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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
आदेश /O R D E R
PER MAHAVIR SINGH, VP:
This appeal by assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-1, Chennai, in dated 20.01.2020. The assessment was framed by the JCIT(OSD), Company Circle 1(1), Chennai for the assessment year 2009-10 u/s.143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’), vide order dated 26.12.2011.
2. At the outset, it is noticed that this appeal by assessee is barred by limitation by 107 days. The assessee received the impugned appellate order on 30.01.2020 and appeal was to be filed on or before 01.04.2020 but actually it was filed on 15.07.2020 thereby there was a delay of 107 days. The assessee has filed affidavit for condonation of delay stating that this delay is due to pandemic period of Covid 19 and subsequent events and the Hon’ble Supreme Court in Miscellaneous Application No.665 of 2021 vide order dated 23.03.2020 has given directions that the delay are to be condoned during this period 15.03.2020 to 14.03.2021 and they have condoned the delay up to 28.02.2022 in Miscellaneous Application No.21 of 2022 vide order dated 10.01.2022. Since the Hon’ble Supreme Court has condoned the delay during the said period, respectfully following the same we condone the delay and admit the appeal.
3. The only issue in this appeal of assessee is as regards to the order of CIT(A) confirming the action of AO in restricting deprecation @ 15% on V-SAT equipment instead claimed by assessee at 60%. For this, assessee has raised following six grounds:-
2. The Commissioner of Incometax (Appeals) erred in confirming the allowance of depreciation on V-Sat equipment at 15% instead of the claim of the Appellant at 60%.
3. The Commissioner of Incometax (Appeals) ought to have appreciated that V-Sat Equipment is nothing but part of the computer network which is utilized for converting the out put from the computers into a mode which can be transmitted to other computers through air. Further, V-Sat equipment perform the same function as a modem for converting the out put of the computer into a transmittable form.
4. The Commissioner of Incometax (Appeals) ought to have appreciated that in Assessee's Own case for the assessment year 2003-04 and 2004-05 as well as in /2016 for assessment year 2008-09, the Tribunal has held in favour of the Assessee granting depreciation at the rate of 60% for V-sat equipment.
5. The Commissioner of Incometax (Appeals) ought to have appreciated that as per Section 2 of the Information Technology Act, 2000, "Computer net work" would mean that the interconnection of one or more computers through- i. the use of satellite, microwave, terrestrial line or other communication media; and ii. terminals or a complex consisting of two or more interconnected computers whether or not the interconnection is continuously maintained.
And in this view of the matter V-sat equipment will also be forming part of the Computer network in the same manner as modem.
6. As various High Courts including jurisdictional High Court has held that modems are part of the computer network and hence entitled to depreciation at the rate applicable to computers, applying the same ratio, the CIT(A) ought to have allowed depreciation on V-sat Equipment also as part of the computer network and allow depreciation at the rates applicable to computers ie., 60%.
At the outset, the ld. Counsel for the assessee very fairly stated that the Tribunal in assessee’s own case in to 1749/Mds/2013 for assessment years 2003-04 to 2007-08, allowed Revenue’s appeal restricting depreciation @ 15% by observing in paras 7 to 9 as under:- “7. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The Assessing Officer has restricted the claim of depreciation of 60% on V-sat equipments to 25%. While considering the submissions of the assessee, the ld. CIT(A) allowed the claim of depreciation of 60% by observing as under:
“8. Thus, it can be seen that the AO has observed that the V-sat equipment is only a transmission equipment whereas the appellant has relied upon Rule 5 of the Income Tax rules, Sec. 2 of the Information Technology Act, Explanation to Clause (ii) of Section 36 of the Income Tax Act with the help of definitions extracted above. As per the definition of 'computer' and 'computer net work' under Income Tax Act, it is argued that V-sat 'equipments form an integral part of the computer and the assessee company, without these the servers and remote computers would not receive data and consequently would not function. It is also argued that the definition of the computer in the Copyright Act is not relevant here. Explaining the functioning of the V-sat in maintaining the intranet of the assessee company, it is stated that the assessee being a member an NSE, deals with the NSE an one side and server, computers and remote computers in the Head office as well as the branches on the other end. All these computers have to be actively connected to the server of the NSE and to give real time advantage of executing the various trade orders in dealing with the equities. Thus, the V-sat plays a very vital role in bringing all the computers live and hooked on to the NSE servers. He has also relied upon the following case laws.
(i) An AC fitted in a bus should be allowed depreciation applicable to a bus. [Delhi Airport Services 255 ITR 91 Delhi].
(ii) Materials used far measurement of electricity used in the industry for generation and transmission of electricity will be treated as eligible far higher deprecation [Simca Meters Ltd. 251 ITR 46].
On perusal of the definition of 'Computer System' under the Explanation to clause (ix) of Section 36, it, can be noticed that devices supporting communications are also included in the definition. Further, the Sec. 2 of Information Technology Act of 2000 has explicitly laid dawn that a 'Computer' includes 'computer network', the latter also defined as a multitude of computers connected through communication media. By virtue of reading bath the definitions under Income Tax Act 1960 and Income Tax Act, 2000, the V-sat equipment as the communication device connecting the computers into a computer network and thus, is eligible to be treated as a computer. Thus, it can be seen that the V-sat is connecting all the computers at different locations and different ends to bring the entire intranet into active operation. By relying upon the ratios in the above definitions and case laws, it is held that the V-sat is an integral part of the computer in work and hence, is eligible for depreciation at 60%. The AO is directed to modify the depreciation accordingly. This ground is allowed in AYs 2003-04 and 2004- 05.”
Before us, the ld. Counsel for the assessee by relying on to the facts in the case of Ushodaya Enterprises Ltd. v. DCIT, wherein, “………The AO was of the opinion that computers used for photo transmission equipment, decoding equipment v-sat, data processing equipment are eligible for depreciation @ 60% whereas the other peripherals like printers, scanners, modems, switches, photo/edit/ equipment UPS, network cables and software form part of plant and machinery, on which, depreciation is allowable @ 25% only……”, advanced his argument that the Department cannot have different stands at different states. He further argued that if the Department can allow 60% depreciation on v-sat at Hyderabad, why not it is applicable in Tamil Nadu. We do not find force in the arguments of the ld. Counsel for the assessee. Though it was the findings of the Assessing Officer in that particular case and, of course, not disputed, but it cannot be held as if it is a ruling. Moreover, there is no concrete finding of any Tribunal or higher Court to allow the claim of depreciation of 60% on V-sat equipments. However, in an identical facts on similar issue, in the case of Anagram Capital Ltd. v. ACIT for the assessment year 2005-06 vide order dated 15.02.2011, the Ahmedabad Bench of the Tribunal has observed and held as under:
“2. The assessee claimed depreciation @ 60% on VSAT equipments purchased during the year and also VSAT equipments purchased during the earlier assessment years. The AO held that VSAT equipments are communication equipments, hence entitled for depreciation at normal rate of 25% as against 60% claimed by the assessee. The AO disallowed the depreciation claimed @ 60% and allowed depreciation @ 25%. It was submitted before the learned CIT(A) that the assessee relied upon the statement of fact and addition may be deleted. The learned CIT(A) however, noted that his predecessor in the case of the same assessee for assessment year 2003-04 vide order dated 10-08-2006 held that VSAT equipments are not computer but communication equipments for which depreciation rate applicable to the machinery should be applied. The learned CIT(A) also noted that the facts of this case are same as is considered in earlier years. The order of the AO was accordingly confirmed and the appeal of the assessee was dismissed.
3. The learned Counsel for the assessee very fairly conceded that in the preceding assessment year 2003-04 the assessee did not prefer any appeal before the Tribunal against the order of the learned CIT(A) and as such the order of the learned CIT(A) in assessment year 2003-04 has become final. He has however, relied upon the order of ITAT, Mumbai Special Bench in the case of DCIT Vs Datacraft India Ltd., 40 SOT 295 and reiterated the submissions made before the authorities below.
4. On the other hand, the learned DR relied upon the orders of the authorities below.
We have considered the rival submission and the material available on record. The question before the ITAT Special Bench, Mumbai in the case of Datacraft India Ltd. (supra) was “whether routers and switches can be classified as computer entitled to depreciation at 60 per cent or have to be classified as general plant and machine entitled to depreciation only at 25 per cent.” The Special Bench in view of the decision made in the order stated that it can be said that routers and switches can be classified as computer hardware when they are used along with a computer and when their functions are integrated with computer. In other words, when a device is used as a part of the computer in its function, then it would be termed as computer. It was held that routers and switches in the circumstances of the case were to be included in the block of computer, entitled to depreciation @ 60%.
6. The above decision is clearly distinguishable from the facts of the assessee’s case. The AO has given a specific finding that VSAT equipments are communication equipments used for transfer of data through over larger distances and as such this equipments can under no circumstances be categorized as computer and software. The AO further noted that the assessee also agreed upon by the order of the learned CIT(A) in its own case for assessment year 2003-04 and accordingly claim of the assessee was disallowed. It would, therefore, prove that facts of the case are similar as were considered in the preceding assessment year 2003-04. The similar finding of facts have reached finality in assessment year 2003-04 because the assessee did not challenged the order of the learned CIT(A) before the Tribunal in assessment year 2003-04. Since the facts are identical as has been considered in the earlier year in which it was held that the VSAT equipments cannot be categorized as computer software, there is no material on record to dispute the findings of the authorities below. Nothing is brought to our notice on facts to distinguish the facts considered in earlier year as noted above. Only, the decision of Special Bench, ITAT Mumbai in the case of Datacraft India Ltd. (supra) was relied upon which we find is clearly distinguishable. We, therefore, do not find any merit in the appeal of the assessee on ground No.1.”
9. There is no ruling of any higher Court having modified or reversed the above decision of the Tribunal and accordingly the same is binding on us. Under the above facts and circumstances, we set aside the order of the ld. CIT(A) on this issue and respectfully following the decision of the Ahmedabad Bench of the Tribunal, we concur with the findings of the Assessing Officer. Thus, the ground raised by the Revenue for all the above assessment years are allowed.”
5. On the other hand, the ld.counsel for the assessee argued that the Tribunal in assessee’s own case for assessment year 2008-09 in vide order dated 05.08.2016 dismissed Revenue’s appeal and allowed depreciation @ 60% by observing in para 5 as under:-
5. We have heard the submissions of the ld. DR and also perused the material available on record. Admittedly, the CIT(A), by following the order of this Tribunal in assessee’s own case for assessment years 2003-04 and 2004-05, allowed the claim of the assessee. The CIT(A) has also placed his reliance on the decision of the Special Bench, Mumbai, in Datacraft India Ltd vs DCIT , [2010] 40 SOT 295 while allowing the claim of the assessee. The only contention of the Revenue before this Tribunal is that the Revenue’s appeal is pending before the Madras High Court against the order of this Tribunal in assessee’s own case for assessment years 2003-04 and 2004-05. This Tribunal is of the considered opinion that when depreciation was allowed on V-sat @ 60% by this Tribunal for assessment years 2003-04 and 2004-05, merely because the Revenue’s appeal is pending before the Madras High Court cannot be a reason to take a different view. Therefore, this Tribunal do not find any reason to interfere with the order of the CIT(A) and accordingly the same is confirmed.
The ld.counsel very fairly admitted that the order in to 1749/Mds/2013 is challenged before the Hon’ble Madras High Court and pending adjudication. However, the order in ITA No.270/Mds/2016 was challenged before High Court by the Revenue and Hon’ble High Court has dismissed the same on account of low tax effect vide CBDT Circular No. 17/2019 dated 08.08.2019 and hence, that has not given rise to any decision on the substantial question of law raised. On this, the ld.counsel for the assessee vehemently contested and argued the issue and submitted written submissions. The same are reproduced as under:- Issue: VSAT depreciation . Whether 25% (dept) or assessee (60%) coming under "Computer System" depreciation?
Role of V-SAT: V-SAT equipment's ensure the connectivity between servers in H.O and computers in branches/various locations in India and servers in NSE and thereby form part of intranet of the company through the special Software systems supplied and maintained by NELCO / HCL and hence, integral part of computer and computer systems. The assessee had provided Department-approved Chartered Engineers certificate evidencing the aforesaid fact to the lower authorities.
V-SAT fits the definition of computer, computer network or computer System and hence is eligible for depreciation 60%: a) The term VSAT is an abbreviation of Very Small Aperture Terminal. The definition itself identifies the device as a Terminal which is akin to a Computer. Typically, VSAT system components are categorized into IDU and ODU. The components or subsystems of a VSAT which are located inside the office premises fall under Indoor Unit (|DU). IDU consists of MUX/DEMUX, Satellite modem (modulator-demodulator), EDU (Encryption decryption Unit) and subscriber interfacing part. Outdoor Unit (ODU) consists of RF upconverter / downconverter, RF Power Amplifier, OMT, LNA and Antenna. b) We note that the relevant depreciation is given in clause 111(5) of Appendix 1 to Rule 5 of Income Tax Rules, 1962 applicable to Assessment Year 2003-2004 to 2007-2008 is as follows: "The computer including computer software" Computer software is defined as "means any computer programme recorded on any disc, tape, perforated media or other information storage device".
Computer and related terms are defined under section 2 of Information Technology Act, 2000 which read as follows: a. "computer" means any electronic magnetic, optical or other highspeed data processing device or system which performs logical, arithmetic and memory functions by manipulations of electronic, magnetic or optical impulses and includes all input, output,processing, storage, computer software, or communication facilitieswhich are connected or related to the computer in a computer system or computer network; b. "Computer network" means the interconnection of one or more computers through: i. the use of satellite, microwave, terrestrial line or other communication media; and. ii. terminals or a complex consisting of two or more interconnected computers whether or not the interconnection is continuously maintained c. "Computer resource" means computer, computer system, computer network, data, computer data base or software; d. "Computer system" means a device or collection of devices, includes input and output support devices and excluding calculators which are not programmable and capable of being used in conjunction with external files. Which contains computer programmes electronic instruction, input data and output, that performs logic, arithmetic, data storage and retrieval, communication control and other functions; We further note that the Income Tax Act, 1961 clearly follows the Information Technology Act, 2000 in multiple places as follows:
In Explanation to clause xi of section 36 of the IT Act defines a "computer system" as follows: Computer system" means a device-or collection of devices including. input and output support devices and excluding calculators which are not programmable and capable of being used in conjunction with external files, or more of which contain computer programmes, electronic instructions, input data and output data, that performs functions including, but not limited to logic, arithmetic, data storage and retrieval; communication and control;
In S.132(iib) as follows: "(iib) require any person who is found to be in possession or control of any books of account or other documents maintained in the form of electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21 of 2000), to afford the authorized officer the necessary facility to inspect such books of account or other documents; Thus, based on the provisions of the Income Tax Act, 1961 r.w. definitions present in the Information Technology Act 2000, it is clear that by very definition of VSAT i.e., Terminal - it forms part of the computer network, and a computer network is also considered as computer resource.
Alternatively, without prejudice to the above. VSAT can be considered a "data input and output support device" given it sends and receives data and it will fall under the definition of a "computer system" as noted above in both the Income Tax Act, 1961 and Information Technology Act, 2000.
Thus, whatever way we look at it, VSAT fits in the definition of computer, Computer network, computer resource or computer system eligible for 60% depreciation.
Therefore, it is submitted that V-SAT equipment forms an integral part of the Computer, computer network and communication device interchangeably and the Assessee company business, without these computers, computer network, Communication devices and servers would not send/ receive data and consequently would not function.
Without prejudice, even if AO's argument that VSAT were merely communication, transmission equipment was considered, depreciation @ 60% ought to be granted relying on Special Bench decision:
a. In DCIT v. Data Craft India Ltd. the Special Bench in a very detailed Order allowed the depreciation for routers holding that:
"31.1. In short, "Router" is a hardware device that routes data (hence the name) from a local area network (LAN) to another network connection. A router acts like a coin sorting machine, allowing only authorized machines to connect to other computer systems. Most routers also keep log files about the local network activity. Now the question is whether this “machine" can be used independent of Computer. If yes, then it cannot be called "Computer Hardware" in all circumstances.
31.2. When "Computer Hardware", is used as a component of the computer, it becomes part and parcel of the computer, as in the case of operating software in the computer. In such a situation, hardware in question can be considered as a part of a computer and hence a 'computer'. Per contra, when the machine is not used as a necessary accessory or in combination with a Computer, it cannot be called a 'Computer component.'
31.4. In view of the above discussion, we are of the considered view that router and switches can be classified as a computer when they are used along with a computer and when their functions are integrated with a 'computer' In other words, when a device is used as part of the computer in its functions, then it would be termed as a computer. " (emphasis supplied) b. In the instant case's context. the functioning of the VSAT's (which are akin to advanced routers) form part and parcel of the computer and Computer network setup of the assessee company thereby playing a Vital role in bringing all the assessee computers live and hooked on to the NSE servers only supports the view taken by Data Craft (supra) and affirms that the VSAT'S are integral part of the computer / computer network and hence eligible for depreciation. c. This view has been confirmed in multiple Tribunals (list attached)Finally, we submit that multiple decisions of 3 Tribunals (Mumbai, Delhi and Hyd) are in favour of assessee directly on VSAT [list attached]. However, Anagaram Capital of ITAT Ahmedabad referred to Special Bench in Data Craft (supra) and decided against assesse without appreciating the facts about VSAT. ITAT Chennai followed Anagram without discussing the other ITAT cases for AY 2003-04 to AY 2010-11. For AY 2008-09, it allowed in favour of Assessee while referring to Special Bench in Data Craft (supra).
We have gone through the order of Tribunal dated 10.05.2016, in assessee’s own case, which is under challenge before Hon’ble Madras High Court and pending, wherein by elaborate discussion and by following the decision of Ahmedabad Tribunal in the case of Anagram Capital Ltd., vs. ACIT in dated 15.02.2011 allowed Revenue’s appeal setting aside the order of CIT(A) restricting the depreciation @15% instead claimed by assessee at 60%. Hence, respectfully following the Co-ordinate Bench decision, which is under challenge before Hon’ble Madras High Court by assessee, we dismiss this appeal of assessee.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced in the open court on 15th September, 2023 at Chennai.