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2016 (2) TMI 421 - ITAT MUMBAI

2016 (2) TMI 421 - ITAT MUMBAI - TMI - Depreciation on routers and switches - at the rate of 15% OR 60% - Held that:- No doubt the function of the computer, as one composite unit, is to perform logical, arithmetical or memory functions etc., but it is not only the equipment which performs such functions that can be called as computer; All the input and output devices, as discussed which support in the receipt of input and outflow of the output are also part of computer.

CPU alone, can .....

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s been held in the case of Routermania Technologies (P.) Ltd. (2007 (4) TMI 389 - ITAT MUMBAI ), 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's case (2005 (8) TMI 293 - ITAT CALCUTTA-B ). Therefore, hold that the routers .....

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ion at the rate of 60% and holding that the assessee is eligible for depreciation at the rate of 15% on routers and switches etc. ignoring the decision in DCIT vs Datacraft India Ltd. (2010) 40 SOT 295 (Mumbai)(SB) and the case of M/s UAE exchange and financial services ltd. (ITA No.91/Bang/2014) order dated 10/10/2014 and further disallowance of payment of ₹ 4,88,052/- towards purchase and freight charges as per report in form no.3CEB u/s 92E of the Act, broadly on the ground that such gr .....

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gned order. 2.1. I have considered the submissions of ld. DR and perused the material available on record. So far as, allowing the depreciation at the rate of 15% in place of 60%, claimed by the assessee, on routers and switches are concerned, as per ground no.3 of the assessee, reliance has been placed upon the decision of Special Bench of the Tribunal in the case of DCIT vs Datacraft India Ltd., which has been followed by the Bangalore Bench of the Tribunal in the case of M/s UAE Exchange and .....

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ystems, containing certain accessories. Without these accessories, as per the assessee, internet connection through computer cannot be provided to the client. The crux of the claim is that these accessories form part of computers, therefore, eligible for depreciation at the rate of 60%. However, the ld. Assessing Officer was of the view that these accessories, instruments were not part of computers accordingly he allowed depreciation at the rate of 15%, therefore, the remaining claimed/excess de .....

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tle India Ltd. vs DCIT (111 TTJ 498) disallowed the claim of the assessee. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, I have considered the rival submissions at length in the light of material placed before me and precedents relied upon. The chief question which falls for my adjudication/con .....

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of any block of asset shall be calculated at the percentages specified in the second column of the Table in the Appendix I of these Rules on the written down value of such block of asset as are used for the purpose of business or profession of the assessee at any time during the previous year. Appendix-I, as applicable to assessment year 2002-03 under consideration, has different blocks of assets. I am concerned with the block of assets of machine and plant or whether such items are integral par .....

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e category of computers for the purposes of allowing depreciation at the higher rate of 60 per cent. Thus, whereas up to assessment year 2002-03 only computers were eligible for depreciation at the rate of 60 per cent from assessment year 2003-04, the benefit of such enhanced depreciation rate has been extended also to computer software. Note No. 7 to the Appendix I, as applicable from assessment year 2003-04, defines "Computer software" to mean any computer program recorded on any dis .....

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position that the word 'Computer' has not been defined in the Income-tax Act or Income-tax Rules. I find that the term "Computer system" has been defined in Explanation below section 36(1)(xi) as follows :- "(a)"Computer system" means a device or collection of devices including input and output support device and excluding calculators which are not programmable and capable of being used in conjunction with external files, or more of which contain computer program .....

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he Finance Minister in 1999 (236 ITR (St.) 26) it can be seen that the Government assisted business sector in overcoming the Y2K problem by proposing that the expenditure incurred in making the computer system Y2K compliant, be allowed as revenue expenditure. It was with this intention that clause (xi) of section 36(1) was inserted which is relevant only for financial year 1999-2000 providing for deduction of any expenditure incurred by the assessee on or before the 1-4-1999 but before the first .....

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6(1), which has force only for one year. As such I am not inclined to adopt this definition of 'computer system' for the purposes of granting depreciation under section 32 of the Act on 'computers'. The Hon'ble Supreme Court, vide its judgment dated 7-5-2010, has held in Jt. CIT v. Saheli Leasing & Industries Ltd. [2010] 191 Taxman 165 that : 'A particular word occurring in one section of the Act, having a particular object cannot carry the same meaning when used in d .....

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cannot be applied as such (for giving meaning to 'computer') in the context of section 32. 2.6. 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 el .....

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ronic data interchange and other means of electronic communication, commonly referred to as "electronic commerce", which involves the use of alternatives to paper-based methods of communication and storage of information, to facilitate electronic filing of documents with the Government agencies and further to amend the Indian Penal Code, the Indian Evidence Act, 1872, the Bankers' Books Evidence Act, 1891 and the Reserve Bank of India Act, 1934 and for matters connected therewith o .....

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nformation Technology Act, 2000, the question which arises for consideration is that can I 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 v. Venkateswara Hatcheries (P.) Ltd. [1999] 237 ITR 174 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' .....

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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 super tax'. Thus it is palpable that both these Acts are not in pari materia. There is significant difference in the scope, purpose and substance of these two statutes. Ex consequenti the definition of 'computer' as given in the Information Technology Act, 2000, cannot be applied in the context of section 32 of the Inco .....

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term 'computer' given in Information Technology Act, 2000. 2.10. As per the General Clauses Act, 1897, if a particular word is not defined in the Central statute then meaning given to such expression under General Clauses Act may be considered for guidance and adoption in the former enactment. However, it is noticed that the word 'Computer' has not been defined therein. Under such circumstances meaning of an expression has to be understood by applying the principles of statutory .....

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TD 119(Kol.); (ii)Container Corpn. of India Ltd. v. Asstt. CIT [2009] 30 SOT 284(Delhi); (iii)Asstt. CIT v. Cincom System India (P.) Ltd. [IT Appeal No. 1534 Delhi of 2008, dated 13-4-2009]; (iv)ITO v. Nirmal Datacom Leasing (P.) Ltd. [IT Appeal No. 9392 (Mum.) of 2004, dated 3-5-2007]; (v)ITO v. Key Note Capital (P.) Ltd. [IT Appeal No. 7049 (Mum.) of 2004, dated 22-11-2007]; (vi)Expeditors International (India) (P.) Ltd. v. Addl. CIT [IT Appeal No. 4364 (Delhi) of 2006, dated 19-7-2007]; (vii) .....

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siness of any hotel if the conditions prescribed under subsections (4), (5) and (6) respectively, are satisfied. It was noticed that the words 'industrial undertaking' have not been defined in the Act. In this background of facts, the Hon'ble Court posed the question to itself 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 : Industr .....

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rerequisite 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 g .....

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enunciated in the above judgments, it is crystal clear that where a word has not been defined in the Act, it is desirable to comprehend its meaning as is understood in its natural sense. 2.14. A computer, in common sense and as popularly understood, refers to any electronic or other high speed data processing device which performs 'logical, arithmetic and memory functions on data' (hereinafter called the 'computer functions') and includes all input and output devices which are c .....

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not be extended to a device or set of devices which are meant to perform some independent function(s) even though in achieving such desired independent function(s), some sort of 'computer functions' are also involved. Today is an electronic age. Most of the products used by us involve some sort of mechanism, which may be loosely called as computer functions. Take the instance of Television set, Mobile phone and cars etc., all of which, inter alia, involve one form or the other of compute .....

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l 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. 2.16. 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, I take the case of a Television, the principal task of which is to deliver visuals ac .....

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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 or equipment cannot be described as computer, if its principal output or function is the result of some sort of 'computer functions' in conjunction with some non-computer functions. In order to be called as computer, it is sine qua non that the principal output/object/function of such mac .....

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outer. Based on the destination and source IP addresses of the packet, the router decides which neighbour it will forward it to. 2.18. So far as, use of routers/switches is concerned, the routers are crucial device that let the messages flow from one computer to another. 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. 2.19. A router is a netwo .....

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uter 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. 2.20. 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 ent .....

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uter to another for its processing or storage. Switches are shorter version of routers, which perform similar functions as that of routers but within a limited sphere. 2.21. On functioning of a 'Router' I find that there is no dispute on the fact that a "Router" does not perform any logical, arithmetic and intermediary functions on data nor it manipulates or processes data, the way a computer would do. A "Router" does not have a "CPU". It only enables transm .....

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ered as "computer hardware" or a "computer component". Computer hardware refers to the physical parts of a computer and related devices. Internal hardware devices include motherboards, hard drives, and RAM. External hardware devices include monitors, keyboards, mouse, printers, and scanners. The internal hardware parts of a computer are often referred to as 'components', while external hardware devices are usually called 'peripherals'. Together, they all fall .....

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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. 2.24. 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 compute .....

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by installing a router in the premises of the persons/institutions availing the internet connection. 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 an .....

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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 I 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 I construct the definition of computer only to processing unit, as has been .....

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