2013 (1) TMI 768 - HC - Income Tax

Summary

Issues involved: Interpretation of Section 36(1)(xi) of the Income Tax Act, 1961 regarding deduction of expenses for making computer system Y2K compliant.

Summary:

Assessment Year 2000-01:
The appellant revenue challenged the disallowance of deduction claimed by the assessee for expenditure of &8377; 2.01 crores on making its computer system Y2K compliant under Section 36(1)(xi) of the Income Tax Act, 1961. The assessing officer disallowed the deduction on the basis that the expenditure was for purchasing a new system, not for upgrading the existing system.

CIT(A) Decision:
The CIT(A) allowed the assessee's appeal, stating that the expenditure was incurred on purchasing Y2K motherboards to make the existing computer system compliant. The CIT(A) considered the replacement of non-compliant hardware as necessary for Y2K compliance and accepted the details provided by the assessee for claiming the deduction.

Tribunal Decision:
The Tribunal upheld the CIT(A)'s decision, emphasizing that the replacement of non-compliant components was essential to make the entire computer system Y2K compliant. The Tribunal considered the definition of a computer system under Section 36(1)(xi) and affirmed the factual findings of the lower authorities.

High Court Decision:
The High Court noted that the expenditure was for upgrading the existing computer system to be Y2K compliant, as multiple computers together constituted a system. The Court found no perversity in the factual findings of the lower authorities and dismissed the revenue's appeal, refusing to entertain the proposed question of law.

Therefore, the appeal was dismissed with no order as to costs.