Software expenses on Global Dealers Management System of Hyundai motor held to be revenue in nature as it was a recurring expense for better efficiency of running business
ABCAUS Case Law Citation:
ABCAUS 2751 (2019) (01) ITAT
The solitary issue in the instant case was whether software expenses namely Global Dealer Management System (GDMS) charges and debited in the profit and loss account as administrative expenses was to be treated as a revenue expenditure or capital expenditure?
The assessee was a sole proprietor engaged in the sales and service of Hyundai motor cars. The assessment of the assessee was initially completed u/s 143(3) of the Income Tax Act, 1961 (the Act).
Subsequently, the assessment was reopened by issuance of notice u/s 148 of the Act. The assessee has debited profit and loss account with software support and maintenance expenses which was disallowed by the AO on the belief that the said expenses could not have been considered as revenue expenditure since there was an enduring benefit to the assessee.
The AO completed the assessment u/s 143(3) r.w.s. 147 of the Act by making a disallowance of the same after allowing depreciation on the expenses.
The CIT(A) dismissed the appeal of the assessee holding that the expenses was not of revenue in nature and the assessee had received an enduring benefit.
The Tribunal observed that rhe software was supplied by the Hundai Motors. The assessee had made similar payment in the subsequent years and the payments were made for the usage of the software and not for bringing into existence a capital asset.
It was also observed that amounts were recovered for usage of software year after year. The details of such charges incurred for various and if the expenses were of capital nature, the assessee need not have incurred such expenses on a recurring basis.
The Tribunal noted that as per dealership agreement the relevant clause was related to Data Processing System. In the relevant clause, it was specifically mentioned that the software shall be procured, installed, maintained and upgrated form a source designated by the vehicle manufacturer. Therefore, it was clear that the assessee could not procure the software from anywhere except from the source mentioned by Hundai Motors.
The Tribunal observed that it was also a fact that the payments were incurred by the assessee for the software usage alone.
Therefore, the Tribunal opined that it was a recurring expense for better efficiency of running of the assessee’s business, i.e. the dealership of Hundai Motors, and the expenditure could not be termed as a capital expenditure.
Accordingly, the ITAT directed that the expenses of GDMS debited to the profit and loss account to be allowed as revenue expenditure.