2013 (12) TMI 1555 - AT - Income Tax

Nature of receipts - Held that - Nature of receipt in this case if ₹ 5.75 crore has clearly been established as being the capital receipt. The provision of Income Tax Act does not provide for taxation of such capital receipt, even if it is forfeiture of amount. Accordingly, in the background of the aforesaid discussions and precedents, we do not find any infirmity in the order of the Ld. CIT(A). Accordingly, we uphold the same. Depreciation @ 60% on the printers and UPS & computer peripherals to the assessee.

Summary

Issues Involved:
1. Deletion of addition on account of forfeiture of warrants.
2. Deletion of addition on account of disallowance of extra depreciation claimed on computer peripherals.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of Forfeiture of Warrants:
The Revenue's appeal challenges the deletion of an addition of Rs. 5.75 crores made by the Assessing Officer (AO) on account of forfeiture of warrants. The AO treated this amount as business profit under section 28(iv) of the Income Tax Act, 1961, arguing it was a case of tax avoidance through a colorable device. The AO noted that the forfeiture resulted from non-payment of subsequent amounts by the investors, who were closely related to the assessee company. The AO invoked section 28(iv), which pertains to the value of any benefit or perquisite arising from business.

The Ld. Commissioner of Income Tax (Appeals) [CIT(A)] held that the Rs. 5.75 crores forfeited was a capital receipt and not a revenue receipt, as it was related to the issue of convertible warrants and not business operations. The CIT(A) noted that section 28(iv) was not applicable since the receipts were monetary and not perquisites. The CIT(A) found no substantive evidence of tax avoidance and concluded that the amount should not be treated as a revenue receipt.

Upon appeal, the Tribunal upheld the CIT(A)'s decision, emphasizing that the amount received on forfeiture of warrants is a capital receipt and not taxable under section 28(iv). The Tribunal cited several judicial pronouncements supporting the view that such receipts are capital in nature. The Tribunal also noted that the AO's allegation of tax avoidance was unsubstantiated and that the receipt was correctly classified as a capital receipt in the assessee's books.

2. Deletion of Addition on Account of Disallowance of Extra Depreciation Claimed on Computer Peripherals:
The AO disallowed the claim of depreciation at 60% on computer accessories and peripherals, allowing only 15% and making an addition of Rs. 9366/-. The CIT(A) allowed the depreciation at 60%, treating computer peripherals as an integral part of the computer system.

The Tribunal upheld the CIT(A)'s decision, relying on the Delhi High Court's ruling in the case of CIT vs. BSES Yamuna Powers Ltd., which held that computer accessories and peripherals form an integral part of the computer system and are entitled to depreciation at the higher rate of 60%.

Conclusion:
The Tribunal dismissed the Revenue's appeal, confirming that the Rs. 5.75 crores forfeited on account of warrants is a capital receipt and not taxable under section 28(iv), and that computer peripherals are entitled to depreciation at 60%. The order was pronounced in the open court on 13/12/2013.