PROVISIONS OF SECTION 40(A)(I) ARE NOT ATTRACTED ON DEPRECIATION
Facts of the case
The assessee is engaged in the business of manufacture and sale of beer under the brand names “Haywards & RCPL”. The Assessee-company had paid a sum to a foreign associate towards expenditure incurred on account of Syspro Software license fees and Report Generation charges in Syspro and claimed same to be reimbursement of expenses, which were supported by third party invoices.
The assessee purchased “Foster’s Brand” and “Intellectual Property”, “Foster’s Brewing Intellectual Property” and Foster’s Trademarks from Foster’s Australia Ltd.
The assessee capitalized the said amount in its fixed assets schedule under the head “Trade Marks/Brands” and claimed depreciation thereon @ 25%.
Decision of the Tribunal
The Appellate Tribunal held that the where assessee company reimbursed its foreign associate licence fees and charges for software used for report generation as said expenditure was incurred by foreign associate, there could be no TDS liability on assessee.
It was further held that the depreciation being not an outgoing expenditure, provisions of section 40(a)(i) of the Income Tax Act are not attracted on such deduction. The Tribunal while referring to the decision of the Skol Breweries Ltd. v. ACIT observed that the deduction u/s 32 is not in respect of the amount paid or payable which is subjected to TDS.
but is a statutory deduction on an asset which is otherwise eligible for deduction of depreciation. Depreciation is not an outgoing expenditure and therefore, the provisions of sec. 40(a) (i) of the Act are not attracted on such deduction.
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