Expenditure on ‘Application Software’ is revenue – Delhi HC

CIT Vs. Asahi India Safety Glass Ltd. (Delhi High Court)- Software is nothing but another word for computer programmes, i.e., instructions, that make the hardware work. Software is broadly of two types, i.e., the systems software, which is also known as the operating system which controls the working of the computer; while the other being applications such  as word processing programs, spread sheets and data base which perform the tasks for which people use computers.

Besides these there are two other categories of software, these being: network software and language software.  The network software enables groups of computers to communicate with each other, while Language software provides with tools required to write programmes. (See Microsoft Computer Dictionary, 5^th Edition “Software” at page 489). The aforesaid would show that what the assessee acquired through Arthur Anderson and Associates was an application software which, enabled it to execute tasks in the field of accounting, purchases and inventory maintenance. The fact that the application software would have to be updated from time to time based on the requirements of the assessee in the context of the advancement of its business and/ or its diversification, if any; the changes brought about due to statutory amendments by law or by professional bodies like the Institute of Chartered Accountants of India, which are given the responsibility of conceiving and formulating the accounting standards from time to time, and perhaps also, by reason of the fact that expenses may have to be incurred on account of corruption of the software due to unintended or intended ingress into the system – ought not give a colour to the expenditure incurred as one expended on capital account. Given the fact that there are myriad factors which may call for expenses to be incurred in the field of software applications, it cannot be said that either the extent of the expense or the expense being incurred in close proximity, in the subsequent years, would be conclusively determinative of its nature. The assessing officer has, in our view, erred precisely for these very reasons.

THE HIGH COURT OF DELHI AT NEW DELHI

Judgement delivered on: 04.11.2011

ITA Nos. 1110/2006 & 1111/2006

COMMISSIONER OF INCOME TAX

Vs

M/S ASAHI INDIA SAFETY GLASS LTD.

JUDGEMENT

RAJIV SHAKDH ER, J

1. The captioned appeals pertain to assessment years 1997-98   and 1998-99. The Income Tax Appellate Tribunal (hereinafter referred to as the „Tribunal‟) had by a common judgement dated 29.12.2005 disposed of three appeals pertaining to the aforementioned assessment years. Out of the three appeals, two appeals had been filed by the revenue, while the third appeal had been filed by the assessee. The revenue had filed appeals for both  the assessment years, i.e., 1997-98 and 1998-99, while the assessee had filed an appeal only qua assessment year 1997-98. However, before us the common ground is that the appeals pertained to a singular issue, though the amounts involved differ in each of the captioned assessment years. Therefore, we have framed the following questions of law for assessment years 1996-97 and 1998-99, which, as would be evident, apart from the amounts involved are otherwise identical: