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3. It was claimed by the assessee that the expenditure in question has been incurred on obtaining licenses for use of the aforesaid software and since all these software are essentially in the nature of application software, the expenditure incurred was of revenue nature as the same only facilitated in its day to day operations. It was also claimed that the said expenditure did not result in enduring benefit as the life of application software is invariably short and the same was bound to become technically obsolete very fast. This claim of the assessee, however, was not found to be acceptable by the Assessing Officer as, according to him, the said software were part of the plant and machinery of the assessee and gave enduring benefit to it. The Assessing officer also noted that all the application software purchased by the assessee had long-lasting use of more than three-four years and the same, according to him, thus resulted into enduring benefit to it. He, therefore, treated the expenditure incurred by the assessee on acquisition of software as capital in nature an treating the same as part of the plant and machinery, depreciation thereon at the normal rate of 25% was allowed by him in the absence of any specific rate prescribed in the Schedule for the software. The action of the Assessing Officer in treating the software expenditure as that of capital nature was upheld by the learned CIT (A) since he found on verification of the relevant details that the assessee has not upgraded or replaced the software frequently. He however, directed the AO to allow depreciation at the rate of 60% on the software considering that the rate of depreciation provided on computers for AY 1999-2000 to 2002-03 was 60% and from AY 2003-04 onward, even the computer software was included in the computers to be eligible to claim the depreciation at this higher rate. In AY 2002-03 also, the expenditure incurred by the assessee on acquisition of software was treated as a capital expenditure by the Assessing Officer as well as by the learned CIT (A) for the similar reasons as given in A 60% and from AY 2003-04 onward, even the computer software was included in the computers to be eligible to claim the depreciation at this higher rate. In AY 2002-03 also, the expenditure incurred by the assessee on acquisition of software was treated as a capital expenditure by the Assessing Officer as well as by the learned CIT (A) for the similar reasons as given in AY 2001-02. However, the depreciation allowed thereon at normal rate of 25% by the AO was confirmed by the learned CIT (A) overlooking the fact that the same was allowed by his predecessor in assessee's own case for AY 2001-02 at the rate of 60%.

10. Shri Syali, Senior Advocate, appearing for the assessee i.e. M/s. Amway India Enterprises opened the argument. He contended before us that none of the software purchased by the assessee was a custom made software and all of them had been purchased "off the shelf". He submitted that the assessee was merely a licensee and the right to use the software was subject to the conditions mentioned in the license agreement. According to him, all the software acquired by the assessee was in fact up gradation of the existing software and there was no purchase or acquisition of any new software as such. In support of his contention, he relied on the decision of Hon'ble Delhi High Court in the case of CIT v. G.E. Capital Services Limited (ITA No. 560/2007 dated 10.07.2007) wherein their Lordships of Delhi High Court, while considering the question whether expenditure incurred by an assessee on acquisition of a software was capital or revenue nature, endorsed the view of the Tribunal that in view of Technological changes and the need to upgrade software on a regular basis, software cannot be said to be an asset of enduring nature. The Court further observed that where the expenditure was incurred on purchase of software which is no custom built software, the same requires regular up gradation. The Court ultimately concluded that there was thus no error committed by the Tribunal in taking the view that it did. Our attention was further drawn by Shri Syali to the decision of Hon'ble Delhi High Court in the case of CIT v. K & Co. 181 CTR 378 wherein it was held that an expenditure incurred by the assessee on maintenance of computer ad their up gradation including software is in the nature of revenue expenditure. Shri Syali thereafter distinguished the decision rendered by the Hon'ble Rajasthan High Court in the case of Arawali Constructions Co.(P) Ltd. 259 ITR 30 (Raj). He pointed out that the assessee in the said case had claimed Rs. 1,38,360/- on account of acquisition of a software which represented a computer program purchased from Hindustan Computers Limited. The Hon'ble Rajasthan High Court noticed that the software so purchased was in the nature of a consultancy fees paid to Hindustan Computers Limited for a program specifically developed for data analysis for mining purposes. The AO, however, held that in the agreement, there was no reference to the payment being in the nature of a consultancy fees and it was an outright purchase of a computer program which was related to technical know-how. He, therefore, concluded that the purchase was of a technical know-how and the same was an asset of capital nature. The learned CIT (A) allowed the claim of the assessee treating the expenditure as revenue and the Tribunal also confirmed the order of the CIT (A). The Hon'ble Rajasthan High Court, however, reversed the order of the Tribunal after concluding that the payment made by the assessee to Hindustan Computers Ltd. was made for outright purchase of computer software which was used as technique in mining operation. The Court further noticed that the Commissioner had held that the acquisition of the software cannot be treated to be an asset of ending nature. The Court, however held that if the program is used in one mining to another mining operation, there was no reason why it should not be treated as a capital asset and the expenditure on acquisition thereof a capital expenditure. The Court finally conclude that the assessee had acquired technical know-how and the expenditure incurred on such acquisition was a capital expenditure. According to Shri Syali the decision in the case of Arawali Constructions Co(P) Ltd. (supra) thus was given on totally different facts in as much as the payment therein was for acquisition of software which was tailor-made to be used in mining operation which represented its earning apparatus whereas in the present case, the assessee was merely a licensee of the software which aware acquired for efficient use of computers for running day to day business.

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).

62. The argument raised on behalf of the assessees in this context was that the rate of depreciation on computer software from 1.4.1999 should be 60%. The basis of this argument was that depreciation on computers was originally allowed treating them as a plant only at 25%. With effect from 1.4.1999, computers were treated as a different class of asset falling within the description of Plant and depreciation was allowed at 60%. With effect from 1.4.2003, computer software was also included along with computers. The argument of the assesses was that the amendment to the rules was merely clarificatory and therefore, even on computer software w.e.f. 1.4.1999, 60% depreciation should be allowed. We do not agree with the submissions of the assessee in this regard. 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% w.e.f. 1.4.1999 on computer software, it would have said so specifically by making the provisions retrospective. In this regard, we agree with the view expressed by the Delhi Bench of the ITAT in the case of Maruti Udyog Ltd. (supra) wherein similar view has been taken.