DCIT CIR 2(2), MUMBAI v. MAHINDRA REALTY & INF. DEVELOPERS LTD, MUMBAI

ITA 1160/MUM/2010 | 2001-2002
Pronouncement Date: 28-01-2011 | Result: Dismissed

Appeal Details

RSA Number 116019914 RSA 2010
Assessee PAN AAACM4116G
Bench Mumbai
Appeal Number ITA 1160/MUM/2010
Duration Of Justice 11 month(s) 15 day(s)
Appellant DCIT CIR 2(2), MUMBAI
Respondent MAHINDRA REALTY & INF. DEVELOPERS LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2011
Appeal Filed By Department
Order Result Dismissed
Bench Allotted J
Tribunal Order Date 28-01-2011
Date Of Final Hearing 17-01-2011
Next Hearing Date 17-01-2011
Assessment Year 2001-2002
Appeal Filed On 12-02-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'J' BENCH MUMBAI BEFORE SHRI R.V. EASWAR PRESIDENT AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 1160/MUM/2010 (ASSESSMENT YEAR: 2001-02) DCIT CIRCLE 2(2) M/S. MAHINDRA REALTY & INF. ROOM NO. 545 5TH FLOOR DEVELOPERS LTD. AAYAKAR BHAVAN M.K. ROAD VS. GATEWAY BUILDING APPOLLO BUNDER MUMBAI 400020 MUMBAI 400001 PAN - AAACM 4116 G APPELLANT RESPONDENT APPELLANT BY: SHRI SUMEET KUMAR RESPONDENT BY: SHRI DEVADATTA MANIKAR O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A)-V MUMBAI DATED 07.12.2009. 2. REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1. THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND F ACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY D ISALLOWING A SOFTWARE EXPENDITURE AMOUNTING TO RS.1 75 500/- FOR OBTAINING MS OFFICE LICENCE AND MARKETING DATA MANAGEMENT SYS TEM WHICH ARE CAPITAL IN NATURE. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY D ISALLOWING THE EXPENSES FOR WEBSITE DEVELOPMENT AMOUNTING TO RS.8 02 139/- WHICH ARE CAPITAL IN NATURE. 3. BRIEFLY STATED THE ASSESSEE COMPANY FILED THE RETU RN OF INCOME ON 31.10.2001 DECLARING LOSS OF ` 26 95 86 068/-. THE RETURN WAS PROCESSED UNDER SECTION 143(1) AND ACCEPTED THE SAME. SUBSEQU ENTLY THE CASE WAS SELECTED FOR SCRUTINY UNDER SECTION 143(3) AND COMP LETED THE ASSESSMENT ON 08.03.2004 MAKING CERTAIN ADDITIONS. IN APPEAL BEFO RE THE CIT(A) THE ASSESSEE CHALLENGED THE ADDITIONS AND THE CIT(A) HA S DELETED THE ADDITIONS ITA NO. 1160/MUM/2010 M/S. MAHINDRA REALTY & INF. DEVELOPERS LTD. 2 MADE ON ACCOUNT OF COMPUTER SOFTWARE EXPENSES AND W EBSITE DEVELOPMENT CHARGES. AGGRIEVED REVENUE IS IN APPEAL BEFORE US. 4. GROUND NO. 1 PERTAINS TO DELETION OF THE ADDITION M ADE BY DISALLOWING THE SOFTWARE EXPENDITURE OF ` 1 75 500/-. ON NOTICING THAT THE ASSESSEE HAS DEBITED ` 1 75 500/- TO THE P&L ACCOUNT THE A.O. ASKED THE AS SESSEE WHY THE SAME SHOULD NOT BE TREATED AS CAPITAL EXPENDITURE. IT WAS SUBMITTED THAT THE EXPENDITURE IS IN THE REVENUE FIELD AS IT ONLY FACI LITATES CARRYING ON THE EXISTING BUSINESS MORE PROFITABLY WITHOUT ALTERING THE BUSINESS STRUCTURE OF THE COMPANY. THE ACQUISITION OF SOFTWARE DID NOT RE SULT IN ANY ADVANTAGE OF ENDURING NATURE AND IT HAD NOT ACQUIRED THE ABSOLUT E OWNERSHIP OF THE SOFTWARE BUT ONLY THE RIGHT TO USE THE SOFTWARE. TH E A.O. DID NOT ACCEPT THE CONTENTION AND TREATED THE EXPENDITURE AS CAPITAL E XPENDITURE AND ALLOWED DEPRECIATION @ 25%. BEFORE THE CIT(A) IT WAS SUBMIT TED THAT THE ASSESSEE HAS PURCHASED LICENSES OF TWO SOFTWARE I.E. MS OFF ICE AND MARKETING DATA MANAGEMENT SYSTEM THE LIFE SPAN OF WHICH IS VERY S HORT DUE TO FAST TECHNOLOGICAL OBSOLESCES. THEREFORE THE EXPENDITUR E IS OF REVENUE NATURE. HE RELIED ON THE DECISION OF THE SPECIAL BENCH IN THE CASE OF AMWAY ENTERPRISES 111ITD 112 (DEL) (SB). AFTER CONSIDERING THE FACTS AND CONTENTIONS OF THE ASSESSEE THE CIT(A) DELETED THE ADDITION STATING AS UNDER:- 5. I HAVE CAREFULLY CONSIDERED THE ABOVE FACTS AND FIND MERIT IN THE CONTENTIONS OF THE APPELLANT. FROM THE VERY NAT URE OF THE SOFTWARE THE PAYMENT OF SUCH EXPENSES ON SUCH APPLICATION SO FTWARE THOUGH ENDURING IN NATURE DOES NOT RESULT IN ACQUISITION OF ANY CAPITAL ASSET AND MERELY ENHANCES THE PRODUCTIVITY AND HAS TO BE TREATED AS REVENUE. THE CONCEPT OF ENDURING BENEFIT MUST RESPO ND TO THE CHANGING ECONOMIC REALITIES OF THE BUSINESS. APART FROM THE CASE OF AMWAY ENTERPRISE (SUPRA) CASE OF THE APPELLANT IS ALSO SUPPORTED BY THE RECENT DECISION IN THE CASE OF CIT VS. SOUTHERN ROADWAYS LTD. (2009) 183 TAXMAN 234 (MAD) IN WHICH ALSO THE ASSE SSEE CLAIMED EXPENDITURE INCURRED ON SOFTWARE PACKAGES AS REVENU E ONE. IT WAS HELD THAT SUCH EXPENSE WHICH REVOLVES ON THE MODERN COMMUNICATION TECHNOLOGY ENABLES THE ASSESSEE TO CARRY ON ITS BUS INESS OPERATIONS EFFECTIVELY EFFICIENTLY SMOOTHLY AND PROFITABLY. SUCH SOFTWARE DOES NOT WORK WITHOUT FITTING IT ON A COMPUTE RAND IT EN HANCES THE EFFICIENCY OF ITS OPERATION. IT IS AN AID IN THE MA NUFACTURING PROCESS RATHER THAN THE TOTAL TOOL ITSELF. ACCORDINGLY SUC H EXPENDITURE IS HELD TO BE REVENUE IN NATURE AND THE ADDITION MADE IS DE LETED. THE AO IS HOWEVER DIRECTED TO WITHDRAW DEPRECIATION ALLOWED TO THE APPELLANT. ITA NO. 1160/MUM/2010 M/S. MAHINDRA REALTY & INF. DEVELOPERS LTD. 3 5. AFTER HEARING THE LEARNED D.R. AND THE LEARNED COUN SEL FOR THE ASSESSEE WE DO NOT SEE ANY REASON TO INTERFERE WITH THE FINDINGS OF THE CIT(A). CONSIDERING THE NATURE OF LICENCES PURCHASE D BY THE ASSESSEE BEING SOFTWARE OF MS OFFICE AND MARKETING DATA MANAGEMENT SYSTEM WHICH FACILITATED THE OPERATIONS OF THE COMPANY AND HAS N O ENDURING BENEFIT THE EXPENDITURE CAN ONLY BE CONSIDERED AS REVENUE IN NA TURE. THE HON'BLE SPECIAL BENCH OF ITAT IN THE CASE OF AMWAY ENTERPRI SES 111ITD 112 (DEL) (SB) INTER ALIA HELD THAT FOR ASCERTAINING AS TO WH ETHER THE EXPENDITURE ON COMPUTER SOFTWARE GIVES AN ENDURING BENEFIT TO AN A SSESSEE THE DURATION OF TIME FOR WHICH THE ASSESSEE ACQUIRES RIGHT TO USE T HE SOFTWARE BECOMES RELEVANT. HAVING REGARD TO THE FACT THAT SOFTWARE B ECOMES OBSOLETE WITH TECHNOLOGICAL INNOVATION AND ADVANCEMENT AND LIFE O F THE SOFTWARE BEING LESS THAN TWO YEARS THE EXPENDITURE IS RIGHTLY TREATED AS REVENUE EXPENDITURE. ACCORDINGLY ORDER OF THE CIT(A) IS CONFIRMED. 6. GROUND NO. 2 IS WITH REFERENCE TO DELETING THE ADDI TION OF ` 8 02 139/- MADE ON ACCOUNT OF WEBSITE DEVELOPMENT CHARGES. THE A.O. NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF ` 8 02 139/- UNDER THE HEAD WEBSITE DEVELOPMENT CHARGES. THE A.O. ASKED WHY THE SAME S HOULD NOT BE TREATED AS CAPITAL EXPENDITURE. IT WAS SUBMITTED THAT THE W EBSITE OFFERS THE VARIOUS DETAILS OF THE COMPANYS BUSINESS AND PRODUCTS IT O FFERS. HENCE IT IS ESSENTIALLY AN ADVERTISEMENT EXPENSES AND ALLOWABLE AS REVENUE IN NATURE. THE A.O. DID NOT ACCEPT THE CONTENTIONS OF THE LEAR NED A.R. AND TREATED THE EXPENDITURE AS CAPITAL IN NATURE STATING THAT THE L IFE SPAN OF THE WEBSITE IS QUITE LONG AND IT IS AN ASSET IN THE CYBER SPACE. H OWEVER HE ALLOWED DEPRECIATION @ 25% ON WEBSITE DEVELOPMENT CHARGES. BEFORE THE CIT(A) IT WAS SUBMITTED THAT THE WEBSITE IS A VERY COST EFFEC TIVE TOOL OF ADVERTISEMENT/MARKETING OF THE COMPANYS BUSINESS. IT IS A MEDIUM OF CORPORATE COMMUNICATION AND OFFERS ADVANTAGES OVER TRADITIONAL MODE OF ADVERTISEMENT. THEREFORE IT IS ESSENTIALLY AN ADVER TISEMENT EXPENDITURE ALLOWABLE AS REVENUE EXPENDITURE. AFTER HEARING THE LEARNED A.R. AND CONSIDERING THE FACTS THE CIT(A) DELETED THE ADDITI ON BY HOLDING AS UNDER: - 9. I HAVE CAREFULLY CONSIDERED THE ABOVE FACT AND DO NOT FIND ANY MERIT IN THE OBSERVATIONS AND FINDINGS OF THE AO. E XPENDITURE ITA NO. 1160/MUM/2010 M/S. MAHINDRA REALTY & INF. DEVELOPERS LTD. 4 INCURRED ON WEBSITE DEVELOPMENT IS ALTHOUGH ENDURIN G IN NATURE THE INTENT AND PURPOSES BEHIND THE DEVELOPMENT IS NOT T O CREATE AN ASSET BUT ONLY TO PROVIDE A MEANS FOR DISSEMINATING THE I NFORMATION ABOUT THE ASSESSEE AMONG ITS CLIENTS. IN THE CASE OF CIT VS. INDIAN VISIT.COM P. LTD. (2008) 219 CTR 603 (DEL) ON IDENTICAL FACT S SUCH EXPENDITURE WAS HELD TO BE REVENUE EXPENDITURE AKIN TO PRINTING OF PAMPHLETS ETC. IT WAS STATED THAT MERE ENDURING BENEFIT DE HORS A NY ACCRETION TO FIXED CAPITAL WOULD NOT MAKE AN EXPENDITURE A CAPIT AL ONE. IN THE LIGHT OF SUCH FACTS AND THE LEGAL POSITION EMERGING FROM THE CITED DECISION SUCH EXPENDITURE IS HELD TO BE REVENUE IN NATURE AND THE ADDITION MADE IS DELETED. THE AO IS HOWEVER DIREC TED TO WITHDRAW DEPRECIATION ALLOWED TO THE APPELLANT. 7. WE HAVE CONSIDERED THE ISSUE. IN OUR VIEW THE CIT(A ) HAS RIGHTLY CONSIDERED THE NATURE OF EXPENDITURE AS REVENUE IN NATURE. SIMILAR ISSUE WAS CONSIDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. INDIAN VISIT.COM P. LTD. (2008) 219 CTR 603 (DEL) WHEREIN IT WAS HELD AS UNDER: - JUST BECAUSE A PARTICULAR EXPENDITURE MAY RESULT IN AN ENDURING BENEFIT WOULD NOT MAKE SUCH AN EXPENDITURE OF A CAP ITAL NATURE. WHAT IS TO BE SEEN IS WHAT IS THE REAL INTENT AND P URPOSE OF THE EXPENDITURE AND AS TO WHETHER THERE IS ANY ACCRETIO N TO THE FIXED CAPITAL OF THE ASSESSEE. IN THE CASE OF EXPENDITURE ON A WEBSITE THERE IS NO CHANGE IN THE FIXED CAPITAL OF THE ASSE SSEE. ALTHOUGH THE WEBSITE MAY PROVIDE AN ENDURING BENEFIT TO AN ASSES SEE THE INTENT AND PURPOSE BEHIND DEVELOPMENT OF A WEBSITE IS NOT TO CREATE AN ASSET BUT ONLY TO PROVIDE A MEANS FOR DISSEMINATING THE INFORMATION ABOUT THE ASSESSEE. THE SAME COULD VERY WELL HAVE B EEN ACHIEVED AND INDEED IN THE PAST IT WAS ACHIEVED BY PRINTI NG TRAVEL BROCHURES AND OTHER PUBLISHED MATERIALS AND PAMPHLE TS. THE ADVANCE OF TECHNOLOGY AND THE WIDE SPREAD USE OF TH E INTERNET HAS PROVIDED A VERY POWERFUL MEDIUM TO COMPANIES TO PUB LICIZE THEIR ACTIVITIES TO A LARGER SPECTRUM OF PEOPLE AT A MUCH LOWER COST. WEBSITES ENABLE COMPANIES TO DO WHAT THE PRINTED BR OCHURES DID BUT IN A MUCH MORE EFFICIENT MANNER AS WELL AS IN A MUCH SHORTER PERIOD OF TIME AND COVERING A MUCH LARGE SET OF PEO PLE WORLDWIDE. THE TRIBUNAL HAS CORRECTLY APPRECIATED THE FACTS AS WELL AS THE LAW ON THE SUBJECT AND HAS COME TO THE CONCLUSION THAT THE EXPENDITURE ON THE WEBSITE WAS OF A REVENUE NATURE AND NOT OF A CAPITAL NATURE. NO SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERA TION. RESPECTUALLY FOLLOWING THE ABOVE DECISION WE UPHOLD THE DECISION OF THE CIT(A). THE EXPENDITURE IS CORRECTLY ALLOWED AS REV ENUE EXPENDITURE. GROUND IS REJECTED. ITA NO. 1160/MUM/2010 M/S. MAHINDRA REALTY & INF. DEVELOPERS LTD. 5 8. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH JANUARY 2011. SD/- SD/- (R.V. EASWAR) (B. RAMAKOTAIAH) PRESIDENT ACCOUNTANT MEMBER MUMBAI DATED: 28 TH JANUARY 2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) V MUMBAI 4. THE CIT II MUMBAI CITY 5. THE DR J BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI N.P.