TMI Blog2014 (10) TMI 734X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee the addition is to be set aside Decided in favour of assessee. Nature of expenses towards payment of preemption charges to VSNL for surrender of transponders disallowed Held that:- Assessee has taken on lease from VSNL 5 numbers of transponders for telecasting its programmes in the channels - the preemption charges of ₹ 4,70,27,466 equivalent to US $ 10,33,000 was towards premature termination of lease in respect of two transponders of VSNL, which were used by assessee as assets of its business - the expenditure incurred by assessee being connected with an asset which is used as a tool for carrying on the business of assessee, certainly, in the nature of capital expenditure relying upon Aztec Software and Technology Services Ltd. Vs. ACIT [2007 (7) TMI 50 - ITAT BANGALORE] - the expenditure incurred is connected to apparatus with which assessee carried on its business, the nature of expenditure is also capital thus, the order of the CIT(A) is upheld Decided against assessee. Depreciation on computer peripherals @ 60% - Held that:- CIT (A) has restricted the depreciation to 25% on modems, switches, routers, printers, scanners etc by treating them as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessment proceeding, AO while examining the P L A/c noticed that assessee has debited an amount of ₹ 15,11,541 towards bad debts and advances written off. When AO called upon assessee to furnish details of bad debts and advances written off and to show cause as to why the claim made should not be disallowed, assessee submitted its reply stating therein that an amount of ₹ 5 lakhs was given to Anand Foods, who are the suppliers of packing materials and pouches for pickles and confectionary manufactured by assessee. It was submitted that an amount of ₹ 5 lakh was paid for purchase of machinery for making pouches for food division as per assessee s design. Later when assessee changed the design of the pouches, machinery/dyes purchased by the said party was found to be not suitable for manufacturing the changed design of pouches. Hence, the party concerned refused to repay the amount .For this reason, the amount of ₹ 5 lakhs was written off. Assessee submitted that it had paid an amount of ₹ 49,500 to three different persons towards rent deposits. The rented buildings were vacated by assessee during the year 1997-98. However, landlords refused to retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evidence has been produced by assessee to substantiate that party has refused to repay advance given by assessee and further the said party has refused to supply the pouches for their changed design. So far as the rent deposits are concerned, CIT(A) sustained the disallowance by simply observing that assessee has failed to produce any evidence that landlords have refused to repay the deposits. In our view, the conclusion drawn by AO as well as CIT(A) are not correct as it is not in accordance with the statutory provision. As per Section 36(1)(vii) if the debt becomes bad and had actually been written off in the books of account, then, it is to be allowed as a deduction. In the present case, there is no dispute to the fact that the amount in question has been written off in the books of account of assessee. Therefore, deduction claimed cannot be disallowed only on the reason that assessee has not proved that the persons concerned have refused to make payment to assessee. In the aforesaid facts and circumstances, we delete the addition made by AO. 8. The next issue as raised in ground no. 3 along with its subgrounds is in respect of disallowance of deduction claimed towards payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, did not find merit in the submissions of assessee and accordingly disallowed the expenditure claimed. Being aggrieved of such disallowance assessee preferred appeal before the CIT(A). CIT(A) after considering the submissions of assessee in the context of the facts and materials on record noted that preemption charges was paid to VSNL for premature termination of the lease agreement in respect of two transponders. CIT(A) following the decision of Special Bench of ITAT, Bangalore in case of Aztec Software and Technology Services Ltd. Vs. ACIT 294 ITR (AT) 32 held that as payment made by assessee to VSNL is in the nature of a capital expenditure, the same cannot be allowed as deduction. Accordingly, he sustained the disallowance made by AO. 10. Learned AR apart from making submissions before us at the time of hearing has also filed written submissions more or less reiterating the contentions raised before the departmental authorities. Learned AR submitted before us that as per the lease agreement with VSNL, assessee has to pay lease charges of US $ 15,84,000 per annum which worked to a total of US $ of ₹ 40,92,000 for the balance lease period from 01/01/04 to 31/07/2006. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment on termination of lease held as under: We have given careful thought to the submissions of the parties on this point. We have also seen orders of the revenue authorities on this issue. There is no dispute that the amount in question was paid to M/s Prestige Estate Pvt. Ltd. from whom property was taken by the assessee on lease for expanding its business. Subsequently, the company decided not to carry the lease and agreement was terminated pre-maturely. It is claimed that ₹ 1 crore was paid to the lesser under a negotiated settlement towards pre-mature termination of lease. The amount shown as advance was written off and claimed as a revenue deduction. The reasons given for claiming it as a revenue expenditure were not accepted by the AO and the learned CIT(A). Accordingly to the revenue authorities, amount was paid for acquiring a benefit of enduring nature and, therefore, was a capital expenditure. On the facts and circumstances of the case, we agree with the view taken by the revenue authorities that amount of ₹ 1 crore given as advance and loan written off under the settlement, could not be treated as expenditure of revenue nature. It was rightly treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for photo transmission equipment, decoding equipment v-sat, data processing equipment are eligible for depreciation @ 60% whereas the other peripherals like printers, scanners, modems, switches, photo/edit/equipment UPS, network cables and softwares form part of plant and machinery, on which, depreciation is allowable @25% only. Accordingly, he proposed to restrict depreciation @ 25% on them. Though, assessee objected to such action, the AO, however, rejecting the submissions of assessee, restricted depreciation @ 25% on routers facsimile systems, modem, v-sat, etc and in the process disallowed an amount of ₹ 1,43,99,145. Being aggrieved of such disallowance, assessee preferred appeal before CIT(A). The CIT(A) following his own order for the AY 2002-03 in case of same assessee, sustained the disallowance made by AO. 16. The learned AR at the outset submitted before us that the issue is squarely covered by the decision of ITAT in assessee s own case for AY 2002-03 ad 2003-04 as well as for AY 2005-06 and 2006-07. The learned DR though agreed that the issue is covered by the decisions of the coordinate bench, but, he nevertheless supported the order of CIT(A). 17. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been defined under the IT Act nor in the general clauses Act, 1987, the meaning of the term computer has to be understood by applying the principles of statutory interpretation i.e., one has to give the meaning to the expression computer not merely by going to the dictionary meaning but by applying common parlance or commercial parlance tests as well as by analysing the intendment of legislature in providing higher rate of depreciation. The Hon ble Special Bench after interpreting the expression computer in common parlance as well as commercial parlance in the context of availability of depreciation at higher rate of 60% in the case of router and switches whether to be treated as computer held as under:- 25. Thus in order to determine whether a particular machine can be classified as a computer or not, the predominant function, usage and common parlance understanding, would have to be taken into account. To analyse further, let us take the case of a Television, the principal task of which is to deliver visuals accompanied with audio. The signals, are received through the relevant net works such as Dish TV, Tata Sky etc. But TV does not become computer for the reason t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne computer to another. It was further explained that the router has two separate but related jobs, viz., (a) to ensure that the information does not go where it is not needed and (b) it makes sure that the information does make it to the intended destination. 28. A router is a networking device whose software and hardware are customized to the tasks of routing and forwarding information. A router has two or more network interfaces, which may be to different physical types of network (such as copper cables, fibre or wireless) or different network standards. Each network interface is a small computer specialized to convert electric signals from one form to another. Routers connect two or more logical subnets, which do not share a common network address. The subnets in the router do not necessarily map oneto- one to the physical interfaces of the router. The term layer 3 switching is used often interchangeably with the term routing . The term switching is generally used to refer to data forwarding between two network devices that share a common network address. 29. In simple words, a router means a device that routes data from one computer to another or from one network to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to another net work connection. A router acts like a coin sorting machine, allowing only authorized machines to connect to other computer systems. Most routers also keep log files about the local network activity. Now the question is whether this machine can be used independent of Computer. If yes, then it cannot be called Computer Hardware in all circumstances. 31.2 When Computer Hardware , is used as a component of the computer, it becomes part and parcel of the computer, as in the case of operating software in the computer. In such a situation, hardware in question can be considered as a part of a computer and hence a 'computer'. Per contra, when the machine is not used as a necessary assessor or in combination with a computer, it cannot be called a 'Computer component'. 31.3 Coming to the Routers, it is seen that these can also be used with a Television and in such use, E0 computer is required. These are also called T.V. routers. Similarly, Internet Service Providers , give connectivity, by installing a router in the premises of the persons !institutions availing the internet connection. In these cases the router is not used along with a computer. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standalone basis, but still then such hardware or software would be termed as a computer . In applying the aforesaid ratio to the facts of the present case, it can be seen that the revenue authorities have not disputed the fact that the items on which the assessee has claimed depreciation at the rate of 60% by treating them as computer are being used as input or output device of the computers. However, the departmental authorities have negatived the claim of the assessee solely on the reasoning that every peripheral device connected to the computer cannot form part of the computer. However, such view of the revenue authorities cannot be the correct proposition of law in view of the ratio laid down by the Hon ble Special Bench in case of DCIT vs. Datacraft India Limited (supra) by holding that any device when they are used along with computer and when their functions are integrated with the computer comes within the ambit of the expression computer . We may further observe that in the assessee s own case for the assessment year 2006-07, Income-tax Appellate Tribunal, Hyderabad Bench while deciding the departmental appeal in ITA Nos. 701/Hyd/2009 and 426/Hyd/10 dated 9-7-2012 als ..... X X X X Extracts X X X X X X X X Extracts X X X X
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