By TIOL News Service

CHENNAI, JAN 10, 2018: THE issue is - Whether all licences for use of software, can be construed as capital asset, merely because it gives an enduring benefit. NO IS THE ANSWER.

Facts of the case:

The Assessee company during the relevant year, purchased licence for use of MS Office software from M/s Power Centre Pvt. Ltd., which was subsequently renewed for using the same in the business. Accordingly, the assessee claimed such expenditure as revenue u/s 37. The AO however found that the expenditure incurred by assessee was capital in nature.

ITAT held that,

++ it is not in dispute that the assessee purchased MS Office software and used the same in its business. By purchasing MS Office software, the assessee has not become owner of the software. The ownership of MS Office software remained with Microsoft company. The assessee has to necessarily renew the licence periodically for using the same in the business. Merely because the assessee is using MS Office software as operating software in its system, it does not mean that MS Office software is the capital asset in the hands of assessee;

++ as assets / licence for use of software cannot be construed as capital asset merely because it gives an enduring benefit. By using MS Office software in its business, the assessee gets enduring benefit in the course of earning of profit. So long as the assessee is a licensee, the ownership of MS Office software remains with Microsoft company. In view of such discussion, the AO is directed to allow the expenditure incurred by the assessee in acquiring licence of MS Office software as revenue expenditure while computing the taxable income.

(See 2018-TIOL-52-ITAT-MAD)