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Software purcjase cost

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Piyush Verma

51 Points Posted on 21 December 2012

We have purchased Tally @ Rs. 27000/-. Should we show it as an asset or as an indirect expense. Please give reference of a Supreme Court Judgement.

Replies (2)

Jayalakshmi Anshuman

Chartered Accountant

69 Points Posted on 21 December 2012

Purchase of software has to be accounted as intangible asset of fixed nature. It has to be amortised over a period not more than 10 years. In your case, it would be appropriate to amortise over a 5 year period. Please refer to ICAI accounting standard 26 for guidance. Supreme court judgment not required.

CA Gaurav Ajit Potdar

Chartered Accountant

846 Points Posted on 24 December 2012

Purchase of tally software is revenue expenditure.,refer following case

IBM India Ltd. v. CIT(A)-I

The assessing company acquired certain application software and claimed the same as revenue expenditure. The Assessing Officer how-ever disallowed the claim, treating it as a capital expenditure as it brought an enduring benefit. The CIT(A) upheld the disallowance. But on second appeal it was held :

Since an application software was paid for and not systems software, it helped in merely increasing efficiency and not in the creation of a new asset.
It forms part of company’s working expenses merely aiding the manufacturing process.
No technical know-how was acquired, but only the right to use the software.
The application software does not work on stand-alone basis. It has to be fitted with computer system to work.
Hence, the amount paid was revenue expenditure and not capital expenditure, and therefore allowable.