ACIT, CHENNAI vs. TNQ BOOKS AND JOURNALS PRIVATE LIMITED, CHENNAI

आदेश / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER:

ITA No.330/Mds/2016. :- 2 -:

The Revenue has raised sole substantive ground that the 2.

Commissioner of Income Tax (Appeals) erred in allowing depreciation for software license at the rate of 60% instead of 25% allowable as

per Income Tax Rules and further erred on relying on the judicial decisions which are not relevant to the assessee’s case.

The Brief facts of the case are that the assessee company is 3. in the business of data processing, prepress services and export of software and filed return of income electronically on 27.09.2012 with total income of �16,27,41,050/- and was processed u/s.143(1) of the Act and subsequently, the case was selected for scrutiny and notice u/s.143(2) and 142(1) of the Act was issued. In compliance to notice, the ld. Authorised Representative of assessee appeared from time to time and furnished details as called for by the ld. Assessing Officer. In the assessment proceedings, the ld. Assessing Officer on perusal of form No. 3CD found that the assessee company has claimed depreciation on software licence at the rate of 60% instead of 25% allowable on intangible assets as the software license being intangible amount as per part B of depreciation schedule and the ld. Authorised Representative submitted break up Written Down Value (WDV) of computer and software license. The ld. Assessing Officer considering the claim of the assessee on depreciation rate and applicability of inclusive definition of intangible assets has disallowed the excess

ITA No.330/Mds/2016. :- 3 -: claim of depreciation and Assessed total income of �16,80,88,230/- vide order u/s.143(3) of the Act dated 18.03.2015. Aggrieved by the order, the assessee filed an appeal before us.

In the appellate proceedings, the ld. Authorised 4.

Representative argued on the grounds and explained the facts an reasons on claim of depreciation on software license. The assessee company purchased software license and added to the opening written down value (WDV) of Block of computers and computer software and license ‘’ as on 01.04.2011 and the same being part of the Block cannot be segregated and entitled for depreciation at 60% and not the rate applicable to the intangible assets. The ld. Commissioner of Income Tax (Appeals) considered the grounds, arguments, facts of the case, findings of the ld. Assessing Officer, and written submissions with the judicial decisions of Amway India Enterprises vs. DCIT 111 ITR 112 and Navneet Publications India Ltd in and found that similar issue in assessee case was decided favorably and observed at para 7.2.1 of the order:-

‘’7.2.1. Further, the appellant’s Authorised Representative submitted that the same issue was decided in favor of the appellant by the Commissioner of Income Tax (Appeals) for the earlier A.Y. 2010-2011 vide order in IAT No.1889/2013- 14 dated 31.12.2014. For the sake of convenience, the relevant portion of the above order of the Commissioner of Income Tax (Appeals) is reproduced hereunder:-

ITA No.330/Mds/2016. :- 4 -:

‘’The AO restricted the depreciation claim on the appellant to 25% as against 60% in doing so he relied on the decision of SONY Indi vs. Addl. CIT 56 DTR 156. On the issue of depreciation the Assessing Officer disallowed stating that the appellant had paid money for the use of software whereas the appellant submits that the amounts were paid towards purchase of license version of software and the company is absolute owner of the same without restriction of time limit. On going through the relevant decision, the issues mentioned there is the case law cited by the Assessing Officer is on 35DDA and 37(1). Similar issue had come up before the Hon’ble Special bench of ITAT, Delhi in the case of AMYWAY India Enterprises vs. DCIT Circle 1(1) New Delhi wherein the Hon’ble ITAT held that computer software has been classified as tangible asset under heading plant and would be entitled to depreciation at the rate of 60% w.e.f. 01.04.2013 (111 ITD 112 Delhi SB). Hence, the disallowance made by the Assessing Officer is deleted and the ground is allowed. and deleted the addition of excess claim of depreciation and allowed the appeal. Aggrieved by the Commissioner of Income Tax (Appeals) order, the Revenue has assailed an appeal before Tribunal.

Before us, the ld. Departmental Representative reiterated 5. the facts and argued the grounds and relied on the findings of the ld. Assessing Officer were computer and computer software license are different as the software takes the character of tangible asset wereas software license is a intangible asset and depreciation is allowable @25% as per part B of Appendix 1 of depreciation table and the ld. Commissioner of Income Tax (Appeals) has erred in allowing depreciation @60% relying on the judicial decisions not relevant to the facts of the assessee and prayed for allowing the appeal.

ITA No.330/Mds/2016. :- 5 -:

Contra, the ld. Authorised Representative relied on the 6. orders of Commissioner of Income Tax (Appeals) and the assessee‘s own case for the assessment year 2010-2011 allowed in favour of the assessee on similar issue and submitted judicial decisions and prayed for dismissing the appeal.

We heard the rival submissions, perused the material on 7. record and judicial decisions cited. The crux of the issue dealt as per the arguments of the ld. Departmental Representative that the depreciation on software license should be restricted to 25% rate and treated as Intangible Asset and shall not be included in Block of computers. The ld. Authorised Representative contravened the arguments and substantiate that in assessee’s own case the Co- ordinate of this Tribunal has allowed the depreciation on software licence @60% and supported his submissions with the decision of Hyderabad Tribunal in the case of Srinivasa Resorts vs. ACIT (2014) 41 taxmann.com 350 (Hyd. Trib) were it was observed that the computer software alongwith computer has to be treated as capital asset and Higher rate of depreciation @60% has been allowed based on the life and usage of computer software. We found that similar issue was decided by the Co-ordinate Bench in favour of the assessee in assessee’s own case in for the assessment

ITA No.330/Mds/2016. :- 6 -: year 2010-2011, dated 20.1.20166, where the Tribunal observed in para No 8 as under:-

‘’8. Ground No.2 - Restriction of excess depreciation claimed on software:- During the course of assessment proceedings it was observed by the learned Assessing Officer that the assessee had claimed depreciation on purchase of software of Rs.1,28,45,163/- @ 60%. However, following the decisions in the case of Sony India Vs. Additional. CIT (ITAT., Delhi) reported in 56 DTR 156), the Ld. Assessing Officer allowed depreciation @ 25%. On appeal, the learned CIT relying on the decision in the case of Amway India Enterprises Vs. DCIT held that the assessee would be entitled for depreciation @ 60% since “computer software” falls in the category of “plant”. On perusing the facts of the case, we find the decision of learned CIT(A) to be justified because the Special Bench of the Tribunal (supra) has categorically held that with effect from 01.04.2003 “computer software” has to be classified as “tangible asset” under the heading ‘plant’ as mentioned in Appendix I to Income Tax Rules, 1962. Therefore we do not find it necessary to interfere with the order of the CIT (A) on this issue’’.

We, respectfully following the Co-ordinate Bench decision, dismiss the ground of the Revenue.

Order pronounced on Tuesday, the 14th day of June, 2016, at Chennai.