2014 (3) TMI 540 - AT - Income Tax

Disallowance of extra depreciation Claim made on video conferencing equipment - Whether the CIT(A) has erred in deleting the on account of disallowance of extra deprecation claimed on video conferencing equipments ignoring the fact only computer and computer software will be entitled for depreciation @ 60% and the same cannot be extended to the other equipments where computer is used Held that - The process of video conferencing may involve the help of computer system, but the entire video conferencing system cannot be the termed as part and parcel of the computer as such - Income Tax Rules specifically provide depreciation @ 60% only on computers and computer software - The depreciation rates as mentioned cannot be extended to the other equipments where computer is used. Whether printer, scanner and server are integral part of computer or not Held that - The decision in CIT vs. BSES Yamuna Power 2010 (8) TMI 58 - DELHI HIGH COURT followed - computer accessories and peripherals such as printer, scanner and server etc. forma an integral part of computer system - the computer accessories and peripherals cannot be used without the computer they are the part of the computer system and they are entitled to depreciation at the higher rate of 60% - the above analogy cannot be extended to TV sets used in the video conferencing equipments. The TV sets used by the assessee cannot be a part of the computer system - The TV sets can function independently - As such they cannot be allowed depreciation @ 60% as applicable to computers thus, in the list of the video conferencing equipments as mentioned in the AO s order, the TV sets cannot be allowed depreciation as per computer thus, the order fo the CIT(A) modified and the AO is directed to allow depreciation @ 60% on other items mentioned in the list except TV sets - The other items mentioned in the list except TV sets can be considered a part of the computer system Decided partly in favour of Revenue.

Summary

Issues: Whether the Ld. CIT(A) erred in deleting the addition made by the AO on account of disallowance of extra depreciation claimed on video conferencing equipments.

Analysis:

Issue 1: Disallowance of extra depreciation claimed on video conferencing equipments

The AO disallowed the excess depreciation claim of Rs. 9,06,127/- made by the assessee on video conferencing equipments, stating that as per the IT Rules, only computers and computer software are entitled to depreciation at 60%. The AO argued that the video conferencing system, although involving the use of a computer, cannot be considered part of the computer itself. The AO highlighted that allowing such depreciation would set a precedent for extending it to various other machinery where computers are used partially or fully. The Ld. CIT(A), however, ruled in favor of the assessee, emphasizing that the video conferencing system is a computer device as it involves communication facilities connected to a computer. The Ld. CIT(A) referred to the definition of a computer under the Information Technology Act, stating that communication facilities related to a computer are considered part of the computer. The Ld. CIT(A) concluded that the TVs used in the video conferencing system are also part of the computer system essential for its functioning.

Issue 2: Appeal before the Tribunal

The Revenue appealed the Ld. CIT(A)'s decision before the Tribunal. The Tribunal, after hearing both parties, upheld the AO's view that the video conferencing system as a whole cannot be considered part of the computer system entitled to 60% depreciation. The Tribunal noted the precedent set by the Hon'ble Jurisdictional High Court regarding accessories and peripherals of a computer, affirming that they form an integral part of the computer system. However, the Tribunal distinguished the TV sets used in the video conferencing equipments, stating that they can function independently and are not integral to the computer system. Therefore, the Tribunal modified the Ld. CIT(A)'s order, allowing depreciation at 60% for items other than TV sets in the video conferencing equipments list. The TV sets were excluded from the higher depreciation rate applicable to computers.

In conclusion, the Tribunal partly allowed the Revenue's appeal, directing the AO to allow depreciation at 60% on items other than TV sets in the video conferencing equipments list, which were considered part of the computer system.