The Income Tax Appellate Tribunal (ITAT), Banglore Bench Disallowance of depreciation on software purchase cannot be done on grounds of non-deduction of TDS.
The assessee, ‘Messrs UKN Properties Private Limited’ is in the Real Estate Industry and is involved in the development of Real Estate. However, the assessing officer of the Income Tax Department came to know the fact that the assessee has paid for the buying of software without deducting the tax at the source. He further noticed that the assessee has done the capitalization of the value of software and consequentially claimed the depreciation amounting to Rs 3,72,465. The assessee has not deducted the tax at the source from the payment that has been made for the purchase of the software, the assessing officer opined that the depreciation which has been claimed on the software is not allowable, as per the provisions of section 40(a)(ia) of the act. Consequently, he did not allow the claim of depreciation u/s 40(a)(ia) of the aforesaid act.
The CIT (A) was of the opinion that the payment that has been made for buying software falls within the domain of royalty as per the decision that has been rendered by the Honorable Karnataka High Court in the case of Samsung Electronics Company Limited. In consequence, the assessing officer was directed to treat the software buying as the revenue expenditure within the domain of royalty. It is given that the assessee has not deducted the tax at source from the payment that is made for buying of the software, it was directed by CIT(A) to the assessing officer to not allow the entire purchase cost of the software as per section 40(a)(ia) of the Act.
The come headed by the Vice President, N.V. Vasudevan and Accountant Member, B.R. Baskaran in the light of the decision of coordinate bench rendered in the case of ‘Kawasaki Microelectronics Inc. India branch Vs. DDIT’ held that the TDS liability cannot be fastened upon the assessee retrospectively and accordingly disallowance u/s 40(a)(i) is not called for even if the software purchases is treated as revenue expenditure.
The ITAT while setting aside the order passed by CIT(A) held that there is no reason to treat the cost of software capitalized by the assessee as revenue expenditure.
The Tribunal directed the AO to treat the cost of software as capital expenditure and delete the disallowance made on this issue.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
