Income Tax Appellate Tribunal - Mumbai
Rediffusion Dentsu Young & Rubicam ... vs Assessee on 8 February, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCHES "J", MUMBAI
Before Shri R.S.Syal, AM and Shri D.K.Agarwal, JM
ITA No.5304/Mum/2010 : Asst. Year 2001-2002
M/s.Rediffusion Dentsu Young & The Asstt.Commissioner of Income-tax
Rubicam Private Limited Range 7(2)
Terminal 9, 5th Floor, Nehru Road Mumbai.
Vs.
Vile Parle (East), Mumbai - 400 099.
PAN : AAACR5303G.
(Appellant) (Respondent)
Appellant by : Shri Pankaj Jain
Respondent by : Shri C.G.K.Nair
Date of Hearing : 06.02.2012 Date of Pronouncement : 08.02.2012
ORDER
Per R.S.Syal, AM :
This appeal by the assessee arises out of the order passed by the Commissioner of Income-tax (Appeals) on 16th March, 2010, in relation to the assessment year 2001-2002.
2. The only issue raised in this appeal is against the confirmation of disallowance of `38,04,820 claimed to have been incurred by the assessee on upgradation of computer software. Briefly stated the facts of the case are that the assessee is carrying on the business of advertising agency, preparing advertisement on behalf of the clients appearing in the newspapers, magazines and also on T.V. channels. The original assessment in this case was completed on 28.01.2004 in which it was observed by the Assessing Officer that the assessee claimed the sum of `48.94 lakh being the expenditure on software license and upgradation etc. as deductible. The A.O. capitalized such sum and allowed depreciation at the rate of 25% on this amount. When the matter came up before the Tribunal, this issue was restored to the file of A.O. for a fresh decision in accordance with the decision of the Special Bench of the Tribunal in 2 ITA No.5304/Mum/2010 M/s.Rediffusion Dentsu Young & Rubicam Pvt.Ltd.
Amway Enterprises reported in 111 ITD 112 (Del) (SB). In the present proceedings, the Assessing Officer considered the decision of Amway Enterprises and again held the amount to be capital expenditure not entitled for full deduction. No relief was allowed in the first appeal.
3. We have heard the rival submissions and perused the relevant material on record. Pages 2 and 3 of the paper book contain the details of the amount paid in respect of which deduction has been claimed. The summary of these two pages is as under:-
A) Details of `27,99,720 paid towards licence fees.
1. Chips & Visual Fox Pro 6.0 - 22,000 Licence - Operating Bytes Finance (Suku) system Infotech
2. Technology Windows 2000 5,100 Licence - Operating Solutions Millenniums Edn system
3. Purple Image Adobe publishing 2,55,000 Licence - Operating Technology collection - win `2,32,500, system Pvt. Ltd. Corel custom photo CD pack (2 CDS) `22,500
4. Chips & CorelDraw 9.0 version 2,17,250 Licence - Operating Bytes `1,47,750 system Infotech CorelDraw 10 version Licence - Operating `69,500 system
5. Chips & Adobe publishing 9.00 9,30,060 Licence - Operating Bytes Win.CD system Infotech
6. Chips & Windows 2000 Prof. pack, 11,00,325 Licence - Operating Bytes upgrade NT.4.0 to system Infotech Windows 2000, SQL Server upgrade
7. AB Infotech TALLY CONVERSION 14,250 Accounting software
8. Future Soft Windows 2000 `33,000 57,175 Licence - Operating Solutions Pvt. system Ltd. Windows 2000 `23,375 Licence - Operating system
9. Media Ware 1,40,710 Software+ Database Infotech Pvt. upgrades and DOS Ltd. version - Media software 10 Ice Internet Creation of homepage 57,850 Web site development Creativity `35,000 Flash information `22,000 3 ITA No.5304/Mum/2010 M/s.Rediffusion Dentsu Young & Rubicam Pvt.Ltd.
Creation of Html Page Web site development
`850 Web site development
Total A: 27,99,720
B) Details of `10,00,000 paid for accounting software.
1. Infocare Software for Accounting, 10,00,000 Technologies Payroll & Billing Pvt. Ltd.
Total of B 10,00,000
Total A & B 37,99,720
4. The learned A.R. has relied on the judgment dated 4th July, 2011 of the Hon'ble jurisdictional High Court in CIT Vs. Raychem RPG Limited in which the deduction has been held to be available by considering para 7 of the Tribunal order as under:-
"7. When we apply this functional test suggested by the Special Bench of the Tribunal, we find that impugned software does not form part of the profit making apparatus of the assessee and hence the same is to be disallowed as revenue expenditure. We hold so because we find that the business of the assessee company is that of manufacturing of telecommunication and power cable accessories and trading in oil retracing system and other products and impugned software is an Enterprises Resources Planning (ERP) package and hence it facilitate the assessee's trading operations or enabling the management to conduct the assessee's business more efficiently or more profitably but it is not in the nature of profit making apparatus. We, therefore, decide this issue also in favour of the assessee and we hold that this expenditure of Rs.20.60 lakhs is of revenue expenditure. We hold so by following the judgment of the Special Bench of the Tribunal relied upon by the ld.AR of the assessee."
5. From the above judgment it can be observed that the Hon'ble jurisdictional High Court has upheld the deductibility of expenditure on the ground : "that impugned software does not form part of the profit making apparatus of the assessee". In the subsequent lines it has been observed that the software simply facilitated the assessee's trading operations but it is not in the 4 ITA No.5304/Mum/2010 M/s.Rediffusion Dentsu Young & Rubicam Pvt.Ltd.
nature of profit making apparatus. From the above observations of the Tribunal as approved by the Hon'ble jurisdictional High Court, it becomes apparent that if the software results into forming part of the profit making apparatus then the same cannot be allowed as deduction. We are considering a case in which the assessee is in the business of advertising agency and the advertisements are prepared by the assessee for newspapers, magazines and TV channels. If the computer software are facilitating the direct earning from this business, it would constitute a profit making apparatus and hence not a revenue expenditure. From the table being details of software expenditure extracted above, it is seen that in most of the cases it has been mentioned as a `Licence - Operating system'. The further details of the nature of licence and the purpose for which it was used are not emanating. Further it is relevant to note that this expenditure also includes a particular amount representing website development which cannot, by any standard, be considered as software expenses. Since the details of licences which led to the payment by the assessee is not arising from the material on record and the same has also not examined distinctly, in our considered opinion, the ends of justice would meet adequately if the impugned order on this issue is set aside and the matter restored to the file of A.O. We order accordingly and direct him to decide this issue afresh as per law after allowing a reasonable opportunity of being heard to the assessee.
6. In the result, the appeal stands allowed for statistical purposes.
Order pronounced in the open Court on this 08th day of February, 2012.
Sd/- Sd/-
(D.K.Agarwal) (R.S.Syal)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai : 08th February, 2012.
Devdas*
5 ITA No.5304/Mum/2010
M/s.Rediffusion Dentsu Young & Rubicam Pvt.Ltd.
Copy to :
1. The Appellant.
2. The Respondent.
3. The CIT concerned
4. The CIT(A) - XIII, Mumbai
5. The DR/ITAT, Mumbai.
6. Guard File.
TRUE COPY.
By Order Assistant Registrar, ITAT, Mumbai.