2018 (9) TMI 406 - AT - Income Tax

Depreciation claimed at the rate of 60% on design software comprising of drawings and designs, engineering and development of special purpose custom built hydraulic cylinders and excavator equipments - Held that - The claim of depreciation was on software in the nature of design and assembly drawings of hydraulic cylinders, bill of materials and other components. Depreciation was claimed by the assessee on the opening written down value of this asset. Acquisition of the said asset was in financial year 2011-12 relevant to assessment year 2012-2013. The question whether such asset was eligible for depreciation available to computer and computer softwares had come up before this Tribunal in assessee s own case for assessment year 2012-2013 wherein held Once the Ld.CIT(A) has himself held the purchase made by the assessee company is a design software, we wonder as to how it cannot be treated as a computer software. The design software embedded in CD containing the design has to be necessarily treated as computer software and the same is clarified in Note 7 of the new Appendix-1 of the Rules which states that computer software means any computer program recorded on any disk, tape, perforated media or other information storage device. Further as per the Rule, the rates prescribed for computer software is 60% for the relevant assessment year - Decided in favour of assessee.

Summary

Issues:
1. Tax effect in Department's appeal less than ?20,00,000.
2. Disallowance of depreciation claimed on design software.

Analysis:
1. The judgment pertains to cross-appeals by the assessee and the Revenue against an order of the Commissioner of Income Tax (Appeals). The counsel for the assessee contended that the tax effect in the Department's appeal was below ?20,00,000, rendering it nonviable. Regarding the assessee's appeal, the issue revolved around the disallowance of depreciation on design software, specifically related to drawings, designs, and custom-built hydraulic cylinders and excavator equipment. The Authorized Representative cited a previous Tribunal decision in favor of the assessee for the assessment year 2012-2013, supporting the claim for depreciation.

2. The Departmental Representative acknowledged that the question of depreciation favored the assessee based on the earlier Tribunal order for the same assessment year. The Tribunal noted that the tax effect in the Department's appeal was indeed below ?20,00,000, making it unsustainable as per CBDT Circular No.3/2018. Concerning the assessee's appeal, the claim for depreciation was on software encompassing design and assembly drawings of hydraulic cylinders, bill of materials, and other components. The acquisition of this asset occurred in the financial year 2011-12 for the assessment year 2012-2013.

3. The Tribunal referenced the previous Tribunal decision for the assessment year 2012-2013, where it was established that the asset in question qualified for depreciation at 60%. The Tribunal deliberated on the nature of the asset, emphasizing that the design software embedded in a CD containing the design should be treated as computer software. The Tribunal directed the Assessing Officer to allow depreciation at 60% for the purchase of this design software, as per the prescribed rates for computer software in the relevant assessment year.

4. Consequently, the Tribunal ruled in favor of the assessee, allowing the appeal, while dismissing the Department's appeal. The judgment was pronounced on September 3, 2018, in Chennai.