2005 (8) TMI 293 - AT - Income Tax

Disallowance made on account of depreciation - colour Xerox machine - Whether printer and scanner are the part of the computer system or treat as plant and machinery - HELD THAT - We find that Inspector after verifying the function of the printer and scanner reported that it runs with the help of computer and the said machine is external device attached to the computer with the help of cables. The Assessing Officer on the basis of the said report of the Inspector was of the view that the machine in question is not a computer vide his remand report dated 23-12-2004 appearing at page 11 of the assessee's paper book. However, from the fair reading of the Income-tax Inspector's report, we find that the printer and scanner cannot be used without the computer, i.e., they are part of the computer system. Thus. we are of the view that the printer and scanner are integral part of the computer system, therefore, they are to be treated as computer for the purposes of allowing higher rate of depreciation, i.e., 60 per cent and accordingly, we decline to interfere in the order passed by the Ld. CIT(A) on this account. The grounds taken by the revenue are, therefore, rejected. In the result, the appeal stands dismissed.

Summary

Issues:
- Disallowance of depreciation at a higher rate for a colour Xerox machine.
- Interpretation of the term "computer" for depreciation purposes.
- Whether the printer and scanner are integral parts of the computer system.

Analysis:
1. The appeal concerned the disallowance of depreciation on a colour Xerox machine at a higher rate. The Assessing Officer found the machine not eligible for the claimed 60% depreciation, reducing it to 20%. The Ld. CIT(A) sought a remand report, concluding the machine was not a computer and should receive 25% depreciation. The Departmental Representative argued against the higher rate, citing the machine's nature and its separation from the computer.

2. The assessee contended that the printer and scanner were part of the computer system, thus eligible for 60% depreciation. Reference was made to the Institute of Chartered Accountants of India's definition of a computer, including input and output devices. The purchased scanner and printer were described as integral components of the computer, with software loaded in the CPU, supporting the claim for higher depreciation.

3. The Tribunal noted the absence of a statutory definition for a computer but referred to the definition of a computer system under the Income Tax Act. The Institute of Chartered Accountants of India's definition was also considered, emphasizing the components and functions of a computer. The Inspector's report highlighted the interdependence of the printer and scanner with the computer, crucial for their operation.

4. Relying on legal precedents, including the Allahabad High Court and the Supreme Court judgments, the Tribunal determined that the printer and scanner were integral parts of the computer system. Following the principle that assets serving specific technical requirements qualify as plants, the Tribunal upheld the Ld. CIT(A)'s decision to allow 60% depreciation on the printer and scanner, dismissing the appeal by the revenue.