We are pleased to release an alert which summarizes a recent ruling of Karnataka High Court (HC) in the case of Talisma Corporation Pvt. Ltd. (Taxpayer) on the issue whether software development expenditure qualifies as “scientific research” which is eligible for 100% deduction on capital expenditure under section 35(1)(iv)
(Section) of the Indian Tax Laws (ITL). The Taxpayer is engaged in the business of software development and software product sales and services which, inter alia, included customer relationship management (CRM) software. It acquired Intellectual Property rights in a software product from another entity and incurred expenditure on further developing and improving the software which was capitalized in the books of account. The HC held that the development expenditure incurred by the Taxpayer qualified as “scientific research” and was eligible for 100% deduction under the Section.
Whether or not a taxpayer, which is engaged in developing and exploiting software products, is eligible for 100% deduction on software development expenditure as “scientific research” – especially where the development expenditure is capitalized in the books as per Generally Accepted Accounting Practices (GAAP) – is a contentious issue. The present HC ruling is in favor of the Taxpayer and provides guidance that expenditure incurred on development of software which is to be exploited as capital asset by the Taxpayer can be claimed as “scientific research” expenditure
(Section) of the Indian Tax Laws (ITL). The Taxpayer is engaged in the business of software development and software product sales and services which, inter alia, included customer relationship management (CRM) software. It acquired Intellectual Property rights in a software product from another entity and incurred expenditure on further developing and improving the software which was capitalized in the books of account. The HC held that the development expenditure incurred by the Taxpayer qualified as “scientific research” and was eligible for 100% deduction under the Section.
Whether or not a taxpayer, which is engaged in developing and exploiting software products, is eligible for 100% deduction on software development expenditure as “scientific research” – especially where the development expenditure is capitalized in the books as per Generally Accepted Accounting Practices (GAAP) – is a contentious issue. The present HC ruling is in favor of the Taxpayer and provides guidance that expenditure incurred on development of software which is to be exploited as capital asset by the Taxpayer can be claimed as “scientific research” expenditure
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