TMI Blog2019 (7) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee was capital in nature and it cannot be said that it is revenue expenditure. Accordingly, the assessee is entitled for depreciation on the same. As per TRAI regulations dated 01.04.2015, the depreciation on the price of customer premises equipment (which included Set Top Box and remote control for Set Top Box) shall be calculated using straight line method at the rate not exceeding 1.7% for every completed calendar month or part thereof. Therefore, the rate of depreciation at the rate of 15% allowed by the AO treating the same as Plant and Machinery is in tune with TRAI regulations. Set Top Box is a device connected to a TV and which allows a subscriber to receive in unencrypted and descrambled form subscribed channels through an addressable system and unless assessee proves that STB s comes within Rule 8(ix)(E)(k), it cannot claim higher depreciation of 80%. We uphold the order of the lower authorities and direct the AO to allow depreciation on STB at 15% only. - Decided in favour of revenue. - ITA No.271/Coch/2018 And CO No.55/Coch/2018 - - - Dated:- 30-4-2019 - Shri Chandra Poojari, AM And Shri George George K, JM For The Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt claiming depreciation on STB at the rate of 80% in place of 100% claimed in the return of income. The relevant findings of the Assessing Officer in granting depreciation at 15% on STB and making disallowance of ₹ 30,65,10,789 reads as follows:- 26. The depreciation so claimed requires to be disallowed as no capital expenditure is incurred for the asset and the cost of the set top box is deemed to have been collected along with installation charges since admittedly the cost of STB s is negligible. It is claimed by the assessee's A.R that the charges so collected are installation charges and 100% depreciation is claimed on set top boxes since the assessee is not having control over the same after handing over the possession to the customer. The assessee's A.R admits that physical possession of the set top boxes is handed over to the customer, charges for the STB s are collected from the customers in the name of installation charges, the cost factor of set top box is admittedly negligible, and Set top box has no resale value in the market. Therefore, expenditure is revenue in nature. Hence there is no necessity to claim, capital expenditure and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pposed to be well aware of the rate of depreciation of various block of assets specified under section 32 including building when the rate of depreciation on building is only 10% and not 100%. The equipments like STB can be considered, if at all admissible for depreciation, to be @ 15% under the Plant Machinery and not @ 100%. In this view of the matter, if at all depreciation can be treated as admissible, it shall not exceed 15%. As discussed above, though the assessee is not entitled for any depreciation on STB in the absence of supporting evidence, taking a lenient view in favour of the assessee, I am allowing depreciation on the set top boxes @ 15% admissible to Plant Machinery as against 100% claimed in the form 3CD under building . The balance claim stands disallowed. The allowance of depreciation @ 15% is worked out as under: Cost of Set Top Boxes purchased upto 17/09/2013 ₹ 173182050 Cost of Set Top Boxes purchased from 01/10/13 to 31/03/2014 ₹ 37,46,42,746 15% of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer has treated the said Set top Boxes as Capital Asset owned by the appellant. The treatment so given by AO is clearly at variance with the conclusions held by him in para 27 of the order. 7.9 Coming to merits of the case I have perused the Customer Registration Form. As per the Terms and Conditions of the said document the said boxes are the property of KCCL i.e. the appellant. These boxes are to be used by customer himself and at the address given in the Registration Form. Further, the customer is not allowed to alter the STB and in case of any loss or damage to STB, customer is liable to make up the loss. Further, on termination of agreement the customer is required to return the STB to the appellant company. These terms clearly indicate that the Set Top Boxes is the property of the appellant company. I also find force in the contention of appellant that if these Set top boxes are not treated as assets of the appellant company but the property of the customer then the entire cost of these set top boxes which are sold during the year is allowable as revenue expenditure. Therefore on overall reading of the agreement between appellant and its customers and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rol and data acquisition systems, energy management systems and distribution management systems for power transmission systems . The Set Top Box is not coming under any of the categories mentioned above. Hence depreciation on the same is applicable at the rate of 15% only. As per TRAI regulations dated 01.04.2015 the depreciation on the price of customer premises equipment (which included Set Top Box and remote control for Set Top Box) shall be calculated using straight line method at the rate not exceeding 1.7% for every completed calendar month or part thereof. Thus the rate of depreciation at the rate of 15% allowed by Assessing Officer treating the same as Plant and Machinery is as per the provisions of the Act and in tune with TRAI regulations. Depreciation claimed by the assessee under Rule 8(ix)(E)(k) is not applicable to Set Top Box, a device connected to a TV and which allows a subscriber to receive in unencrypted and descrambled form subscribed channels through an addressable system. 4. For these and other grounds that may be urged at the time of hearing, the order of the CIT(A) may be set aside and that of the Assessing Officer be rest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ime of hearing. 6. The learned Departmental Representative strongly relied on the assessment order and the grounds raised. 6.1 The learned AR, on the other hand, had filed written submission and also a paper book enclosing balance sheet for the year ending 31.03.2014, ledger account of SET TOP BOX, bill issued for activation charges etc. The Ld. AR submitted that the assessee is entitled for higher rate of depreciation as it is a capital expenditure for the following reasons:- 1. Claim for Depreciation at 80%-Depreciation. 32. (1) In respect of depreciation of- ( i) buildings, machinery, plant or furniture, being tangible assets; ( ii) know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets acquired on or after the 1st day of April, 1998, owned, wholly or partly, by the assessee and used for the purposes of the business or profession, the following deductions shall be allowed- ( i) in the case of assets of an undertaking engaged in generation or generati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied into three categories - audio data, video data and textual data. Whatever the type of data, data of all kinds are basically lifeless and, therefore, lack spontaneous movement of its own. To cause transfer/movement of such data from one place to another, some specific carrier (energy) is indispensably required. Without such carrier, the data cannot even be imagined to move an inch forward, let alone at the speed of light, such data carrier energy is the artificially created light energy (ACLE) which is acting as the sole driving force behind every type of data transfer in communications. ACLE is possessable in the same sense as the electrical energy, as the customers can use it any time they want the data to any destination, according to his choice of customers. The fact that the network consists of mainly computers, fibres, boosters and set top boxes as a whole. The light carrier/ACLE works very much as electrical energy . In simple terms, electrical energy is a flow of electrons while ACLE is a flow of protons . They operate in a very similar way, but with different and distinct properties, utilities and fields of application. Therefore, if flow of electrons is energy , t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8) (ix) Energy saving devices, being- B. Instrumentation and monitoring system for monitoring energy flows: ( c) Micro-processor based control systems A White paper by BROADCOMM, which is a international technology leader in this field (manufacturer and supplier of 1C chipset for Set top boxes). As these devices are not manufacture of India, the same are imported from China, the suppliers from China use 1C chipsets from across the globe (like Broadcomm, Motorola etc. among several others) , this white paper details the superior advantage and benefits of digital technology based on 1C chipsets as compared to older analog RF tuners, are self explanatory, needs no further recourse. In page-2, para-2 , Since analog tuners consume the largest amount power in the RF front end, the overall system power increases and the footprint for four RF tuners account for considerable board size and increased costs. And in page-4 , para-4, gives the real benefits of use of DIGITAL devices using modem technology- with the removal of the power-hungry analog cable tuners, overall system power is reduced enabling small, at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnals and channels viewed/accessed and duration of each of these. STB is a 2-way communicating unit at the customer end connected to the transmission and distribution system of the assessee company. 6.9.2 The Ld. AR relied on the order of the Tribunal in the case of Ushodaya Enterprises Ltd. vs. ACIT in ITA No.1241/Hyd/2008 dated 31/10/2013 wherein it was held that various items like Editing equipments, charter generators and v. Sat equipments i.e., DVC transfer recorder, player, satellite receivers, encoders, vidilink transmit and receivers and fibre optic link work etc. are part of computer and eligible for higher depreciation at 60%. He also relied on the decision of the Tribunal in the case of Pankaj Almadi vs. DCIT in ITA No. 6883/Del/2015 dated 28/08/2017 and DCIT vs. Datacraft India Ltd., ITAT Mumbai. 6.9.3 He also submitted that the statutory compliance cost should be allowed as revenue expenditure. It was submitted that this cost towards set top boxes were necessitated by legal compulsion for the replacement of existing analog to digital set top boxes to fulfil the requirement of cable television Digitisation policy of the government of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Services in ITA No. 1318/Kol/2015 dated 6th December, 2017 wherein it was held that cost towards necessitated by technological up gradation due to compulsion for the replacement technology of existing Analog to digital to fulfill the requirement of cable television digitalisation policy of the government of India, so this is a technological up gradation so this capital expenditure should be treated as a revenue expenditure 6.9.6 He relied on the following case laws: 1. DCIT v. McLeod Russel India Ltd (2013) (24 lTR(Trib)262) (Kol) 2. Amway India Enterprises vs.Deputy CIT (2008) (301 ITR(AT)(Delhi) 3.CIT v Janakiram Mills Ltd (2005) (275 ITR 403) (Mad) 4.CIT V Sundram Clayton Ltd (2010) (321 ITR 69) (Mad) 5.DCIT v Lasik Centre (India) P Ltd (2013) (22 ITR (Trib)462) Chennai 6.9.7 The Ld. AR further relied on the judgment of the Supreme Court in the case of CIT vs. Vegetable Products Ltd. [(1972) (88 ITR 192) wherein it was held that if two reasonable constructions of a taxing provisions are possible, that construction which favours the assessee must be adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ost of the set top boxes from the customers in the name of installation charges apart from monthly charges of subscription for the connections and also annual service maintenance contract charges on each of the set top box installed. The Assessing Officer noted that the assessee did not produce sale bill or invoices showing installation charges of subscription for the connections and also annual service maintenance even after repeated requests and that the physical possession of set top boxes were handed over to the customers at the time of its installation and therefore installation charges collected included cost of set top boxes as per copy of bills produced in the case of Asianet Satellite Communication Ltd. The Assessing Officer observed that when the cost of STB was collected from the customers on its first installation, possession of the instrument stands handed over to the customers at the time of installation and subscription charges and annual maintenance charges are also collected, the claim of the assessee of having ownership over the same for that matter, the claim of depreciation @ 100% on the set top boxes is not justified. This was disallowed by the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... since the assessee has collected the cost of STBs and possession of the same has already been handed over. In view of these facts, there is no asset in the possession of the assessee and the assessee is not eligible to claim any depreciation on an item the cost of which has already been collected in the name of installation charges . 7.2 However the Assessing Officer allowed 15% depreciation by observing as follows: 28. Even if the claim of assessee for depreciation on STB is treated to be admissible, it cannot at any rate be admissible at 100% or 80% as claimed in Form 3CD treating it as building . The assessee also claims that Form 3CD is generated online and in the depreciation blocks there is no item specified 100% other than head building , it was an accidental omission. The argument of the assessee s AR is not true and correct and not acceptable. Being a responsible chartered accountant who is supposed to certify correctness of entries in the statutory form 3CD, the assessee s AR is supposed to be well aware of the rate of depreciation of various block of assets specified under section 32 including building when the rate of deprecia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also relevant in deciding the issue. iii).If the expenditure is related to the carrying on or conduct of the business or is intrinsically connected with the running of a business the expenditure is to be regarded as revenue expenditure even though the advantage may endure for some indefinite future. iv. A payment made with a view to obtain the benefit of technical assistance for running the assessee's business more efficiently so as to earn more profits and 'not by way of transfer of fruits of research once and for all', can be treated as an item of revenue expenditure v. Expenditure incurred in connection with the profit earning apparatus would be revenue expenditure. vi. Where the advantage is on the capital field the expenditure would be treated a capital Expenditure. If the advantage leaves the fixed capital untouched, the expenditure would be on revenue account. vii. Expenditure in the acquisition of a concern would be capital expenditure; expenditure in carrying on the concern would be revenue expenditure. xi. If the amount spent was for the purpose of brin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in the return of income had claimed depreciation at the rate of 100% on STB s. The STB s were purchased on different dates during the relevant assessment year 2014-2015. The total depreciation claimed was ₹ 36,13,86,286/- taking into account the period they were put to use. Depreciation at the rate of 100% was claimed for more than 180 days amounting to ₹ 17,47,76,077 and 50% on remaining items purchased from 01.10.2013 to 31.03.2014. The assessee was not able to point out the basis on which 100% depreciation was claimed on these STB s. In the course of assessment proceedings, the assessee furnished revised depreciation statement claiming depreciation at 80% in lieu of 100% already claimed in the return of income. In paragraphs 26 and 27 of the assessment order, the Assessing Officer was of the view that the depreciation claimed cannot be allowed to the assessee since the assessee had collected cost of STB s and the possession of the same was already handed over to its customers. However, the A.O. contradicted his earlier position mentioned in paragraphs 26 and 27 of the assessment order and in paragraph 28 concluded that the assessee was entitled to depreciat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Owned, wholly or partly, by the assessee and used for the purpose of the business or profession, the following deductions shall be allowed ( i) in the case of assets of an undertaking engaged in generation or generation and distribution of power, such percentage on the actual cost thereof to the assessee as may be prescribed (see rule 5(1A) and Appendix IA of the Income-tax Rules) ( ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed. (emphasis supplied) 7.2 The prescription in Rule 5(1) and Appendix I of Incometax Rules and the same reads as follows:- Appendix I of Income-tax Rules. Rates of depreciation III. Machinery and Plant Machinery and plant other than those covered by subitems (2)(3) and (8) below : 15%. 8.3 The Assessing Officer granted depreciation at the rate of 15% being machinery and plant other than those covered by sub-items (2), (3) and (8). According to the assessee, it is covered under sub-item (8)(ix)(E)(k). Sub-item (ix) of ite ..... X X X X Extracts X X X X X X X X Extracts X X X X
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