was incurred based on specific requirement of client and expenditure so incurred had nexus with the revenue on account of sale of product. Alternatively, assessee also contended that, even if expenditure was otherwise treated as capital in nature, assessee was still eligible to claim in terms of section 35(1)(iv) because these expenditures were incurred by assessee on scientific research and related to business, within the meaning of section 43(4). Held: It was found that facts and issue considered by Tribunal in assessment year 2005-06 were same with the year under consideration. Therefore, respectfully following the view taken by Tribunal in assessment year 2005-06 in assessee's own case, issue was remanded back to CIT(A). CIT(A) was directed to verify whether assessee acquired any copyright/ownership in respect of products sold developed.

Followed:Dy. CIT v. Sobha Renaissance Information Technology Pvt. Ltd. [I.T.A. No.301/Bang/2014, dt. 17-6-2016].

REFERRED : CIT v. Talisma Corporation (P.) Ltd. [IT Appeal No. 515 of 2007, dt. 30-10-2013] DCIT v. TCIL Bellsouth Ltd. 2004 TaxPub(DT) 0544 (Del-Trib) C.I.T. & Anr. v. Talisma Corp. Pvt. Ltd. [Special Leave to Appeal (C)...CC No(s). 8116/2014, dt. 2-7-2014].

FAVOUR : Matter remanded

A.Y. : 2008-09

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