COMMISSIONER OF INCOME TAX vs. M/S. DANFOSS INDUSTRIES LTD

TCA/135/2015HC Madras27 August 2019Bench: Hon`ble Mr Justice T. S. SIVAGNANAM4 pages

AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. The dismissal was based on the submission by the Revenue's counsel that the appeal was not being pursued due to low tax effect, as per CBDT Circular No. 17/2019, which increased the monetary limit for filing appeals before the High Court to Rs. 1 Crore. The tax effect in this case was stated to be below this threshold. Consequently, the substantial questions of law framed were left open. The Revenue was granted liberty to mention the case for restoration if the tax effect was found to be above the threshold limit. No costs were awarded.

What were the facts?

The Revenue, Commissioner of Income Tax, Chennai, filed an appeal under Section 260A of the Income Tax Act, 1961, against an order dated 22.04.2014 passed by the Income Tax Appellate Tribunal (ITAT), Chennai 'A' Bench. The appeal pertained to the assessment year 2006-07 and concerned the classification of software expenses incurred by the assessee, M/s. Danfoss Industries Ltd. The ITAT had ruled in favor of the assessee, holding the software expenses to be revenue in nature. The High Court admitted the appeal on substantial questions of law related to whether the software expenses were revenue or capital expenditure, considering the aspect of enduring benefit and eligibility for depreciation.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the software expenses incurred by the assessee were revenue expenditure? (Question of law) 2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in not considering the fact that the software expenses incurred by the assessee resulted in an enduring benefit to the assessee and therefore the same was capital in expenditure? (Question of mixed law and fact, turning on the interpretation of 'enduring benefit') 3. Whether, on the facts and circumstances of the case, the Tribunal was right in overlooking the fact that computer including computer software are assets eligible to depreciation @ 60% under Clause 5 of III of Part A of old Appendix I and New Appendix I under the Income Tax Rules, 1962 and therefore expenses incurred on the same has to be treated as capital expenditure? (Question of law, turning on the treatment of software under Income Tax Rules) Assessee's contentions: Not recorded. Revenue's contentions: The software expenses incurred by the assessee resulted in an enduring benefit and were therefore capital in nature. Computer software is eligible for depreciation at 60% under the Income Tax Rules, indicating it should be treated as capital expenditure.

Which sections of the Income-tax Act were involved?

Section 260A

AI-generated summary — verify with the full judgment below

TCA.No.135 of 2015 In the High Court of Judicature at Madras Dated : 27.08.2019 Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal No.135 of 2015 Commissioner of Income Tax, Chennai. ...Appellant Vs M/s.Danfoss Industries Ltd., 296, Rajiv Gandhi Salai (OMR), Sholinganallur, Chennai - 600 119. PAN: AABCD0321M ...Respondent APPEAL under Section 260A of the Income Tax Act, 1961 against the order dated 22.04.2014 made in ITA.No.493/MDS/2014 on the file of the Income Tax Appellate Tribunal, Chennai 'A' Bench for the assessment year 2006-07. For Appellant : Mr.T.Ravikumar, For Respondent : Mr.R.Sivaraman JUDGMENT (Judgment was delivered by T.S.Sivagnanam,J.) We have heard Mr.T.Ravikumar, learned Senior Standing Counsel appearing for the appellant/revenue and Mr.R.Sivaraman, learned counsel appearing for the respondent/assessee. 1/4 http://www.judis.nic.in TCA.No.135 of 2015 2.This appeal, filed by the Revenue under Section 260A of the Income Tax Act, 1961 is directed against the order dated 22.04.2014 made in ITA.No.493/MDS/2014 on the file of the Income Tax Appellate Tribunal, Chennai 'A' Bench for the assessment year 2006-07. 3.The appeal was admitted on 06.07.2015 on the following substantial questions of law : “i) Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the software expenses incurred by the assessee were revenue expenditure? ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in not considering the fact that the software expenses incurred by the assessee resulted in an enduring benefit to the assessee and therefore the same was capital in expenditure? iii) Whether on the facts and circumstances of the case, the Tribunal was right in overlooking the fact that computer including computer software are assets eligible to depreciation @ 60% under Clause 5 of III of Part A of old Appendix I and New Appendix I under the Income Tax Rules, 1962 and therefore expenses incurred on the same has to be treated as capital expenditure?" 4.The learned Senior Standing Counsel for the appellant submits that the above appeal is not pursued by the Revenue on account of the low tax effect in terms of Circular No.17/2019 dated 08.8.2019 issued by the Central 2/4 http://www.judis.nic.in TCA.No.135 of 2015 Board of Direct Taxes. By the said Circular, the monetary limit for filing or pursuing an appeal before the High Court has been increased to Rs.1 Crore. It is further submitted that the tax effect in this case is less than the threshold limit. 5.In the light of the said submissions, the above tax case appeal is dismissed on account of the low tax effect. The substantial questions of law framed are left open. In the event the tax effect is above the threshold limit fixed in the said circular, liberty is granted to the Revenue to make a mention to this Court to restore the appeal to be heard and decided on merits. No costs. (T.S.S.J.) (V.B.S.J.) 27.08.2019 cse Speaking (or) Non Speaking Order Index : Yes (or) No To 1.M/s.Danfoss Industries Ltd., 296, Rajiv Gandhi Salai (OMR), Sholinganallur, Chennai - 600 119. PAN: AABCD0321M 2.The Income Tax Appellate Tribunal, Chennai 'A' Bench. 3/4 http://www.judis.nic.in TCA.No.135 of 2015 T.S.SIVAGNANAM,J. AND V.BHAVANI SUBBAROYAN,J. cse TCA.No.135 of 2015 27.08.2019 4/4 http://www.judis.nic.in

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