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9. On being questioned by the AO during the assessment proceedings, the assessee submitted that it procured software packages for its business use. The licences for the use of such software were for limited periods and thereafter required payment of renewal fees. Hence, upon payment of the licence fees, it secured only a limited right to use the software without acquiring the source code, title, or ownership. The assessee further claimed that it was prohibited from modifying, duplicating, decompiling, or disassembling the impugned software and reiterated that it was only allowed to use such software for its business ITA Nos.290 - 294/Bang/2025 in a limited manner. Hence, the same were only application software license for limited period up to 2 years. The assessee to substantiate furnished supporting documents vide annexure 21, through its reply dated 16th February 2021 which included copy of purchase order, copy of invoice and a table showing the breakup, description of software and period or duration of software license. Accordingly, the assessee claimed that the payment made for securing licences of such software cannot be classified as a capital asset and is therefore allowable as revenue expenditure. In support of its contention, the assessee placed reliance on the judgment of the Hon'ble jurisdictional High Court of Karnataka in the case of CIT vs. Toyota Kirloskar Motor Pvt. Ltd., reported in 349 ITR 65, and in the case of CIT vs. IBM India Limited, reported in 357 ITR 88. 9.1 Without prejudice to the above, the assessee also submitted that in case the expenditures incurred on impugned application of software were not allowed as revenue expenditure, the depreciation should be allowed at the rate of 60% considering the same as "computer including computer software. In contending so, the assessee placed reliance on the decision of this tribunal in case of assessee's holding company namely Infosys Ltd. pertaining to A.Y. 2005-06 and placed reliance on numerous other decisions of Delhi and Mumbai Tribunal in case of different assessee.
18. We have heard the rival contentions of both the parties and perused the materials available on record. The issue before us relates to the allowability of software licence expenditure claimed as revenue expenditure and the correctness of the action of the learned CIT(A) in remanding the matter to the file of the Assessing Officer for fresh adjudication 18.1 From the records, it is evident that the assessee incurred expenditure towards application software licences which were used in the regular course of its business. The licences were for limited periods, mostly up to two years, and required renewal thereafter. The assessee ITA Nos.290 - 294/Bang/2025 did not acquire ownership, source code, or any proprietary rights in the software. It was merely granted a restricted right to use the software, without any right to modify, duplicate, or transfer the same. The supporting documents such as purchase orders, invoices, and detailed break up of software with licence period were furnished before the Assessing Officer during the assessment proceedings. These facts clearly show that the expenditure was incurred to facilitate efficient conduct of business and did not result in creation of any enduring asset in the capital field.