Business expenditure: Capital or revenue: Section 37: A. Y. 2001-02: Assessee manufacturing telecommunication and power cables: Software is not a part of profit-making apparatus of the assessee: Software expenditure is revenue expenditure:

The assessee is in the business of manufacturing telecommunication and power cables. For the A. Y. 2001-02, the assessee claimed deduction of the software expenditure as revenue expenditure. The Assessing Officer disallowed the claim, holding it to be capital expenditure. The Tribunal allowed the assessee’s claim. On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) The Tribunal in the assessee’s own case for the preceding year had allowed the software expenditure as revenue expenditure, finding that software did not form part of the profit making apparatus of the assessee. The appeal filed by the Revenue for that year has been dismissed for want of removal of office objections and thus the order passed by the Tribunal for that year has attained finality.

 ii) Further, it held that the business of the assessee was that of manufacturing telecommunication and power cable accessories and trading in oil tracing system and other products. The software was an enterprise resource planning package and, hence, it facilitated the assessee’s trading operations or enabled the management to conduct the assessee’s business more efficiently or more profitably but it was not in the nature of profit making apparatus. Therefore, the expenditure is to be allowed.”