BNP Paribas India Solutions Private Limited Vs ACIT (ITAT Mumbai)
Software Licences Aren’t Capital Assets: ITAT Allows ₹37.87 Crore Deduction to BNP Paribas
The Mumbai ITAT held that expenditure incurred on software licences, database access, support services and periodic upgrades is allowable as revenue expenditure, and not capital expenditure, even where the amounts involved are substantial.
The Revenue had treated software expenses incurred by BNP Paribas India Solutions Pvt. Ltd. as capital in nature on the ground that they provided an enduring benefit and formed part of the company’s long-term business infrastructure. Accordingly, the AO capitalised the expenditure and allowed only depreciation.
Rejecting the Department’s stand, the Tribunal observed that in the modern technological environment, software systems rapidly become obsolete and require constant renewal, replacement and upgrades. Therefore, the traditional “enduring benefit” test cannot be mechanically applied to software-related expenses.
The ITAT noted that the expenditure mainly related to software licences, database support, maintenance and periodic upgrades, which merely facilitated smooth day-to-day business operations and did not result in creation of any independent capital asset.
Relying upon the Supreme Court ruling in Engineering Analysis Centre of Excellence Pvt. Ltd., the Tribunal emphasised that mere right to use software does not amount to acquisition of copyright or proprietary rights capable of being treated as a capital asset. Since the Revenue failed to show that the assessee acquired any ownership rights in the software, the expenditure remained in the revenue field.
The Tribunal also granted relief on a separate issue involving double disallowance of year-end provisions, observing that the same amount cannot be taxed twice merely because the assessee realigned timing of deduction during reassessment proceedings. The issue was restored to the AO for verification and grant of appropriate relief to avoid double taxation.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
