2007 (4) TMI 389 - AT - Income Tax

Depreciation on Routers - at the rate of 25% OR 60% - Whether router is a part of computer Or Not - Assessing Officer examined the difference between the computer and routers and according to him, router is a tele-communication device - HELD THAT - The computer has not been defined under the Income-tax Act. But, the computer system had been explained in Explanation for the purpose of clause ( ix ) of section 36(1) of the I.T. Act. According to this Explanation, computer system means, a device or a collection of devices including input and output support devices 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 that performs functions including, but not limited to logic, arithmetic, data storage and retrieval communication and control. The computer network is also defined under this Act and according to it, a computer network means, the inter-connection of one or more computers through the use of satellite, microwave terrestrial line or other communication media. Undisputedly, a router is used to provide a connectivity between the computers and also to process the data from one computer to another. A router of its own does not perform logical, arithmetical or memory functions by manipulations of electronic, magnetic or optic impulses. Without a router, a computer can independently work and perform all functions. Before us, the learned counsel for the assessee did not filed complete text of computer network. He has tried to draw an inference from the definition of computer given in this Act that the router is a part of computer system and not a computer network. Since the depreciation is to be allowed only on the computer and not the computer system and in any case a router cannot be called to be the part of the computer, we are not convinced with the arguments raised by the assessee. Moreover, the Assessing Officer has made a detailed analysis and distinction between the computer and the routers. We, therefore, of the view that lower authorities have rightly adjudicated the issues by holding that router is not a part of computer and is not eligible for depreciation @ 60 per cent. We, accordingly, confirm the Order of the CIT(A). In the result, appeal of the assessee is dismissed.

Summary

Issues:
Depreciation rate for routers compared to computers.

Analysis:
The appeal was filed against the CIT(A) order, which restricted depreciation on routers to 25% instead of 60% as applicable to computers. The Assessing Officer held that routers are not computers as they only facilitate data communication and are not part of a computer system. The definition of a computer and computer system was examined, highlighting the difference between computers and routers. The CIT(A) confirmed the disallowance of excess depreciation on routers, leading to the appeal before the Tribunal.

The Tribunal considered the definitions of computer and computer network under the Cyber Law and Information Technology Act, 2000. The argument was made that routers are essential for connecting computers and transmitting data, making them part of the computer system eligible for 60% depreciation. However, the learned DR contended that routers are part of the computer network, not the computer itself, and therefore, only eligible for 25% depreciation.

After reviewing the submissions and lower authorities' orders, the Tribunal agreed with the Assessing Officer's distinction between computers and routers. It was noted that routers do not perform logical, arithmetical, or memory functions independently like computers. The Tribunal upheld the decision that routers are not eligible for 60% depreciation as they are not considered part of the computer system. The appeal was dismissed, confirming the CIT(A) order.

In conclusion, the Tribunal affirmed that routers are distinct from computers and do not qualify for the higher depreciation rate applicable to computers. The decision was based on the functionalities and definitions of computers and routers, emphasizing the role of routers in facilitating data communication between computers rather than performing core computing functions.