Deductibility of website development expenses
This query is : Resolved
05 April 2016
Website development expenses whether to be treated as revenue expenses or capital expenditure. If capital expenditure, in which block of assets will it fall. I have two different decisions on the subject in two different cases:
1) In one case, it was decided that website development expenses is not computer software expenses but it is intangible assets and therefore depreciation @ 25% (and not @ 60%) would be allowed (Case: Dy. Commissioner of Income-tax Vs. M/s. Make My Trip India Pvt. Ltd.)
2) A landmark decision recently delivered by the Delhi High Court in the case of CIT v. INDIAN VISIT. COM (P.) LTD.
Decision: Held, merely because an expenditure may result in enduring benefits it cannot be classified as expenditure of a capital nature – Revenue needs to examine the real intent and purpose of the expenditure and to see whether there is any accretion to the fixed capital of the assessee – Since the purpose of creating a website is not to acquire an asset but to promote the business it is revenue expenditure
Please help on the above since there is some conflict on the above two decisions
Facts of My case: Assessee has got website developed which provides the platform for buyers and sellers to buy and sale the products. Assessee only deducts the commission from the amount he receives from the buyer of the product and makes payment to seller after such deduction. What treatment to be given for website development expenses in such a case.
1) In one case, it was decided that website development expenses is not computer software expenses but it is intangible assets and therefore depreciation @ 25% (and not @ 60%) would be allowed (Case: Dy. Commissioner of Income-tax Vs. M/s. Make My Trip India Pvt. Ltd.)
2) A landmark decision recently delivered by the Delhi High Court in the case of CIT v. INDIAN VISIT. COM (P.) LTD.
Decision: Held, merely because an expenditure may result in enduring benefits it cannot be classified as expenditure of a capital nature – Revenue needs to examine the real intent and purpose of the expenditure and to see whether there is any accretion to the fixed capital of the assessee – Since the purpose of creating a website is not to acquire an asset but to promote the business it is revenue expenditure
Please help on the above since there is some conflict on the above two decisions
Facts of My case: Assessee has got website developed which provides the platform for buyers and sellers to buy and sale the products. Assessee only deducts the commission from the amount he receives from the buyer of the product and makes payment to seller after such deduction. What treatment to be given for website development expenses in such a case.
05 April 2016
Since the purpose of creating a website is to promote business it is a revenue expenditure.
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05 April 2016
In the case of simple, informative websites, it is safe to debit the expenses directly into the profit and loss account and claim the full deduction in the year in which the expenses are incurred. On the other hand, interactive websites should be treated as intangible assets and depreciation should be claimed @ 25%.
Make my Trip case was that of Interactive website and your case also relates to that of an Interactive website.
Make my Trip case was that of Interactive website and your case also relates to that of an Interactive website.
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05 April 2016
Gupta Ji has suggested a better view.
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