This bench dismissed income tax appeals challenging a Tribunal order that allowed professional fees for SAP implementation as revenue expenditure. The court found no purchase of software and relied on existing principles regarding technological obsolescence to uphold the Tribunal's finding.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
728-14-itxa-c=.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO. 728 OF 2014 WITH INCOME TAX APPEAL NO. 777 OF 2014
The Commissioner of Income Tax, Mumbai
.. Appellant
v/s.
M/s. KSB Pumps Ltd. .. Respondent
Mr. A.R. Malhotra a/w Mr. N.A. Kazi for the appellant Mr. R. Murlidhar a/w Mr. Balasaheb Yewale i/b Rajesh Shah & Co. for the respondent
CORAM : M.S. SANKLECHA & G.S.KULKARNI, J.J.
DATED : 5th OCTOBER, 2016.
P.C.
Mentioned. Upon mentioning taken up for consideration along with
Income Tax Appeal No.728 of 2014, which is on board.
August, 2013. The impugned order relates to Assessment Years 200607 and 2007-08.
1 of 7
Uday S. Jagtap
728-14-itxa-c=.doc
(i) Whether on the facts and in the circumstances of the case and in law, the Tribunal was right in treating the professional fees paid to its collaborator KSB AG of Germany for implementing the SAP programme as an allowable expenditure when the use of this software enhances the efficiency of the organization which is enduring in nature and as good as the acquisition of an asset?
2 of 7
Uday S. Jagtap
728-14-itxa-c=.doc
respondent assessee requested KSB Germany to provide services relating to data migration, consultation, establishment of connection links, data center operation etc. so as to adapt its system to use the SAP programme. For the aforesaid services rendered by M/s. KSB Germany, the respondent assessee during the subject assessment years paid consideration for the professional services received from it, claiming the same to be revenue expenditure.
SAP Programme. This ownership it holds would lead to a benefit of enduring nature. Moreover, on application of functional test, this expenditure would be capital in nature.
3 of 7
Uday S. Jagtap
728-14-itxa-c=.doc
2006-07, as the final order of assessment was passed consequent to directions of DRP. Therefore, filing an appeal to the Tribunal. The CIT(A) by order dated 23rd March, 2012 rendered a finding of fact that no amount was paid towards purchase of SAP programme. It held that SAP as a software / system which had been acquired (owned) by M/s. KSB Germany. The payments made by the respondent assessee to M/s. KSB Germany were in the nature of professional fees for implementation of the SAP programme in India. Consequently, the CIT(A) allowed the respondent assessee's appeal for 2007-08 holding the same to be revenue in nature.
4 of 7
Uday S. Jagtap
728-14-itxa-c=.doc
to M/s. KSB Germany had facilitated the conduct of the respondent assessee's operations in a more efficient manner. This acquisition was not in a nature of a profit making apparatus. Therefore, not in the capital field. Thus, the Revenue's appeal from the order of the CIT(A) for A.Y. 2007-08 and the assessee's appeal from the final order of Assessment of the Assessing Officer for A.Y. 2006-07 were allowed by the impugned order.
5 of 7
Uday S. Jagtap
728-14-itxa-c=.doc
the Tribunal record the fact that the professional charges paid for upgrading the software has made the respondent assessee's operation more efficient. It did not result in any profit making apparatus coming into existence.
“12. …. The assessee in such cases installs the computers. This technology is now said to be acceptable in changing world. The rapid advancement of research also contributes a small degree of endurability, but that by itself does not mean that the expenses incurred cannot be revenue in nature. Since technology advancement is an aspect which must be taken judicial note of, so also, machinery becoming obsolete that there is necessity of acquiring further technology. This is to meet the growing competition and considering trends in the market. Therefore, such expenditure will have to be treated as revenue expenditure.”
6 of 7
Uday S. Jagtap
728-14-itxa-c=.doc
by the respondent assessee.
(G.S. KULKARNI, J.) (M.S. SANKLECHA, J.)
7 of 7
Uday S. Jagtap
2 issues framed by the court
Whether fees paid to a collaborator for implementing SAP programme as professional expenditure are capital or revenue in nature.
Whether the acquisition of computer software programme entitled for depreciation permits the fees to be treated as revenue expenditure.
Colour shows how this judgement treated each authority
Commissioner of Income Tax Vs. Geoffrey Manners & Co. Ltd.Referred¶47
Commissioner of Income Tax Vs. Geoffrey Manners & Co. Ltd. 226 Taxman 135
1 provisions across 1 enactments
Commissioner of Income Tax, Mumbai
M/s. KSB Pumps Ltd.
M.S. Sanklecha
G.S. Kulkarni
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
