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M/s. Star India Pvt. Ltd. Versus ACIT, Range-11 (1) , Mumbai

Transfer pricing adjustment - selection of comparables - Held that:- FAR analysis of the assessee and the comparables reveal that they are not similar in any of the three fields. Therefore, comparing it with both these companies was not justifiable at all. One more important issue is of non availability of data in the public domain of NDTV for the year under appeal. The assessee had specifically raised this issue before the FAA, but he had not dealt with it. It is not known as to how and from wh .....

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the assessee if he wanted to use it to against it. Collecting information behind the back is permissible but using the same without confronting the assessee is impermissible. The FAA had also missed a very important fact that during the year under appeal NDTV was a pure content producer. Therefore, selection of NDTV, as a comparable in our opinion was not justified. Similarly, he should not have selected CL as a comparable because it was supplying contents to various entities including the asse .....

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licence fee without looking into the merits of the case and the relevant provisions of the Act. In the impugned assessment year the claim of the assessee should have been examined in the light of the report of the Transfer Pricing Officer and the evidences filed by the assessee but the Assessing Officer as well as the CIT(A) have not adjudicated the issue in accordance with law. We, therefore, are of the view that this issue requires fresh adjudication. Since the report of the Transfer Pricing O .....

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he assessee by the decision of the Tribunal for Assessment Year's 1997-98 to 1999-2000 wherein it has been held that such expenditure was incurred wholly and exclusively for the purpose of business and therefore no disallowance could be made in this regard. Since the matter is covered by the earlier decision of the Tribunal in assessee's own case we have refrained ourselves from narrating the necessary facts and details in this regard. Following the decision of the Tribunal for earlier years, th .....

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he assessee only when the invoiced amount was received by the assessee on behalf of principle. Therefore there is no reason to deviate from the earlier order of the Tribunal. Following the said decision of the Tribunal for earlier years, the issue is decided in favour of the assessee by holding that accrual of commission income arose in the year in which the invoiced amount were received by the assessee even under the Mercantile System of accounting

Net commission and net miscellaneou .....

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profession”, ninety per cent. of such quantum of the receipt cannot be deducted under Explanation (baa) to section 80HHC . . that ninety per cent. of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of business of the assessee as computed under the head “Profits and gains of business or profession”, was to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining the profits of the business - Decided in f .....

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- 20-5-2016 - Sh. Rajendra, Accountant Member And C. N. Prasad, Judicial Member For the Revenue: Shri N.K. Chand-CIT For the Assessee : Shri Porus Kaka & Divesh Chawla ORDER Per Rajendra, AM Challenging the order, dtd.12/11/2008, of CIT(A)-XXXII, Mumbai, the assessee and the Assessing Officer (AO) have filed cross appeals for the above mentioned AY. Assessee-company is engaged in the business of producing/ procuring TV programmes and supplying them to overseas media companies. It also acts a .....

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the assessment proceedings, the Assessing Officer(AO)found that assessee had entered into International Transaction(IT) with its Associated Enterprise(AE). He made a reference to the Transfer Pricing Officer (TPO), as per the provisions of section 92 of the Act, to determine the Arm s Length Price (ALP) of the said transaction. The TPO selected following comparables: Comparable companies Operating margins on cost Cinerad Communication Limited 1.47% Cinevistaas Limited 13.63% Creative Eye Limite .....

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crores to the total income of the assessee. 4. Aggrieved by the order of the TPO/AO the assessee preferred an appeal before the First Appellate Authority(FAA). Before him, the assessee argued that during the year under consideration the assessee had procured more than 90% of its contents from external producers, that it was engaged in negligible content creation activity, that it merely procured the contents from third party for supply to its AEs, that the TPO had erred in using the margins of .....

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or the year under consideration were not available in public domain, that the financial statements of NDTV were available were from the next the year, that NDTV had entered into content production agreement with Star and BBC in 1995-96, that in the year 1998 NDTV started its first 24 hour news channel in alliance with Star, that from a content supplier to Star it became a national broadcaster and the owner of its own channels After considering the submission of the assessee and the orders of the .....

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re made to order format and were prepared under the supervision and instruction of the assessee, that the items at (iii), (iv) & (v) were self created programmes, that out of five models of content procurement in four models the assessee acted as creator/producer, that the assessee had claimed almost 90% of their content was procured external producers, that no such party-wise detail of procurement and inhouse production details were furnished during appellate proceedings to substantiate the .....

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t the profit margins of the four comparables, identified by the TPO were in a normal progression of 1.47%, 5.57%, 13.63% and 30.9%, that the margins of any one of them could not be excluded, that none of the comparables had shown unusually high or low figure of profit, that the assessee acted as a content creator, that it had not procured all its contents form NDTV, that it was doing inhouse content production activity also, that assessee had not made a claim that 90% of the content was procured .....

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s contents, that it would sell the content to its AE on a cost +5% markup which further sold the content to the general companies, that the assessee primarily acted as an export trader in respect of content purchased/procured/sourced, that the assessee used TNM and it was the most appropriate method, that it had considered the companies that were engaged in a broad range of export trading activity (Pg.555-56 of the PB), that based on the details search conducted it identified eleven comparables, .....

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ducts were made for the assessee, that he treated the assessee is creator of the product, that as purchaser/procurer it was sourcing 98% of the contents from third parties, that the assessee could not be compared to content producers due to the different Functions, Assets and Risks (FAR) and business models. To demonstrate that the assessee was purchasing/ procuring/sourcing of contents, the AR referred to the agreement entered into with UTV Softwares (UTVS)(Pg.1300-17 of the PB). He further sta .....

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ion that they would edit and deliver the contents to other parties for broadcasting, that all the costs related to production such as actors, equipments, creator personnel were in the books of the content-producers, that assets such as lights camera studios and sets were not utilised by the assessee except for its in-house production, that financials of the assessee did not include any such costs/ assets for the contents purchased/procured/sourced, that NDTV utilised such assets, that two of the .....

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TV for the subject assessment year, that the financial assessments of NDTV available in the public domain are from AY.2004-05 onwards, that NDTV had admitted that it had entered into content reduction agreement with STAR and BBC (Pg.1182 of the PB), that the assessee had furnished the details of programmes procured from the external producers and the inhouse production (page 803 of the PB), that the assessee had filed details of the programs procured from NDTV, CL, Balaji Telefilms, etc. and a c .....

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basis of agreement, that the assessee was deeply involved in creation, that the assessee had picked up comparables that were engaged in marketing, that the TPO had selected comparables from the entertainment industry, that the assessee was not simply procuring programmes, that it was monitoring supervising and creating programmes, that agreement with NDTV and others was for production but the assessee was monitoring the progress. He referred to pages 345-349 and 1300-1354 of the paper book. 6.W .....

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imed that in-house production was very less. We find that the assessee had furnished the details about the programmes procured from the outsiders and the inhouse programmes during the assessments/appellate proceedings. Perusal of pages 544, 588, 803 & 833 clearly establish that the above mentioned details were made available to the departmental authorities. 6.1. First of all we would like to discuss the issue of process of selecting comparables. We find that in the case of Temasek Holding Ad .....

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s provide for selection criterion of comparables, then same has to be adhered to strictly i.e. either parties. If a particular mechanism of such process is to be done scientifically by the assessee then same applies to the TPO also, otherwise it will always create suspicion of cherry picking of the comparables by the parties. There cannot be two different standards under the law one for the assessee and one for the TPO. So far as selection of the comparables by the TPO, nothing has been brought .....

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omain. It was never made available to the assessee. We would discuss this issue at proper place. In short, the process adopted by the assessee with regard to select the comparable was faulty. 6.2. Now we would like discuss two of the comparables selected by the TPO and objected by the assessee. First of all we would refer to the agreement entered into by the assessee with UTVS i.e. the first comparable. The preamble of the agreement reads as under: ….. STAR INDIA is engaged in the busines .....

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nd Essential Elements and same reads as under: UTV agrees to create, compose, film, produce, post-produce, edit and delivers the episodes of the program and delivered to STAR INDIA. We would like to refer to page 1222 of the PB which gives details of assets of NDTV.A perusal of the paper reveal that the items appearing in the balance sheet of NDTV are different from the assets and liabilities of the assesseecompany. We find that Pg.803 of the paper book clearly indicates the name and the content .....

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1203 of the PB, the assessee has mentioned as under: a year in which your company was transformed from being production house that was producing programmes for a channel owned by another organisation, into becoming a national broadcaster and owner of our channels……….. Business review and operations Our primary business change from reduction of television software for other broad - casters to television new broadcasting through our own channel. Page 1222 of the PB, under the .....

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iption is found- Your company s studio at Kanjur Marg is being used extensively for the shooting of various television programmes, feature films and ad commercial for both in house and external producer. From the above one thing is clear that the assessee is not content producer like NDTV or CL. We agree with the argument advance by the assessee that quality control is totally different from manufacturing. If a businessman or trader gets anything produced or manufactured for his business he woul .....

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ntent producer. The job profile of a content producer is totally different from an assessee who purchases programmes from them. Content producers have to hire artists, script writers, and technicians and produce serials or programmes. For that they have to spend a lot for site locations, shootings and have to pay remuneration to the artists and technicians. The profits and loss account and balance sheets of content producers will be totally different from the P&L a/c and B/S of a purchaser o .....

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cifically raised this issue before the FAA, but he had not dealt with it. It is not known as to how and from where the TPO had got the data. He did not reveal the assessee the source of his information thought a specific request was made by it. The non-supply of basic data vitiate the whole TP exercise. As a quasi judicial authority TPO is required to follow the principles of natural justice. The TPO ignored them and the FAA allowed the violation of them. Tax liability cannot be fastened to an a .....

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d not have selected CL as a comparable because it was supplying contents to various entities including the assessee. Thus, there were two basic flaws in the approach of the TPO and the FAA. First to hold that the assessee was a producer of contents and secondly to include NDTV and CL in the list of the comparables. If both these comparables are taken out of the list no TP adjustment will be required. Therefore, reversing the order of the FAA we decide ground no.4 in favour of the assessee. ITA/1 .....

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imself allowed the deduction at the assessment stage while completing assessment for the AY.s2005-06 and 2006-07.The DR left the issue to the discretion of the bench. 8. We find that while adjudicating the appeal for the AY.2002-03 the Tribunal had dealt the issue(ITA/3585&3586/Mum/2006/ dtd.28.05.2008) as under: 15. Having heard the rival submissions and from a careful perusal of records we find that in the impugned assessment yeas though Assessing Officer made a reference to the Transfer P .....

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international transaction shall be determined having regard to the arms length price. From the Assessment Year 2002-03 the Assessing Officer is required to compute the total income of the assessee under subsection (iv) of Section 92C having regard to the arms length price determined under sub-section (iii) by the Transfer Pricing Officer. But the Assessing Officer did not look into the report of the Transfer Pricing Officer and he was carried away with the assessment order for the Assessment Ye .....

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-section (in) by the Transfer Pricing Officer. The CIT(A) also did not take cognizance of the report of the Transfer Pricing Officer and transfer pricing analysis for the licence fee filed before him. It is not the case where the assessee has made a payment of the licence fee without obtaining any approval from the competent authorities. The payment of licence fee was made after obtaining the approval of the Reserve Bank of India and copy Of the approval is placed on record. Reliance was also pl .....

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oubted. It requires proper adjudication in the light of detailed analysis and relevant evidences furnished by the assessee. Whereas the Assessing Officer has disallowed the entire claim of payment of licence fee without looking into the merits of the case and the relevant provisions of the Act. In the impugned assessment year the claim of the assessee should have been examined in the light of the report of the Transfer Pricing Officer and the evidences filed by the assessee but the Assessing Off .....

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e file of the Assessing Officer to readjudicate the issue in terms indicated above. Respectfully following the above we are restoring the issue to the file of the TPO/AO, who would decide the issue after hearing the assessee. First ground of appeal is decided in favour of the AO, in part. 9. Second Ground deals with deductibility of advertisement and publicity expenses. We find that the Tribunal had decided the issue against the AO for the AY.s 1997-98 to 2000-2003, that the Hon ble High Court a .....

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not incurred wholly and exclusively for the purpose of business as provided in section 37 of the Act. On appeal, the learned CIT (A), following his orders for the earlier years, allowed partial relief to the tune of ₹ 6, 33, 97, 222/-. Aggrieved by the same. the assessee as well as Revenue are in appeal before the Tribunal. 70. After hearing both the parties, we find that this issue is covered in favour of the assessee by the decision of the Tribunal for Assessment Year's 1997-98 to 1 .....

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CIT(A) confirming the disallowance is hereby set aside and consequently, the disallowance confirmed by him is hereby deleted. This would dispose of ground no.3 in the appeals of the assessee as well as Revenue. Respectfully, following the above order second ground of appeal is dismissed. 10. Next ground deals with addition made on account of point of accrual of commission income. The AR stated that the Tribunal had decided the issue in favour of the assessee, while deciding the appeal for AY.s. .....

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me (wrongly mentioned as addition of ₹ 23, 64, 41, 347/- in the ground no 2 raised by the assessee). Briefly stated, the facts are that assessee was acting as an agent for booking advertisements on behalf of its principle against which it was entitled to commission. In Assessment Year 1997-98, it was noticed by the Assessing Officer that up to Assessment Year 1996-97, the assessee was offering commission income on the basis of invoice amount billed on the advertisers and the income was dec .....

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nting from Mercantile system to cash system of accounting which was not permissible. It may be noted at this stage that up to Assessment Year 1997-98, the assessee was acting as an agent of Satellite Television Asia Region Advertising Sales B.V. However, in the year under consideration, the assessee was acting as an agent of Star Ltd., Hongkong under the agreement effective from 1.4.1999.The Assessing Officer had noted the relevant clause of the agreement which appears on page 10 of the assessme .....

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nt. Since the assessee had offered the commission income of ₹ 35, 30, 72, 440/-, the addition of ₹ 6, 85, 15, 135/- was made. On appeal, the learned CIT(A) confirmed the addition following his earlier order for the Assessment Year 1997-98 as well as the orders for the Assessment Year's 1998-99 and 1999-2000. Aggrieved by the same, the assessee is in appeal before the Tribunal . 66. After hearing both the parties, we find that the issue arising in the appeal for Assessment Year 19 .....

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rned D.R. has submitted before us that there is a change in the terms and conditions of payment of commission and that the same may be considered. In view of the same it would be appropriate to refer the relevant clauses of the agreement for the benefit of this order. The clause (8) of the agreement dated 31st day of May, 1994, which was considered by the Tribunal in the appeals relating to Assessment Years 1997-98 to 1999-2000 read as under : The agent shall be entitled to retain 15% of the net .....

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he terms of both the agreements that commission income accrued to the assessee only when the invoiced amount was received by the assessee on behalf of principle. Therefore there is no reason to deviate from the earlier order of the Tribunal. Following the said decision of the Tribunal for earlier years, the issue is decided in favour of the assessee by holding that accrual of commission income arose in the year in which the invoiced amount were received by the assessee even under the Mercantile .....

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1 to 2002-03. 49. The next aspect of the issue relating to deduction u/s 80HHF is whether 90% of commission received by the assessee is to be excluded from the profits of business in terms of Explanation (f) to section 80HHF. The Ld. Counsel for assessee has fairly submitted that this issue has already been heard at length by the tribunal, 'B' bench in assessee's own case for A.Y. 2002-03 on 5.2.2008 and therefore, the A.O. may be directed to follow the same. In view of the above req .....

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HC of the Act, ninety per cent. of any receipts by way of brokerage, commission, interest, rent, charges or any other receipt of a similar nature included in any such profits are to be deducted from the profits of the business as computed under the head Profits and gains of business or profession . The expression included any such profits would mean only such receipts by way of brokerage, commission, interest, rent, charges or any other receipt which are included in the profits of the business a .....

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profits of the business. In other words, only ninety per cent. of the net amount of any receipt of the nature mentioned in clause (1) which is actually included in the profits of the assessee is to be deducted from the profits of the assessee for determining profits of the business of the assessee under Explanation (baa) to section 80HHC . Explanation (baa) has to be construed on its own language and as per the plain natural meaning of the words used in it, the words receipts by way of brokerag .....

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an assessee as computed under the head Profits and gains of business or profession , ninety per cent. of such quantum of the receipt cannot be deducted under Explanation (baa) to section 80HHC….….that ninety per cent. of not the gross rent or gross interest but only the net interest or net rent, which had been included in the profits of business of the assessee as computed under the head Profits and gains of business or profession , was to be deducted under clause (1) of Explanati .....

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raphic cards, servers, modems etc. The AO directed the assessee to file justification in this matter. After considering the submission of the assessee, the AO held that there was difference between computer and other devices, that each equipment linked through a dedicated computer net work could not be treated as computer, that as per provisions of law depreciation @60% were allowable on monitor, keyboard, mouse, CPU, UPS etc. After conducting a functionality test the AO held that the server, gr .....

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an appeal before the First Appellate Authority (FAA)and made elaborate submission before him. After considering the submission of the assessee and the assessment order, he held that the issue stood covered in favour of the assessee by the order of the Kolkatta Tribunal delivered in the case of Samiran Majumdar (98ITD 119), that the Tribunal had held that the printer and scanner were an integral part of the computer, that the same were to be treated as computer for the purposes of allowing higher .....

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ani Powers Ltd(ITA 1266 of 2010). 12.3. We have heard the rival submissions and perused the material before us. We find that in case of Datacrafts India Ltd. (supra), the Special Bench of the Mumbai Tribunal and held as under:- 11. We have considered the rival submissions at length in the light of material placed before us and precedents relied upon. The chief question which falls for our adjudication is whether routers and switches are part of computer or not for the purposes of depreciation. S .....

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ese rules on the WDV 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 asst. yr. 2002-03 under consideration, has different blocks of assets. We are concerned with the block of assets of machine and plant. General rate of depreciation provided is 25 per cent against item 1 in respect of machine and plant other than those covered by specific sub-items. Sub-item (2B) is "computers&quo .....

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s for the purposes of allowing depreciation at the higher rate of 60 per cent. Thus, whereas upto asst. yr. 2002-03 only computers were eligible for depreciation at the rate of 60 per cent from asst. yr. 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 asst. yr. 2003-04, defines "computer software" to mean any computer programme recorded on any disc, tape, perforated media or other info .....

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9; has not been defined in the IT Act or IT Rules. We find that the term "computer system" has been defined in Explanation below s. 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 programmes, electronic instructions, input data and output data, tha .....

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ernment 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 cl. (xi) of s. 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 1st day of April, 1999 but before the 1st day of April, 2000, wholly and exclusively in respect of a non-Y2K co .....

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n of 'computer system' for the purposes of granting depreciation under s. 32 of the Act on 'computers'. Recently the Hon'ble Supreme Court, vide its judgment dt. 7th May, 2010, has held in Jt. CIT vs. Saheli Leasing & Industries Ltd. [reported at (2010) 232 CTR (SC) 1 : (2010) 39 DTR (SC) 1'Ed.] that : 'A particular word occurring in one section of the Act, having a particular object cannot carry the same meaning when used in different section of the same Act, whi .....

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#39;computer') in the context of s. 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, s. 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, .....

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ommonly referred to as "electronic commerce", which involves the use of alternatives to paperbased 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 or incidental thereto. The statement of objects and reasons of this Act .....

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"3. There is a need for bringing in suitable amendments in the existing law in our country to facilitate e-commerce. It is, therefore, proposed to provide for legal recognition of electronic records and digital signatures. This will enable the conclusion of contracts and the creation of rights and obligations through the electronic medium. It is also proposed to provide for a regulatory regime to supervise the certifying authorities issuing digital signature certificates. To prevent the pos .....

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uot; 17. Having seen the object of the Information Technology Act, 2000, the question which arises for consideration is that can we import the definition of 'computer', as given in it, in the IT Act, 1961 for the purposes of s. 32 ? It has been held by the Hon'ble Supreme Court in CIT vs. Venkateswara Hatcheries (P) Ltd. Etc. (1999) 153 CTR (SC) 105 : (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 .....

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C) 513 : (2009) 32 DTR (SC) 161 : (2010) 320 ITR 79 (SC). 18. From the aforestated 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 IT Act, as can be seen from its preamble, which is 'an Act to consolidate and amend the law relating to income-tax and supertax'. Thus it is palpable that both these Acts are not in pari materia. There is significant dif .....

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ven in the Information Technology Act, 2000 are nothing but common parlance definition which can be of some use in the definition of a computer. Thus in our considered view, aid can be taken of the definition of the term 'computer' given in Information Technology Act, 2000. 19. 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 f .....

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on. We may refer to several case law to analyse as to which formula would aptly suit the situation in the given case. 20. In Indian Hotels Co. Ltd. & Ors. vs. ITO & Ors. (2000) 162 CTR (SC) 31 : (2000) 245 ITR 538 (SC), the issue was about the granting of deduction under s. 80J to an industrial undertaking. It was noticed that s. 80J provides for grant of deduction to an assessee who derives income from an industrial undertaking or a ship or the business of a hotel to which the section a .....

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uot;. 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) 170 CTR (SC) 68 : (2001) 251 ITR 323 (SC), their .....

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as meaning the production of articles for use from raw or prepared materials by giving such materials new forms, qualities or combinations whether by hand labour or machines. If the change made in the article results in a new and different article then it would amount to manufacturing activity." 22. Similar view has been taken by the Hon'ble Supreme Court in Mangulu Sahu Ramahari Sahu vs. STO 1974 CTR (SC) 14 by holding that in the absence of specific definition, the meaning as underst .....

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s') and includes all input and output devices which are connected to or related to it. Para 24 of the assessment order indicates that the AO was also of the opinion that the meaning of the word "computer", as understood in the common parlance is 'an electronic device for storing and processing data and making, calculating and controlling machine which also includes input device like keyboards or mouse and the output devices like the printer or monitor'. 24. We would like to .....

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alia, involve one form or the other of computer functions. Simply because some 'computer functions' are involved in these equipments or the assistance of computers is taken as such at one stage or the other in their operation, these will not become computer. The meaning of computer cannot be extended to another machine that operates with the assistance of computer. Conversely an item, which is an integral part of the computer, cannot be defined by its operations which it is capable of pe .....

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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 necessari .....

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that the principal output/object/function of such machine should be achievable only through 'computer functions'. 26. Having analysed the meaning of 'computer' in common parlance, let us proceed to ascertain the concept, meaning and functions of 'router'. Again we find that the term 'router' has not been defined in the IT Act, 1961. Accordingly it also needs to be assigned the meaning as it is understood in common parlance. The learned Departmental Representative .....

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ets, meaning that they work at the level of the IP protocol. Every router keeps information about its neighbours (other routers in the same or other networks). When a packet of data arrives at a router, its header information is scrutinized by the router. Based on the destination and source IP addresses of the packet, the router decides which neighbour it will forward it to. 27. The assessee vide its letter dt. 21st Feb., 2005, addressed to the AO, submitted a note on use of routers/switches by .....

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work 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 one-to-one to the physical interfaces of the router. The term "layer 3 switching" is used often in .....

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ive 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 storage. Switches are shorter version of routers, which perform similar functions as that of routers .....

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, but it does not selectively interchange packets of data between places. The difference between a "cable" and a "router" is that in a "router" data is "routed" as per the specification. Thus a "router" may not by itself be called a computer. 31. Now we have to consider whether a 'router' can be considered as "computer hardware" or a "computer component". Computer hardware refers to the physical parts of a computer and .....

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ters. Because software runs on computer hardware, software programs often have 'system requirements', that list the minimum hardware required for the software to run. 31.1 In short, "router" is a hardware device that routes data (hence the name) from a local area network (LAN) to another network 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 a .....

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achine is not used as a necessary assessory 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 TV 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 .....

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are, resides in a computer, then it becomes a part and parcel of a computer and, as an long as it is an integral part of a computer, it is classified as a 'computer'. 31.4 In view of the above discussion, we are of the considered view that router and switches can be classified as a computer hardware when they are used along with a computer and when their functions are integrated with a 'computer'. In other words, when a device is used as part of the computer in its functions, the .....

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icable to computers. The Bench noticed that the printer and scanner cannot be used without computer. It was on this appreciation of the factual position that the printer and scanners were held to be part of computer qualifying for depreciation at the rate applicable to computer. In the opposition the orders taking view in favour of the Revenue are led by the case of Routermania Technologies (supra). In this case it was observed that the router is a device which links or connects the computers fo .....

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on this issue, by holding that only a device which can perform logical, arithmetical or memory functions by manipulations of electronic impulses etc. is computer. It has restricted the meaning of computer only to the CPU of the computer and pulled out the input and output devices from the ambit of computer. 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 tha .....

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