The Chennai bench of the Income Tax Appellate Tribunal (ITAT) held that the software is an integral part of the computer system and shall be eligible for the same rate of depreciation as applicable to the computer system.
The assessee is stated to be engaged in the manufacturing and sale of moving machinery. During reassessment proceedings, it transpired that the assessee made a payment of Rs.2809.09 Lacs towards the secondment of employees at cost. However, no tax was deducted at the source which led the Assessing Officer to make impugned disallowance under Section 40(a)(i) of the Income Tax Act on the ground that the assessee procured the services of the US entity and such employees continued to be the employees of that entity.
The assessee claimed depreciation on computer software at 60%. The Assessing Officer, treating the same as an intangible asset, restricted the same to the extent of 25% and made disallowance of Rs.323.89 Lacs.
The assessee submitted that software license was an integral part of the computer system and the same was in the nature of computer programs stored on a device. The functioning of the computer and the software was interlinked and inseparable. Therefore, the software would be eligible for the same rate of depreciation.
The Two-member bench comprising of V. Durga Rao (Judicial member) and Manoj Kumar Aggarwal (Accountant member) accepting the submission of the assessee and the Commissioner of Income Tax (Appeal) [CIT(A)] concurred with the assessee’s submissions and directed the Assessing Officer to allow the higher depreciation of 60%. Thus, the appeal of the revenue was dismissed.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
