The Hyderabad bench of the Income Tax Appellate Tribunal(ITAT) has held that Written Down Value(WDV) has to be calculated when the assessee receives income from software services related to health care.
Therevenue challenged the common order dated 12.01.2017 of the Commissioner of Income Tax (Appeals)-3, Hyderabad relating to AYs 2003-04 & 2004-05 respectively.
the assessee is a company in which the public is substantially interested and is engaged in the business of Software Product Development who filed its return of income on 01.12.20013 declaring a loss of Rs.2,16,69,228/-.
The AO noted that the assessee was initially engaged in the business of running a Hospital and was formerly known as DrRamayyas Pramila Hospitals Ltd up to the FY 1999-2000. During the FY 1999-2000, the assessee changed its main objects clause to provide for the development and marketing of health-care-related software services.
The assessee set up a 100% export-oriented unit at Hyderabad called ‘Axsys Health Tech’ as a new division of the company. Duhe assessee entered into a technology transfer agreement with Dr Pradeep Ramayya, a Director and shareholder of the assessee company for the transfer of Technology & Technical know-how along with all the rights and licences about the Product.
The AO noted from the profit and loss account of the assessee that an amount of Rs.2,19,65,000/- was debited under the head R& D expenditure written off. From schedule ‘D’ of Fixed Assets, he noted that an amount of Rs.10,98,25,000/- is shown as Research & Development Expenditure under the head Intangible Assets. Rejecting the various explanations given by the assessee and relying on the various decisions the AO disallowed the amount of Rs.2,19,65,000/- debited by the assessee under the head R&D expenditure written off. The CIT(Appeals) deleted the addition made by the Assessing Officer
The revenue submitted that the expenditure incurred by the assesseeis for mere customization and upgrading of the product which is a continuous process. He submitted that the assessee did not claim the expenditure u/s. 35 butclaimed it under section 37 of the Income Tax Act,1961.
A Coram consisting of Shri Rama Kanta Panda, an Accountant Member and Shri Laliet Kumar, Judicial Memberobserved that the CIT(A) has not addressed the various issues raised by the AO. The CIT(A) failed to find out about the incurring of the expenditure during the FY 1999-2000 to 2000-2001, which are towards preoperative expenses, technical know-how, marketing development, software development, depreciation etc.
Further, the Tribunal observed that the CIT(A)has not quantified the rate of depreciation and the WDV of the assets as of 31.03.2003. There is no concept of deferred revenue expenditure but the assessee is entitled to depreciation on the assets so capitalized and put to use for the software services related to health care.
Further, even if the assessee does not claim depreciation, for computation of the WDV such depreciation has to be computed once the asset is put to use and accordingly WDV has to be calculated.
The ITAT bench restored the issue to the file of the CIT(A) with a direction to decide the issue afresh and by the law after giving due opportunity of being heard to the assessee. The appeal sfiled by the revenue are allowed for statistical purposes.
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