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On the question whether computer software was goods, the Supreme Court in Tata Consultancy Services [20041 271 1TR 401 took into account the view of American courts on the issue as well as its own decision rendered in the case of Associated Cement Co. [2001] 124 STC 59 in the context of 1 the Customs Act wherein the definition of the term "goods" given was not as wide or exhaustive as the definition of the term "goods" in the A. P. Tax Act, to hold that software, whether customised or non-customised, satisfies all the attributes of being a "goods" and as such, is capable of being bought and sold and becomes an object of trade and commerce can only lead to the conclusion that purchase of such disc is acquiring a tangible asset. If the disc, tape or floppy or other electronic medium in which the software is stored is by itself goods, then the assessee who acquires the same, acquires a tangible asset. Computer software has not .been defined in the Income-tax Act, 1961, but in Note 7 to Appendix I to the Income-tax Rules, 1962, it has been explained to include computer programme recorded on any disc, tape, perforated media or other information storage device. Therefore computer software (whether in canned form or un-canned form) is goods and a tangible asset by itself. The question whether an assessee by purchase of a disc containing software has purchased a. capital asset or not should not. therefore, be viewed from the angle of acquisition of any copyright or any of the bundle of rights comprised in such copyright. An assessee purchasing such a software becomes the owner thereof."

The presence of an element of upgrading will not necessarily cause the expenditure in question to be capital.

With effect from April 1, 1999, computers were treated as a different class of asset falling within the description of plant and depreciation was allowed at 60 per cent. With effect from April 1, 2003, computer software was also ITA No.521 & 1001-02/Ahd/05, 774/Ahd/06 & 1889/Ahd/07, 2315/A/06 &CO 134/Ahd/06 & 204/Ahd/07 & 282/Ahd/06 A.Ys. 01-02, 02-03 & 04-05 ACIT Cir-3, A'bd v. Anagram Stock Broking Ltd/Anagram Securities Ltd. Page 19 included along with computers. The amendment is prospective. It is not clarificatory for the reason that computer and computer software are two different items of assets. If the Legislature wanted to allow depreciation at 60 per cent, with effect from April 1, 1999, on computer software, it would have said so specifically by making the provisions retrospective. Depreciation can be allowed at 25 per cent, under section 32W(i) read with Appendix I, Part A, Division 111(1) to the Income-tax Rules, 1962 and with effect from April 1, 2003, computer software having been classified as a tangible asset under the heading "Plant" in Appendix Ito the Rules, is entitled to depreciation at 60 per cent."