2021 (9) TMI 839 - AT - Income Tax

Depreciation on apple ipad - at the general rate of 15% OR 60% - whether the iPad falls in the definition of computer or mobile phone? - whether the definition of computer given under the information technology Act can be utilised for the purpose of providing the depreciation to the computers under the income tax act or not? - HELD THAT - Predominate purpose of iPad is a communication and not a computing device, as its main features are email, whatspp, Facetime calls, calls, music, films etc though iPad may discharge some of the functions of computers. In our view iPad is not a substitution of computer/laptop, which have various utilities/functions, though some functions may be common with Ipad. In common parlance also, iPad is considered as communicating device with the some additional features of computer and lastly Apple store do not sell Ipad as computer device rather it is selling it as communicating/entertainment devise. Another reason for holding that the iPad is a communication device, as it is having IMEA number, though assessee had denied to have IMEI number, in the subject matter of iPad, however no concrete evidence has been produced on record in this regard. Lastly we are also of the opinion that in case the assessee wishes to claim that iPad is a computer and is required to have depreciation at the higher rate, then in our opinion, the onus is on the assessee to prove that the assessee is entitled to higher depreciation and merely on the basis of deduction/assumption it cannot be held that the iPad is computer. Hence iPad is not a computer, hence depreciation at low rate is applicable. Hence this ground of the assessee is dismissed. Disallowance of foreign travelling expenses @ 5% (excluding air ticket visa fee) - HELD THAT - Admittedly some vouchers for the expenditure incurred by the assessee was missing and as such the lower authorities have taken a view of restricting the expenditure to 5%. In our considered opinion the expenditure restricted by the lower authority, in the absence of the supporting document was reasonable and no interference is called for at available.In the result the appeal of the assessee is devoid of merit in the same is dismissed.

Summary

Issues Involved:
1. Depreciation rate applicable to Apple iPad.
2. Disallowance of foreign traveling expenses.

Issue-wise Detailed Analysis:

1. Depreciation Rate Applicable to Apple iPad:
The primary issue concerns whether an Apple iPad qualifies for depreciation at the rate applicable to computers (60%) or at the general rate (15%). The assessee argued that the iPad should be treated as a computer, citing its functionalities akin to a computer, such as data processing, word processing, internet access, etc. The term "computer" is not defined in the Income Tax Act, but the definition from the Information Technology Act, 2000 was considered, which describes a computer as any electronic device capable of data processing. The assessee contended that the iPad fits this definition and should thus be eligible for higher depreciation.

The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disagreed, arguing that the iPad shares more similarities with an iPhone than with a traditional computer, primarily due to its operating system (iOS) and features like 2G/3G/4G connectivity and GPS. The CIT(A) further noted the lack of a USB port, CD drive, and incompatibility with Windows as reasons for not classifying the iPad as a computer.

The Tribunal analyzed the rival contentions and concluded that although iPads and smartphones share many features with computers, the predominant purpose of an iPad is communication rather than computing. The Tribunal emphasized that the principal function and common parlance understanding should guide the classification. It was noted that the iPad is marketed as a communication/entertainment device rather than a computer. Therefore, the Tribunal upheld the lower depreciation rate, concluding that the iPad does not qualify as a computer under the Income Tax Act.

2. Disallowance of Foreign Traveling Expenses:
The second issue pertains to the disallowance of 5% of foreign traveling expenses (excluding air tickets and visa fees) on the grounds of personal nature of expenditure. The assessee argued that being a company, there should be no personal expenditure. However, the AO and CIT(A) noted that some vouchers for the expenses were missing, justifying a partial disallowance.

The Tribunal upheld the CIT(A)'s decision, finding the 5% disallowance reasonable in the absence of supporting documents. The Tribunal reasoned that the disallowance was justified given the lack of complete documentation to substantiate the expenses.

Conclusion:
The Tribunal dismissed both appeals, affirming the lower authorities' decisions on both issues. The iPad was not classified as a computer for depreciation purposes, and the partial disallowance of foreign traveling expenses was upheld due to insufficient documentation. The Tribunal's decision emphasizes the importance of the predominant function and common parlance understanding in classifying assets for depreciation and the necessity of complete documentation to support expense claims.