COMMISSIONER OF INCOME TAX AND THE JOINT COMMISSIONER OF INCOME TAX (ASSISTANT) SPECIAL RANGE Vs. THE KARNATAKA BANK LTD.

JUDGEMENT

(1.) THE Revenue has preferred this appeal by challenging the order dated 11.05.2005 passed in ITA No. 778/Bang/2000 by raising the following substantial question of law:

(2.) THE relevant facts of the case are that the respondent. Assessee, which is a bank, filed its return of income for the assessment year 1997 -98 by claiming a sum of Rs. 5,13,545/ -as revenue expenditure towards software implementation charges as the said expenditure according to the Assessee was incurred to provide software package for working of computers installed in the various branches of the bank. The Assessing Officer however did not accept the contention of the Assessee and held that the installation of software has given the bank an enduring benefit and accordingly passed an order dated 23.03.2000, which order was appealed against by the Assessee before the Commissioner of Income Tax (Appeals), which was allowed in part by an order dated 08.09.2000. The Revenue being aggrieved by the said order preferred an appeal before the Tribunal. The Income Tax Appellate Tribunal held in favour of the Assessee and deducted the said amount as being revenue expenditure. It is against the said order, the present appeal has been filed.

(3.) IT is contended on behalf of the appellant that the respondent which is a bank, was maintaining its accounts manually and that for the first time computers were installed in the various branches of the bank and for which the software was installed and it is with regard to the software implementation charges that the Assessee has claimed that the said amount has to be treated as revenue expenditure which has been erroneously accepted by the Tribunal. He further submits that when for the first time the computers were installed by the bank and software was also installed for the first time, the said expenditure is to be treated as capital expenditure. Though no material has been placed by the Assessee to show that it was by way of upgradation that the software was installed so as to contend that the expenditure is revenue in nature, the Tribunal in the absence of such material could not have held that it was revenue expenditure.