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• Without prejudice, depreciation on software expenses held as capital expenditure is to be allowed at 60% and not at 25%. As per New Appendix I to Income tax rules, 1962 which provides the table of rates at which depreciation is admissible, computers including computer software is eligible for depreciation at the rate of 60%.
IT(TP)A No.735/Bang/2018 & M/s. Infosys Limited, Bangalore 20.3 Assessee also placed reliance before the ld. CIT(A) on the decision of Hon'ble Karnataka High Court in the case of IBM India Ltd. (357 ITR 88) and Toyota Kirloskar Motor Ltd (349 ITR 65) and claimed that expenditure be regarded as revenue expenditure when the same is incurred on application software and not system software.
• That the jurisdictional ITAT in DCIT vs OnMobile Global Ltd. [20141 31 ITR (Trib) 248 (Bangalore) allowed deduction under section 80JJA for a company which was engaged in the business of software services.

30. The ld. CIT(A) has observed the order of the assessing officer, the arguments made by the assessee and the case laws relied upon. A plain reading of the section shows that it is applicable to undertaking engaged in the manufacture or production of an article or thing whereas the assessee is engaged in the business of software development. The section mentions only "article" or "thing" whereas section 10 and 10B specifically mention "articles" or "things or computer software". If "article" or "thing" included computer software, there was no need to separately mention computer software in section 10A and 10B. In the case of 'Onmobile Global' (Supra), the issue was whether telecom services can be termed as IT IT(TP)A No.735/Bang/2018 & M/s. Infosys Limited, Bangalore enabled services. Deduction u/s.8oJJAA of the Act was allowed on the basis of the following facts, specific to that assessee:-

3. The assessee does not pay 'wages' to its employees; but pays salary to its regularly employed engineers. Salary does not come within the definition of 'wages'.
4. The assessee does not employ any workman within the definition of Industrial Disputes Act, 1947. The definition of workman provided therein does not include software professionals.
5. Section 10B uses the phrase 'articles or things or computer software' and therefore 'articles or things' do not include 'computer software'.
16.5. Before us, the Ld.AR submitted that the DRP directed the Ld.AO to consider reduction of deduction under section 10AA in respect of profits from onsite development of computer software, on a protective basis, for the reason that, the decision of the Hon'ble Karnataka High Court in CIT v Mphasis Software and Service India Pvt. Ltd(supra).
16.6. Referring to Explanation 2 to section 10AA, the Ld.AR submitted that, the explanation clarifies that the profits and gains derived from on-site development of computer software (including services for development of software) outside India shall be deemed to be the profits and gains derived from the export of IT(TP)A No.735/Bang/2018 & M/s. Infosys Limited, Bangalore computer software outside India. He referred to the relevant observations of Hon'ble Karnataka High Court in case of CIT v Mphasis Software and Service India Pvt. Ltd(supra) that observed as under: