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Is Website Development Expenses Exempted from Taxation?

Have you ever spent money for building a website for your business venture? Is website building deductible from Total Income?.

In the contemporary scenario, website building for a business venture is inevitable to compete. Normally, the website building expenses incurred in respect of website development are in the nature of “revenue expenditure” hence the same do not form part of the taxable income.A revenue expenditure is an amount that is expensed immediately thereby being matched with revenues of the current accounting period.

A website might provide an enduring benefit to an assesse. Though the intended purpose behind the Website is not to create an asset, it provides a means for disseminating the information about his business venture.

It is a known fact that software upgradation, especially in the field of computer environment, is a continuous affair which entails continuous expenditure in this regard. There is hardly any scope for creating an asset with this kind of expenditure.While dealing with the issue of taxability of amount spent on website development, the various Courts in India, in a catena of decisions have concluded the issue against the assesse by observing that the same is in the nature of capital expenditure.

In the case of Alembic Chemical Works Co. Ltd., the Supreme Court decided that, the expenditure on the website was of a revenue nature and not of a capital nature. The highlight of the judgment is that just because a particular expenditure may result in an enduring benefit would not make such an expenditure of a capital nature. What is to be seen is what is the real intent and purpose of the expenditure and as to whether there is any accretion to the fixed capital of the assessee. In the case of website expenditure, there is no change in the fixed capital of the assessee.

Although the website may provide an enduring benefit to a business venture, the intent and purpose behind the purpose of a website is not to create an asset but only to provide a means for disseminating the information about the business venture.

The same question is also dealt in the case of Deputy Commissioner of Income Tax Vs M/s Edelweiss Capital Ltd (I.T.A No: 3971/Mum/2009). The opinion laid down was that even if the websites had materialized, the expenditure could not have been viewed as capital expenditure because the website is put up for the purposes of day-to-day running of the business and even if one was to view that some enduring benefit is obtained by the asessee, the benefit cannot be said to accrue to the assessee in the capital field.

A web site is something where full information about the assessee’s business is given and it helps the assessee’s customers in dealing with it. A website constantly needs updating, otherwise it may become obsolete. It helps in the smooth and efficient running of the day-to-day business.

It seems that the Courts are reversing the earlier opinion. In a recent case, in DCIT –vs.- M/s. Edelweiss Capital Limited (ITA No. 3971/Mum./2009), it was held that the expenditure incurred on Website could not be viewed as capital expenditure because the Website was put up for the purposes of day-to- day running of the business. It was also held that even if some enduring benefit was obtained by the assessee by way of development of Website, such benefit could not be said to have accrued to the assessee in the capital field.

In another case, Income Tax Appellate Tribunal Mumbai has also confirmed that, the expenditure incurred by the assessee on Website Development was of a revenue nature and not of a capital nature. In the same decision, the Court made an observation that that although the Website might provide an enduring benefit to an assessee, the intended purpose behind the Website was not to create an asset but only to provide a means for disseminating the information about the assessee.

Rasheela Basheer is the Co-Founder of TaxScan Media.

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