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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI KULDIP SINGH & SHRI S RIFAUR RAHMAN
Date of hearing 11/01/2023 Date of pronouncement 23/02/2023 ORDER PER: KULDIP SINGH (JM):
The Appellant, Axis Finance Limited (hereinafter referred to as the 'assessee') by filing the present appeal, sought to set aside the impugned order dated 29/09/2022 passed by the National Faceless Appeal Centre
2 ITA 2998/Mum/2022 (NFAC),Delhi [hereinafter referred to as the 'CIT(A)'] qua the assessment order for Assessment Years 2016-17 on the ground that:-
NFAC has erred in law and in facts and in circumstances of the case in allowing depreciation @25% on computer software by categorizing it in the block of ‘Intangible Asset’ as against the depreciation claimed by the Appellant @60% by categorizing it in th4e block of ‘Computer Software’.
Briefly stated, facts necessary for consideration and adjudication of the issues at hand are : The assessee company is a non deposit accepting Non Banking Finance Company (NBFC) registered with Reserve Bank of India, earned income under the head “Profits and gains of business or profession” and income from capital gain. Assessing Officer during the assessment proceedings, noticed that the assessee has claimed depreciation on software @50% instead of 25% applicable to its case. Declining the contentions raised by the assessee, Assessing Officer restricted the claim of depreciation on software made by the assessee to the extent of 25% and excess claim of depreciation of Rs.49,76,000/- has been disallowed and made addition thereof to the total income of the assessee and thereby framed the assessment under section 143(3) of the Act.
Assessee carried the matter before the Ld.CIT(A) by way of filing appeal who has partly allowed the same. Feeling aggrieved with the impugned order passed by the Ld.CIT(A), assessee has come up before the Tribunal by way of filing the present appeal.
We have heard the Ld.AR for the assessee and the Ld.DR of the Revenue, gone through the documents available on record, order passed by 3 ITA 2998/Mum/2022 the lower Revenue Authorities in the light of facts and circumstances of the case and the case law applicable thereto. 5. From the facts and circumstances of the case and ground raised by the assessee, sole question arises for determination in this case is, “as to whether assessee is entitled for depreciation on computer software @60% classifying the computer software as “computers and computer software, falling within the block of plant and machinery”.
At the very outset, Ld.AR for the assessee contended that this issue has already been decided in favour of the assessee by the Hon’ble Madras High Court in the case of Compute Age Management Services (P) Ltd (2019) 109 taxmann.com 134 (Madras) and by the co-ordinate bench of Tribunal in the case of M/s Arkema Chemicals India P Ltd in ITA No.1032/Mum/2021.
We have perused the order passed by the co-ordinate bench of Tribunal in case of M/s Arkema Chemicals India P Ltd wherein similar issue has been decided in favour of the assessee by returning the following findings:- “08. We have carefully considered the rival contentions and judicial precedents cited before us. We have also considered the decision of the lower authorities. The issue involved in this appeal is where the assessee has purchased license of ERP SAP, assessee is entitled to the deprecation at the rate of 60 % as covered in New Appendix I of Rule 5 of ITAT Rules in heading of machinery and plant in part A of tangible assets at serial number 5 “computers including computer software (see note 7 below this table ) entitled to depreciation at the rate of 60% or in Para B being licenses, intangible assets entitled to deprecation at the rate of 25%. We find that entry number 5 under Part A allows depreciation at the rate of 60% on computers including computer software. Note-7 states that computer software means any computer programme recorded on any disk, tape, perforated media or other information storage device. Apparently, it does not make any difference between application system software or application software. Further, part B of appendix-1 prescribed deprecation at the rate of 25% on certain intangible assets such as knowhow, patents, copy rights trademarks, license fee, franchise or any other business or 4 ITA 2998/Mum/2022 commercial right of similar nature. Therefore, the question that arises is the license obtained by the assessee would fall in the definition of computer software so as to make it eligible as tangible asset and then depreciation rate at the rate of 60% will apply. If it is a license only then naturally it would be intangible assets eligible for depreciation at the rate of 25%. We now find that the issue is squarely covered in favour of the assessee by the decision of Hon'ble Madrass High Court in the case of Computer Age Page | 6 IITA No. 1032/Mum/2021 M/s Arkema Chemicals India P. Ltd.; AY 17-18 Management Services (P.) Ltd. [2019] 109 taxmann.com 134 (Madras)/ (2019 (7) TMI 1153 - MADRAS HIGH COURT), wherein depreciation held that software lincense acquired by the assessee was in nature of application software and is eligible for deprecation at the rate of 60%. The honourable court held as Under:- 7. As noticed above, the assessee is in the business of registrar and transfer agent as licensed by the SEBI handling large volume of market sensitive data and information, which is available only through general customized application software. The assessee acquired software licenses capitalized during the relevant years in the books of accounts and claimed depreciation at 60%. In paragraph 20 of the order passed by the Tribunal, the nature of items, on which, the assessee claimed depreciation at 60%, has been listed out and they are 17 in number, from which, we find that substantial amount of server licences, which have been obtained by the assessee are customized and some of which are single user licenses .
The question would be as to whether the software application, which was acquired by the assessee would fall under Entry 5 of Part A of New Appendix I, which states that computers including computer software are entitled to depreciation at 60%. Note 7 of the Appendix defines the expression 'computer software' to mean any programs recorded on CD or disc, tape, perforated media or other information storage devices.
The case of the Revenue is that software are licences and that they are intangible assets and would fall under Part B of New Appendix I, which deals with knowhow, patents, copyrights, trademarks, licenses, francises or any other business or commercial rights of similar nature.”
8. In this view of what has been discussed above and following the order passed by co-ordinate bench of Tribunal, we are of the considered view that the Ld.CIT(A) has erred in denying the claim of depreciation made by the assessee on computer software @60% because assessee is entitled for depreciation on computer software, which is part of the computer @60%. The co-ordinate bench of the Tribunal in in case of M/s Arkema Chemicals India P Ltd (supra) also held that software licence acquired by the 5 ITA 2998/Mum/2022 assessee was in the nature of application software and is eligible for depreciation @60%.
9. Consequently, Assessing Officer is directed to provide depreciation as claimed by the assessee on computer software @60%. Resultantly, appeal filed by the assessee is allowed. Order pronounced in the open court on 23/02/2023. Sd/- sd/- (S RIFAUR RAHMAN) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dt : 23rd February, 2023 Pavanan Copy to : 1. The appellant 2. The respondent 3. The CIT concerned 4. The CIT(A) 5. DR, SMC Bench 6. Guard File (True Copy) By order