GOOD YEAR CASE - TRANSFERABILITY OF INDIAN SHARES BETWEEN TWO NON-RESIDENT COMPANIES- NO LONG TERM CAPITAL GAIN IS INVOLVED

Details of the case

 

In 2011, US based manufacturer Goodyear Tire and Rubber Company had transferred 74% of its holding in Goodyear India to its subsidiary in Singapore without taking any consideration. The Indian Tax claimed that there is a tax implication in this transaction, while the Authority for Advanced Ruling (AAR), ruled that this particular transaction is not subject to tax in India. The tax department challenged the ruling and filed a writ petition in the Delhi High Court, saying that the transfer of shares are of an Indian listed company is subject to taxation.

Tax-Department Claim

 

The tax department petitioned that the said transaction between the Goodyear US and Singapore entities involves treaty shopping. According to the India-US tax treaty, shares sold by a US based organization, is considered capital gains and hence would be subject to taxation both in India as well as the US.

information about the Case

According to laws, capital gains are considered to be of long-term in nature, if the shares of a company listed in India, have been sold after an initial holding period of 12 months. The AAR hence had held, that transfer of shares of an Indian entity between two non-resident entities, even if done for a consideration, will be exempt from taxation in India as long-term capital gains on sale of shares of companies listed in India, is exempt from Indian tax laws. If at all, only a securities transaction tax needs to be paid under the purview of such deals.
In this case, Goodyear USA, had transferred its shares in Goodyear India (being the transferor), which was a long-term capital asset arm for them, to Goodyear Singapore (transferee), and that too without any considerations.

 Verdict

 

In light of these facts i.e. no tax liability on share transfers of Indian listed companies for long-term capital gains, the tax department’s arguments have been held to be of no consequence.

The Hon’ble HC said that no illegality has been pointed out in the ruling by the AAR, and court saw no reason to interfere. The high court has accepted AAR’s view, and emphasized that the HC has in fact not exercised any appellate jurisdiction. Instead they had only invoked an extra-ordinary jurisdiction which has been given / granted to them as per the Constitution.

It was however mentioned that if the shares had been sold by the Singapore entity instead, the capital gains out of the share tranfers, would then be taxed only in Singapore as per the India-Singapore tax treaty.
The Delhi high court has since dismissed the petition relating to this transfer. Both the orders AAR and Delhi HC ruling needs to be read together now.

Liability of the director(s) u/s 179 of the Income Tax Act is towards the amount of “tax” only and not towards “interest” and “penalty”

Liability of the director(s) u/s 179 of the Income Tax Act is towards the amount of “tax” only and not towards “interest” and “penalty”

Case Law: SANJAY GHAI Vs. ASSTT. CIT & ORS. in W.P.(C) 2303/2012 & 5175/2012 Dated 11.10.2012 (DHC)

 

Decided in Whose Favour ? -- Assessee

 

Facts _ Issue Involved: In this case, the issue involved was that if there is a default on the part of a private limited company in payment of its income tax dues to the Income Tax Department then the liability of the company can be shifted to its director(s) u/s 179 of the Income Tax Act and accordingly, the Income Tax Department can hold the said director(s) liable to pay income tax dues of the company. The question arose as to whether it is the amount of “tax” only that can be shifted upon the director(s) or even other components of income tax demands such as “interest” and “penalty” can also be recovered from the director(s) u/s 179 of the Income Tax Act.

Decision

: Hon’ble Delhi High Court after analyzing Section 179 and other provisions of the Income Tax Act held that it is the amount of “tax” only which can be recovered form the director(s) u/s 179 and no other demand i.e. “interest” or “penalty” can be recovered from director(s) u/s 179 of the Income Tax Act.

 

Significance of the Judgement

This decision helps the director to pay only income tax as in many cases the portion of “interest” and “penalty” becomes higher than the actual income tax. IT department may levay  penalty can be levied upto 300% of the amount of tax and this verdict gives some relief to those at default.

 

 

 

Notwithstanding Loan at High Rate of Interest, Share capital Gain cannot be assumed as Business Profit and will be treated as Capital Gains

Notwithstanding Loan at High Rate of Interest, Share capital Gain cannot be assumed as Business Profit and will be treated as Capital Gains

Case: Commissioner of Income-Tax v NIRAJ AMIDHAR SURTI

Merely because the shares had been purchased from borrowed funds obtained on high rate of interest would not change the nature of the transaction from investment to one in the nature of an “adventure in the nature of trade.

A capital investment and resale do not lose their capital nature merely because the resale was foreseen and contemplated when the investment was made and the possibility of enhanced values motivated the investment.

It was held by the Gujarat High Court that the character of the transaction in question to be one of capital gain and not an adventure in the nature of business or trade and cannot be construed as business profits but to be assessed as capital gains.

Interest paid by a branch of a Foreign Bank to its Head Office is deductible in the hands of the branch?

Interest paid by a branch of a Foreign Bank to its Head Office is deductible in the hands of the branch?

CASE: ABN AMRO Bank NV vs. CIT

Sections: section 90 of the Income-Tax Act, 1961,

 Section 195 of the Income-Tax Act, 1961

section 40(a)(i) the Income-Tax Act, 1961

 

Facts

Calcutta High Court in its verdict opined that the appellant before us is  a foreign company incorporated in Netherlands and having its principal branch office in India. In course of its banking activities the appellant’s said branch in India remits substantial funds to its head office as payment of interest.

There is a continuous process of the said branch receiving interest from its head office and other branches and remitting of interest by the branch to the head office and other branches.

There are principally only two issues in this appeal, namely,

 1. Whether interest payment made by the Indian branch of the appellant to its head office abroad was to be allowed as a deduction in computing the profits of the appellant’s branch in India?

 2. Whether in making such payment to the head office, the appellant’s said branch was required to deduct tax at source under Section 195 of the said Act?

Under section 90 of the Income-Tax Act, 1961,the Government of India has entered into the above agreement with the government of Netherland for relief of tax and avoidance of double taxation. The appellant is an assessee to whom such agreement applies. Therefore, for the purpose of relief of tax which is related to avoidance of double taxation, a more beneficial provision amongst rival provisions in the agreement and the Act will apply to the assessee.

Therefore, if no tax is deductible under section 195(1) & section 40(a)(i) of the Income Tax Act , 1961 will not come in the way of the appellant claiming such deduction as from its income. Therefore, in the circumstances the appellant would be entitled todeduct such interest paid, as permitted by the convention or agreement, in the computation of its income.

WHETHER TRANSACTION BETWEEN London head office of the assessee and its branch in India tantamount to Sale ?

WHETHER TRANSACTION BETWEEN London head office of the assessee and its branch in India tantamount to Sale ?

Case: Betts Hartley Huett and Co Ltd vs Commissioner of Income Tax,West Bengal-II Calcutta

Facts  

 

 

 A Division Bench was concerned with a transaction between the London head office of the assessee and its branch in India. The question before the court was whether it was sale. The court held in construing the transaction that the head office and the branch office being parts of the same entity there could not be a sale by the head office to itself, that is, the branch office.

Tax Residency Certificates (TRC) FOR NON-RESIDENT INVESTORS IN INDIA

Tax Residency Certificates (TRC) FOR NON-RESIDENT INVESTORS IN INDIA

 

All foreign investors will have to produce tax residency certificates (TRC) of their base nation to claim benefits under the double taxation avoidance treaty from April 1, 2013, says a government notification.

The amendments to the Income Tax Act, 1961, the Central Board of Direct Taxes (CBDT) said, will take effect from April 1, 2013 and will apply in relation to the assessment year 2013-14 and subsequent years.

The notification amends Section 90 and Section 90A of the Act dealing with taxation of foreign investment and tax benefits under the Double Taxation Avoidance Agreements (DTAAs). Currently, India has a total of84 DTAAs with foreign countries.

The TRC for availing tax benefits was proposed in the 2012-13 Budget, presented by the then Finance Minister Pranab Mukherjee.The TRC to be obtained by an assessee, not being a resident in India,from the Government of the country or the specified territory, shall contain the name of the assessee, status as to whether it is anindividual or company, its nationality and country wherein it is
registered or incorporated.

Besides, the TRC should also have the tax identification number of the assessee, its residential status for the purposes of tax, period for which the TRC is applicable and address of the assessee during that
period.

Under a clause in the DTAA entered into between two countries, the assessee can take the advantage of paying capital gains tax in either of the two nations.

Development expense for website is revenue expenditure and amount advanced for it if become unrecoverable is allowable as “Bad Debt”

Development expense for website is revenue expenditure and amount advanced for it if become unrecoverable is allowable as “Bad Debt”

Case ; DCIT vs  M/s Edelweiss Capital Ltd.

Section :28 of the Income-Tax Act ,1961

Facts

The ITAT , Mumbai in this case was of the view that if the expenditure on the development websites, the expenditure could not have been regarded as capital expenditure since the website is put up for the purposes of day-to-day running of the business and even if one were to view that some enduring benefit is obtained by the assessee, the benefit cannot be said to accrue to the assessee in the capital field.

A website is something where full information about the assessee’s business is given and it helps the assessee’s customers in dealing with it. A website constantly needs updating, otherwise it may become obsolete. It helps in the smooth and efficient running of the day-to-day business. The expenditure would have been allowable as revenue expenditure; as a corollary, when the website did not materialize, the amounts advanced to the companies who were engaged to develop the websites, when they became irrecoverable, can be written off and claimed as loss incidental to the business. The loss is thus allowable as business loss in terms of section 28 of the Act

Is the expenditure incurred on payment of retrenchment compensation and interest on money borrowed for payment of retrenchment compensation on closure of one of the textile manufacturing units of the assessee-company revenue in nature?

Is the expenditure incurred on payment of retrenchment compensation and interest on money borrowed for payment of retrenchment compensation on closure of one of the textile manufacturing units of the assessee-company revenue in nature?

Case : CIT v. DCM Ltd. (2010) 320 ITR 307 (Delhi)

Facts

The company claimed deduction of retrenchment compensation paid to employees of the unit which had been closed down and interest on money borrowed for payment of retrenchment compensation.

Apex Court in CIT v. Prithvi Insurance Co. (1967) 63 ITR 632 and arrived at the conclusion that there was interconnection, interlacing and unity of control and management, common decision making mechanism and use of common funds in respect of all the four units.

The High Court was of the opinion that the payment of compensation to workers on closure of a textile mill unit is treated as a revenue expenditure since after closure of the unit, the remaining business continued and there was inter-connection in the functioning of the different units. Therefore, it follows that if compensation is paid to workers on closure of the entire business, the same would be a capital expenditure.

 

Can the expenditure incurred by the assessee on techno-economic feasibility report for the manufacture of a new product be eligible for deduction under section 35D?

Can the expenditure incurred by the assessee on techno-economic feasibility report for the manufacture of a new product be eligible for deduction under section 35D?

Case : CIT v. Tamil Nadu Road Development Co. Ltd. (2009) 316 ITR 380 (Mad.)

Section : 35D of the Indian Income-Tax Act ,1961

The assessee-company engaged in the business of implementation of the industrial policy and creation of infrastructure facilities in the State of Tamil Nadu on a commercial framework claimed deduction in respect of the expenditure incurred on account of techno-economic feasibility report for the manufacture of new products. The Assessing Officer disallowed the deduction treating it as a capital expenditure. The Commissioner (Appeals) allowed the assessee's claim on the finding that the expenses incurred were covered under section 35D of the Income-tax Act, 1961, as the expenses were incurred to find out new ideas by conducting test studies and pilot studies for improving the existing business and, therefore, could not be treated as capital expenditure. This was confirmed by the Tribunal and the High Court.

Can the valuation done by any authority of the State Government for the purpose of payment of stamp duty in respect of land or building be taken as actual sale consideration received by the purchaser?

Can the valuation done by any authority of the State Government for the purpose of payment of stamp duty in respect of land or building be taken as actual sale consideration received by the purchaser?

Case Law : CIT v. Chandni Buchar (2010) 323 ITR 0510 (Pun.& Har.)

Section : 50C of Income-Tax Act 1961

The Assessing Officer added the difference between purchase price disclosed in the sale deed and purchase price of the property adopted for the purpose of paying the stamp duty to the total income of the assessee as income from unexplained sources. The Commissioner of Income-tax (Appeals) deleted this addition by holding that section 50C is a deeming provision for the purpose of bringing to tax the difference as capital gain. Further, he also held that in the absence of any legally acceptable evidence, valuation done for the purpose of section 50C would not represent actual consideration passed on to the seller. The Tribunal also held that valuation done by any State agency for the purpose of stamp duty would not ipso facto substitute the actual sale consideration as being passed on to the seller by the purchaser in the absence of any admissible evidence. The Assessing Officer is obliged to bring on record positive evidence indicating the fact that the assessee has paid anything more than the sum disclosed in the purchase deed. In this case, the assessee has discharged the burden of proving the sale consideration as projected in the sale deed by producing the original bank statement.

The High Court, therefore, held that the view taken by the Tribunal while accepting the order of the Commissioner of Income-tax (Appeals) does not suffer from any legal infirmity.

Can the valuation done by any authority of the State Government for the purpose of payment of stamp duty in respect of land or building be taken as actual sale consideration received by the purchaser?

Can the valuation done by any authority of the State Government for the purpose of payment of stamp duty in respect of land or building be taken as actual sale consideration received by the purchaser?

Case Law : CIT v. Chandni Buchar (2010) 323 ITR 0510 (Pun.& Har.)

Section : 50C of Income-Tax Act 1961

The Assessing Officer added the difference between purchase price disclosed in the sale deed and purchase price of the property adopted for the purpose of paying the stamp duty to the total income of the assessee as income from unexplained sources. The Commissioner of Income-tax (Appeals) deleted this addition by holding that section 50C is a deeming provision for the purpose of bringing to tax the difference as capital gain. Further, he also held that in the absence of any legally acceptable evidence, valuation done for the purpose of section 50C would not represent actual consideration passed on to the seller. The Tribunal also held that valuation done by any State agency for the purpose of stamp duty would not ipso facto substitute the actual sale consideration as being passed on to the seller by the purchaser in the absence of any admissible evidence. The Assessing Officer is obliged to bring on record positive evidence indicating the fact that the assessee has paid anything more than the sum disclosed in the purchase deed. In this case, the assessee has discharged the burden of proving the sale consideration as projected in the sale deed by producing the original bank statement.

The High Court, therefore, held that the view taken by the Tribunal while accepting the order of the Commissioner of Income-tax (Appeals) does not suffer from any legal infirmity.

Can exemption under section 54B be denied solely on the ground that the new agricultural land purchased is not wholly owned by the assessee, as the assessee’s son is a co-owner as per the sale deed?

Can exemption under section 54B be denied solely on the ground that the new agricultural land purchased is not wholly owned by the assessee, as the assessee’s son is a co-owner as per the sale deed?

Case: CIT v. Gurnam Singh (2010) 327 ITR 278 (P&H)

Section: 54B of Indian Income-Tax Act, 1961

Facts

A deduction under section 54B claimed by the assessee in respect of the land purchased by him along with his son out of the sale proceeds of the agricultural land. However, the AO denied the same on the ground that the land was registered in the name of the assessee’s son.

The Tribunal observed that the agricultural land sold belonged to the assessee and the sale proceeds were also used for purchasing agricultural land. The possession of the said land was also taken by the assessee. It is not the case that the sale proceeds were used for other purposes or beyond the stipulated period. The only objection raised by the Revenue was that the land was registered in the name of his son. Therefore, it cannot be said that the capital gains were in any way misused for any other purpose contrary to the provisions of law.

In this case, the High Court concurred with the Tribunal’s view that merely because the assessee’s son was shown in the sale deed as co-owner, it did not make any difference. It was not the case of the Revenue that the land in question was exclusively used by the son. Therefore, the assessee was entitled to deduction under section 54B.

Can freight subsidy arising out of the scheme of Central Government be treated as a “profit derived from the business” for the purposes of section 80-IA?

Can freight subsidy arising out of the scheme of Central Government be treated as a “profit derived from the business” for the purposes of section 80-IA?

Case: CIT v. Kiran Enterprises (2010) 327 ITR 520 (HP)

Section 80-IA of the Income-Tax Act 1961

Section 80-IA provides for deduction in respect of profits and gains derived from eligible business. In this case, the Central Government had framed a scheme whereby freight/transport subsidy was provided to industries set up in remote areas where rail facilities were not available and some percentage of the transport expenses incurred to transport raw material/finished goods to or from the factory was subsidized.

The issue under consideration is whether such freight subsidy arising out of the scheme of Central Government can be treated as a “profit derived from the business” for the purposes of section 80-IA.

On appeal, the High Court held that the transport subsidy received by the assessee was not a profit derived from business since it was not an operational profit. The source was not the business of the assessee but the scheme of Central Government. The words “derived from” are narrower in connotation as compared to the words “attributable to”. Therefore, the freight subsidy cannot be treated as profits derived from the business for the purposes of section 80-IA.

Does the Central Board of Direct Taxes (CBDT) have the power under section 119(2)(b) to condone the delay in filing return of income?

Does the Central Board of Direct Taxes (CBDT) have the power under section 119(2)(b) to condone the delay in filing return of income?

Case: Lodhi Property Company Ltd. v. Under Secretary, (ITA-II), Department of Revenue (2010) 323 ITR 0441 (Del.)

Section : 19(2)(b) of Income-Tax Act ,1961

Facts

The assessee filed the annual return with one day delay. The delay was due to administration process in the IT office as the representative of assessee was not received correct guidance for locating the exact section where his IT return was to be filed.

The issue under consideration is whether the CBDT has the power under section 119(2)(b) to condone the delay in filing return of income.

The High Court held that the Board has the power to condone the delay in case of a return which was filed late and where a claim for carry forward of losses was made. The delay was only one day and the assessee had shown sufficient reason for the delay of one day in filing the return of income. If the delay is not condoned, it would cause genuine hardship to the petitioner. Therefore, the Court held that the delay of one day in filing of the return has to be condoned.

Section 119(2)(b) empowers the CBDT to authorise any income tax authority to admit an application or claim for any exemption, deduction, refund or any other relief under the Act after the expiry of the period specified under the Act, to avoid genuine hardship in any case or class of cases.

Whether Charter Fees paid to non-resident will attract the provisions of tax deduction at source under section 195 of Income-Tax Act ,1961

Does payment of charter fee to a non-resident (for chartering fishing vessels), by way of percentage of fish catch done outside the territorial waters of India but brought to an Indian port for verification and valuation before dispatch of the same to the non-resident, attract the provisions of tax deduction at source under section 195?

Case: Kanchenjunga Sea Foods Ltd. v. CIT & ITO (2010) 325 ITR 540 (SC)

Section : 5(2) ,195& 201  of Income-Tax Act, 1961

Facts

An Indian company engaged in the sale and export of sea foods entered into an agreement with a non-resident for chartering two fishing vessels (trawlers) for an all-inclusive charter fee of US $ 6,00,000 per vessel per annum. The charter fee was payable out of earnings from the sale of fish and for this purpose, 85% of the gross earnings from the sale of fish was to be paid to the non-resident company.

In this case , Supreme Court was of the view that since the first receipt of 85% of the fish catch was in India, the non-resident effectively received the charter fee in the shape of 85% of the fish catch in India.

In light of the above, the income earned by the non-resident was chargeable to tax under section 5(2) of the Income-tax Act, 1961. The Indian company was, therefore, liable to deduct tax under section 195 on the payment made to the non-resident company. Since it had failed to deduct tax at source, it was an assessee-in-default under section 201.

It may be noted that TDS provisions under section 195 are attracted even if the charter fees is payable in kind, for example, as a percentage of fish catch, as in this case.

Is admission fee paid by a company towards corporate membership of a club allowable as a revenue expenditure?

Is admission fee paid by a company towards corporate membership of a club allowable as a revenue expenditure?

Case Law: CIT v. Samtel Color Ltd. (2010) 326 ITR 425 (Delhi)

Section : 37(1) of the Indian Income-Tax Act

Facts

Assessee claimed the corporate membership fee paid to a club as revenue expenditure. The AO disallowed the same and assessed the same as capital expenditure.

The Commissioner (Appeals) opined that though the membership of the club provided the assessee a benefit which fulfils the business purpose test, it also resulted in benefits to directors and executives in their personal capacity. Accordingly, it directed the Assessing Officer to disallow 20% of the expenditure and allow the balance amount as revenue expenditure on the ground that the entire expenditure was not incurred for business purposes.

The Tribunal, however, observed that corporate membership itself was meant for the benefit of the company and hence the expenses were for business purposes and, therefore, there was no reason to disallow the expenditure either wholly or in part.

The High Court upheld the decision of the Tribunal observing that the expenditure incurred towards admission fee for corporate membership was for the benefit of the company.

In the instant case, the admission fee paid towards corporate membership is an expenditure incurred wholly and exclusively for the purposes of business and not towards capital account as it only facilitates smooth and efficient running of a business enterprise and does not add to the profit-earning apparatus of the business enterprise.

WHETHER A BENEFICIAL OWNER OF AN ASSET CAN CLAIM DEPRECIATION UNDER THE INCOME-TAX ACT?

WHETHER A BENEFICIAL OWNER OF AN ASSET CAN CLAIM DEPRECIATION UNDER THE INCOME-TAX ACT?

Case: CIT v. Smt. A. Sivakami and Another (2010) 322 ITR 64

Section 32 (1) of the Income-Tax Act

Facts

Even though she was not the registered owner of the same, the assessee, running a proprietary concern, claimed depreciation on three buses. The Assessing Officer rejected the claim of the assessee on the ground that the assessee was not the owner of the three buses and the basic condition under section 32(1) to claim depreciation is that the assessee should be the owner of the asset.

The Supreme Court, in CIT v. Podar Cement P Ltd. (1997) 226 ITR 625, observed that the owner need not necessarily be the lawful owner entitled to pass on the title of the property to another. Since, in this case, the assessee has made available all the documents relating to the business and also established before the authorities that she is the beneficial owner, she is entitled to claim depreciation even though she is not the legal owner of the buses.

 

Can notional interest assessed by AO on interest free deposit received by an assessee in respect of a shop let out on rent be brought to tax as “Business income” or “Income from house property”?

Can notional interest assessed by AO on interest free deposit received by an assessee in respect of a shop let out on rent be brought to tax as “Business income” or “Income from house property”?

Case Law: CIT v. Asian Hotels Ltd. (2010) 323 ITR 0490 (Del.)

Facts

The assessee had received interest free deposit in respect of shops given on rent. The Assessing Officer added to the assessee's income notional interest on the interest free deposit at the rate of 18 per cent simple interest per annum on the ground that by accepting the interest free deposit, a benefit had accrued to the assessee which was chargeable to tax under section 28(iv).

The High Court held that section 28(iv) of Income-Tax Act is concerned with business income and brings to tax the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. Section 28(iv) can be invoked only where the benefit or amenity or perquisite is other than cash. In the instant case, the Assessing Officer has determined the monetary value of the benefit stated to have accrued to the assessee by adding a sum that constituted 18 per cent simple interest on the deposit. Hence, section 28(iv) is not applicable.

Section 23(1)(a) deals with the determination of the annual letting value of such property for computing the income from house property. It provides that the annual letting value is deemed to be the sum for which the property might reasonably be expected to be let from year to year. This contemplates the possible rent that the property might fetch and certainly not the interest on fixed deposit that may be placed by the tenant with the landlord in connection with the letting out of such property.

Thus, the notional interest is not assessable either as business income or as income from house property.

 

Is the amount paid by a construction company as regularization fee for violating building bye-laws allowable as deduction?

Is the amount paid by a construction company as regularization fee for violating building bye-laws allowable as deduction?

 

Case :Millennia Developers (P) Ltd. v. DCIT (2010) 322 ITR 401 (Karn.)

section: 37(1) of the Income-Tax Act  

The assessee, a private limited company carrying on business activity as a developer and builder, claimed the amount paid by way of regularization fee for the deviations made while constructing a structure and for violating the plan sanctioned in terms of the building bye-laws, approved by the municipal authorities as per the provisions of the Karnataka Municipal Corporations Act, 1976. The assessee’s claim was disallowed by the Assessing Officer and the disallowance was confirmed by the Tribunal.

The High Court observed that as per the provisions of the Karnataka Municipal Corporations Act, 1976, the amount paid to compound an offence is obviously a penalty and hence, does not qualify for deduction under section 37. Merely describing the payment as a compounding fee would not alter the character of the payment.

In this case, it is the actual character of the payment and not its nomenclature that has determined the disallowance of such expenditure as deduction. The principle of substance over form has been applied in disallowing an expenditure in the nature of penalty, though the same has been described as regularization fee/compounding fee.

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.