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[2017] 79 taxmann.com 359 (Karnataka) Re: Question No.2

7. Shri. Shankar submitted that question No.2 is covered against the Revenue in ITA No.130/20074. The same was opposed by Shri. Aravind contending that ITA No.130/2007 is with respect to A.Y. 1998-99. Therefore, on facts, the said ruling is not applicable to the facts of this case. He submitted that the expenditure towards software is a Capital expenditure and the Tribunal has erred in treating the same as Revenue expenditure. He further submitted that the rate of depreciation with effect from 2003-04 for Computers including Computer software is 60%. Though the life of hardware is limited for want of up-gradation in technology, the software can be used for long period. Since the depreciation is 60%, the Tribunal's order on this aspect is unsustainable. In reply, Shri. Shankar argued that though the depreciation is allowed at 60% from the A.Y. 2003-04, the assessee will be entitled to CIT and Another Vs. M/s. IBM India Ltd., decided on 10.04.2013 claim depreciation at 60% in the first year and at the same rate on the remaining capital equipment for subsequent years. In ITA No.130/2007, this Court has recorded detailed reasons and held that software is an aid in manufacturing process rather than a tool itself. Though certain application has enduring benefit, it does not result into acquisition of capital asset. It merely enhances the productivity or the efficiency and therefore, it has to be treated as a Revenue expenditure.