Income Tax Appellate Tribunal - Delhi
Cmyk Printech Ltd., New Delhi vs Department Of Income Tax on 5 January, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH-B, NEW DELHI
BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER &
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A.Nos.1549 & 1550/Del/2010
Assessment years 2003-04 & 2004-05
Dy. Commissioner of Income Tax, Vs. C.M.Y.K. Printech Ltd.
Circle-3 (1), H.No.33A, Lane No.10-C,
New Delhi. Sainik Farms,
New Delhi.
(Appellant) (Respondent)
Appellant by : Shri Manish Gupta, Sr. D.R.
Respondent by : CA Vaid Jain & Ms Rano Jain
ORDER
Per Shamim Yahya, AM:
These appeals by the revenue are directed against the common order of CIT(A)-VI, New Delhi dated 5.1.2010 pertaining to assessment years 2003-04 and 2004-05. Since issues involved are common and interconnected, these were heard together and are being disposed of by this common order for the sake of convenience.
2. One common issue raised pertains to deletion of addition made by the AO on account of disallowance of depreciation on website.
3. On this issue the AO observed that assessee had capitalized websites and claimed depreciation @ 60% on written down basis. He 2 ITA Nos.1549 & 1550/Del/2010 opined that Income-tax Act did not provide for treatment of expenses on websites. Assessee submitted vide letter dated 03.03.2006 before the AO as under:-
"That the assessee co. is engaged in the business of publication of daily English News Paper namely "THE PIONEER' a famous daily English newspaper for the last 140 years. The co. incurred an amount of Rs.2,07,76,911/- relating to the expenses of development website, named www.dailvpioneer.com in the previous year and shown WIP, has been capitalized under the head computer, during the year under asstt. Which is evident from the details of addition to fixed assets filed before your honour earlier. As per the guidance note issued by the ICAI regarding treatment of expenses (revenue) of website there are to be amortised over a period of two years i.e. 50% of it i.e. Rs.1,03,88,455/- is to be allowed as the expenses of this year. The assessee has capitalized the said expenses under the head computer and claimed depreciation @ 60% i.e. a sum of Rs.1,24,66,146/- has been claimed."
AO analysed the effect of both the treatments and observed as under:-
As per guidance note As per claimed by 'A' Net effect AY 03-04(31.03.03) 10388455 12466146 2077691 excess claimed AY 04-05(31.03.04) 10388456 4986458 5401998 less claimed AY 05-06(31.03.05) Nil 1994583 1994583 excess claimed Assessee further submitted that these expenses were in the nature of preparation of feasibility report, market survey by professional groups, development of software, drafting of legal documents for registration of portals, printing and other related expenses, marketing expenses of portal 3 ITA Nos.1549 & 1550/Del/2010 etc. and accordingly requested to treat the above amount as deferred revenue expenditure and further requested to allow deduction u/s 35D of the Act. Assessee also furnished details of the expenditure
4. From the above, AO observed that the assessee out of the total expenses amounting to Rs.2,08,93,164/- has incurred only Rs.58,07,758/- on portal developments and balance was incurred on personal expenses, interest and financial expenses, editorial expenses, administrative expenses and depreciation. AO found that it was seen from the details furnished that these expenses were not covered u/s 35D of the Act and hence not allowable. AO further observed that assessee vide letter dated 13.3.2006 had stated that development of portals was an integral part of the strategy of expansion of business of the assessee-company and hence should be allowed to be treated as a plant. AO was of the opinion that the same cannot be treated as plant. AO opined that assessee had adopted two yardsticks - on one side submitted guidelines issued by the ICAI wherein it was mentioned that the cost on website so accumulated should be shown as deferred revenue expenditure under the head 'miscellaneous expenses' and should be amortized on a systematic and rational basis over a period not exceeding two years and on the other side the assessee itself has not adopted these guidelines and treated the website under block computer and accordingly claimed 60% depreciation on the same. The AO further opined that the definition of compute and software does not include website and hence depreciation was not allowable. 4 ITA Nos.1549 & 1550/Del/2010
5. Upon assessee's appeal, the ld. CIT(A) elaborately considered the issue and concluded as under:-
" It is evident from the above that the term 'computer software' has a vast application and it takes into its ambit any computer programme recorded on any information storage device. Looking into the facts of the present case, the composite computer software of dailypioneer.com is a 'computer software' entitled for depreciation u/s 32 of I.T. Act. Hence, the Assessing Officer is directed to allow the claim of the appellant afteer making necessary verification of the amounts capitalized."
Against the above order, revenue is in appeal before us.
6. Ld. D.R. relied upon orders of authorities below.
7. Ld. Counsel for the assessee submitted that the assessee is entitled to 60% depreciation on computer software inasmuch as website is nothing but a computer programme recorded on a storage device and as such covered within the meaning of software and eligible deduction. He has further contended that in case the contention of the revenue that website is not covered within the meaning of software, expenditure on website will be revenue expenditure on which 100% is allowable in the very first year as per Delhi High Court order in the case of CIT v. Indian Visit.Com (P) Ltd., (2008) 13 DTR 258 (Del).
8. We have heard both the counsels and perused the material available on record. We find that Hon'ble Delhi High Court in the decision, cited supra, has held as under:-
5 ITA Nos.1549 & 1550/Del/2010
"Business expenditure-Capital or revenue expenditure- Expenditure on development of website-Although the website may provide an enduring benefit to an assessee, the intent and purpose behind development of a website is not to creat5e an asset but only to provide a means for disseminating the information about the assessee among its clients-The same purpose could be achieved and was in fact achieved by assessee in the past by printing travel brochures and other published materials and pamphlets-Mere enduring benefit, de hors any accretion to fixed capital, would not make an expenditure a capital expenditure."
In the light of above, it is clear that expenditure on development of website is an allowable business expenditure. However, ld. Counsel for the assessee has fairly agreed that in view of the amendment brought out to Appendix "A' w.e.f. assessment year 2003-04 by including 'software' eligible for depreciation @ 60%, assessee should be allowed depreciation @ 60% and the claim as such is valid. Upon careful consideration we find that there is no infirmity in the order of ld. CIT(A). Accordingly, we uphold the same. This issue raised by the revenue accordingly stands dismissed.
9. Another issue raised for assessment year 2003-04 is as under:-
"In the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts by deleting addition of Rs.142801/- made by the AO on account of outstanding Sundry creditors ignoring the fact that the assessee itself agreed during the assessment proceedings that the liability was outstanding for more than 3 years."
10. On this issue the AO observed that details of sundry creditors were called for from the assessee. He found that some creditors totaling Rs.1,42,801/- comprising 31 parties were outstanding for more than three 6 ITA Nos.1549 & 1550/Del/2010 years. AO asked the assessee as to why these credit balances should not be treated as deemed income of the assessee u/s 41(1). Assessee submitted that in the initial years of operation of the company, it suffered losses and hence was not in a position to make payments to all the clients in time. It was further submitted that assessee had also written back credit balances as and when it became clear that they had not to be paid. In this regard, assessee furnished details of amounts written back as under:-
Asstt. Year Amount
2003-04 2,75,055
2004-05 2,71,683
2005-06 6,036
Considering the above, the AO held that the assessee had itself agreed that some liability was due for more than three years. AO held that these were expenses which had already been claimed by the assessee but for some reasons these were outstanding. AO referred to the decision of Hon'ble Apex Court in the case of CIT vs. Sundram Iyangar, 222 ITR 344 (SC), for the proposition that there has to be some limit in terms of time for which credit balance shown should be allowed to be carried forward, hence he treated the above amount as deemed income of the assessee u/s 41(1) of the Income-tax Act.
11. Upon assessee's appeal, ld. CIT(A) noted that there is no remission or cessation of liabilities. In such circumstances, AO was not justified in 7 ITA Nos.1549 & 1550/Del/2010 invoking the provisions of section 41(1). Against this order revenue is in appeal before us.
12. The revenue has contended that ld. CIT(A) has ignored the fact that assessee itself had agreed during the assessment proceedings that the liability was outstanding for more than three years.
13. We have carefully considered the submissions of both the parties and perused the material available on record. We find that there is no rule that liability outstanding for more than three years need not be paid and the same becomes income of the assessee. Decision of Hon'ble Apex Court relied upon by the AO was on different facts. In that case, the claim of deposits by the customers had become barred by limitation and the assessee itself has treated the money as its own money and taken the amount to profit & loss account. In that context, Hon'ble Apex Court has held that the amount was assessable as income. Here it is not the case that AO has issued summons to the creditors and has obtained information that these amount were no longer payable. Assessee's case is that due to cash crunch, it has not been able to clear off some creditors and the assessee is evaluating the amount actually payable and writing back as and when it become evident that the amount is no longer payable. Under such circumstances, we do not find any infirmity in the order of ld. CIT(A) in this regard and accordingly we confirm the same.
8 ITA Nos.1549 & 1550/Del/2010
14. Another issue raised for assessment year 2004-05 is regarding allowability of 60% depreciation on computer peripherals and accessories whereas as per IT Rules 60% depreciation is allowed only on computer software.
15. On this issue, AO held that only the computers and computer software are eligible for depreciation @ 60% and the same cannot be extended to computer accessories and peripherals. AO, therefore, restricted the depreciation @ 25%.
16. Upon assessee's appeal, ld. CIT(A) referred to ITAT, Kolkatta in the case of ITO vs. Samiran Majumdar, 98 ITD 119, and held that computer accessories and peripherals are integral part of the computer. Hence, he directed the AO to allow depreciation @ 60%. Against this order, revenue is in appeal before us.
17. Ld. Counsel for the assessee has submitted that the issue is squarely covered in favour of the assessee by the decision of Special Bench of the Tribunal, Mumbai in the case of DCIT vs. Datacraft India Ltd. in I.T.A. No.7462 & 754/Mum/2007 vide order dated 9 July 2010, wherein it has been held that internal hardware parts of a computer are often referred to as 'components' while external hardware devices are usually called 'peripherals'. Together, they all fall under the category of computer hardware. It was held that it was not only the equipment which performs 9 ITA Nos.1549 & 1550/Del/2010 such functions which can be called as computer. All the input and output devices which support in the receipt of input and outflow of the output are also part of computer. The Bench agreed with the view taken by the Kolkatta Bench in the case of Samiran Majumdar, cited supra, and held that depreciation @ 60% was allowable on routers and switches. Respectfully following the decisions above, we uphold the order of the ld. CIT(A) and decide the issue in favour of the assessee.
18. In the result, appeal of the revenue is dismissed.
Order pronounced in the open court on 23.07.2010.
Sd/- Sd/-
( A.D. JAIN ) ( SHAMIM YAHYA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : the 23rd July, 2010.
"vsk"
Copy to:
1. Appellant-Revenue
2. Respondent-assessee
3. CIT
4. CIT(A)
5. DR, ITAT, New Delhi.
By Order
Deputy Registrar
10 ITA Nos.1549 & 1550/Del/2010