Depreciation on Intangible CMS Software allowed under Income Tax

Taxman Publications Pvt. Vs ACIT (ITAT Delhi)

The issue under consideration is whether depreciation will be levied on the intangible being CMS software?

CMS, which has been developed by the assessee is computer application which supports the creation and modification of content and is often used to support multiple users working in a collaborative environment. He submitted that CMS is used inter alia for web based publishing, history editing, Version control, search indexing and boosting, retrieval. He submitted that it is designed to support the easy management of the content of various titles published by the assessee and it supports contents including text, PDF, embedded graphics and photos etc. He submitted that the customized CMS which has been developed by the assessee is to control the content which is updated regularly and it is also used to content provided by the assessee for the national website of Income Tax Department. He submitted that the CMS is also used to update and manage more than 200 other Bare Acts and Rules which are published by the assessee and it is not only used to update the documents but also used for integrating all the related documents. He submitted that CMS is not an off-shelf software but a proprietary and customized solution developed solely as per the requirements of the assessee which is owned by the assessee. The cost incurred by the assessee for the development of such software has been capitalized in its books of accounts. He submitted that since the software is owned by the assessee and used for the purpose of business the assessee has complied with the requirements of section 32 of the Income tax Act and is therefore entitled to claim depreciation.

ITAT states that, assessee has given the description of the software, its functionality which was also submitted before the CIT(A) as can be noted from the order of CIT(A) wherein the contentions of the assessee have been reproduced. It is the assessee’s contention that the CMS Software has been developed by it, owned by it and it is used for the purpose of business by updating and managing the Income Tax Act and the other Acts and Rules published by assessee each year. The contention of the assessee of having owning the CMS software by it has not been controverted by the Revenue. Further, the incurring of expenditure on its development has also not been disputed by the Revenue. Before us the Ld AR has also pointed out the the software apart from being mainly used by the assessee for its own business is also being used by it to upgrade the website of the Income tax Department. These contentions of the Ld AR has not been controverted by Revenue by placing any material on record. Further the claim of depreciation made by the assessee in the subsequent year has not been disturbed by the Revenue. Considering the totality of the aforesaid facts and the submissions of Learned AR, ITAT are of the view that the AO was not justified in denying the claim of depreciation u/s 32 of the Act. Therefore, direct the AO to allow the claim of depreciation.

FULL TEXT OF THE ITAT JUDGEMENT

Please become a Premium member. If you are already a Premium member, login here to access the full content.