The Income Tax Appellate Tribunal (ITAT), Bangalore Bench disallowance of depreciation on software purchase can not be made by invoking section 40(a)(i) of Income Tax Act, 1961.
The assessee, M/s. UKN Properties Pvt. Ltd. is engaged in the business of development of Real Estate. The AO noticed that the assessee has made payments for purchase of software without deducting tax at source. The AO noticed that the assessee has capitalized the value of software and accordingly claimed depreciation of Rs.3,72,465. Since the assessee has not deducted tax at source from the payment made for purchase of software, the AO took the view that the depreciation claimed on software is not allowable, as per provisions of section 40(a)(ia) of the Act. Accordingly, he disallowed the claim of depreciation u/s 40(a)(ia) of the Act.
The CIT(A) took the view that the payment made for purchase of software is in the nature of royalty as per the decision rendered by Hon’ble Karnataka High Court in the case of Samsung Electronics Company Ltd.. Accordingly, he directed the A.O. to treat the software purchases as revenue expenditure in the nature of payment of royalty. Since the assessee has not deducted tax at source from the payment made for purchase of software, the CIT(A) directed the AO to disallow entire purchase cost of software under section 40(a)(ia) of the Act.
The coram headed by the Vice President, N.V. Vasudevan and Accountant Member, B.R. Baskaran in the light of the coordinate bench decision rendered by Bangalore bench of Tribunal in the case of Kawasaki Microelectronics Inc. – India branch Vs. DDIT held that provisions of section 40(a)(i) cannot be invoked for making disallowance of depreciation on software purchase.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan AdFree. Follow us on Telegram for quick updates.
