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TMI Blog2010 (7) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... der the head "Computers". On the perusal of the statement annexed to the return of income, the Assessing Officer found that the it had included Routers and Switches etc. in the block of computers. The assessee was called upon to explain the use of Routers and Switches. A detailed note vide letter dated 21-2-2005 was submitted by the assessee about the functioning of Routers and Switches wherein it was explained that message from one computer is received by another computer through Routers because these are the crucial devices that let messages flow between networks, rather than within networks. Router has two separate but related jobs, viz., (i) it ensures that information does not go where it is not needed; and (ii) it makes sure that information does make it to the intended destination. Switches and Routers take signals from computers or networks to pass on to other computers and networks. It was further stated that the Routers are specialized equipments used for connecting and networking of the branch offices whereas the Switches have the same use in internal networking of an office. 3. The Assessing Officer did not accept the assessee's viewpoint of including the Routers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing upon the definition of the expression "Computers", as given in the Oxford Dictionary, he submitted that the function of a computer is to perform the logic, arithmetic, data storage, retrievable, communication and control functions. Since none of these functions could be performed by routers, it was stated that Routers could not be included in the block of `Computer', as the function of the former was only to transmit data from source to destination and there was no data processing involved in that. He stated that if one goes to market for purchasing a computer, no shopkeeper will supply router along with CPU, monitor, keyboard and mouse etc., which items are integral part of computer. In support of his contention that the assessee was not entitled to depreciation on Routers at the rate applicable to the Computers, he relied on the order passed by the Mumbai Bench of the Tribunal in Routermania Technologies (P.) Ltd. Vs. ITO [(2007) 16 SOT 384 (Mum.)]. It was pointed out that in certain cases, deciding the controversy in favour of assessee, the benches have adopted the definition of `computer' contained in the Information Technology Act, 2000 as also that provided in Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.1534/Del/2008 datad 13.4.2009 ITAT, Delhi Bench. (iv) ITO Vs. M/s.Nirmal Datacom Leasing P.Ltd. ITA No.9392/Mum/2004 datad 3.5.2007 ITAT, Mumbai Bench. (v) ITO Vs. M/s.Key Note Capital P. Ltd. ITA No.7049/Mum/2004 datad 22.11.2007 ITAT, Mumbai Bench. (vi) Expeditors International (India) Pvt. Ltd. Vs. Addl.CIT ITA No.4364(Del)/2006 datad 19.07.2007 ITAT, Delhi Bench. (vii) Poonawala Finvest & Agro (P) Ltd. Vs. ACIT [(2008) 118 TTJ (Pune) 68] 9. Deriving support from the reasoning and the ratio decidendi of these orders, it was argued that routers and switches have been rightly held to be eligible for higher rate of depreciation as applicable to the Computers. 10. The next proposition of the ld. AR was that since Routers and Switches are attached to the main computer, they become an integral part of the computer. To buttress this submission, he relied upon the judgment in the case of Gujco Carriers Vs. CIT [(2002) 256 ITR 50 (Guj.)] wherein it was held that a crane mounted on truck becomes a truck crane and is eligible for depreciation at the rate applicable to motor lorry. He also referred to the judgment of the Hon'ble Madras High Court in CIT Vs. Engine Valves Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose covered by specific sub-items, is 25%. Sub-item 5 is "Computers including computer software" on which rate of depreciation has been prescribed as 60%. It is only with effect from assessment year 2003-2004 that computer software has also been included in the category of computers for the purposes of allowing depreciation at the higher rate of 60%. Thus, whereas up to assessment year 2002- 2003 only computers were eligible for depreciation at the rate of 60% from assessment year 2003-2004, the benefit of such enhanced depreciation rate has been extended also to computer software. Note No. 7 to the Appendix I, as applicable from A.Y. 2003-04, defines "Computer software" to mean any computer program recorded on any disc, tape, perforated media or other information storage device'. No definition of 'Computers' has been given in the Appendix, unlike that of Computer Software. It is nobody's case that the routers or switches are computer software. Thus we shall restrict ourselves in understanding the meaning of the expression 'Computers', in the facts and circumstances of the case. 12. Section 32, which grants depreciation allowance, does not define the word 'Computer'. It is an admi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aning when used in different Section of the same Act, which is enacted for different object. In other words, one word occurring in different Sections of the Act can have different meaning, if the object of the two Sections are different and when both operate in different fields'. In view of the fact that the object of section 36(1)(xi) is quite distinct from that of section 32, we are of the considered opinion that the definition of the term 'computer system' given in the Explanation to section 36 (1) (xi) cannot be applied as such (for giving meaning to 'computer') in the context of section 32. 15. In some of the cases decided by the Tribunal, reliance has been placed on the definition of "computer" given by the Information Technology Act, 2000, section 2 (i), which is as under :- "(i) "computer" means any electronic, magnetic, optical or other high speed data processing device or system which performs logical, arithmetic and memory functions by manipulations of electronic, magnetic or optical impulses, and includes all input, output, processing, storage, computer software or communication facilities which are connected or related to the computer in a computer system or computer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2000, the question which arises for consideration is that can we import the definition of 'computer', as given in it, in the Income Tax Act, 1961 for the purposes of section 32 ? It has been held by the Hon'ble Supreme Court in CIT vs. Venkateswara Hatcheries (1999) 237 ITR 174 (SC) that the meaning assigned to a particular word in a particular statute cannot be imported to a word used in a different statute. Similar view has been expressed by the Hon'ble Rajasthan High Court in Arihant Tiles & Marbles (P) Ltd. vs. ITO (2007) 295 ITR 148 (Raj.) holding that the interpretation of any expression used in the context of one statute is not be automatically imported while interpreting similar expression in another statute. This judgment has been approved by the Hon'ble Supreme Court in ITO vs. Arihant Tiles & Marbles (P) Ltd. (2010) 320 ITR 79 (SC). 18. From the afore stated portion of the Statement of objects and reasons and the preamble of the Act, it is evident that the rationale behind the Information Technology Act, 2000 is quite distinct from that of the Income-tax Act, as can be seen from its preamble, which is 'An Act to consolidate and amend the law relating to income-tax and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to whether the assessee has derived profits and gains from an "industrial undertaking" or from the "business of a hotel". After discussing the issue threadbare, it was held that : 'Industrial undertaking is not given any meaning under the Act, hence it is to be understood as per common parlance language. Taking into this account, apparently, the business of the assessee is that of a hotel, which is a trading activity and not that of an industrial undertaking.' Resultantly the benefit of deduction was denied. 21. In Aspinwall & Co. Ltd. vs. CIT (2001) 251 ITR 323 (SC), their Lordships were concerned with the question of granting investment allowance, for which one of the pre-requisite conditions as per section 32A was that the industrial undertaking should be engaged inter alia in the manufacturing. It was noticed that the word "manufacture" was not defined in the Income-tax Act. In such circumstances it was held that : 'In the absence of a definition, the word "manufacture" has to be given a meaning as is understood in common parlance. It is to be understood as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal items in general but cost of a wire, integrally connected to television, may be added to cost of TV whereas a wire and plug attached to the computer system has to be treated as computer. 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 networks such as Dish TV, Tata Sky etc. But TV does not become computer for the reason that its principal function cannot be done only with the aid of 'computer functions' notwithstanding the fact that in the entire process of networking or receiving the output from different channels and making it available to the viewers, some sort of computer functions are necessarily involved. Similarly take the case of mobile phone. Its principal task is to receive and send calls. It is not a standalone apparatus which can operate without the relevant network, such as Airtel, BSNL, Reliance. It, therefore, follows that any machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter 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 one-to-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 another. Routers provide connectivity inside enterprises, between enterprises and the internet, and inside internet providers. From the above discussion it transpires that the function of a router is to receive the data from one computer and make it available to another computer for viewing or further processing. Apart from facilitating the flow of data between two computers, the routers also help in the transfer of data from network to computer. Thus the essential function of the router in a commercial organization is to facilitate the flow of data from one computer to another for its processing or st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra, when the machine is not used as a necessary accessory 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, no 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. In such a situation, it would be a "Stand alone" equipment. In such cases this cannot be considered a component of a computer or computer Hardware. Giving another example, a computer software can be used in many devices including washing machine, televisions, telephone equipment etc. When such software is used in those devices, it integrates with that particular devices. The predominant function of the device determines its classification. Only if the Computer software, resides in a computer, then it become a part and parcel of a computer and, as long as it is as integral part of a computer, it is classified as a 'Computer'. 31.4. In view of the above discussion, we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd outflow of the output are also part of computer. CPU alone, in our opinion, cannot be considered as synonymous to the expression 'Computer'. The function of CPU is akin to the brain playing a pivotal role in the conduct of the body. As we do not call the brain alone as the body, similarly the CPU alone cannot be described as computer. Thus the computer has to necessarily include the input and output devices within its scope, subject to their exclusive user with the computer, as discussed above. If we constrict the definition of computer only to processing unit, as has been held in the case of Routermania (supra), then even the keyboard and mouse etc. will not qualify to be called as computer because these equipments also do not perform logical, arithmetical or memory functions. In the light of the meaning of 'computer' discussed in earlier paras, we are inclined to agree with the view taken by the Kolkata Bench in Samiran Majumdar (supra). 34. We therefore answer the question referred to this Special Bench in affirmative by holding that the routers and switches in the circumstances of the case, are to be included in the block of 'Computer' entitled to depreciation at the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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