Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S. Visesh Infotecnics Ltd., New Delhi on 11 April, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'D' NEW DELHI
BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER
AND
SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER
I.T.A .No. 6091/DEL/2013
ASSESSMENT YEAR-2008-09
I.T.A .No. 6092/DEL/2013
ASSESSMENT YEAR-2009-10
DCIT, Visesh Infotecnics Ltd.,
Circle-17(1), 508, Arunachal Buidling,
New Delhi. vs Barakhamba Road,
New Delhi-110001
(PAN: AAACV4805B)
(APPELLANT) (RESPONDENT)
Appellant by Shri Umesh Chand Dubey, Sr. DR
Respondent by Shri R.S. Singhvi, Satyajit Goel, CA
ORDER
PER SUDHANSHU SRIVASTAVA, JM
Both these appeals are preferred by the Department. ITA No. 6091/DEL/2013 pertains to assessment year 2008-09 whereas ITA No. 6092/DEL/2013 pertains to assessment year 2009-10. Both the appeals have a common issue. They were heard together and they are being disposed of through this common order.
I.T.A. Nos. 6091 & 6092/Del/2013 Assessment years 2008-09 & 2009-10
2. The brief facts of the case are that the assessee is a public limited company engaged in the business of development of software for various applications software, customised and non- customised, ERP products, ERP tools etc. The assessee also deals in computer hardware products. The assessee filed its return of income for assessment year 2008-09 declaring a loss of Rs. 46,74,272/-. The AO, while completing the assessment under section 143 (3) of the Income Tax Act, 1961 ("the Act") made an addition of Rs. 141,629,253/- on account of partial disallowance of depreciation on software and intellectual property rights (IPR) by reducing the depreciation allowance at the rate of 60%, as claimed by the assessee, to 25% on the basis of the last assessment framed under section 143 (3) of the Act for assessment year 2006-07. Similarly, in assessment year 2009- 10, an addition of Rs. 56,651,701/- was made by reducing the depreciation allowance claimed at 60% by the assessee but reduced to 25% by the assessing officer.
2.1 Aggrieved, the assessee had preferred appeals for both the years before the Ld. Commissioner of Income Tax (Appeals) who deleted the additions in both the years. Now the Department has 2 I.T.A. Nos. 6091 & 6092/Del/2013 Assessment years 2008-09 & 2009-10 approached the ITAT and has raised the following grounds of appeal -
2.2 Grounds in ITA 6091/Del/2013 -
"1. Ld. CIT (A) erred in law and on the facts of the case in deleting the addition of Rs.14,16,29,253/- made by the AO on account of depreciation on Software by reducing depreciation allowance @ 25% as against 60% claimed by the assessee.
2. The appellant craves, leave or reserving the right to amend modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal."
2.3 Grounds in ITA No. 6092/Del/2013 -
"1. Ld. CIT(A) erred in law and on the facts of the case in deleting the addition of Rs.5,66,51,701/- made by the AO on account of depreciation on Software by reducing depreciation allowance @ 25% as against 60% claimed by the assessee.
2. The appellant craves, leave or reserving the right to amend modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal."
3. The Ld. Departmental Representative submitted that up to assessment year 2004-2005, the assessee had claimed depreciation on intellectual property rights at the rate of 25% and the change was made w.e.f. assessment year 2005-2006 by claiming depreciation at the rate of 60%. The Ld. Departmental Representative submitted that the assessee was asked to show 3 I.T.A. Nos. 6091 & 6092/Del/2013 Assessment years 2008-09 & 2009-10 cause as to why the depreciation should not be restricted to 25% only and the response of the assessee was not accepted by the AO because intellectual property rights were kind of patent rights which came under intangible assets and the eligible rate of depreciation was 25%. The Ld. Departmental Representative submitted that the Ld. CIT (Appeals) had erred in ignoring this finding of the AO and had, thus, erred in deleting the addition. The Ld. DR vehemently argued that the impugned additions ought to be restored for both the years.
4. The Ld. Authorised Representative submitted that the assessee had been purchasing softwares from various developers and also developed software in-house and was in the practice of capitalising the same under the subhead "software and intellectual property rights" under the head "intangibles" in its audited financial statements prepared as per the provisions of the Companies Act, 1956. It was further submitted that the assessee had shown the same under the head intangibles as there was no class of asset defined as software in the prescribed schedule XIV of the Companies Act, 1956 and also as required by Accounting Standard AS 26 - "Accounting for intangible assets" issued by the Institute of Chartered Accountants of India. 4 I.T.A. Nos. 6091 & 6092/Del/2013 Assessment years 2008-09 & 2009-10 The Ld. AR further submitted that in response to the show cause notice it was submitted that software has been classified as a tangible asset under the head "plant" in Appendix I to Income Tax Rules which is entitled to depreciation at the rate of 60% w.e.f. 01/04/2003 and, therefore, the assessee was entitled to depreciation at the rate of 60% from the said date. It was further submitted that it was submitted before the AO that depreciation on computer software was allowable at the rate of 60% and the assessee had not incurred any expense on acquiring any intellectual property right like copyright, patent etc. but all the expenditure was incurred on purchase and development of software only. It was further submitted that the AO had misconceived that the software purchased as well as developed in-house was an intellectual property right. The Ld. AR further submitted that the amount capitalised consisted of expenses incurred on purchase of software from various lenders, which were used as platform for developing new software and the Patent/Copyright of such purchase was registered in the name of the creator of such software. Further, the amount capitalised also included expenses incurred on developing ERP tools, software etc developed in-house but not registered in the name of the 5 I.T.A. Nos. 6091 & 6092/Del/2013 Assessment years 2008-09 & 2009-10 assessee. Thus, the assessee company had only software and did not have any intellectual property right. It was further submitted that the heading was in advertently mentioned as "software and intellectual property right" in the fixed assets schedule which should have been "software" only. The Ld. AR also drew our attention to Appendix I of the Rule 5 of the Income Tax Rules and submitted that the eligible rate of depreciation for computers under item No. 5 in the head 'plant and machinery' was 60%. The Ld. AR also relied on the order of the ITAT Chennai Bench in ITA No. 107/MDS/2012 in the case of Laser Soft Infosystems Ltd versus ITO wherein, vide order dated 31/01/2013, the Bench of the ITAT had held that computer software was a tangible asset and as per clause III (5) of new Appendix I read with Rule 5 of the Income Tax Rules, 1962, the rate of depreciation as applicable on computer software was 60%. It was submitted that in view of the facts as well as the settled judicial precedents, the assessee was eligible for depreciation at the rate of 60% and, therefore, the impugned orders should be upheld.
5. We have heard the rival submissions and have also perused the relevant material on record. It is undisputed that the expenditure incurred on the development of software as well as 6 I.T.A. Nos. 6091 & 6092/Del/2013 Assessment years 2008-09 & 2009-10 purchase of software is capital in nature and the only dispute is regarding the rate of depreciation, that is, whether depreciation is to be allowed at the rate of 25% or at the rate of 60%. If we were to peruse the definitions of computer software and intellectual property rights, it will be evident that computer software and intellectual property rights are altogether two different types of assets. Appendix I of the Income Tax Rules treats computer software as a tangible asset whereas intellectual property rights are treated as intangible assets. It is undisputed that the software purchased developed in-house can be treated as intellectual property right only when the said software is registered in the name of the person applying for such registration as per the provisions of the Patents Act, 1970 (as amended by (Patent (Amendment) Act, 2005), the Copyright Act, 1957 or any other relevant act. It is undisputed that the assessee company has not got registered the software purchased or developed in-house as a Patent or a Copyright and, therefore, the question of it acquiring the status of intellectual property right does not arise. It is also pertinent to note that the Income Tax Act, 1961 and the Income Tax Rules, 1962 prescribe the rate of depreciation on computer software at the rate of 60% from 7 I.T.A. Nos. 6091 & 6092/Del/2013 Assessment years 2008-09 & 2009-10 01/04/2003, prior to which the rate of depreciation was 25% only. Hence, as per the rate prescribed by the Income Tax Rules, the assessee is entitled to depreciation at the rate of 60% and the action of the assessee in claiming the depreciation on the basis of the amended rate of depreciation on software cannot be faulted with and the same cannot be restricted to 25% merely on the ground that depreciation was claimed at the rate of 25% till assessment year 2003-2004. Although, the assessee has classified the software under 'computer software and intellectual property rights', it is very well settled that nomenclature cannot be conclusive and decisive regarding the nature of transaction and it is the substance of the matter which should be looked into rather than the form or the nomenclature by which the same might have been called. Therefore, we find no reason to interfere with the findings of the Ld. CIT (Appeals) in both the years under appeal and we uphold the same while dismissing the grounds raised by the Department.
6. In the final result both the appeals of the Department stand dismissed.
8 I.T.A. Nos. 6091 & 6092/Del/2013 Assessment years 2008-09 & 2009-10 Order pronounced in the open court on 11th April, 2017.
Sd/- Sd/-
(N. K. SAINI) (SUDHANSHU SRIVASTAVA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
DATED: 11th APRIL 2017
'GS'
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT(A)
4. CIT 5. DR
ASSTT. REGISTRAR
ITAT NEW DELHI
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