S.37(1): Business expenditure-Capital or revenue-Expenditure on acquiring software-Matter remanded.
Assessee claimed thepurchase of computer software as revenue expenditure. The Assessing Officer rejected the claim. The Commissioner (Appeals) held that the expenditure in relation to warranty module, sales module and parts module were revenue in nature while the expenditure in relation to the factory module was capital in nature. On appeal to the Tribunalthe Tribunal held that there is no single definitive criterion which, by itself, is determinative whether a particular outlay is capital or revenue. The "once for all" payment test is also inconclusive. What is relevant is the purpose of the outlay and its intended object and effect, considered in a common-sense way having regard to the business realities. The Tribunal in Amway India Enterprises v. Deputy CIT [2008] 301 ITR (AT) 1 (Delhi) [SB] laid down the following tests:
(a) where the assessee acquires a computer software or licence to use such software, the assessee acquires a tangible asset and becomes owner thereof;
(b) where the life of computer software is shorter, it may be treated as revenue expenditure.
Any software having its utility to the assessee beyond two years can be considered as accrual of benefit of enduring nature;
(c) once the test of ownership and enduring benefit is satisfied, the question whether expenditure on computer
software is capital or revenue is to be seen on a case to case basis from the point of view of its utility to a businessman and how important an economic or functional role it plays in his business. The licensing agreement in the instant case had not been placed before the Tribunal. The Commissioner (Appeals) had not examined as to how the assessee carried on its functions before acquiring the integrated software and nor even as to whether or not the software was part of infrastructure for commencing the business operations in India and whether or not each of the four modules could function independently in the light of the economic and functional test while confirmation dated September 6, 2012 of H, Japan was not before the lower authorities. Matter remanded.(A.Y.1999-2000)
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