COMMISSIONER OF INCOME TAX Vs. AMWAY INDIA ENTERPRISES

JUDGEMENT

(1.) THE captioned appeals pertain to the years 2001-02 and 2002-03. The said appeals involve two issues- The first issue being the treatment to be accorded to expenditure incurred by the assessee on purchase of software applications. These applications being MS Office software, Anti Virus software, Lotus Notes software and Message Exchange applications. The assessee in respect of these applications acquired a licence to use the said applications on payment of consideration. The said expenditure has been disallowed by the AO in each of the assessment years by treating the expenditure as one incurred on capital account. Accordingly, depreciation @ 25 per cent was allowed to the assessee. The assessee carried the matter in appeal to the Commissioner of Income-tax (Appeals) [hereinafter referred to as 'CIT(A)']. The CIT(A) while sustaining the order of the AO, allowed depreciation @ 60 per cent. This resulted in both the assessee and the Revenue being aggrieved. Consequently, cross-appeals were filed by both the assessee and the Revenue.

(2.) THE second issue, with which authorities below were concerned, was with regard to the treatment to be accorded to the expenditure incurred by the assessee on improvements carried out in respect of premises held on lease-situate in Delhi, Mumbai and Kolkata. The assessee, who is in the business of direct selling of various products ranging from personal and homecare products to cosmetics, nutrition and wellness products; had at the relevant point in time, taken on lease, premises, in the aforementioned cities, for setting up a chain of distribution across the country. In respect of the said premises, expenses were incurred by the assessee on flooring, partition, wiring, false ceiling, roofing, air-conditioning unit and duct, electric wiring, laying network for setting up computers, and, on purchase of furniture. Both the AO and CIT(A) disallowed the expenses on the ground that they were incurred on capital account. Recourse was taken to the provisions of Expln. 1 to S. 32 of the IT Act, 1961 (in short IT Act)

(3.) THE Tribunal allowed the appeal of the assessee and restored the matter to the file of the AO with the direction to follow the decision of its Special Bench, constituted in the meanwhile, in regard to the first issue. As regards the second issue, the Tribunal allowed the entire expenditure incurred on improvement of leasehold premises save and except that which was incurred on air-conditioning unit(s) and furniture.