Capital Expenditure or revenue expenditure

This query is : Resolved

Jamshad (Querist)
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13 November 2008 The assessee is mainly engaged in developing softwares for software developers.They are developing their products in Java which is a free software.For getting an idea about the fields,for knowing how it works,for getting the competitors features, they are buying different softwares,which are testing softwares.They are not used for developing their products.The testing softwares are based on yearly license.
The assessing officer first allowed it as business expenditure.Later based on their audit objection, the case reoponed and the officer is not accepting as business expenditure.
Can we claim it as revenue expenditure or Capital expenditure?

Deepak Agrawal

Deepak Agrawal (Expert)
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13 November 2008 Since yearly license fee, it can be treated as subscription Expenses (revenue in nature)

Do not forget to spread over 12months...

Jamshad

Jamshad (Querist)
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14 November 2008 Can anyone provide a case law for objecting it as a revenue expenditure?

CA Tilak Raj Sharma

CA Tilak Raj Sharma (Expert)
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14 November 2008 The amount (if any paid) to purchase the software was capital expenditure and the the yearly subscrition will be treated as revenue expenditure.

Jamshad

Jamshad (Querist)
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17 November 2008 The assessing officer is raised the point with the help of Aravalli construction case law.
So can you provide case laws for treating it as revenue expenditure?

Hiral Raja

Hiral Raja (Expert)
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19 November 2008 I request you to go thru the ITAT judgement Delhi Bench in case of Amway Limited which lays down the guidelines for testing software expenditure is capital or revenue in nature.

In your case I feel it has to be revenue in nature because of short life of licence of one year only.

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