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Software purcjase cost

21 December 2012

We have purchased Tally @ Rs. 27000/-. Should we show it as an asset or as an indirect expense. Please give reference of a Supreme Court Judgement.

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2 Replies

Jayalakshmi Anshuman (Chartered Accountant) (69 Points)
Replied 21 December 2012

Purchase of software has to be accounted as intangible asset of fixed nature. It has to be amortised over a period not more than 10 years. In your case, it would be appropriate to amortise over a 5 year period. Please refer to ICAI accounting standard 26 for guidance. Supreme court judgment not required.

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CA Gaurav Ajit Potdar (Chartered Accountant) (846 Points)
Replied 24 December 2012

Purchase of tally software is revenue expenditure.,refer following case

IBM India Ltd. v. CIT(A)-I

The assessing company acquired certain application software and claimed the same as revenue expenditure. The Assessing Officer how-ever disallowed the claim, treating it as a capital expenditure as it brought an enduring benefit. The CIT(A) upheld the disallowance. But on second appeal it was held :

Since an application software was paid for and not systems software, it helped in merely increasing efficiency and not in the creation of a new asset.
It forms part of company’s working expenses merely aiding the manufacturing process.
No technical know-how was acquired, but only the right to use the software.
The application software does not work on stand-alone basis. It has to be fitted with computer system to work.
Hence, the amount paid was revenue expenditure and not capital expenditure, and therefore allowable.