K. Raviraja Pandian, J.:— These two appeals relate to the assessment year 2001–02 preferred against the common order dated March 16, 2007, passed by the Income-tax Appellate Tribunal in two appeals in I.T.A No. 551.Mds/2005 and I.T.A No. 674.Mds/2005.
2. The material facts culled out from the statement of facts, stated in the memorandum of appeal, are as follows:
The assessee is a manufacturer of automobile components like air brakes and non-ferrous castings. The assessee-company filed its return of income for the assessment year 2001–02 declaring total income of Rs. 14,43,44,360. The assessee subsequently filed a revised return declaring the total income in a sum of Rs. 14,20,68,210. The assessee has purchased software to the tune of Rs. 47,57,664 and claimed the same as revenue expenditure. The Assessing Officer computed it as capital in nature and allowed depreciation. The assessee claimed that the interest income earned on intercorporate deposits, SBI bonds, deposit on margin money and fixed deposits as forming part of business income for computation under section 80HHC of the Income-tax Act. The Assessing Officer assessed the same under the head “Income from other sources”. Like that, the Assessing Officer excluded the receipts in respect of written back provision in a sum of Rs. 13,59,500 and the exchange rate of Rs. 79,048 as not directly derived from the business activity and framed the assessment.
3. On appeal at the instance of the assessee, the Commissioner of Income-tax (Appeals) confirmed the order of the Assessing Officer treating the expenses incurred in purchase of software components as capital in nature. As the assessee furnished details in respect of the interest earned, intercorporate deposits, margin money deposit and other deposits, the Commissioner of Income-tax (Appeals) directed the Assessing Officer to treat the sum of Rs. 3,13,500 as income from business and include the same in the profit for the purpose of deduction under section 80HHC of the Act and the remaining interest income was directed to be treated under the head of “Other sources”. In respect of the written back provision, in a sum of Rs. 13,59,500 and the exchange rate in a sum of Rs. 79,048, the Commissioner of Income-tax (Appeals) held that the write back provision and the exchange rate provision are directly connected with the business activity and hence 90 per cent, of the same should not be reduced from the profit of the business. Aggrieved by the order of the Commissioner of Income-tax (Appeals), the Revenue as well as the assessee filed separate appeals to the Income-tax Appellate Tribunal. The Tribunal, by its common order, which is impugned in these appeals, set aside the orders of the authorities below and directed the Assessing Officer to decide the issue about the claim of the assessee on purchase of software components after obtaining necessary details for verification. In respect of the income earned from various deposits, as stated above, the Tribunal held that the assessee is entitled to deduction of 10 per cent, as per clause (baa) of the Explanation to section 80HHC of the Income-tax Act. In respect of the written back provision and exchange rate difference, the Tribunal held that they are not to be excluded from the business profit in computing the deduction under section 80HHC of the Act.
4. The Revenue, aggrieved against that common order of the Tribunal, has filed the present appeals by framing the following substantial questions of law:
T.C (A) No. 369 of 2008:
“1. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in remitting back to the Assessing Officer to decide the issue after obtaining necessary details for verification, even though the expenditure for the purchase of software is capital in nature?
2. Whether on the facts and in the circumstances of the case the Income-tax Appellate Tribunal was right in law in holding that, interest on intercorporate deposits, margin money deposits, and trade advances to suppliers held to be entitled to deduction to the extent of 10 per cent, as per clause (baa) of the Explanation to section 80HHC of the Income-tax Act, 1961 is valid?
3. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the write back of provision and exchange rate difference are not to be excluded from business profits in the calculation of deduction under section 80HHC of the Income-tax Act, 1961?”
T.C (A) No. 370 of 2008:
“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that, sales tax collections are to be excluded from business profits in the calculation of deduction under section 80HHC of the Income-tax Act, 1961?”
5. It is the submission of the learned counsel for the Revenue that the first question is squarely covered against the Revenue by the decision of this court in the case of Commissioner Of Income-Tax v. Southern Roadways Ltd., [2007] 288 ITR 15, wherein it was held that the upgradation of computers by changing certain parts thereby enhancing the configuration of the computers for improving their efficiency, but without making any structural alterations is not change of an enduring nature. The expenditure incurred by the assessee had, therefore, to be treated as revenue expenditure.
6. While deciding the issue, the Division Bench took note of the decisions in the cases of Alembic Chemical Works Co. Ltd. v. CIT, [1989] 177 ITR 377 (SC) and B.P Australia Ltd. v. Commissioner of Taxation of the Commonwealth of Australia, [1966] AC 224 (PC) wherein it has been held that (page 17 of 288 ITR):
“What is capital expenditure and what is revenue are not eternal verities but must needs be flexible so as to respond to the changing economic realities of business. The expression ‘asset or advantage of an enduring nature’ was evolved to emphasise the element of a sufficient degree of durability appropriate to the context…. ‘Enduring benefit’ is not thinking of advantages that are permanent. There is a difference between the lasting and everlasting.”
7. Similar view has been taken by the Division Bench of this court in CIT v. Janakiram Mills Ltd., [2005] 275 ITR 403 (Mad); Commissioner Of Income-Tax v. Southern Roadways Ltd., [2006] 282 ITR 379 (Mad).
8. In respect of the second and the third questions of law, it is the submission of the learned counsel for the Revenue, that, on the reading of the order of the Tribunal, it is apparent that the said questions of law do not arise out of the order and hence, need not be taken into consideration. The same is recorded. The question of law framed in the appeal in T.C (A) No. 370 of 2008, as to whether the Income-tax Appellate Tribunal was right in law in holding that, sales tax collections are to be excluded from business profits in the calculation of deduction under section 80HHC of the Income-tax Act, 1961 is covered by the decision of the Supreme Court in the case of Commissioner Of Income Tax, Coimbatore v. Lakshmi Machine Works, [2007] 290 ITR 667, wherein it has been held as follows (page 683):
“The principal reason for enacting a formula in section 80HHC of the Income-tax Act, 1961, is to disallow a part of the concession thereunder when the entire deduction claimed cannot be regarded as relating to exports. Therefore, while interpreting the words ‘total turnover’ in the formula in section 80HHC one has to give a schematic interpretation. The various amendments made therein show that receipts by way of brokerage, commission, interest, rent, etc., do not form part of business profits as they have no nexus with the activity of export. The amendments made from time to time indicate that they became necessary in order to make the formula workable. If so, excise duty and sales tax also cannot form part of the ‘total turnover’ under section 80HHC(3); otherwise, the formula becomes unworkable.”
9. For the aforesaid reasons, the appeals are dismissed as the questions of 12 law have already been decided against the Revenue. No costs. The connected miscellaneous petition is dismissed.