Though the taxpayer may have written off the expenditure in its books of account over a period say of five years, it must be allowed in its entirety in the year in which it was incurred, if it is revenue expenditure, and if it is wholly and exclusively incurred for the purposes of business(Para 15)
(i) When the assessee acquires a computer software or for that matter the license to use such software, he acquires a tangible asset and becomes owner thereof as held above relying on the decision of Hon’ble Supreme Court in the case of TCS.
(ii) Having regard to the fact that software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where the life of the computer software is shorter (say less than 2 years), it may be treated as revenue expenditure. Any software having its utility to the assessee for a period beyond two years can be considered as accrual of benefit of enduring nature. However, that by itself will not make the expenditure incurred on software as capital in nature and the functional test as discussed above also needs to be satisfied.
(iii) Once the tests of ownership and enduring benefit are satisfied, the question whether expenditure incurred on computer software is capital or revenue has to software as capital in nature and the functional test as discussed above also needs to be satisfied.
(iv) Once the tests of ownership and enduring benefit are satisfied, the question whether expenditure incurred on computer software is capital or revenue has to be seen from the point of view of its utility to a businessman and how important an economic or functional role it plays in his business. In other words, the functional test becomes more important and relevant because of the peculiar nature of the computer software and its possible use in different areas of business touching either capital or revenue field or its utility to a businessman which may touch either capital or revenue field.(Para 15)
The expenses incurred for obtaining fixed deposits are clearly allowable as revenue expenditure(Para 15)
Assessing Officer was not justified in making disallowance of Rs. 1,56,76,000 in respect of borrowings utilised for purchase of machines. Accordingly, the above question is answered in favour of the assessee and against the Department(Para 20)
the total income computed under the provisions of sec. 115JA of the Act is liable to advance tax and in the event of default in relevant provisions of payment of advance tax, levy of interest u/s 234C of the Act is mandatory (Para 48)
INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH “B” (SPECIAL BENCH)
(BEFORE S/Sheri R.P. Garg, Vice President, Mahavir Singh, Judicial Member and A.N. Pahuja, Accountant Member)
ITA Nos. 2001 and 2002/Ahd/200l
Asstt. Years:-1997-98 and 1998-99
