Income Tax Appellate Tribunal - Chandigarh
Chandigarh Housing Board, Chandigarh vs Assessee on 28 January, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCH 'B', CHANDIGARH
BEFORE Ms. SUSHMA CHOWLA, JUDICIAL MEMBER
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No. 402/Chd/2012
(Assessment Year : 2009-10)
Chandigarh Housing Board, Vs. The J.C.I.T. (OSD),
8, Jan Marg, Sector 9D, Circle 1(1),
Chandigarh. Chandigarh.
PAN: AAALC0132H
And
ITA No. 550/Chd/2012
(Assessment Year : 2009-10)
The A.C.I.T, Vs. Chandigarh Housing Board,
Circle 1(1), 8, Jan Marg, Sector 9D,
Chandigarh. Chandigarh.
PAN: AAALC0132H
(Appellant) (Respondent)
Assessee by : Shri Alok Mittal
Department by : Shri Manjeet Singh, DR
Date of hearing : 28.01.2013
Date of Pronouncement : 31.01.2013
ORDER
PER SUSHMA CHOWLA, J.M, :
The cross appeals filed by the Revenue and the assessee are against the order of the Commissioner of Income-tax (Appeals), Chandigarh d a t e d 1 5 . 0 3 . 2 0 1 2 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 9 - 1 0 against the order passed u/s 143(3) of the Income Tax Act, 1961.
2. The cross appeals filed by the assessee and Revenue were heard together and are being disposed off by this consolidated order for the sake of convenience.
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3. The assessee has raised the following grounds of appeal :
" 1. That the order passed by the CIT (A) is erroneous both in law and facts.
2. That the CIT (A) has fallen in error while upholding the addition of Rs. 49,63,64,631/- in the hands of the Assessee/Appellant on account of interest received from investment of funds received as Bid Money from RGCTP Habitat Project in as much as the Bid amount alongwith interest belonged to the Chandigarh Administration and the Assessee Appellant was merely acting as a Nodal Agency duly appointed by the Chandigarh Administration for development of the project. The order passed by the CIT(A) is contrary to the provisions of Section 20, 23, 63 of the Haryana Housing Board Act as extended to the Union Territory of Chandigarh.
THAT STRICTLY IN THE ALTERNATIVE AND WITHOUT PREJUDICE TO THE ABOVE GROUND:-
3. That the CIT(A) has fallen in error in sustaining the addition of Rs.49,63,64,631/- on account of interest received from investment of funds received as Bid Money from RGCTP Habitat Project.
4. That the Commissioner of Income Tax (Appeals) has failed to consider the explicit provisions of the development agreement dated 6.10.2006 in which it has been stated clearly that the Chandigarh Housing Board is acting as a Nodal Agency on behalf of the Chandigarh Administration for development of Rajiv Gandhi Chandigarh Technological Park Project.
4. Both the authorized representatives at the outset fairly admitted that the issues raised in both the appeals i.e. the appeal filed by the assessee and the appeal filed by the Revenue were identical to the issues r a i s e d i n t h e a p p e a l r e l a t i n g t o t h e a s s e s s m e n t ye a r s 2 0 0 7 - 0 8 a n d 2 0 0 8 - 09 except for the issue of disallowance of software expenses. ITA No.402/Chd/2012:
5. The only issue raised by the assessee is against the addition of Rs.49,63,64,631/- on account of interest income on FDRs issued out of funds received from RGCTP Habitat Project and conversion of industrial plot to commercial.
6. The Assessing Officer had included the interest income of Rs.49,63,64,631/- received from investment in FDRs in RGCTP Fund as taxable in the hands of the assessee.
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7. The brief facts as noted b y the CIT (Appeals) in relation to ground No.1 raised by the assessee are as under:
"3.1 Brief facts on the issue are that the appellant had not offered the interest income from some of the FDRs for taxation and when the Assessing Officer questioned, the appellant had explained that since the funds of thee FDRs belonged to Chandigarh Administration, the interest income also belonged to them. Out of the total amount of interest not offered for taxation of Rs.50,27,91,010/-, interest income amounting to Rs.49,63,64,631/- relates to RGCTP FDRS and the balance of Rs.64,26,379/- pertains to funds relating to conversion fee on account of conversion of industrial plots to commercial plots. The appellant has filed a written submission in the appellate proceedings."
"In view of the above notification, the amount received from the "RGCTP Habitat Project" could not be credited to Profit & Loss Account of the CHB as the funds received by CHB are not the property/income of CHB. These funds have been received by CHB for and on behalf of Chandigarh Administration as a Nodal Agency only. Further these funds are to be utilized as per the instructions of the Chandigarh Administration. The Chandigarh Administration issued instructions, to this effect, during December, 2006, that the land for the project at IT Park was transferred to the Chandigarh Housing Board at a notional price. Any surplus out of this transfer is to be utilized and kept apart as directed by the Chandigarh Administration. This is not to be utilized as per plans of Chandigarh Housing Board."
8. The explanation of the assessee in this regard was that the interest received from investment of Bid Money amounting to Rs.49,63,64,631/- should not be taxed as the RGCTP Habitat Project is a Project of the Chandigarh Administration and the Board had been appointed merely a Nodal Agency for its implementation and that any surplus of the Project belonged to the Chandigarh Administration and not to the Board and hence not taxable in the hands of the Board. The Administrator of Chandigarh can exercise the above powers as per provisions of Section 63 read with Section 38 of Haryana Housing Board act, 1971 (as extended to U.T. Chandigarh). The assessee also placed reliance on the instructions issued by Chandigarh Administration vide order dated 4.9.2008. The explanation of the assessee is reproduced by the CIT 4 (Appeals) at pages 2 to 4 of the appellate order. The CIT (Appeals) upheld the order of the Assessing Officer in view of the similar addition b e i n g m a d e i n a s s e s s m e n t ye a r 2 0 0 7 - 0 8 .
9. We find that the present issue has arisen in the case of the assessee i t s e l f i n a s s e s s m e n t ye a r s 2 0 0 7 - 0 8 a n d 2 0 0 8 - 0 9 . The Tribunal in ITA N o . 1 0 7 5 / C h d / 2 0 1 0 a n d I T A N o . 1 1 9 8 / C h d / 2 0 1 0 f o r a s s e s s m e n t ye a r 2 0 0 7 - 08 held as under:
" 44. The Id. CIT(A) has dealt with the aforesaid issue in para 32 and 33 of her Order as under:
"32. The issue involved in this ground is as to whether interest income of Rs.9,01,57,799/- on FDR created from funds received from RGCTP Habitat Project and conversion of industrial Plots to Commercial Plots belong to the Chandigarh Administration or the appellant. The appellant submitted that a sum of Rs.7,04,29,365/- was bank interest that accrued on the funds generated from the RGCTP Habitat Project and balance Rs.1,97,28,435/- was accrued on the funds that related to conversion fee on account of conversion of Industrial Plots to Commercial Plots.
33. Regarding the bank interest that accrued on the funds generated from RGCTP Habitat Project, the Appellant in its support submitted that these FDRs belonged to Chandigarh Administration and, therefore, the income therein also belonged to Chandigarh Administration. I have already adjudicated the issue as to whether the income from RGCTP Habitat Project belonged to the Chandigarh Administration or to the Appellant in Ground No. 2. As per my findings and conclusions in Ground No. 2, I have held that the RGCTP Habitat Project belonged to the Appellant and it is the Appellant who sold the land to the developer and earned the income from the sale of land and other shared revenue and therefore, the funds generated from such transactions belonged to the Appellant and the Appellant did not act as an agent/Nodal Agency of Chandigarh Administration. In view of my findings and conclusions in Ground No. 2, the interest income on such funds is the income of the Appellant not the income of Chandigarh Administration.
45. We have heard both the parties. The assessee has not credited the impugned interest income on FDRs taken out of funds lying in the RGCTP project a/c on the plea that the assessee was a mere agent of the Chandigarh Administration in so far as the RGCTP Project was concerned and hence both the interest income as well as the principal amount on which the impugned interest was received belonged to the Chandigarh Administration. We have confirmed the finding of the CIT(A) that the assessee was not an agent of the Chandigarh Administration. In this view of 5 the matter, the order of the CIT(A) with regard to taxability of the impugned interest is also confirmed. Ground No.5 is dismissed."
10. The Tribunal in ITA No.386/Chd/2012 & 549/Chd/2012 relating to a s s e s s m e n t ye a r 2 0 0 8 - 0 9 v i d e o r d e r d a t e d 3 0 . 1 0 . 2 0 1 2 r e j e c t e d t h e a p p e a l o f t h e a s s e s s e e f o l l o w i n g t h e o r d e r i n a s s e s s m e n t ye a r 2 0 0 7 - 0 8 . The facts of the present case are similar to the facts in the preceding years and following the same we reject grounds of the appeal raised by the assessee holding the interest income on FDRs as assessable in the hands of the assessee.
ITA No.550/Chd/2012:
11. The Revenue has raised the following grounds of appeal :
"1 On the facts and circumstances of the case and in law the ld. CIT(A) has erred in deleting the addition of Rs.64,26,379/- which was made by the AO on account of accrued interest on the funds relating to conversion fee.
2. On the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the disallowance of Rs.75,21,032/- and in not treating the expenditure of Rs.96,66,894/- as capital expenditure though it was incurred on computerization of office yielding enduring benefits to the assessee."
12. As pointed out by both the authorized representatives, the ground No.1 raised by the Revenue is identical to ground No.1 raised in d e p a r t m e n t a l a p p e a l i n I T A N o . 5 4 9 / C h d / 2 0 1 2 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 8 - 0 9 a n d I T A N o . 1 1 9 8 / C h d / 2 0 1 0 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 7 - 0 8 .
13. After hearing the parties and considering the issue we find that the issue at length was adjudicated by the Tribunal in the departmental appeal in ITA No.1198/Chd/2010 vide para Nos.51 to 56. Similar findings were given in ITA No.549/Chd/2012. The facts of the present case being identical to the facts involved in the earlier years and hence following the order of the Tribunal in the case of the assessee itself in 6 t h e d e p a r t m e n t a l a p p e a l f i l e d f o r a s s e s s m e n t ye a r s 2 0 0 7 - 0 8 a n d 2 0 0 8 - 0 9 , we restore the matter back to the file of the CIT (Appeals) for fresh adjudication in line with the observations made by the Tribunal in the a p p e a l r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 7 - 0 8 . The ground No.1 raised by the Revenue is allowed for statistical purposes.
14. The ground No.2 raised by the Revenue is against the expenditure incurred on computerization of CHB office. Admittedly, identical issue arose before the Tribunal in departmental appeal in ITA N o . 5 4 9 / C h d / 2 0 1 2 r e l a t i n g t o a s s e s s m e n t ye a r 2 0 0 8 - 0 9 w h e r e i n c o m p o s i t e i s s u e o f t h e p a ym e n t m a d e u n d e r t h e h e a d " c o m p u t e r i z a t i o n o f C H B office" and software expenses was adjudicated vide paras 22 to 24. The claim of the assessee in respect of data entry charges was allowed in the hands of the assessee. However, the computer software expenses i n c u r r e d b y t h e a s s e s s e e d u r i n g t h e r e l e v a n t ye a r w a s h e l d t o b e e n t i t l e d to depreciation as per the Rules. In the present case before us, the issue arising is only in respect of the data entry charges and as admitted by both the authorized representatives, the said expenses do not include any computer software charges.
15. The Tribunal vide paras 22 to 24 vide order dated 30.10.2012, held as under:
22 We have heard the rival submissions carefully.
As far as expenditure of Rs. 79,00,904/- is concerned, the same relates to development of software and maintaining of accounts of allottees in a combined form as well as data entry charges for such accounts. No doubt as far as data entry charges is concerned, it has to be treated as revenue expenditure because no separate enduring benefit would accrue to the assessee because these accounts were already being maintained manually which required lot of administrative over heads and which has now been digitized/computerized. Therefore, entry of data has to be treated as revenue expenditure and to this extent we agree with the order of ld. CIT(A). However, as far as software development 7 charges are concerned, the same cannot be held to be of revenue nature. There was lot of controversy regarding software charges whether the same should be treated as revenue expenditure or capital expenditure. In fact a Special Bench was constituted by the Tribunal in case of Amway India Enterprises V DCIT, 111 ITD
112. In this case it was observed as under:
" H e a d n o t e - "Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment years 1998- 99, 2001-02 and 2002-03 - Whether in order to decide nature of expenditure as to whether it is capital or revenue, three tests, i.e., ownership test, enduring benefit test and functional test have to applied - Held, yes - Whether by applying said, tests, expenditure is treated as capital expenditure either when it results in acquisition of capital asset by assesses as owner thereof or when it results in accrual of advantage of enduring nature to assessee in capital field - Held, yes - Whether when assessee acquires a computer software or for that matter licence to use such software, he acquires a tangible asset and becomes owner thereof but, question as to whether expenditure on acquiring computer software is capital or revenue cannot be decided on basis of ownership test alone but has to be seen from point of its utility to businessman and how important an economic or functional role it plays in his business - Held, yes - Whether since computer software becomes obsolete with technological innovation and advancement within a short span of time, it can be said that where life of computer software is shorter (say less than 2 years), it may be treated as revenue expenditure; any software having utility to assessee for a period beyond two years can be considered as accrual of benefit of enduring nature, however, that by itself will not make expenditure incurred on software as capital in nature and functional test also needs to be satisfied - Held, yes - Whether for applicability of functional test, advantage which an assessee derives from use of computer software has to be seen in a commercial sense; if advantage is in capital field, then same would be capital and, if advantage consists merely in facilitating assessee's trading operations or enabling management and conduct of assessee's business to be carried on more efficiently or more profitably, while leaving fixed capital untouched, expenditure would be on Revenue account - Held, yes- Whether these criteria are required to be applied to determine exact nature of expenditure incurred by an assessee for acquiring different computer softwares - Held, yes.
Section 32 of the Income Tax Act, 1961 - depreciation - Allowance / rate of - Assessment years 1998-99, 2001-02 and 2002-03 - whether since computer software contained in a disk is tangible property by itself, use by assessee of such software in his business is enough to allow claim for depreciation under section 32(1)(i) at rate of 25 per cent - Held, yes - Whether, However, since with effect from .4.2003, computer software has been classified as a tangible asset under heading 'Plant' in Appendix-I to Income-tax Rules, 1962, assessee would be entitled to depreciation at rate of 60 8 per cent from said date - Held, yes - whether said amendment is prospective and not clarificatory - Held, yes."
23 The above clearly shows that there was controversy whether the usage of software would constitute revenue expenditure or capital expenditure. In that case the matter was remanded to the file of AO to see what kind of advantage was being derived by the assessee. This matter traveled to the Hon'ble Delhi High Court and the same was decided in favour of the assessee by the observation that it stands covered in favour of the assessee by the decision of Hon'ble Delhi High Court in case of CIT V. Asahi India Safety Glass Ltd., 346 ITR 329. Looking at the latter decision the same shows that the same pertains to AY 1996-97 and 1997-98. It is to be noted that appendix I to the Income-tax Rules which provides rates of depreciation was amended by income-tax (24th Amendment) Rules w.e.f .1.4.2003 effective from AY 2003-04. By this amendment rate of depreciation for computers was made to read "Computers including computer software (See note 7 of the Table). The relevant note 7 of the Table reads as under:-
"Computer software" means any computer program recorded on any disc., tape, perforated media or other information storage device.
24 From above it is clear that legislature itself has recognized that computer as well as software technology is changing very fast and that is why high or accelerated rate of 60% depreciation has been provided. Once computer software stands covered with the definition of computer given in Appendix I to the Income-tax Rules that means the same has to be treated as capital expenditure. However, at the same time computer software depreciation has to be allowed at 60%. Therefore, we set aside the order of the ld. CIT(A) and restore the matter back to the file of AO with a direction to segregate computerization of CHB Office into separate items i.e. that data entry charges and computer software charges. As far as data entry charges are concerned same should be allowed as per observations given earlier and as far as software development charges are concerned, they should be held to be capital nature and depreciation should be allowed @ 60%.
16. The facts of the present case being identical to the facts in a s s e s s m e n t ye a r 2 0 0 8 - 0 9 , w e a r e i n c o n f o r m i t y w i t h t h e o r d e r o f t h e C I T 9 (Appeals) in allowing the claim of the assessee in relation to the data entry charges. The ground No.2 raised by the Revenue is thus dismissed.
17. In the result, the appeal of the assessee is dismissed and the appeal of the Revenue is partly allowed.
Order Pronounced in the Open Court on 3 1 s t d a y o f J a n u a r y, 2 0 1 3 .
Sd/- Sd/-
(MEHAR SINGH) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 31st January, 2013
*Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh