View quick summary As more businesses go computerized, the increase in software purchase is inevitable. Though an employer races against time to grasp how the purchased software can gear up productivity, the good news is that they can claim tax deduction on the cost of the computer software within the year when the software was purchased. This was the verdict passed by the High Court of Delhi in the "Asahi India Safety Glass Ltd" case, in which the Court held that, “the expenditure incurred on application software is allowed as revenue expenditure for income tax purposes and that the test of enduring benefit is not certain or conclusive in determining the expenditure as capital or revenue”.

This verdict should serve as a boon for Small-Medium Enterprises where software usually is the major slice of the expenditure pie.

The taxpayer must be in a position to interpret the nature of the cost of software and deduce if the costs are of capital or revenue nature. The intent and purpose of the software must be pellucid to the taxpayer’s eye plus it must be seen whether the consequence of the software expense is the initiation of fixed capital for the assessee. If the expenditure is of revenue character, the taxpayer is entitled to deductions stated under Section 37(1) of the Income Tax Act, during the year when the expenditure was made. If the nature of expenses fails to satisfy the conditions laid down by Section 37, the taxpayer can claim depreciation according to Section 32 of the Act.

About the author

Sudhir Kaushik has been a practicing tax consultant for the last 17 years. He is a Fellow Chartered Accountant and conducts seminars in large companies to help salaried employees with income tax and investment queries. Sudhir brings domain knowledge of income tax laws and their compliance difficulties faced by individuals. He is the author of Income Tax Handbook For Salaried Employees for smart financial planning and investments for salaried people. He enjoys an excellent reputation and has a strong network in the corporate sector and public sector undertakings.