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II. Recent Updates:
1. CIT Vs. M/s YOKOGAWA INDIA LTD, ITA NO. 78 OF 2011, DATE OF ORDER : 09/08/2011, HIGH COURT OF KARNATAKA
The High Court had to consider two issues for AY 2001-02 & onwards: whether (i) the loss incurred by a non-eligible unit & (ii) the brought forward unabsorbed loss & unabsorbed depreciation of the eligible unit has to be set-off against the profits of the eligible unit before allowing deduction u/s 10A/ 10B.
S. 10A is in the nature of an “exemption” provision and the profits of the eligible unit have to be deducted at source level and do not enter into the computation of income. Consequently, the losses suffered by non-eligible units cannot be set-off against the eligible profits.
As the income of the 10A unit has to be excluded at source itself before arriving at the gross total income, the question of setting off the loss of the current year’s or the brought forward business loss (and unabsorbed depreciation) against the s. 10A profits does not arise.
(Please click here for judgment)
2. COMMISSIONER OF INCOME TAX Vs. M/S ASAHI INDIA SAFETY GLASS LTD., ITA NOS. 1110/2006 & 1111/2006, JUDGMENT DELIVERED ON: 04.11.2011, HIGH COURT OF DELHI
Expenditure on ‘Application Software’ is revenue in nature.
The test of enduring benefit is not a certain or a conclusive test which the courts can apply almost by rote. What is required to be seen is the real intent and purpose of the expenditure and whether the expenditure results in creation of fixed capital for the assessee. Expenditure incurred which enables the profit making structure to work more efficiently leaving the source of the profit making structure untouched is expense in the nature of revenue expenditure. Fine tuning business operations to enable the management to run its business effectively, efficiently and profitably; leaving the fixed assets untouched is of revenue expenditure even though the advantage may last for an indefinite period. Test of enduring benefit or advantage collapses in such like cases especially in cases which deal with technology and software application which do not in any manner supplant the source of income or added to the fixed capital of the assessee.
(ii) The software was “application software” which enabled it to execute tasks in the field of accounting, purchases and inventory maintenance more efficiently;
(iii) The fact that the expenditure was not written off in the books/ treated as ‘deferred revenue’ is irrelevant.
(Please click here for judgment)
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