Expenses incurred for the software license, nature of income: ITAT


The Income Tax Appeals Tribunal (ITAT) in Mumbai found that the expenses incurred for the software license were fiscal in nature.

The assessee, M/s. Novartis Healthcare Pvt Ltd had incurred software licensing expenses amounting to Rs 5.35 crore. The AO asked the assessee why the expenses should not be treated as capital expenditures and the assessee replied that the assessee’s company had incurred expenses in license fees for the use of the software . According to the assessee, the software license fee amounted to Rs 5.35 crore, of which 5.25 crore was license fee for “computer software packages” or user license expenses and the balance to fees of maintenance.

The assessee pointed out that these software packages are often outdated and need to be replaced. And the assessed company pointed out that it has a capitalization policy on operating software systems tied to a computer’s hardware. However, since application software, unlike operating software, becomes obsolete and therefore needs to be replaced with the latest versions, it has been reported as revenue expense.

The CIT(A) relies on the decision of the Tribunal’s coordination benches in the case of the person assessed for AY. 2008-09 removed the entire addition made by AO under capitalization of software expenses and allowed the same revenue expense. Even though the above-mentioned facts were brought to the knowledge of the AO, he did not agree to the same and according to him, the purchase of software provides lasting benefits, as does the capital expenditure; and therefore is an intangible asset and amortization allowed at 25% of the expenses claimed.

Aggrieved, the assessee preferred to appeal to the CIT(A) after assessing the above assertion of the assessee and taking note of the court rulings for previous years, ordered the removal of the denial and authorized the expenses claimed by the assessee under the license. costs incurred for the use of software packages. Injured by the aforementioned action by the CIT(A), the revenue is appealing to the Tribunal.

The bench consisting of Pramod Kumar, Vice-Chairman, and Aby T Varkey, Judicial Member, observed that “the CIT(A) correctly considered that the expenses incurred for the software license were of a fiscal nature and took note of the Tribunal’s decision in the assessee’s own case for prior years AY 2008-09 (supra) and followed the same.

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Ms. Novartis Healthcare Pvt. Ltd vs. DCIT

Counsel for the Appellant: Dr Mahesh Akhade

Counsel for the Respondent: Shri Brijesh Parmar



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