Computer software is revenue exp. or capital exp.

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Vipin Rathi (Querist)
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17 June 2013 Dear All ,

We have purchases a new computer software for accounting work and software Valve Rs. 25000.

pls advise these expenditure deductible under revenue exp. or capital exp. and claim depreciation . and which rate ?
pls also mention Section.

Thanks

Rupesh Jain

Rupesh Jain (Expert)
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17 June 2013 it si captal exp. and take derpeciation under income tax @ 25%

Sanket

Sanket (Expert)
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17 June 2013 Capital expenditure
If the expenditure is capital, it will usually be regarded as qualifying for capital allowances as plant, provided that the software is sufficiently durable to satisfy the “permanent employment in the trade” test to be regarded as plant. It will satisfy that test if it has an expected life of more than two years. Alternatively, if the expenditure has been amortised in the accounts over a period related to the expected life of the software, this treatment should normally be followed for tax purposes.

Payments for licence to use software
Regular payments for a licence to use software will normally be revenue expenditure, allowable as they are incurred. A lump sum payment for a licence will not, however, necessarily be capital. You should consider the terms of the agreement and the expected life of the software. Because the software will not belong to the licensee, capital allowances are not available for this type of expenditure.

Ganeshbabu K

Ganeshbabu K (Expert)
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17 June 2013 1)For income tax purpose treat it as revenue expenditure.
Refernce:-
(i)CIT Vs Southern Road ways Ltd(2008)300ITR84(Mad)
(ii)CIT Vs Asahi india saftey glass Ltd.(2011)(Del).

2)For Accounting purpose:

upgradation of software , purchase of licences and purchase of computer software are intangeble assets,

therefore, expenditure incurred on purchase of software/upgradation software should have been capitalised and amortised over their estimated useful life as per AS 26,

Reference

opinion given by icai commitee

https://220.227.161.86/eac/eacfinal/vol26/2.htm

Thanks & regards
Ganesh babu k

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