Are expenses incurred on purchase of software components in the nature of capital expenditure or revenue expenditure?

Are expenses incurred on purchase of software components in the nature of capital expenditure or revenue expenditure?

Case : CIT v. Sundaram Clayton Ltd. (2010) 321 ITR 69 (Mad.)

Facts :

Section 37(1) of the Income-Tax Act

The High Court observed that this issue is covered by its decision in the case of CIT v. Southern Roadways Ltd. (2007) 288 ITR 15. In that case, it was held that the upgradation of computers by changing certain parts thereby enhancing the configuration of the computers for improving their efficiency, but without making any structural alterations is not a change of an enduring nature.

Therefore, applying the ratio of the above decision in this case, the Madras High Court held that the expenditure incurred on purchase of software components has to be treated as a revenue expenditure.