Income Tax Appellate Tribunal - Chennai
Vijayeswari Textiles Ltd., Coimbatore vs Department Of Income Tax on 27 November, 2012
IN THE INCOME TAX APPELLATE RIBUNAL
' A' Bench Chennai
Before Shri Abraham P. George, Accountant Member
and Shri V. Durga Rao, Judicial Member
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ITA No. 1138/Mds/2011
Assessment year : 2006-07
The Assistant Commissioner v. M/s. Vijayeswari Textiles
of Income Tax, Ltd., 10/400,
Salary Circle-I, Palghat Road,
Coimbatore. Kuniamuthur,
Coimbatore-641 008.
(PAN : AAACV6388F)
(Appellant) (Respondent)
Appellant by : Shri Shaji P. Jacob,
Addl. CIT
Respondent by : Shri N. Devanathan,
Advocate
Date of Hearing : 27.11.2012
Date of Pronouncement : 27.11.2012
ORDER
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal by the Revenue is directed against the order of the CIT(Appeals)-II, Coimbatore dated 02-02-2011 for the assessment year 2006-07.
2. The facts in brief are that the assessee company had filed the return of income for the assessment year under 2 ITA No.1138/Mds/2011 consideration by declaring total income of ` 1,61,94,819/- wherein the assessee has claimed ERP solution software expenditure of ` 50,50,000/- as revenue expenditure. The Assessing Officer called for the explanation of the assessee and the reasons why the same has to be treated as revenue expenditure for income-tax purpose when it is treated as capital expenditure in the company's Balance Sheet. It was submitted before the Assessing Officer that "the software provides for an enterprise wide solution for the accounting, inventory, production, quality control and various other modules". It was submitted that the expenditure incurred on ERP software does not result in acquiring any capital asset and that it facilitates more efficient day to day functioning of various business and accounting processes. However, the Assessing Officer did not accept the submissions of the assessee. According to him, the expenditure incurred by the assessee company for the purchase of ERP software is in the nature of capital expenditure and therefore not deductible u/s 37 of the Act. Accordingly, the claim of the assessee was disallowed.
3. On being aggrieved, the assessee carried the matter in appeal before the CIT(Appeals). It was submitted before the 3 ITA No.1138/Mds/2011 learned CIT(Appeals) that the expenditure incurred by the assessee is revenue expenditure and it is allowable u/s 37 of the Act. The learned CIT(Appeals) after considering the submissions of the assessee and by following the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Southern Roadways Ltd. (304 ITR 84) and also the order of the Bangalore Bench of the Tribunal in the case of IBM India Ltd. (290 ITR (AT) 183) (BLR) held that purchase of operational software as revenue expenditure. The relevant portion of the order of the CIT(Appeals) is extracted as under :
"8. I have gone through the submissions made by the appellant and also the order of the Assessing Officer. As seen from details, the software involved is an application software and not system software. The software enables to carry out the business operations efficiently and smoothly. This software does not work on stand-alone computers like system software. As seen from the turn key agreement itself
- Article 9 - Price and payment terms provided that the cost of implementation deliverable will be ` 35,00,000 and cost of software along with modules for 75 users will be ` 27,50,000/- The Ld A.R. submitted that the total amount negotiated at ` 50,50,000. It is clear from this that the cost of 4 ITA No.1138/Mds/2011 software is only the amount supplied for 75 users. The cost of implementation deliverables is to be treated as revenue expenditure. However the A.R. was asked to furnish details of TDS made on the payments made to Infinite Indis Pvt. Ltd. regarding cost of implementation deliverables. The A.R. could not produce proper evidences regarding TDS made and the deposit into Government Account. Since these are Technical services rendered, the A.R. agreed that TDS had to be deducted but the appellant company has not deducted any TDS for the payment made on the amount of cost of implementation deliverable. Hence the Assessing Officer is directed to disallow this amount as per Sec. 40(a)(ia). Regarding the cost of software, the jurisdictional High Court in CIT vs. Southern Roadways Ltd. (304 ITR 84) held software as revenue expenditure and also Bangalore Tribunal in IBM India Ltd. v. CIT(A) in 290 ITR (AT) 183 (BLR) held software as revenue expenditure. Since the appellant purchased operational software, which requires periodical payments for license, the Assessing Officer is directed to allow the cost of software as revenue expenditure u/s 37(1)."
4. On being aggrieved, the Revenue has carried the matter before the Tribunal. The learned DR submitted that the 5 ITA No.1138/Mds/2011 expenditure incurred on purchase of ERP software is capital in nature.
5. On the other hand, the learned counsel for the assessee submitted that the issue is squarely covered by the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Southern Roadways Ltd. (supra) and also the decision of the decision of the Bangalore Bench of the Tribunal in the case of IBM India Ltd.(supra) and submitted that it is a revenue expenditure.
6. We have heard both the sides, perused the records and gone through the orders of the authorities below. The only issue involved in this appeal is whether the purchase of ERP software amounts to capital or revenue expenditure. The learned CIT(Appeals) by following the decision of the jurisdictional High Court in the case of Southern Roadways Ltd. (supra) and the decision of the Bangalore Bench of the Tribunal in the case of IBM India Ltd. (supra) has held that it is a revenue expenditure. We find no infirmity in the order passed by the learned CIT(Appeals). Therefore, this ground of appeal raised by the Revenue is dismissed.
6ITA No.1138/Mds/2011
7. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court at the time of hearing on Tuesday, the 27th of November, 2012, at Chennai.
Sd/- Sd/-
(Abraham P. George) (V.Durga Rao)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Chennai,
Dated the 27th November, 2012.
H.
Copy to: Assessee/AO/CIT (A)/CIT/D.R./Guard file