2011 (4) TMI 1380 - AT - Income Tax

Claim of depreciation on LAN WAN ATM etc at 60% as against 25% - HELD THAT - In the present case we are concerned about the depreciation on LAN WAN ATM equipments. During the year under consideration the assessee has purchased certain equipments in the form of LAN WAN ATM etc. apart from computer and other related items. It is not in dispute that LAN WAN ATM equipments cannot be used without the computer. In the light of the view we direct the AO to allow depreciation at the rate of 60% on LAN WAN and ATM equipments. In the result the appeal filed by the Revenue is dismissed.

Summary

Issues Involved:
Appeal against order dated 17.11.2008 of learned CIT(A) for AY 2004-05; Excess depreciation allowed on LAN, WAN, ATM at 60% vs. 25% by AO; Recall of Tribunal's order dated 17.6.2009; COD approval for pursuing appeal on depreciation issue; Interpretation of LAN, WAN, ATM as part of computer system for higher depreciation rate.

Analysis:

1. Recall of Tribunal's Order:
The Revenue's appeal was initially dismissed for lack of COD approval, but upon application under section 254(2) of the Act, the Tribunal recalled its order dated 17.6.2009. The COD approval permitted pursuing the appeal on the issue of excess depreciation on LAN, WAN, ATM at 60%. The Tribunal's subsequent order dated 7.1.2011 recalled the earlier order to the extent of COD approval, allowing the appeal to proceed on the specified issue.

2. Depreciation on LAN, WAN, ATM:
The primary issue in the appeal was the depreciation rate on LAN, WAN, ATM equipment, with the AO allowing 25% and the assessee claiming 60%. The Tribunal considered various precedents, including a decision by the Hon'ble Delhi High Court, which held that computer accessories forming an integral part of the system are entitled to higher depreciation. Applying this principle, the Tribunal found that LAN, WAN, ATM equipment are essential components of a computer system and thus qualify for depreciation at 60%.

3. Nature of LAN, WAN, ATM Equipment:
The Tribunal delved into the nature of LAN, WAN, and ATM equipment to establish their integral role in computer operations. LAN facilitates data sharing among connected computers, WAN extends this network over a larger area, and ATM provides automated banking services. The Tribunal highlighted that these devices are computerized and interconnected, essential for computer functionality, and hence, qualify as part of the computer system for depreciation purposes.

4. Legal Interpretation and Conclusion:
Considering the definition of "computers" under the Information Technology Act, 2000, which includes "computer network," the Tribunal concluded that LAN, WAN, and ATM are integral parts of a computer system. Therefore, directing the AO to allow depreciation at 60% on these equipments, the Tribunal dismissed the Revenue's appeal. The decision was pronounced on 20th April, 2011, based on the understanding of LAN, WAN, and ATM as essential components of a computer system, warranting higher depreciation allowance.