NATIONAL SECURITIES CLEARING CORPORATION LTD, MUMBAI v. ADDL CIT RG 7(1), MUMBAI

ITA 3113/MUM/2009 | 2004-2005
Pronouncement Date: 29-07-2011 | Result: Allowed

Appeal Details

RSA Number 311319914 RSA 2009
Assessee PAN AAACN2642L
Bench Mumbai
Appeal Number ITA 3113/MUM/2009
Duration Of Justice 2 year(s) 2 month(s) 16 day(s)
Appellant NATIONAL SECURITIES CLEARING CORPORATION LTD, MUMBAI
Respondent ADDL CIT RG 7(1), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 29-07-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted I
Tribunal Order Date 29-07-2011
Date Of Final Hearing 13-07-2011
Next Hearing Date 13-07-2011
Assessment Year 2004-2005
Appeal Filed On 13-05-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I MUMBAI BEFORE SHRI R.V.EASWAR PRESIDENT & SHRI T.R.SOOD ACCOUNTANT MEMBER I.T.A.NOS.3113 & 3124/MUM/2009 ASSESSMENT YEARS: 2004-05 & 2005-06 NATIONAL SECURITIES CLEARING CORPORATION LIMITED C 1. BLOCK G EXCHANGE PLAZA BANDRA KURLA COMPLEX BANDRA (E) MUMBAI 400 051. PAN: AAACN 2642 L VS. ADDL. COMMISSIONER OF I.T. RANGE 7(1) MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SUNIL NAHTA. RESPONDENT BY: SHRI SUNIL KUMAR SINGH. - ------ DATE OF HEARING: 22-07-2011. DATE OF PRONOUNCEMENT: 29/7/2011. O R D E R PER T.R. SOOD AM : THESE APPEALS BY THE ASSESSEE ARE DIR ECTED AGAINST THE ORDERS OF THE COMMISSIONER OF INCOME-TAX (APPEALS) DATED 13-2 -2009 AND 29-1- 2009FOR THE ASSESSMENT YEARS 2004-05 AND 2005-06 RE SPECTIVELY. 2. I.T.A. NO.3113/MUM/09 A.Y 2004-05: IN THIS APPEAL THE ASSESSEE HAS RAISED DETAILED GROUNDS BUT AT THE TIME OF HEAR ING THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ONLY THREE ISSUES A RE INVOLVED WHICH ARE AS UNDER: (A) CONFIRMATION OF DISALLOWANCE U/S.14A (B) CONFIRMATION OF DISALLOWANCE ON ACCOUN T OF REVENUE EXPENDITURE INCURRED ON COMPUTER SOFTWARE (C) CONFIRMATION OF ACTION OF THE ASSESSING OFFICER IN RESTRICTING THE DEPRECIATION ON COMPUTER SOFTWARE AT 25% AGAINST TH E CLAIM OF 60%. 3. ISSUE NO.1 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT THE ASSESSEE HAD ITA NO.3113 & 3124/MUM/09 2 EARNED SOME INCOME FROM TAX FREE INVESTMENTS WHICH WERE EXEMPT U/S.10. ACCORDING TO THE ASSESSING OFFICER THE PROVISIONS OF SECTION 14A WERE ATTRACTED. ACCORDINGLY HE ESTIMATED THE EXPENDITU RE AT 2% OF SUCH INTEREST INCOME AND HELD THE SAME TO BE NOT ALLOWABLE. 4. ON APPEAL THE LEARNED CIT(A) OBSERVED THAT IN V IEW OF THE SPECIAL BENCH IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT. L TD. 117 ITD 169(SB) RULE 8D WAS APPLICATION AND ACCORDINGLY HE DIRECTED THE ASSESSING OFFICER TO ENHANCE THE DISALLOWANCE BY INVOKING RULE 8D. 5. BEFORE US THE LEARNED COUNSEL OF THE ASSESSEE SU BMITTED THAT RULE 8D HAS ALREADY BEEN HELD TO BE NOT ON RETROSPECTIVE APPLICATION BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AN D BOYCE MFG. CO. LTD. V. DCIT (328 ITR 81) (BOM). FURTHER AN IDENTICAL I SSUE CAME UP FOR CONSIDERATION BEFORE THE TRIBUNAL IN THE ASSESSEES SISTER CONCERN VIZ. NATIONAL STOCK EXCHANGE OF BOMBAY LTD. ITA NOS.749 2 7493/M/05 AND 9390/M/04 & C.O.NOS.200 & 201/M/06 FOR A.YRS. 1997- 98 1998-99 AND 2001-02 WHEREIN THE DISALLOWANCE OF EXPENDITURE AT 1% WAS HELD TO BE REASONABLE. 6. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REPR ESENTATIVE RELIED ON THE ORDERS OF THE ASSESSING OFFICER AND THE LEAR NED CIT(A). 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THIS ISSUE CAME UP FOR CONSIDERATION IN THE CASE OF ACIT V. NATIONAL S TOCK EXCHANGE BOMBAY LTD.( ITA NOS.7492 7493/M/05 AND 9390/M/04 & C.O.NO S.200 & 201/M/06). IN THIS CASE THE ISSUE WAS ADJUDICATED AT PARA 11 W HICH READ AS UNDER: 11 . AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULLY WE FIND THAT AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION O F THE TRIBUNAL FOR THE A.Y 1998-99 AND THE SAME WAS DECIDED BY THE TRI BUNAL VIDE PARA-6 WHICH IS AS UNDER: ITA NO.3113 & 3124/MUM/09 3 6. GROUND NO. 4 PERTAINS TO THE ISSUE OF DISALLOWANCE OF EXPENDITURE OF `7 79 836/- BEING 0.5% OF GROSS INTE REST EARNED ON TAX FREE BONDS AND CLAIMED AS EXEMPT UNDER SECTION 10(1 5) OF THE I.T. ACT. THE A.O. DISALLOWED 2% OF THE EXPENDITURE WHEREAS T HE CIT(A) RESTRICTED IT TO 0.5%. ON THE VERY SAME ISSUE THE R EVENUE IS ALSO IN APPEAL IN GROUND NO. 3 OF THE REVENUES APPEAL. CON SIDERING THE NATURE OF THE INCOME AND THE ORDERS OF THE AUTHORITIES WE ARE OF THE OPINION THAT DISALLOWANCE OF 1% WOULD MEET THE END OF JUSTI CE. ASSESSEES GROUND ABOUT THE DISALLOWANCE OF 0.5% IS REJECTED. FOLLOWING THE ABOVE ORDER WE HOLD THAT EXPENDITURE IN RESPECT OF INTEREST ON TAX FREE BONDS SHOULD BE ESTIMATED AT 1 % AND AO IS DIRECTED TO MAKE DISALLOWANCE OF ONLY 1%. ACCORDING LY THIS GROUND IS PARTLY ALLOWED. 8. FOLLOWING THE ABOVE ORDER WE SET ASIDE THE ORDE R OF THE LEARNED CIT(A) AND HOLD THAT THE EXPENDITURE AGAINST TAX FR EE INTEREST ON GOVERNMENT SECURITIES AT 1% IS REASONABLE AND ACCOR DINGLY WE DIRECT THE A.O. TO RESTRICT THE DISALLOWANCE TO 1%. 9. ISSUE NO.2 : AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAD CLAIMED REVENUE EXPENDITURE ON ACCOUNT OF SOFTW ARE EXPENSE AT RS.29 40 990/-. IN RESPONSE TO A QUERY THAT WHY THI S EXPENDITURE SHOULD BE TREATED AS REVENUE EXPENDITURE IT WAS SUBMITTED TH AT SOME OF THE EXPENDITURE HAS BEEN CAPITALISED AND REST OF THE IT EMS OF SOFTWARE EXPENSES WERE IN THE NATURE OF ANNUAL MAINTENANCE AND THERE FORE SAME SHOULD BE ALLOWED AS REVENUE EXPENDITURE. HOWEVER AO DISALLO WED THE SUM OF RS.29 40 990/- BEING IN THE NATURE OF CAPITAL EXPEN DITURE AND ALLOWED DEPRECIATION AT 25%. ON APPEAL THE ACTION OF THE A O WAS CONFIRMED BY THE LD. CIT(A). 10. BEFORE US ASSESSEE HAS TAKEN THIS ISSUE BY WAY OF GROUND NO.2(A) WHEREIN ADDITION ONLY TO THE EXTENT OF RS.15 54 685 /- HAS BEEN CHALLENGED. WHEN LD. COUNSEL OF THE ASSESSEE WAS CONFRONTED HE POINTED OUT THAT SOME OF THE EXPENDITURE WAS CAPITALISED BY THE ASSE SSEE ITSELF AND IN THIS ITA NO.3113 & 3124/MUM/09 4 REGARD HE REFERRED TO PAGE-22 OF THE PAPER BOOK WHI CH IS A COPY OF THE COMPUTATION OF INCOME WHEREIN A SUM OF RS.14 68 683 /- HAS BEEN ADDED TO INCOME ON ACCOUNT OF SOFTWARE EXPENSES WHICH HAVE B EEN TREATED AS REVENUE EXPENDITURE IN THE BOOKS OF ACCOUNTS. HE FU RTHER POINTED OUT THAT AS FAR AS BALANCE AMOUNT OF RS.13 86 305/- IS CONCE RNED THE LD. CIT(A) HAS DELETED THE SAME. THEN HE REFERRED TO PAGES 48 TO 5 0 OF THE PAPER BOOK AND POINTED OUT THAT VARIOUS ITEMS OF SOFTWARE EXPE NDITURE ARE BASICALLY IN THE NATURE OF ANNUAL MAINTENANCE OF THE SOFTWARE WH ICH WAS INSTALLED LONG BACK AND CAPITALISED. ON QUERY BY THE BENCH REGARDI NG THE ORIGINAL PURCHASE OF SOFTWARE AND CAPITALISATION OF THE SAME THE LD. COUNSEL OF THE ASSESSEE DID NOT HAVE READY DETAILS. HE FURTHER ARG UED THAT IN ANY CASE WHATEVER AMOUNT IS HELD TO BE CAPITAL EXPENDITURE A T LEAST 60% DEPRECIATION COULD HAVE BEEN ALLOWED IN VIEW OF THE AMENDMENT TO THE DEPRECIATION TABLE CONTAINED IN NEW APPENDIX I W.E. F. A.Y 2003-04. HE SUBMITTED THAT COMPUTER SOFTWARE HAS BEEN SPECIFICA LLY DEFINED IN NEW APPENDIX I AND WOULD INCLUDE COMPUTER PROGRAM RECOR DED ON ANY DISC TAPE ETC. 11. ON THE OTHER HAND LD. DR STRONGLY SUPPORTED TH E ORDER OF THE CIT(A). 12. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIN D THAT FIRST OF ALL NATURE OF EXPENDITURE ON SOFTWARE HAS TO BE DETERMI NED. SINCE DETAILS OF ORIGINAL SOFTWARE WHICH WAS CAPITALISED EARLIER WER E NOT READILY AVAILABLE IT IS NOT POSSIBLE FOR US TO DO THAT EXERCISE. ACCORDI NGLY WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND REMIT THE SAME TO THE F ILE OF THE AO WITH A DIRECTION TO DETERMINE THE NATURE OF SOFTWARE EXPEN SES WHETHER SAME IS FOR MAINTENANCE OR IT IS BECAUSE OF INSTALLATION OF NEW SOFTWARE. IN THIS REGARD ITA NO.3113 & 3124/MUM/09 5 DIRECTIONS CONTAINED IN THE ORDER OF THE SPECIAL BE NCH OF THE TRIBUNAL IN THE CASE OF AMWAY INDIA ENTERPRISES VS. DCIT REPORTED I N 111 ITD 112 [S.B][DEL] [F.B] MAY BE FOLLOWED. THEREAFTER WHAT EVER IS HELD TO BE IN THE NATURE OF REVENUE EXPENDITURE HAS TO BE ALLOWED. WE FIND THAT AO HAS REJECTED THE ARGUMENT OF THE ASSESSEE FOR 60% DEPRE CIATION BY OBSERVING THAT RATE OF 50% IN RESPECT OF SOFTWARE WOULD APPLY ONLY WHEN THE SOFTWARE IS PURCHASED ALONG WITH THE COMPUTER. THIS IS NOT C ORRECT POSITION OF LAW. APPENDIX I WHICH GIVE RATES OF DEPRECIATION HAS PRE SCRIBED DATE OF DEPRECIATION UNDER 3 RD HEAD MACHINERY AND PLANT ITEM NO.[5] WHICH READS AS UNDER: ( 5 ) COMPUTERS INCLUDING COMPUTER SOFTWARE ( SEE NOTE 7 BELOW THIS TABLE): NOTE 7 READS AS UNDER: 7. COMPUTER SOFTWARE MEANS ANY COMPUTER PROGRAM REC ORDED ON ANY DISC TAPE PERFORATED MEDIA OR OTHER INFORMATI ON STORAGE DEVICE. FROM THE ABOVE IT IS CLEAR THAT THERE IS NO CONDITI ON THAT RATE OF 60% IS APPLICABLE ONLY TO THE SOFTWARE PURCHASED ALONG WIT H THE COMPUTER. THEREFORE WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO ALLOW DEPRECIATION ON CAPITALISED EXPENDITURE ON AC COUNT OF COMPUTER SOFTWARE @ 60%. 13. ISSUE NO.3 : THIS ISSUE ALSO RELATES TO DISPUTE REGARDING RATE OF DEPRECIATION ON CAPITALISED SOFTWARE AND THE SAME H AS BEEN ADJUDICATED BY US IN THE ABOVE NOTED PARA. FOLLOWING THE SAME WE DIRECT THE AO TO ALLOW DEPRECIATION @ 60%. 14. I.T.A.NO.3124/M/09 A.Y 2005-06 : IN THIS APPEAL ALSO VARIOUS GROUNDS HAVE BEEN RAISED. HOWEVER THE ONLY DISPUTE S INVOLVED ARE AS UNDER: ITA NO.3113 & 3124/MUM/09 6 1) CONFIRMATION OF DISALLOWANCE U/S.14A 2) CONFIRMATION OF DISALLOWANCE ON ACCOUNT OF REVENUE EXPENDITURE INCURRED ON COMPUTER SOFTWARE 3) CONFIRMATION OF ACTION OF THE ASSESSING OFFICER IN RESTRICTING THE DEPRECIATION ON COMPUTER SOFTWARE AT 25% AGAINST TH E CLAIM OF 60%. 15. ISSUE NO.1 : THIS ISSUE HAS BEEN ADJUDICATED BY US VIDE PARAS 7 & 8 AND FOLLOWING THE SAME WE SET ASIDE THE ORDER OF TH E CIT(A) AND DIRECT THE AO TO DISALLOW ONLY 1% OF THE EXPENSES. 16. ISSUE NOS.2 & 3 : THESE ISSUES HAVE BEEN DECIDED BY US WHILE DECIDING THE APPEAL FOR A.Y 2004-05 IN I.T.A.NO.311 3/M/09 IN PARAS 12 & 13 AND FOLLOWING THE SAME WE SET ASIDE THE ORDER OF TH E LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF THE AO WITH A DIRECT ION TO RE-EXAMINE THE ISSUE REGARDING THE ALLOWANCE OF SOFTWARE EXPENSES AND WHATEVER EXPENDITURE IS ULTIMATELY HELD TO BE OF CAPITAL NAT URE TO ALLOW DEPRECIATION @ 60%. 17. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT 29/7/2011. SD/- SD/- (R.V.EASWAR) (T.R.SOOD) PRESIDENT ACCOUNTANT MEMBER MUMBAI: 29/7/2011. P/-* ITA NO.3113 & 3124/MUM/09 7