In a recent ruling, the Mumbai bench of ITAT held that Coursewares developed by the assessee are eligible for depreciation @60%under the head computer softwares as provided under section 32 of the Income Tax Act. While invalidating the order of the Commissioner of Income Tax (Appeals), the Tribunal found that the ESOP charges incurred by the assessee for the benefit of its employees are revenue in nature, and therefore, they are allowable expenditure.
The assessee in the instant case,approached the Tribunal impugning the order of the CIT(A) in which various claims of the both were rejected. The assessee- Company is primarily engaged in the business of imparting computer training and education on customized basis as per the requirements of the customers. The assessee, as part of its business developed various types of educational software/special courses. These were called as coursewares since it is designed and developed keeping in view of the requirements which varies from customer to customer, from industry to industry and these courses when combined with the software.The assessee was aggrieved with the orders of the lower authorities in which the Department disallowed 60% depreciation to such coursewares by holding that these courses are basically manual which are used by the assessee in training institutes and mere fact that these manuals were on software could not be taken to mean that these are computer softwares. The assessee claimed that there were given with 60% depreciation on the same during the past.
While accepting the above contentions, the Tribunal held that the coursewares developed by the assessee are eligible for 60% depreciation since the department cannot be allowed to take different view in the different assessment years qua the same assets. The Tribunal emphasized that the above assets are nothing but specialized software or customized training softwares which are eligible for depreciation at the rate of 60% as per the Income Tax Rules and the same was correctly depreciated at the rate of 60% by the assessee.
Further, the assessee claimed deduction of expenditure towards ESOP charges. The AO as well as the CIT(A) disallowed this claim on ground that they constitutes“capital expenditure since they are incurred for issue of equity shares which were issued to the eligible employees and hence, not allowable.
While rejecting the findings of the AO and the first appellate authority, the Tribunal observed that “We are not in agreement with the objection of the AO that the said expenditure was incurred by the company to increase share capital of the company and thus, constituted the capital expenditure nor with opinion and conclusion drawn by the ld.CIT(A) that the liability is contingent in nature, whereas the arguments advanced by the ld.AR are quite convincing that the scheme was floated to reward the employees of the company and the difference between the discounted price and prevailing market price was amortised over the vesting period. The case of the assessee finds strong support from the number of the decisions referred and relied upon by the ld.AR.
The Tribunal noticed the decision in the case of Biocon Ltd (supra), the Special Bench of the Bangalore Tribunal, in which it was held that discount on issue of shares to the employee stock option is allowable deduction in computing the income in the profit and loss account of business or profession and the same was on account of ascertained liability and not contingent liability. It was also held that by issuing shares at discounted price under the scheme ESOP is simply one of the motive to compensate the employees for their services and is part of the remuneration . Further, in the case of PVP Ventures Limited (supra), the Madras High Court has held that the assessee had to follow SEBI guidelines and by following such directions the assessee has claimed ascertained amount as eligible for deduction arising on account of Employees Stock Option Plan. The Tribunal also noted the decision of the Delhi High Court in the case of LEMON TREE HOTELS LTD the Court fully endorsed that ESOP was an allowable expenses. In view of the facts and the above judicial pronouncements, the Tribunal held that the assessee has rightly written off ESOP charges and the order of the ld. CIT(A) is wrong and not sustainable.
The assessee also challenged the disallowance of amount in respect of bad debts.They claimed that, as part of an agreement with the Directorate of Education and Directorate of Education, they raised bills against the above concern, who withheld certain payments on the ground of delayed installation of infrastructure, non-performance of infrastructure and faculty absenteeism etc.Both the lower authorities disallowed the same on ground that they werein the nature of contingent liability.
The Tribunal while invalidating the impugned orders, observed that “Considering the facts of the case that the Directorate of Education, Government of Delhi to whom the assessee rendered services of computer education , training and installation of infrastructure for imparting training denied the part payment of the billed amount for rendering the deficient services to customer and the said amount was never received by the assessee in subsequent years and no litigation was pending by the assessee against such customers in any court of law and therefore the said amount was not recovered as being denied by the customers for the reasons stated above. We find that the provision of rebate which is a kind of de-recognizing the revenue which was already credited in the books of accounts of the assessee as is clear from the ledger account of the Directorate of Education, New Delhi Government in the books of assessee. In our view provisions of rebate was rightly claimed by the assessee upon the same being denied by the person from whom it was receivable and also satisfies the conditions as laid down in section 36(1)(vii) of the Income Tax Act particularly when the similar deductions were allowed by the department in the earlier and succeeding years. We also find that the assessee’s case find strong support from the decisions cited above in which it has been held that merely showing all the bill is not accrual of income unless the bills amount are accepted by the customers.”
Read the full text of the order below.
