2013 (10) TMI 1376 - AT - Income Tax

Depreciation at the rate of 60% on those items as is applicable to computer allowed. Depreciation claimed at 60% on printers scanners modems switches hubs cables/cards and software etc. should not be disallowed as these devices are used along with the computer and their functions are integrated with the computer.

Issues Involved:
1. Disallowance of depreciation on certain equipment and peripherals by treating them as not forming part of a computer.

Issue-wise Detailed Analysis:

Issue 1: Disallowance of Depreciation on Certain Equipment and Peripherals

Background:
The appeals filed by the assessee pertain to the assessment years 2002-03 and 2003-04, challenging the disallowance of depreciation on certain equipment and peripherals by treating them as not forming part of a computer. The assessee, a limited company engaged in various businesses including publishing newspapers and satellite television broadcasting, claimed depreciation at the rate of 60% on various items, which the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT (A)] disallowed, treating them as 'plant and machinery' eligible for depreciation at 25%.

Assessment Year 2002-03:
The AO reopened the assessment under section 148, suspecting escapement of income due to excess depreciation claimed on the block of assets categorized as computers. Upon reassessment, the AO concluded that items like editing equipment, charter generators, V. Sat equipment, and various software did not qualify as computers. The AO argued that these items, although used with computers, could not be classified as computers themselves and thus allowed depreciation at 25%. The CIT (A) upheld this view, stating that peripheral devices connected to computers do not form part of the computer.

Assessee's Argument:
The assessee contended that the items in question were integral parts of the computer system, without which the computer could not function. They argued that these items should be classified as computers and thus eligible for 60% depreciation. The assessee relied on the definition of a computer and previous tribunal decisions, including the case of ITO vs. Samiran Majumdar, which supported their claim.

Tribunal's Analysis:
The tribunal examined the nature and function of the disputed items, referencing the Special Bench decision in DCIT vs. Datacraft India Limited. The Special Bench had established that the term 'computer' should be interpreted in common parlance and commercial context, considering the predominant function and integration with the computer system. The tribunal found that the items in question were used along with computers and their functions were integrated with the computer, thus qualifying them as part of the computer system.

Assessment Year 2003-04:
Similar issues were raised for the assessment year 2003-04, where the AO disallowed depreciation on items like printers, scanners, modems, switches, hubs, cables/cards, and software, treating them as 'plant and machinery.' The CIT (A) upheld the AO's decision.

Tribunal's Conclusion:
The tribunal reiterated its findings from the assessment year 2002-03, holding that the items in question were integral to the computer system and eligible for 60% depreciation. The tribunal set aside the orders of the CIT (A) for both assessment years, allowing the appeals of the assessee.

Final Judgment:
The tribunal allowed the appeals of the assessee for both assessment years, concluding that the disputed items should be classified as computers and thus eligible for 60% depreciation.

Order Pronounced:
The order was pronounced in the court on 31-10-2013.

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