Case Law Details
License fee, Connectivity charges and co-ordination charges paid to a US based company GE Capital Corporation for use of ‘Vision Plus’ software held to be revenue in nature and allowable under section 37
Whether a particular expenditure is of a nature of capital or revenue, depends to a large extent upon facts and circumstances of the case. Help is also taken from the decided cases as the Income-tax Act, 1961 (hereinafter ‘the Act’) does not define capital or a revenue expenditure. Recently, in D.C.I.T. vs. G.E. Capital Business Process Management Services Pvt. Ltd [ITA No. 6836/Del./2014, decided on 05.10.2017], on an appeal filed by the Revenue against the order of the CIT(A) for the A.Y.2010-11, one of the ground raised before ITAT, New Delhi was that whether on the facts and circumstances of the case and in law, the CIT(A) erred in deleting the aggregate disallowance of Rs. 3,69,40,306/- on account of License fee, Connectivity charges and co-ordination charges paid to a US based company GE Capital Corporation for use of ‘Vision Plus’ software holding the same as revenue in nature and allowable under section 37 of the Act.
Briefly, in respect of the issue, the assessee company was engaged in carrying out back end operations of this activity, i.e, transaction processing on cards, billing, updating of collections, statements of account, resolving card-members queries etc. AO observed that the assessee has paid Rs.3,69,40,306/- to GE Capital Corporation USA for use of Vision Plus Software as per end user license agreement dated 07.07.2000. the AO was of the view that the license to the software provides enduring benefit to the assessee and therefore, held the payments in pursuance of the end user license agreement as capital in nature and therefore, disallowed the license fee and data service management charges paid to GE Capital Corporation, USA for use of software aggregating to Rs.3,69,40,306/- and completed the assessment. Aggrieved by the additions, the assessee appealed before the first appellate authority who after considering the submissions of the assessee and remand report called from the AO, deleted both the additions. Against the order of CIT(A), the Revenue filed appeal before the ITAT, New Delhi.
The learned Members of the ITAT, New Delhi observed that ‘Vision Plus’ is an ‘Application Software’ which manages aspects of credit cards right from the time of the application for credit card is made, evaluated, account is created, transactions are authorized, raising disputes, sending statements, customer services and online payments processing. The software is mainly for credit card transactions processing by multinational banks and transaction processing companies. Various banks and financial institutions use this application software to store and process credit card, debit card, prepaid closed end loan accounts and process financial transactions which is available off the shelf. GECC itself received the right to use the software internationally including its group entities for its business. It did not have any right to commercially exploit the software. The Appellant made the payment to GECC only to use the licensed programs. No enduring benefit has been acquired by the Appellant through the payment of license fee for the limited use of the license. The software in question was an application software and after termination of license agreement, said software was to be delivered back to the licensor and the same cannot be made to use by the assessee in any manner. In view of terms of agreement and the facts & circumstances attending to the case, the end user license agreement in the case did not have the effect of any enduring benefit for holding the same as capital in nature. The ITAT held that the charges paid to US based company GE Capital Corporation for use of ‘Vision Plus’ software were revenue in nature and allowable under section 37 of the Act.
