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17. Thereafter, reference was made by Shri Syali to the case of Sonata Information Technology Limited v. Addl. CIT 103 ITD 324 where the Tribunal drew a distinction between acquisition of a copyright and purchase of copyrighted article. Accordingly to the learned Counsel for the assessee, the acquisition of a license to use a computer program is akin to acquisition of a copyright article in contrast to a acquisition of a copyright. Shri Syali submitted that there are different types of computer software. He then referred to the changes made in the Income-tax Rules w.e.f. 1.4.2003. He referred to Appendix I part A-III(5) to the Income-tax Rules as applicable for Assessment Year 200304 to 2005-06 whereby computers including computer software have been specifically classified as an item of asset falling within the block of asset, machinery and plant entitled to depreciation at the rate of 60%. It was submitted by him that merely because an item is listed as a capital asset in the Appendix under the Income-tax Rules, it cannot automatically follow that software is a capital asset. Shri Syali argued that before applying Appendix to the Rues, a finding has to be recorded in terms of Section 32(I)(ii) that software acquired by the assessee is a capital asset entitled only to depreciation. He then explained that aforesaid item of expenditure will only be applicable to tailor- made software for which source code exists or to software which are acquired and treated as part and parcel of computer hardware and a capital asset. However, software acquired under a license on terms and conditions whereby ownership is retained by the licensor and where such software only adds to the efficient running of day to day operation of business, cannot be held to be expenditure of capital nature as they were only copyrighted articles. Reliance was also placed on the decision of Special Bench of Kolkata Tribunal in the case of Peerless Securities Ltd. v. JCIT 94 ITD 89 (SB)(Kol).

33. Shri Devender Shankar further submitted that in case of software like ERP, SAP , Oracle (which are not in the nature of shrink wrap), any up gradation to a newer version has to be-carried out by the original supplier who has the source code of the software with him. If this up gradation results in higher efficiency, higher speed, higher memory and data handling capacity then it will be an acquisition of an enduring benefit and will be in the nature of capital asset. He made a simple comparison to a 'building' where new floors are added to accommodate more people or offices or a ease where extra berths/seats are added to any train or bus to be able to carry more passengers Such an expenditure incurred will result in enduring benefit with regard to a capital asset and be a capital expenditure to be treated in terms of Section 32 or Section 35A of the IT act as the case be.

53. It is also observed that a contention was also raised on behalf of the assessee in the case of TCS that the only property in the literary work of computer software is the source code i.e. the code in which the programmer writes the software which is subsequently converted in machine code for use in physical form. It was contended that the software code and the media on which it happens to be stored have to be viewed differently and the source code being an information which cannot he touched and the ideas therein being expressed in logical form, the same constitutes intellectual property which its essentially intangible. This contention raised by the assessee again was not accepted by the Hon'ble Supreme Court as is evident from the relevant portion of the judgment which, is extracted below from page No.432 of the Report :-