M/S FASTWAY TRANSMISSION (P) LTD.,CHANDIGARH vs. ACIT, CHANDIGARH

Per Sanjay Garg, Judicial Member:

आदेश/ORDER

These appeals relating to different assessment years have

been preferred by the assessee against the corresponding

separate orders passed by the Ld. Commissioner of Income Tax

(Appeals)-3 Gurgaon, (hereinafter referred to as CIT(Appeals))

u/s 250(6) of the Income Tax Act,1961 (hereinafter referred to

as ‘the Act’). Since the facts as well the issues involved in all

the captioned appeals are identical, hence, these have been

heard together and are being disposed of with this common

order:

lead case for the sake of convenience.

ITA No. 547/Chd/2017

impugned orders of the lower authorities, are that the

assessee is engaged in the business of Multi System Operators

and Digital Cable Services (DCS). The DCS services are

rendered to the customers through set top boxes. The

assessee, thus, acts as an intermediate between local cable

operators and broadcasters. The assessee for the assessment

year under consideration declared a loss of Rs.30,21,64,573/-

in the return of income. During the course of assessment

proceedings, the Assessing Officer (in short ‘AO’) noticed that

the assessee had entered into a financial lease agreement with

M/s CISCO Capital System India Pvt. Ltd. (hereinafter referred

to as CISCO) for supply of Set Top Boxes (hereinafter referred

to as STB) and Head Ends. The Assessing Officer further noted

that CISCO was a Non-Banking Finance Company (NBFC)

registered with Reserve Bank of India and was in the business

of providing different types of loans on assets/equipments to

its customers. The Assessing Officer found that the assessee

had entered into the said agreement with CISCO through

Master Lease Finance Agreement dated 7.12.2011 along with a

number of schedules, wherein the lease term was 48 months

for the supply of 7,91,924 number of STBs and Head ends for

the amount detailed as under:

STB = Rs.11,82,70,066 Custom Duty = Rs.25,94,63,987 Head ends = Rs.7,90,48,205 Total = Rs.144,67,82,258

The AO further noted from the Notes to Accounts, forming

part of the Balance Sheet that the assessee had treated the

arrangement with CISCO as a Finance lease capitalizing the

principal component (cost plus custom duty) of the agreed

lease rent. The assessee debited only the interest in the Profit

and Loss account and further treated the assets leased (set

top boxes) as fixed assets. However, for the purpose of

computation of income as per the provisions of the Income Tax

Act, the principal component of the lease rentals amounting to

Rs.58,87,16,983/- was also claimed as deduction along with

interest component.

On being asked to explain in this respect, the assessee

explained that in the books of accounts, following mandatory

accounting standard AS-19 for the companies prescribed by

the Institute of Chartered Accountants of India, the assets

were treated as fixed assets and the transaction with CISCO

was treated as Finance Lease, whereas, for the purpose of

Income Tax Act, the transaction was treated as operating lease

and thereby claiming the lease rental paid to CISCO as

deduction.

The AO, after analyzing the various clauses of the agreement

entered into by the assessee with CISCO, held that the

assessee had entered into a finance lease agreement with

CISCO and was entitled to claim depreciation on the assets so

leased. Accordingly, the Assessing Officer disallowed the

claim of deduction of the Principal component of the lease

rentals amounting to Rs.58,87,16,983/- made by the assessee

and allowed depreciation @ 15% amounting to

Rs.16,18,14,843/- on the leased assets, thus resulting in an

addition of Rs.42,69,02,140/-. He rejected the alternate

contention of the assessee that the STB would fall within the

definition and scope of computers, hence, depreciation on the

same should be granted @ 60% as provided under I.T. Rules,

1962. The AO also found that the assessee had claimed

double deduction on account of interest paid to CISCO

amounting to Rs.6,38,170/- and added the same to the income

of the assessee. The Assessing Officer further made

disallowance on account of excess deduction claimed u/s 35D

of the Act by the assessee amounting to Rs.2.40 crores and

Rs.3,41,870/-. Further disallowance of interest, amounting to

Rs.28,68,096/- was also made, u/s 36(1)(iii) of the Act, on

account of payments made on behalf of one M/s G.S. Majestic

Developers Pvt. Ltd. treating the same to be in the nature of

loan for non business purpose. Thus, after making above

disallowances/additions, the Assessing Officer assessed the

income of the assessee at Rs.21,19,85,703 as against loss of

Rs.30,21,64,573/- returned by the assessee.

Assessing Officer before the CIT(Appeals) but could not

succeed on any of the issues raised.

come up in appeal before us raising the following Grounds:

“1. That the Worthy Commissioner of Income Tax (Appeals)- 5, Gurgaon has grossly erred in dismissing all the grounds of appeal as taken before him by the appellant without appreciating the detailed

submissions and various contentions as raised by the assessee during the course of number of hearings and has passed the order in a summary manner and has just confirmed the additions, which are totally uncalled for and against the facts and circumstances of the case. 2. That the Worthy CIT(A) has erred in confirming the addition of Rs.6,00,38,170/-, which had been claimed in the computation of income u/s 37 as interest paid to the M/s Cisco System Capital India Pvt. Ltd., towards the payment of interest on account of Set top Boxes taken on lease from the above said company. 3. That the Worthy CIT (A) has erred in holding that the transactions between the appellant company and M/s Cisco System Capital India Pvt. Ltd., are on account of financial lease and which finding is against the material on record. 4. That the Worthy CIT (A) has erred in confirming the action of the Assessing Officer with regard to the addition of Rs.42,69,02,407/- as lease rental charges and allowing the depreciation u/s 32 as per AO order, which is against the decided law on the subject and the various judgments, which we had cited before him the claim by the appellate of lease rent to the tune of Rs.58,87,16,983/- has been denied in summary manner on certain irrelevant facts. 5. That the Worthy CIT (A) has erred in holding in para 5.4.13 about treating the lease rental as capital expenditure and not allowing the deduction u/s 37 of the Income Tax Act is against the facts and circumstances of the case. 6. That the Worthy CIT (A) has erred in confirming the action of the Assessing Officer in disallowing the deduction u/s 35D amounting to Rs.2.40 crores. 7. That the Worthy CIT (A) has erred in confirming the addition of Rs.3,41,870/- on account of alleged unexplained expenditure. 8. That the Worthy CIT(A) has erred in confirming the action of the Assessing Officer in disallowing the interest amounting to Rs.28,68,096/- u/s 36 (1)(iii) and holding that the amount of Rs. 3.20 crores as

advanced by the company was not for the business purposes.

taken the following additional ground of appeal:

"Without prejudice, the assessing officer erred in not allowing depreciation on Set top boxes at the eligible rate of 60% "

hence needs no adjudication.

agitated the action of the CIT(A) in confirming the addition of

Rs.6,00,38,170/- made on account of interest paid to M/s

CISCO Capital System holding the same to have been claimed

twice by the assessee.

submitted that during the relevant year 2013-14 for ‘STBs &

head ends, there were two components of the lease payments

made by the assessee to M/s CISCO

Principal Component – Rs. 58,87,16,983/-

Interest Component – Rs. 6,00,38,178/-

Total Rs. 64,87,55,153/-

The Ld. Counsel has further submitted that as per the

accounting standards AS-19 prescribed by the Institute of

Chartered Accountants of India (ICAI), the assessee capitalized

the aforesaid total amount of Rs. 64,87,55,153/- in the books

of account and claimed depreciation on it. The assessee did

not debit the interest competent of Rs. 6,00,38,178/- in the

profit and loss account, though inadvertently mentioned so in

‘Note 2J’ of the Audited Accounts that interest component has

been debited. However, actually it was not done so. The Ld.

Counsel in this respect has submitted that it is not the case of

the Assessing Officer that the interest component was not

allowable as deduction to the assessee but the limited issue

that whether the assessee has claimed double deduction of the

same which can be well verified from the accounts of the

assessee by the Assessing Officer. The Ld. counsel for the

assessee in this respect has further submitted that Assessing

Officer mistook the figure of Rs. 5.35 crores as claim of

deduction on account of interest expenditure, rather, the said

figure was in respect of interest on service tax which was part

of the total figure of Rs. 9.48 crores debited under the head

‘Finance Cost’ and not a part of the figure of Rs. 64.87 cores

relating to the lease payment charges. The Ld. counsel in this

respect has further submitted that the payment of Rs. 5.35

cores, notice of which has been taken by the Assessing Officer

was towards interest on service tax which was apparent from

the fact that the said amount was deposited under the code

“00440218 – Cable Operator”. The Ld. Counsel has further

relied upon the copy of the challans placed at pages 59 to 61

of the paper book to show that the interest / penalty /

overheads as service tax, whereas, the code 00440217 relates

to service tax. The sum and substance of the whole arguments

of the Ld. counsel, was that the interest component of the

total lease rental paid by the assessee was required to be

debited into the profit and loss account even as per AS-19,

however, the assessee inadvertently capitalized the entire

amount of lease rental of Rs. 64.87 crores. However, in the

income tax return, the entire lease rental of Rs. 64.87 cores

has been claimed as deduction of expenditure u/s 37 of the

Income Tax Act. That there was no deduction of the interest

component of Rs. 6,00,38,178/- which is otherwise allowable

to the assessee under both the conditions i.e. whether the

transaction is taken as that of lease or as that of loan. The

assessee was entitled to claim deduction u/s 37 of the interest

expenditure incurred / paid for the procurements of the assets

which were used solely for the business of the assessee.

of the lower authorities and has further submitted that the

issue whether double deduction has been claimed by the

assessee of the interest expenditure should be restored to the

Assessing Officer for verification. Considering the above

submissions of the Ld. representatives of the parties, this

issue is restored to the file of the Assessing Officer for limited

purpose of verification that whether the assessee has claimed

double deduction of the amount of Rs. 6,00,38,178/- claimed

as interest component of the total lease rental claim of Rs.

64,87,55153/-. However, the issue as to the allowability of

deduction of principal component of Rs. 58,87,16,983/- has

been contested vide ground Nos. 3 to 5 which has been

discussed in the subsequent paras of this order.

In view of this, the issue raised vide ground No.2 of the

appeal is accordingly restored to the file of the Assessing

Officer in the terms as indicated above.

the assessee are against the action of the Ld. CIT (Appeals) in

upholding the order of the Assessing Officer treating the lease

agreement entered into by the assessee with CISCO as a

finance lease agreement as against operating lease claimed by

the assessee. Since the issues raised vide above grounds are

interlinked, hence the same are taken together for

adjudication.

Representatives of both the parties and have also gone

through the record. The detailed submissions of the Ld.

Counsel for the assessee on the issue are summed up point

wise as under: -

A) That there were both types of transactions done by the assessee with CISCO i.e. some equipment were leased out by the CISCO and the other were purchased directly by the assessee. In case of direct purchase, the assets were capitalized and depreciation claimed on those. However, in case of leased assets, though, in view of the mandatory requirement for the companies as per Companies Act to follow the Accounting Standard AS-19 prescribed by Institute of Chartered Accountants of India, the lease transaction with CISCO was booked as Finance Lease, however, in fact, the same was an operating lease. Hence, though, as per the accounting standard ES-19, STPs were capitalized and depreciation computed, however, in the income tax return the depreciation so computed was written back and instead the lease rent (both principal component and interest component) was claimed as deductible expenditure u/s 37 of the Act.

B) That as per the provisions of the Income Tax Act ( in short ‘the Act’), depreciation is admissible under section 32 of the Act only to the owner of the asset. That the lease charges paid for the use of the asset to the owner of the asset are allowable as revenue expenditure under section 37 of the I.T. Act to the payer.

C) That at page 80 in paragraph 5.4.4 of the impugned order, the Ld. CIT(A) himself has mentioned, “there is no doubt about the genuineness of the lease agreement”. The Ld. Counsel in this respect has submitted that when the CIT(A) did not have any doubt about the genuineness of the lease agreement, then

there was no question of making any disallowance holding the lease agreement as non-genuine.

D) That the Income Tax Act does not recognize the difference between the finance lease and operating lease. Reliance in this respect has been placed upon the CBDT circular No. 2 of 2001.

E) That in the purchase bills CISCO has been mentioned as buyer.

F) That CISCO had claimed the lease rentals as its income and TDS has been deducted by the assessee on the lease rentals, which had been affirmed also by CISCO in its reply to query raised to it by the AO by issuing notice u/s 133(6) of the Act

G) That CISCO has claimed depreciation on the assets/equipment as owner, which has been allowed to it @ 60% from A.Y 08-09-A.Y 10-11 and that even AO had accepted depreciation claimed on STB @60% in A.Y 13-14, which was confirmed by the DRP also.

H) That the entries in the books of account are not determinative of the nature of the transaction. The income for the purpose of levy of income tax is to be determined as per the provisions of the Income Tax Act, 1961, and the Accounting Standards are not relevant for the same. Reliance in this regard was placed on the decision of the apex court in Kedarnath Jute Manufacturing Co. ltd. vs CIT (1971) 83 ITR 363; Sutlej Cotton Mills Ltd. Vs CIT 116 ITR 1 and further upon the CBDT Circular No.2 of 2001 dated 9.2.2001 stating that the Accounting Standards on leases will have no implication on the allowance of depreciation on asset under the provisions of Income Tax Act. Reliance was further placed on notification issued by the CBDT dated 9.1.2015 and further dated 29.9.2016 pointing out therefrom that the Accounting Standards- 19 relating to accounting for leases has not been notified for the purpose of applicability under the Income Tax Act.

I) That in finance lease there is outright sales and the seller tries to secure itself with collateral security as virtually ownership is transferred to lessee, which is absent in the present case where CISCO has no security rather ownership and control over the asset and there is no charge registered with the ROC also by CISCO which is mandatory if there is ownership of lessee.

J) The Ld. Counsel for the assessee has further submitted that so far the argument that the assessee had claimed CENVAT credit on leasehold goods, he explained from page 38 to 41 of the written submissions that for claiming CENVET credit, it is not essential that assessee must be owner of the goods.

K) The Ld. Counsel for the assessee has further invited our attention to the following clauses of the lease agreement and submitted that it was apparent that the assessee was not the owner of the equipment and that CISCO was the owner of the equipment:

i) That in the Master Lease and Finance Agreement Financing and leasing are separate transactions. The finance agreement is applicable to software license, maintenance, services whereas lease agreement are applicable to equipment.

ii) That monthly rent was paid for usage and no lump sum payment was paid showing that the asset had been leased to the assessee for usage only.

iii) That the risks and rewards of ownership were equally distributed between the lessor and the lessee.

iv) As para 1.2 of the deed, the lessor shall all times retain title to the equipment. Without permission of the lessor the lessee shall not dispose of any of the equipment. The record of maintenance etc. will be produced before the lessor.

v) As per clauses 5.1 and 5.2, the lessee was entitled to use the asset in its business only.

vi) As per Clauses 11.1 and 11.2 of the deed, in default of payment by the assessee, the consequences entailed returning the asset to the lessor.

vii) As per Clause 9.1, on end of the lease, the equipment was to be returned to the lessor.

Various judgements have been relied upon by Ld. Counsel for

the assessee to stress the point that when the ownership had

not transferred to the lessee then the arrangement can not be

said to be of a loan or finance. The judgements referred to are

as under:

submitted that in any case it would be a revenue neutral

exercise. Either the assessee would be entitled to lease

charges or to depreciation. He is this respect has relied upon

the decision of the Delhi High Court in the case of “CIT v.

Triveni Engineering and Industries Ltd.” [2011] 336 ITR 374

(Delhi).

written submissions in support of its contention. The main

thrust of the Ld. DR has been that the impugned agreement

was a loan/finance agreement, with the assessee being the

owner of the asset for all practical purposes and CISCO being

the financer. The arguments of the Ld. DR are summed up as

under:-

A. That the assessee as per its own will and as per the actual nature of the transaction has followed AS-19, which does not mandate or require an assessee to claim a transaction as a financial lease. AS-19 simply prescribes as to what is the operating lease and finance lease. Assessee having itself categorized it as financial lease in the books was estopped from taking a different stand for the purpose of taxation.

B. The assesse for the purpose of deferment of tax has given the different treatment to the aforesaid transaction of loan.

C. As per the lease agreement, the lease term was non- cancellable and the obligation was absolute (Clause 1.3).

D. That the life span of set top box was 3 to 4 years. The term of the lease deed was so devised to cover both the principal and interest components of the financed amount within the lease period.( Lease Schedule & Clause 11 ). The lessee had, on the

termination of lease, the option to transfer the asset at Rs.1 per set top box.

E. The CISCO has no ownership control over the equipment. In case of breach of contract, the set top boxes cannot be taken away from the millions of consumers by the CISCO. That the other option of returning the asset after uninstallation from customers premises and shipping back to the lessor, being far more expensive, the said option was merely a camouflage, with the real intention being to sell the asset to the lessee at very low price on the termination/expiry of the agreement.

F. The assessee had availed credit of custom duty paid on the import of the set top boxes against service tax liability. The assessee had also availed CENVAT credit on STBs claiming them to be capital goods.

G. That the regulations framed by Telecom Regulatory Authority of India (TRAI) stipulate that the customer can keep the box after expiry of 3 years of installation. The assessee could not have complied with above condition if it were not the owner of the asset.

H. That the TDS had been deducted only on the interest component of the payments made by the lessee and not on the principal components.

I. That the purchase bills of these assets revealed that the asset has been billed to Fastway Transmission (P) Ltd. recognizing the assessee as primary buyer and user.

J. That the lessor has also treated the agreement as finance lease in its Books.

K. That the sworn statements of Shri Rajesh Mehru, CFO of the company, Shri Sushil Thakur, Assistant Manager (Accounts) in the company, Shri Chaman Lal Katiyal, Accounts Head in the company, recorded during the course of survey u/s 133A or under section 131 of the Act, reaffirmed that the transaction was that of a loan.

L. That the assessee through letter dated 24.2.2014 addressed to DDIT(Investigation) had stated that it had shown the lease finance as unsecured loan in its books.

M. That CISCO is a Non Banking Finance Company (NBFC) and its main activity is of financing and not leasing.

N. That all the risks and rewards associated with ownership lay with the assessee, the lessee. The risks agreed to be borne by the lessee as per the terms of the MLFA are as under:

a) As per clause 1.2 of the agreement the risks and responsibility associated with the procurement of the asset lay solely upon the assessee.

b) The lessee was solely responsible for delivery, installation, maintenance and repayment of the equipment, warrantees, indemnities and insurance. All fees, taxes and charges levied by the Government were the responsibility of the lessee. (Clause 5.1- 5.3)

c) The risks associated with loss, theft, damage, destruction of asset lay with the lessee. (Clause 5.4)

d) The lessee was required to obtain and maintain the risk insurance coverage with respect to the equipment insured, against any casualty to the equipment, any commercial liability etc., with the insurance policy naming the lessee as the insured. (Clause 5.5)

e) The lessee was required to indemnify the lessor against all claims such as demands, actions, debts, settlements, etc. arising on account of leasing documents, equipment, ownership of equipment, infringement of patent, copyright, etc. It was pointed out that by virtue of the indemnity clause the lessee had been burdened with extraordinary responsibility and risks while the lessor was exonerated from the same and the element of bailment was completely missing. (Clause 6)

f) While the lessee had the right to terminate the lease by prepaying the rent, the lessor had no such option except in the case of default by the lessee. (Clause 10.2)

g) The lessee was granted all rights of possession and user of the equipment and of manufacturer warrantee rights relating to the asset. (Clause 8)

h) The lessee had been given right of sublease the equipment to its customers and put permanent marking on the equipment. (Clause 12 of lease schedule)

i) Foreign Exchange fluctuation loss or gain on imports of asset was to be borne by the lessee.

Reliance has been placed on the decision of the Special Bench

of I.T.A.T. in the case of “Indusind Bank Ltd. Vs. CIT” 135 ITD

165, “Asea Brown Boveri Ltd. Vs. Industrial Finance

Corporation of India”, 154 Taxman 512, “Association of

Leasing and Financial Service Companies Vs. Union of India”

(2011) 2 SCC 352. Reliance was also placed on CBDT

Instruction No.1978 dated 31.12.1999 laying down certain

features to determine the ownership of leased asset for the

purpose of allowing depreciation u/s 32 of the Act.

foremost argument of the Ld. Counsel for the assessee is that

since the Income Tax Act,1961 does not recognize the

difference between the finance lease and operating lease,

hence whatever type of lease it may be, the assessee can not

be denied the benefit of deduction u/s 37 of the Act of revenue

expenditure incurred by the assessee in the shape of lease

rental solely for the business purpose of the assessee. That

the distinction between an operating lease or finance lease is

prescribed in the Accounting Standard (AS-19) by the ICAI

which is mandatorily required to be followed by the Companies

for making accounting entries, however, the said standard has

no relevance so far as the computation of the income under

the provisions of Income Tax Act was concerned. The Ld.

counsel in this respect has relied upon the decision of the

Apex Court in the case of ‘Kedarnath Jute Manufacturing Co.

Ltd. vs CIT’ (supra) and CBDT Circular No. 2 of 2001 dated

9.2.2001.

noted above and further relying upon the decision of the

Special Bench of the Tribunal in the case of ‘IndusInd Bank

Ltd. vs ACIT’ (supra) as well as of Hon'ble Supreme Court in

the case of ‘Association of Leasing and Financing Services Co.

Ltd v Union of India’ [2011] 2 SCC 352 has submitted that the

assessee himself had treated the aforesaid lease as ‘Finance

Lease’ as per AS-19 and further that as per AS-19, the

assessee is entitled to only depreciation on the equipment as

per the rules; That after analyzing the contents of the

agreement in question, the Assessing Officer rightly held that

the transaction in question was a Finance Lease and hence,

the Assessing Officer rightly denied the deduction of alleged

lease rental paid to CISCO as the same was not a revenue

expenditure.

discuss the relevant provisions of the Act relating to

allowability of claim of deduction as depreciation on capital

assets and also relating to the allowability of revenue

expenditure.

allowance of deduction on account of depreciation on Capital

Assets and reads as under:

Section 32 of the Income Tax Act.

“Depreciation. Section - 32

allowability of the expenditure solely incurred for the business

purposes, the relevant part of the section is reproduced as

under:-

“General Section - 37 37. Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession".

Explanation ….”

claim of depreciation, asset must be owned wholly or partially

by the assessee and is used for the purpose of business or

profession of the assessee. Whereas any expenditure, not

being in the nature of the capital expenditure or personal

expenditure of the assessee, laid out or expended wholly and

exclusively for the purpose of business of the assessee is

allowable as a deduction of expenditure u/s 37 of the Act.

component of lease rental claimed by the assessee is a

Revenue expenditure falling u/s 37 of the Act or a capital

expenditure incurred for the purpose of capital assets upon

which the assessee can be allowed depreciation as per the

provisions of section 32 of the Income Tax Act.

equipment in question was the property of CISCO which was

taken by the assessee on lease from CISCO against payment

of lease charges; Whereas, the sum and substance of the

arguments of the Ld. DR has been that the transaction in

fact, was a finance lease as defined by the ICAI in its AS-19.

The AS-19 prescribed by the ICAI reads as under:-

“3.1 A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. 3.2 A finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset. 3.3 An operating lease is a lease other than a finance lease.”

force in the contention of the Ld. Counsel for the assessee

that the Income Tax Act does not recognize or differentiate

between different types of lease transactions. As per the

provisions of the Income Tax Act, any expenditure incurred

on capital assets cannot be allowed as deduction of

expenditure, however, an assessee can claim depreciation

as prescribed by the rules on the value of such an asset.

However, if such an asset, as claimed in this case by the

assessee, is not owned by the assessee, rather, the same

has been procured on lease or hire basis to be used solely

for business purpose of the assessee, the hire charges /

lease rental paid for such an asset will be admissible as

revenue expenditure u/s 37 of the Act. In this case, the

Revenue has tried to draw distinction between two types of

leases classifying them as operating lease and finance lease

as per guidelines issued by the ICAI vide AS-19. We find

that AS-19 has been prescribed by the ICAI to be followed

for maintaining the account books by the companies.

However, so far as the Income Tax Act is concerned, the

same has no relevance. There is no provision under the

Income Tax Act differentiating between Operating Lease and

Finance Lease. Further the CBDT Circular No. 2 of 2001

dated 9.2.2001 reads as under:-

“CIRCULAR NO. 2 of 2001

Finance Lease Agreements—Effect of publication of Accounting Standards on allowability of depreciation— Reg. 9/02/20

DEPRECIATION SECTION 32

Under the Income-tax Act, in all leasing transactions, the owner of the asset is entitled to the depreciation if the same is used in the business, under section 32 of the Income-tax Act. The ownership of the asset is determined by the terms of contract between the lessor and the lessee.

(F.No. 225/190/98/ITA.II) has laid down the line of investigation in such cases. In cases where assets are factually nonexistent, having been created by hawala transaction, the question of allowance of depreciation does not arise. In cases of sale and lease-back of assets without any alternation in the situation of assets and its working, the denial of depreciation claimed has to be considered keeping in view the principle laid down by the Supreme Court in the case of McDowel & Co. Ltd. (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC). 2. It has come to the notice of the Board that the new Accounting Standard on ‘Leases’ issued by the Institute of Chartered Accountants of India require capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will have no implication on the allowance of depreciation on assets under the provisions of the Income-tax Act. 3. The contents of this Circular may be brought to the notice of all concerned. [F.No. 225/86/2000/ITA-II—From Central Board of Direct Taxes]”

SOURCE : (2001) 165 CTR (St) 25

same in fact talks of a loan agreement described as a lease. In

our view, more confusion will be created if the reliance is

placed on AS-19 prescribed by ICAI for deciding the claim of

deduction under the Income Tax Act. When the Income Tax Act

does not distinguishes between various type of leases, we find

no justifiable reason to firstly describe and categorise a

particular type of transaction/agreement as a form of lease

named “finance lease” and then to say that the provisions of

section 37 of the Income Tax Act for claim of expenditure on

lease rental will not be applicable on such type of lease; this,

in our view, will be against the provisions of the Income Tax

Act. On the one hand, terming and placing a transaction /

agreement under the genre of ‘Lease’ and then to say that such

particular species of that genre will not be entitled to the

deductions as prescribed for the lease transactions under the

Income Tax Act, in our view, serves no purpose other than

confusion and conflict of opinion giving rise to the dispute and

litigation on the issue. As per the provisions of the Income Tax

Act what is to be determined as to whether the agreement /

transactions in question is of a lease or a loan or of a hire /

purchase.

The Hon’ble Supreme Court in the case of “Tuticorin Alkali

Chemicals and Fertilizers Ltd. Vs CIT” 227 ITR 172: [1997] 93

Taxman 502 (SC) has held that normally, the Accounting

Standards is accepted but it cannot override the provisions of the

Income Tax Act. The relevant part of the observation made by the

by the hon’ble Supreme Court is reproduced as under:

“28. It is true that this Court has very often referred to accounting practice for ascertainment of profit made by a company or value of the assets of a company. But when the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. Accounting practice cannot override section 56 or any other provision of the Act. As was pointed out by Lord Russell in the case of B.S.C. Footwear Ltd. ( supra), the Income- tax Law does not march step by step in the footprints of the accountancy profession.”

Further, it has ben held by the Hon'ble Supreme Court in the

case of ‘Kedarnath Jute Manufacturing Co. ltd. vs CIT’ (Supra)

that whether the assessee was fully entitled to a particular

deduction or not, would depend upon the provisions of the

Income Tax Act and not on the entries of his books of account.

The Hon'ble Supreme Court in the case of ‘Sutlej Cotton Mills

vs CIT’ 116 ITR 1 has held that the entries in the books of

account were not determinative of the taxable income of the

assessee

whether the assessee is the owner of the equipment or the

same is hired on rent by the assessee from CISCO or to say in

other words whether the agreement with CISCO is of a “lease”

as claimed by the assessee or the same is mere loan / finance

agreement. Though the contention of the Ld. AR has been that

since the AO himself termed the transaction as Finance Lease

which admittedly is a form of lease hence, the assessee is

entitled to deduction of lease rental paid as revenue

expenditure. However, we are not convinced with the above

contention of the Ld. Counsel for the assessee. Hon’ble

Supreme in the case of “ Sundaram Finance Ltd vs State Of

Kerala And Another” 1966 AIR 1178, 1966 SCR (2) 828 (by the

majority view) has held that the true effect of a transaction

may be determined from the terms of the agreement

considered in the light of the surrounding circumstances.

In each case the Court has, unless prohibited by statute,

power to go behind the documents and to determine the nature

of the transaction, whatever may be the form of the document.

Though both the Ld. Representatives of the parties have relied

upon various case laws in support of their contentions,

however, without separately discussing the facts of each of the

case law relied upon, it may be well observed that it is

nowhere held in any of the case laws that the nomenclature

given to a transaction by the parties is sacrosanct or is

determinative of the nature of the transaction. It is only after

considering the relevant facts and circumstances and the

various clauses of the agreement that the real intention of the

parties behind the agreement is gathered which is

determinative of the nature of such transaction/agreement. A

perusal of the case laws cited reveals that the judges of the

Hon'ble Apex Court as well of the Hon'ble High Courts are

unanimous to hold that the true legal relation arising from a

transaction determines the taxability of the receipt arising

from the transaction under the Income Tax Act. In a case,

where the terms of the transaction are embodied in a

document, the true effect of a transaction may be determined

from the terms of the agreement considered in the light of the

surrounding circumstances. For the purpose of deciding

whether a particular transaction is a lease or not, the question

of intentions of the parties is to be determined and the

intention has to be inferred from the circumstances of each

case. As per the facts of the present case, the transaction in

question may be either of a Lease or of a loan or a Hire-

Purchase agreement. Now we will discuss separately about the

respective salient features of Lease, loan and Hire-Purchase

agreements.

Act. However, the term ‘lease’ has been defined under Section

105 of the Transfer of Property Act, 1882, but the same is in

context to lease of immovable property. The said definition is

reproduced as under:—

"a lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms"

The said definition when applied in case of lease of moveable

properties would mean that the lease is the transfer of right to

enjoy the property in question. Such a transfer of right can be

made for a fixed time or for indefinite time and in lieu of getting

the right to possess and enjoy the property, the lessee has to pay

certain considerations either in cash or in kind to the lessor.

Hence, the lease is an arrangement whereby lessor conveys

user rights in an asset to the lessee. The asset is owned for all

practical purposes by the lessor, having all rights and bearing

all risks associated with ownership, and the lessee is given

only the user rights in the asset. The dominant control over

the asset remains with the lessor.

However, in a loan transaction, the asset is owned and

possessed by the loanee/debtor. The loanee/debtor bears al

the risk relating to the asset. The creditor is entitled to the

return of the principal amount along with interest etc. as per

agreement between the creditor and debtor. The creditor,

however, for the security of the money advanced may get a lien

over the asset purchased with the loan amount until his dues

are paid back by the debtor.

However, the confusion arises in case of certain transaction

which, though, apparently appears to be of lease of asset viz.

asset/s purchased by lessor and further leased out to the

lessee; but in actual this type of transaction is an

arrangement of financing the purchase of the asset for the so

called lessee (debtor) and such an lessee in fact is the owner

of the asset and is liable to bear all type of risks associated

with such asset. In this form of arrangement, the so-called

lessor’s role is confined to only financing the purchase and he

has no other interest or is not liable for any risk associated

with the asset. It is the so called lessee who, for all practical

purposes, is the owner of the asset exercising all rights of

ownership and bearing all risks associated with the asset,

paying back the entire cost of the asset to the lessor over the

term of the lease which generally is the economic life of the

asset and acquiring ownership of the asset on termination of

the lease at very low price.

The third type of such like transactions is a hire-purchase

agreement which in fact is lease cum purchase agreement. In

Hire -purchase agreement, the hirer has option to terminate

the agreement by returning the goods to the owner, but, in

financial lease, the terms are so devised that the goods are

passed on to the lessee without any option to the lessee to

terminate the agreement at his own will by returning the

goods. In hire-purchase agreement, the seller remains the

owner of the goods till the last instalment of the agreed price

is paid by the hirer or the hirer chooses to buy the goods

before the expiry of the term of agreement. An interesting

question as to whether the transaction was a hire-purchase

agreement or a mere loan/finance transaction came into

consideration before the Hon’ble Supreme in the case of

“Sundaram Finance Ltd vs State Of Kerala And Another” 1966

AIR 1178, 1966 SCR (2) 828 after analyzing the various terms

and clauses of the agreement observed that an owner of goods

who purports to convey absolutely or acknowledges to have

conveyed goods and subsequently purports to hire them under

a hire-purchase agreement is not estopped from proving that

the real bargain was intended to be a loan on the security of

the goods. It was held that in a hire-purchase agreement the

hirer being under no legal obligation to buy, has an option

either to return the goods or to become its owner by payment

in full of the stipulated hire charges and the price for

exercising the option. This class of hire purchase

agreements must be distinguished from transactions in

which the customer is the owner of the goods and with a view

to finance his purchase, he enters into an arrangement which

is in the form of a hire-purchase agreement with the

financier, but in substance evidences a loan transaction

subject to a hiring agreement under which the lender is given

the license to seize the goods.

deed in question, it is to be noted:

a) That as per clauses 1.2 and 8.1 of the agreement, the lessee has to select the equipment to be procured and inform the lessor accordingly. The obligation of the lessor is restricted only to the payment of the price of the equipment to the vendor. So much so that as per the said clauses, if the lease does not consummate, the lessee shall be liable to pay to the vendor in accordance with the applicable

purchase order or shall have to indemnify the lessor and hold the lessor harmless from any liability arising in connection with any supply contract or lessor right, title, interest in the equipment.

b) Further as per clause 10.2 of the agreement, the lessee in any case has to pay the full rental agreed upon and even the related items of financing transaction, even if it prematurely terminates the contract thus ensuring the repayment to the lessor of the amount financed by it.

The relevant clause is as under:

“10.2 Prepayment. Lessee may terminate a Lease or Financing Transaction by prepaying its remaining Rent. Lessee shall provide Lessor with at least one (1) month prior written notice of the intended prepayment date, Lessor may, depending on market Conditions at the time, reduce the remaining Rent to reflect such pre payment and shall advise Lessee of the balance to be paid. If a lease is terminated, Lessee shall at the same time prepay any related line items of Financing transaction.” c) As per clause 1.3 of deed, the lease is a non- cancelable lease and lessee is obliged to pay the rent due under the leased unaffected by any circumstance. The relevant clause is reproduced hereunder: “1.3 Term Not cancelable and Obligations Absolute, The Original Term of a Lease with respect to each item of Equipment leased or the Financing Transaction with respect to each Financed item under a Schedule shall commence on the date as specified in the Schedule (the "Commencement Date") and shall continue for the term provided in that Schedule, except in cases provided in sections 5.4,10.2 and 11.”

d) All cost, expenses and liability relating to the equipment including taxes, insurance and maintenance have to be borne by the assessee as per clause 2 of the agreement. e) Further the lessee is responsible, at its own expense, for the delivery of the equipment and even in installation thereof. f) Further all risks pertaining to damage, loss or destruction of the equipment is the sole responsibility of the lessee. g) Further the lessee is required to obtain all risk, insurance coverage with respect to the equipment for ensuring against any causality, commercial liability etc. h) The lessee has been given a right to sublease the asset also. i) Further as per schedule attached forming part of the agreement, the lessee can remove the permanent marking of the equipment evidencing lessee’s ownership, security and other interest therein.

question and in the light of proposition settled through

various decisions of the higher courts and highest court of the

country that when the terms of the contract looked into with

the relevant circumstances that are determinative of the

nature of the such contracts, we have no hesitation to hold

that the transaction in the present case is that of a

loan/Finance. After going through the various terms of the

deed, we find that the only role of the lessor in the present

arrangement is to finance the transaction of purchase of

equipment, with the lessee selecting the equipment to be

supplied by the dealer, using it for its expected economic life,

paying back the entire cost of the equipment over the lease

tenure and exercising all rights of ownership over the asset

and also bearing the risks of losses, damages, etc. associated

with the ownership of the asset and no option to the lessee to

terminate the lease and return the asset before the end of the

lease term. Thus, it is neither a lease, nor a hire purchase

agreement, but a loan/finance arrangement between the

parties.

So far as the contention of the Ld. Counsel for the

assessee that the title of the asset remains with the lessor is

concerned, we find from the clauses of the agreement that the

said title is retained for the purpose of security for recovery of

principal amount.

So far as the contention of the Ld. counsel for the

assessee that in view of the mandatory requirement for the

companies Act as per Companies Act to follow the Accounting

Standard AS-19, the lease transaction with CISCO was booked

as Finance Lease is concerned, though the law is well settled

that the entries in the books of account are not determinative

of the nature of the transaction , however we do not agree with

the contention that the assessee in this case was mandatorily

required to treat the lease as Finance lease in the books of

account. We agree with the submission of the Ld. DR that AS-

19 only defines the nature of the lease transaction; however, it

does not mandate that every lease transaction is to be treated

as finance lease in the books of account. The assessee in this

case, fully knowing the facts and as per the actual intentional

between the parties relating to the nature of the transaction,

out of its own will, has treated the transaction in question as

finance lease. However, we have already held that said

treatment by the assessee of the transaction in question as

per AS-19 has no relevance so far as the claim of deductions

under Income Tax Act is concerned.

The contention of the Ld. Counsel for the assessee that the

lessor, CISCO had been allowed depreciation on the assets by

the ITAT from A.Y 2008-09 to 2010-11, thus proving that its

ownership of the assets stood accepted by the Revenue, in our

view, is of no consequence since the present lease agreement

was entered into on 07-12-2011, relating to A.Y. 2012-13

which is a subsequent assessment year. Even otherwise on

going through the orders of the ITAT in the case of CISCO it is

revealed that the issue before the Co-ordinate Bench of the

ITAT related only to the rate of depreciation to which the

assessee was eligible on the leased assets and the question

regarding entitlement of claim of depreciation was never before

it. Therefore, it cannot be said that the ITAT had decided the

allowability of claim of CISCO of being owner of the asset.

Even otherwise, if the CISCO has retained some ownership

rights over the assets for the purpose of security of the loan

amount and therefore, assuming, for the sake of arguments

that the assets are not fully owned by the assessee, even then

the provisions of section 32 will be attracted as it provides for

claim of depreciation on assets owned fully or partly by an

assessee.

The contention of the Ld. Counsel that the Ld. CIT(A)

himself has mentioned, “there is no doubt about the

genuineness of the lease agreement”, in our view, is of no help

to the assessee. The impugned order is to be read as a whole,

and a single line or word can not be chosen to interpret a

different meaning. What the Ld. CIT(A) has conveyed is that

though the execution of the lease deed is not doubted but the

real intention behind the deed is to be gathered from the

various clauses of the deed and facts and circumstances of the

case. Thus, we have no hesitation in holding that the

arrangement in the present case was a loan / finance

arrangement in the guise of a lease agreement.

assessee is held to be the owner of the asset, however, the

next question that arise is whether the asset is held by the

assessee as business/trading asset or as a capital asset. The

assessee, admittedly, further gives on hire the STBs to various

consumers and installs those in their premises. The

consumers deposit refundable security amount almost equal to

the cost of the STBs to the assessee. Assessee charges

monthly rent from the consumers for three years. After the

expiry of three years, the STBs become the property of the

consumers and at the same time the security deposit gets

forfeited and appropriated to the income of the assessee,

which is also offered/subjected to income tax. The transaction

with consumers, thus, apparently appears to be of a “hire-

purchase”, the assessee being the lesser cum seller, the detail

of the transaction we will discuss in the later part of the

order. However, the question that will arise at this stage as to

an asset, held or further given on hire- purchase by an

assessee who is in the business of letting & selling a

particular type of good (STBs) on hire-purchase basis which is

essential to and integral part of main business of

‘broadcasting of channels’ of the assessee, is to be treated as

business/trading asset of the assessee eligible for claim of

deduction of expenditure u/37 of the Act or as a capital asset

of the assessee eligible for claim of deduction of depreciation

under section 32 of the Act. Since, no arguments have been

advanced on this issue by any of the parties, hence, in view of

the discussion made in earlier paras of this order, we proceed

to decide the next controversy treating the asset as a capital

asset in the hand of the assessee.

The assessee, therefore, is entitled only to claim interest

paid as part of the said lease rentals as expenditure u/s 36 (1)

(iii) of the Income Tax Act. The assessee, in view of the

discussion made above, is not entitled to claim the principal

component of alleged lease rent paid as ‘revenue expenditure’

u/s 37(1) of the Act. However, the assessee is also entitled to

claim depreciation on the said assets purchased from

borrowed capital.

Additional Ground:

before us is as to at what rate depreciation is allowable to the

assessee on the equipment so purchased by the assessee after

obtaining finance from the CISCO.

ground of appeal at this stage. It has been submitted the

additional ground is not a legal ground as the allowability of

depreciation @ 60% or @ 15% is purely based on facts and

classification of this Act, therefore, the above additional

ground cannot be admitted at this stage. In the alternative,

the Ld. DR has submitted that if the additional ground is to be

admitted, the same may be restored to the file of the CIT(A).

She, in this respect, has relied upon the decision of the

Hon’ble M.P. High Court in the case of “CIT Vs. M/s Tollaram

Hassomal” (2006) 153 Taxmann 532 (MP).

However, The Ld. AR of the assessee has submitted that

the issue as to ‘whether the assessee is eligible for

depreciation at the rate of 60%?’ was well before the Assessing

Officer and all the relevant facts have been discussed by the

AO in the order for AY 2012-13 and 2013-14. He has further

submitted that the issue of classification of computer

peripherals as computer equipment eligible for depreciation

was decided by the Hon’ble Delhi High Court in the case of

“CIT Vs Birlasoft Ltd.”, ITA No.1284/2011 which was further

affirmed by the Hon’ble Supreme Court. He, therefore has

submitted that the mere fact that the issue of classification

was admitted in both the High Court and Supreme Court goes

to prove that it is a legal issued as both the courts, as per the

provisions of Income Tax Act, 1961, can only entertain appeals

which have a question of law. The Ld. Counsel has further

submitted that if the relevant facts are already on record in

respect an additional claim which in this case is purely a legal

issue, there is no bar in raising the same at any stage of the

litigation. He in this respect has relied on the decision of the

Hon’ble Supreme Court in the case of “NTPC Vs. CIT”, 229 ITR

383 (SC).

representatives of the parties on this issue. It is not disputed

that the issue raised by way of additional ground of appeal

was already before the Assessing Officer in the proceedings for

assessment year 2012-13, the appeal against which is also

being adjudicated with this common order. Even for the year

under consideration, the assessee had raised this issue before

the AO by way of rectification application u/s 154 of the Act.

Neither any new fact, nor any new evidence is required to be

produced for adjudication of the above issue as all the

relevant facts relating to the issue are already on the file. The

question as to whether the assessee can take an additional

ground at the appellate stage even when the same has not been

raised before the lower authorities has been thoroughly

discussed by the Co-ordinate Division Bench of the Tribunal at

Mumbai, one of us (Judicial Member) being part of the said

Bench, in the case of “Pandoo P. Naig” in ITA

No.7089/Mum/2011 decided on 24.06.2016 [2016 (9) TMI 1062].

The Tribunal, while relying upon the decision of the Hon’ble

Supreme Court in the case of “National Thermal Power Company

Ltd. vs. CIT” 229 ITR 383, Full Bench of the Hon’ble Bombay

High Court in the case of “Ahmedabad Electricity Co. Ltd. vs.

CIT” (1993) 199 ITR 351, another decision of the Hon’ble Bombay

High Court in the case of “CIT vs. “CIT vs. Pruthvi Brokers and

Shareholders Pvt. Ltd.” (2012) 349 ITR 336 (Bom.) has held that

the appellate authorities have jurisdiction to deal not merely with

additional ground which became available on account of change

of circumstances or law, but with additional grounds which were

available when the return was filed. The relevant part of the

order of the Tribunal in the case of “Pandoo P. Naig” for the

purpose of reference is reproduced as under:

“19. Now coming to the point, whether, the claim put by the assessee Shri Pandoo P. Naig by way of additional ground before the Ld. CIT(A) regarding the deletion of addition of Rs.4 crore offered during the survey action and thereby offered in the return of income can be allowed at this stage?

The Ld. Counsel for the assessee in this respect has placed reliance on the decision of the Hon’ble Supreme Court in the case of “National Thermal Power Co. Ltd.” vs. CIT” 229 ITR 383. The facts before the Hon’ble Supreme Court were that the assessee in that case offered the interest amount for taxation and the assessment was completed on that basis. Before the Ld. CIT(A), the assessee though had taken a number of grounds of appeal, however, the inclusion of the said amount of interest was not challenged. The inclusion of the said amount of interest was not objected to even in the grounds of appeal as originally filed before the Tribunal. However, the assessee by way of subsequent letter raised the additional ground in relation to the said inclusion of interest into the income of the assessee. In the above circumstances, the question before the Hon’ble Supreme Court was “Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same?” The Hon’ble Supreme Court while answering the said question observed that under section 254 of the Income Tax Act, the power of the Tribunal in dealing with the appeals is expressed in the widest possible terms; the power of the Tribunal under section 254 is not restricted only to decide the grounds which arise from the order of the Commissioner of Income Tax (Appeals); that both the assessee as well as the department have a right to file an appeal/cross objection

before the Tribunal and the Tribunal is not prevented from considering questions of law arising in assessment proceedings although not raised earlier. While answering the question in affirmative, the Hon’ble Supreme Court concluded that the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee.

Pruthvi Brokers and Shareholders Pvt. Ltd.” (2012) 349 ITR 336

(Bom.) has observed that the assessee is entitled to raise not

merely additional legal submissions before the appellate

authorities, but is also entitled to raise additional clams before

them. The appellate authorities have jurisdiction to deal not

merely with additional grounds, which became available on

account of change of circumstances or law, but with additional

grounds which were available when the return was filed. The

words ‘could not have been raised’ must be construed liberally

and not strictly. There may be several factors justifying the

raising of a new plea in an appeal and each case must be

considered on its own facts.

In view of the above discussion, the additional ground

raised by the assessee is admitted for adjudication. Since as

discussed above, all the facts relevant to the issue raised

through the above stated additional ground of appeal are on

record and even the identical ground has already been

adjudicated by the Ld. CIT(A) in assessment year 2012-13 and

the appeal against the said order of the CIT(A) for assessment

year 2012-13 is being adjudicated with this common order

wherein the said ground has been taken as one of the main

grounds, hence in our view, no useful purpose will be served

for restoring the additional ground of appeal to the file of the

CIT(A) for the year under consideration. Hence, we proceed to

adjudicate the additional ground of appeal.

15%, whereas, the contention of the counsel for the assessee

is that STBs were classifiable under the head "Computers

including Computer Software" as provided under Item-Ill (5) of

the table of rates of depreciation in Appendix 1 to the Income-

tax Rules, 1962 and were eligible for depreciation @ 60%.

The Ld. Counsel to demonstrate that a STB is not only in itself

a computer but also is part and parcel of a larger computer

system from which it gets the signals, decode the audio -video

signals and pass on to the television. He in this respect has

made the following written submissions:

“Without prejudice, it is further respectfully submitted that even in a scenario the aforesaid arrangement is treated as finance lease and the appellant is deemed to be the owner of these equipment's, then depreciation on STBs should, in our submission, be allowed to the appellant at the rate of 60%, being classifiable under the head "Computers including Computer Software" as provided under Item-Ill (5) of the table of rates of depreciation in Appendix 1 to the Income-tax Rules, 1962 for the reasons explained hereunder: What is STB? In this regard, it is respectfully submitted that set-top boxes are basically hardware devices that allows a digital signal to be received, decoded and displayed on screens. In other words, it is an audio-visual equipment that decodes and performs input /output processing functions.

A set-top box is a device that enables a television set to become a user interface to the Internet and also enables a television set to receive and decode digital television (DTV) broadcasts. The main components of set top box are: System bus;

- Tuner(s); - Modulators and demodulators; Demultiplexer and decryptor; - Decoders; Graphic processors; CPU and memory; - Storage devices; - Physical interfaces; and - Physical characteristics

A set-top box contains one or more microprocessors for running the operating system, possibly Linux or Windows CE, and for parsing the MPEG transport stream. It also includes RAM, an MPEG decoder chip, and more chips for audio decoding and processing. Further it contains a hard drive for storing recorded television broadcasts, for downloaded software, and for other applications provided by DTV service provider.

Definition/Meaning of the term Computer/Computers including Computer Software

Definition under Income Tax Act

The term "computer" has not been defined under the Act. However, the term 'computer system' has been defined under Explanation (a) to clause (xi) of section 36(1) of the Act which reads as under:

'"computer system' means a device or collection o f 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, loeic, arithmetic, data storase and retrieval, communication and control"

Definition under Information Technology Act 2000

Further, the term "computer" has been defined in the Information Technology Act, 2000, to mean electronic, magnetic, optical or other high-speed 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 facilities which are connected or relates to the computer in a computer system or computer network.

Definition as per ICAI

Attention in this regard is further invited to the study material for PEE II Information Technology Paper VI issued by the ICAI, which states as follows:

"The term "Computer" can logically be applied to any calculating machine. However, in common usage, the definition of a computer has become more limited in a contemporary usage. We now define a computer as an electronic data processing device capable of receiving input, storing sets of instructions for solving problems and generating output with high speed and accuracy. Computers are composed of switches, wires, motors, transistors and integrated circuits assembled on frames. The frames form components such as keyboards, printers, visual display units, disk drives, magnetic tape drives and central processing units. These components are wired together into a netM'ork called a computing system often called a computer. " [emphasis supplied]

Thus, from the above, it is evident that "computers" do not simplicitor mean CPU's, but any device which contain computer programmes, electronic instructions, input data and output data and performs functions including, but not limited to, logic, arithmetic, data storage and retrieval, communication and control qualify as "computers" for the purpose of claiming

depreciation @ 60% in terms of section 32 of the Act. Thus, from the above, if an analysis can be drawn as to how STB's constitute a computer / computer software is as follows:

S. As per Definition of As per specification of STB, how No. Computer it classifies as STB

Thus, it is evident that a set top box is a nothing but a computer for the Cable Industry to function in as much as set

top boxes too responds to a specific set of instructions in a well- defined manner and perform input/output processing. Thus, in view of the above, it may be appreciated that set top boxes clearly qualify as "computer".

Without prejudice to the above, it is submitted that STB's are capable of being a computer and are also an integral part of the network of computers, such as Oracle Based Billing System and Conditional Access System (CAS) which processes the content and the individual STB usage for the subscriber. The fact that the STB is an integral part of the entire computer network responsible for transmitting signals and displaying the relevant output on the monitor screen/Television is explained diagrammatically as per Annexure 1.

Further, apart from the above and even otherwise, it may be appreciated that set top boxes are functionally dependent on computers as demonstrated hereunder:

It may be pertinent to note that set-top boxes comprise three separate subsystems—TV, conditional access (CA), and PC components. The TV subsystem includes a number of tuners and video decoders that are responsible for processing streams of digital information. The CA system provides MSOs with unprecedented control over what their subscribers watch and when they watch it. The PC subsystem itself is modular-based, which means that set-top designers can add and subtract various components depending on user requirements. For instance, MSOs that want to offer Internet services to their subscribers will incorporate some type of storage solution into their PC subsystem.

Moreover, detailed technical specifications proving the fact that set top box is its self it computer device and entire technical functions are not only digitally driven through the software programs but it also contains flash memory, CPU (central processing unit), power key, processor etc. on the lines of the computers. Detailed technical specifications are enclosed herewith as per Annexure-2.

Thus, for the aforesaid reason too, it is respectfully submitted that since the functioning of STB's are dependent on computers

and software, thus on this account as well they are eligible to be classified as "computers" and eligible for depreciation @ 60%.

It has been concluded from the above discussion that the Set Top boxes and audio visual streaming equipment are same as former being the trade name of the equipment. Further Set Top Boxes are itself minicomputer with inbuilt hardware and software, Technical specification of Set Top Boxes has already been discussed above which verbatim tallies with technical specifications of computer such as Decoders, graphic processors, CPU and memory etc. It has also been proved that computer is integrated with back end servers and computers for transmission of signals. Then judicial pronouncements also support the contention of the assessee that the Set Top Box is out and out computer and thus have to be classified under the category of computer and software for the purpose of depreciation.”

“ Specific reliance in this regard is placed on the decision of Bangalore Bench of Tribunal in the case of Cisco Systems Capital (India) Pvt. Ltd. vs. ACIT: ITA No. 1558 of 2012. In that case, the assessee claimed depreciation @ 60% on audio visual conferencing equipment and video streaming equipment's

treating them as computers. However, the assessing officer restricted the claim of depreciation to 15% treating it as plant and machinery. On objections filed before the DRP, the addition made in draft assessment order was confirmed by DRP.

On appeal filed before the Tribunal against final assessment order, it was held as under:

8.1 As per the details furnished by the learned counsel for the assessee, audio and video conferencing system comprise of audio-video devices/equipments which facilitate in bringing people at different sites together for a meeting. Besides the audio and visual and meeting activities, these systems can also be used to share document, computer information and boards, Conferencing works across IT net-work, ISD through computers/computer network etc., and audio/video facility consist of many elements including the use of CODEC which stands for coder-decoder. Codec is a device, which converts and compresses an analog audio-video signal into digital data and then sends it over a digital line. The decoder reverses the processes at the receiving end and this compression and decompression allows large amount of data to be transferred across a network at close to real time. Conferencing systems make use of various end points in a system such as video input consisting of camera, video output in the form of microphones and speakers etc. The data transmission happens in a number of ways depending on the technology being used including digital technologies as well as analog technologies, broadband internet connection and radio frequencies which can include satellite transmission and Wifi. Therefore, according to the learned counsel for the assessee, computer system is extremely important to conferencing process and therefore the audio visual transmission equipment should be considered as part of a computer.

8.2 Regarding the video streaming equipment, it was submitted that the video streaming allows user to begin viewing the video clips stored in a server without first downloading the entire file and after a brief period of

initiating and buffering, the file will begin to stream or play in real time. Video streaming involves a series of steps involving the use of media content, a computer that runs encoding software, servers for upholding the streamed media format and access to such media through various devices. From the above submissions, it is clear that the equipment used by the assessee for audio visual conferencing and also video streaming involves the use of computer. As certain input and output equipment may have independent functionality and existence but the computer devices which are involved in these activities would be o f no use i f these input and output devices are not used. Therefore, thoueh the input and output devices may have independent existence and functionality in so far as the activity o f the assessee is concerned, they do form part o f the computer network system without which the computer used for the purpose o f audio and video conferences would be useless. The Special Bench of the Tribunal in the case of Datacraft India Ltd., (cited supra) has held that peripheral equipments used along with computer are also part of the computer. We find that a similar issue had come up before 'B' Bench of the Tribunal at Delhi in the case of M/s.Crabtree India Ltd. vs. ACITin ITA Nos.3638 & 3639/Del/2008 and the Tribunal vide orders dated 25-2- 2010 has held that video conferencing system is a computer device that accepts information in the form of digital data by way of video input i.e. with the help of web/cam or video camera and audio input with the help of microphone and the system thereafter processed the data and transfer through analogue or digital telephone network or LAN and digital gives the output data by way of audio video output. Therefore, it is a technical device whose functions are similar to the computer because basically computer also responds to a specific set of instructions in a well defined manner. The Tribunal considered the decision of the IT AT, Calcutta Bench in the case of ITO vs. Simran Majumdar (98 ITD 119) wherein the Tribunal had considered the similar issue wherein depreciation at the rate of 60% was claimed on printers and scanners and it was held that they were eligible for depreciation at the rate of 60%. The Tribunal, however, held that the contentions of the assessee therein were not before the AO and therefore the issue was set aside to the file of the AO to consider each of the items in detail and find out which can be equated and construed as computer for the purpose of granting depreciation at the rate of 60% after providing the assessee due opportunity of hearing.

8.3 In the case before us also, all the components of the equipment are necessary for fulfillment of the objective of the audio-visual conferencing and video streaming. Some of the components may exist independently and may also be functioning independently but in the assessee's business they are only performing the functions as input and output devices. The assessee can also use this equipment independent of the computer system used in the audio visual conferencing and video streaming activity. But did the assessee use them independently is the question. In view o f the same, we are o f the opinion that the AO, instead o f classifying the entire equipment as plant and machinery and not computer, is required to examine each item in detail as regards its functional dependency on the computer and its independent existence. The items which are functionally dependent on computers are definitely part o f computer and the items with independent existence may not be computers but wherever it is found that the device is not used independent o f the computer system and the purpose o f audio visual conferencing and video streaming, the same shall be treated as computers and wherever it is used independently for any other purpose it shall be treated as plant and machinery. The A O, shall, thus allow depreciation at the rate o f 60% on the equipment which could be classified as computer and at the rate o f 15% on the equipment which could be classified as plant and machinery. This issue is accordingly set aside to the file of the AO for re-adjudication in accordance with law and our observation above. " (emphasis supplied)

It is pertinent to note that in the remand proceedings, the assessing officer allowed depreciation @ 60% on audio-visual equipments.

Further, it is submitted that in the assessment order passed in the case of CISCO for the assessment year 2013-14, the assessing officer has accepted the fact that audio-visual equipments (Set-Top Boxes) are eligible for depreciation at the rate of 60%. The relevant findings of the assessing officer are reproduced as under:

"9.1 The issue of the percentage of depreciation to be allowed in the case of audio- visual equipments had been remanded to the assessing officer for AY 2008-09 and 2009-10. This issue was discussed in detail with the authorized representatives during the passing of the remanded back order for the AY 2008-09 and 2009-10.

Based on the submission of the assessee, it was concluded that the assessee is making use of these audio-visual equipments along with the computers and they form part of the integral computer system and hence it was decided that they are eligible for depreciation at 60%. Hence, the same is applicable here and the audio visual equipments are being allowed depreciation at 60%. "

Further, even otherwise, it is settled law that various equipment and peripherals which are attached to the computer system and/or their functionality is dependent on computers are classifiable under the head "computers" and eligible for depreciation @ 60%.

Reference in this regard may be made to the decision of the Delhi High Court in the case of CIT vs. Birlasoft Ltd: ITA No 1284/2011 wherein it was held that computer peripherals should be included under the head 'computer equipment' and are therefore, entitled to depreciation @ 60%.The said decision has been affirmed by the Supreme Court in CIT vs Birlasoft Ltd: SLP No. 20645/2012.

It was held likewise by the jurisdictional Delhi High Court in the case of CIT vs. BSES Rajdhani Powers Ltd. in ITA No 1266/2010. In that case, the Court while adjudicating the issue of depreciation on computer accessories and peripherals held that computer accessories and peripherals such as printers, scanners and server, etc., form an integral part of the computer system. Further, the Court observed that computer accessories and peripherals cannot be used without the computer and consequently, as they are the part of the computer system, they are entitled to depreciation at higher rate of 60%.

Reliance is also placed on the following decisions wherein depreciation at higher rate of 60% applicable to computers has been upheld in respect of various equipment and peripherals attached to the computer system:

• Income Tax Officer vs Samiran Majumdar : 98 ITD 119 (Kol) • DCIT vs Datacraft India Ltd : (2010) 133 TTJ 377 (Mum) (SB) • Inspecting Assistant Commissioner vs Commission and General Agency : 17 ITD 6 (Bangalore) • Escorts Tractors Ltd vs Asstt CIT : 101 Taxmann 171 (Delhi) • CIT vs Karnataka Power Corporation : 247 ITR 268

• Expeditors International (India) (P) Ltd vs Addl CIT : 118 TTJ 652

Accordingly, it is respectfully prayed that the assessing officer may kindly be directed to allow depreciation @60% on the aforesaid STB's, in case the appellant is deemed to be the owner of such assets.

“ Principle of Consistency

The appellant is providing 'Digital Cable Service' to its customers since 2009 and for carrying on this business, it had purchased Set Top Boxes ('STBs') in the earlier assessment years out of its own funds and claimed depreciation @ 60% thereon which was allowed by the tax authorities after due application of mind.

In this regard, it is respectfully submitted that though principle of res-judicata does not apply to income tax proceedings, it is well settled that if there being no change either in facts or in law, as compared to the earlier and subsequent years, the position accepted/ determined by the Department needs to be followed even on the principle of consistency.

Reliance in this regard is placed on the following decisions:

- CIT vs. Excel Industries Ltd.: 358 ITR 295 (SC) - Radhasoami Satsang v. CIT: 193 ITR 321 (SC) - DIT (E) v. Apparel Export Promotion Council: 244 ITR 734 (Del) - CIT v. Neo Polypack (P) Ltd: 245 ITR 492 (Del.) - CIT v. Dalmia Promoters Developers (P) Ltd: 281 ITR 346 (Del.) - DIT v. Escorts Cardiac Diseases Hospital: 300 ITR 75 (Del.) - CIT v. P. KhrishnaWarrier: 208 ITR 823 (Ker) - CIT v Harishchandra Gupta 132 ITR 799 (Ori) - CIT v. SewaBharti Haryana Pradesh: 325 ITR 599 (P&H) - CIT v. Rajasthan Breweries Limited.: ITA 889/2009 (Del) - SLP dismissed.

Thus, in view of the above, the department having accepted that STB's are eligible for depreciation @ 60% in earlier as well as subsequent years, the same stand ought not to be changed/ modified during the year under consideration even on the principle of consistency, particularly, when no new fact/ information has been brought on record for the same.

Brief note on the assessment proceedings of CISCO Systems Capital (India) Private Limited.

CISCO Systems Capital (India) Private Limited is the owner of set top boxes. These have been classified as audio, video conferencing and video streaming equipment's. This matter has been decided by Income Tax Appellate Tribunal Bangalore Bench-C Bangalore vide its order dated 19-09-2014 for the AY 2008-09, at page 10 of this order it was held that the above said equipment, is to be treated as computer and accordingly the AO shall thus allow depreciation @60%. Similarly for the AY 2010- 11 vide its order dated 19-02-2016 ITAT Bangalore-A Bench Bangalore has also held that the depreciation @60% of the equipment shall be allowed.

Keeping in view the import of detailed submissions made above it is crystal clear that the appellant company is entitled to claim of lease rentals paid to M/s CISCO Systems Capital (India) Private Limited and it is prayed that the appeal be kindly adjudicated accordingly.”

contention of the Ld. Counsel is that the CISCO has been

allowed depreciation @ 60% on STBs is not coming out of the

order of the Tribunal (supra); That in the case of CISCO,

depreciation @ 60% has been allowed on routers and switches

and not on STBs. The Ld. DR has further submitted that STBs

are Information Application Devices designed to perform a

definite electronic function. That the function of the STBs is

to receive input signals decode those signals and pass on to

TV. He, in this respect has relied upon the decision of the

ITAT (Special Bench) of the Tribunal in the case of “Data Craft

India Ltd.” (2010) 40 SOT 295 (Mum.) (SB) ITAT), wherein it

has been held that TV is not a computer. He has further

submitted that a device can be said to be part of computer

system when its functions depends upon computer. If it is

independent of computer and it can function independently

then it will not fall within the scope of the device that may be

included in the term ‘computer system’. He has submitted that

the STBs just pass information to the TVs, it is not a

computer. He has further submitted that the STBs would not

also fall within the definition of Audio-Visual Equipment upon

which depreciation @ 60% has been allowed in the case of

CISCO. He, therefore, has submitted that the Assessing Officer

has rightly allowed the depreciation @ 15%. The Ld. DR has

also relied upon the observations and findings made by the

Assessing Officer on this issue in the Assessment order for AY

2014-15. The Ld. DR, has also strongly relied upon the

decision of the co-ordinate Cochin Bench of the Tribunal in

the case of ‘ACIT vs Kerala Communicators Cable Limited’ (ITA

No. 271/Cochi/2018 dated 30.4.2019), to submit that the Co-

ordiante Bench of the Tribunal has decided the issue of

depreciation @ 15% on STBs in favour of the Revenue. The

Ld. DR in this respect has also made the following written

submissions:

“ Note on Depreciation allowable on Set Top Box 60% or 15%”

“ 1. It is worth noting that during the assessment proceedings for AY 2017-18 the assessee has made elaborative submissions to justify that it is eligible for 60 % depreciation on STBs. The assessee has made the following major submissions:

• " Company has also started direct purchase of Set Top Boxes apart from the Set Top Boxes procured through lease, the company has claimed 60% depreciation on these assets due to nature of asset being integrated with computers and run through software aided by memory card and mother board. Thus Set Top boxes are computer in itself and are also integrated with large computer system which provide from the backend directions for the updations in packages and commands for the running of programs. • Cisco being the owner of Set Top Boxes has claimed depreciation @60% on Set Top Boxes.

• In the Hon^ble IT AT Income Tax Appellate Bengalore Bench 'C Bengalore in case of Cisco Systems Capital (India) Private Limited for the AY 2008-09 it was held that "as regard Audio visual conferencing equipment's and video steaming, the learned counsel for the assessee has filed detailed submissions before the AO as well as before us to convince us that they are also part of the computer system and are not independently functional. He has drawn our attention to the detailed submissions filed by the assessee which has also been reproduced by the AO in his order".

• It is evident that a set top box is a technical device whose functions are similar to a computer in as much as set top boxes too respond to a specific set of instructions in a well defined manner and perform input/output processing.

• It is respectfully submitted that since the functioning of STB's are dependent on computers and software, thus on this account as well they are eligible to be classified as "computers" and eligible for depreciation @ 60%.

• Specific reliance in this regard is placed on the decision of Bangalore Bench of Tribunal in the case of Cisco Systems Capital (India) Pvt. Ltd. vs. ACIT: ITA No. 1558 of 2012

• Further, it is submitted that in the assessment order passed in the case of CISCO for the assessment year 2013-14, the assessing officer has accepted the fact that audio-visual equipments (Set-Top Boxes) are eligible for depreciation at the rate of 60%. "

functions. Such devices include toasters, washing machines, microwave ovens, mobile phones, smart TVs, digital wristbands etc.

3.1 ITAT Special Bench in the case of Datacraft India Ltd. (supra) had the occasion to consider the meaning of word 'computer'. After elaborately considering the Special Bench has expounded as under:

"Thus in order to determine whether a particular machine can be classified is a computer or not, the predominant function, usage and common parlance understanding, would have to be taken into account. To analyse further, let us take the case of a Television, the principal task of which is to deliver visuals accompanied with audio. The signals are received through the relevant networks such as Dish TV, Tata Sky etc. But TV does not become computer for the reason that its principal function cannot be done only with the aid of 'computer functions' notwithstanding the fact that in the entire process of networking or receiving the output from different channels and making it available to the viewers, some sort of computer functions are necessarily involved. Similarly take the case of mobile phone. Its principal task is to receive and send calls. It is not a stand-alone apparatus which can operate without the relevant network, such as Airtel, BSNL, Reliance. It, therefore, follows that any machine or equipment cannot be described as computer, if its principal output or function is the result of some sort of 'computer Junctions' in conjunction with some non-computer functions. In order to be called as computer, it is sine qua non that the principal output/obiect/function of such machine should be achievable only through 'computer functions" 3.2 From the above exposition it is evident that just because some sort of computer functions are necessarily involved, mechanical system cannot be said to be computer unless its principal function cannot be done without the aid of computer function. In other words, any machine or equipment cannot be described as computer if its principal output or function is the result of some sort of 'computer functions' in conjunction with some non-computer functions. It was held that in order to be called as computer, it is sine qua non that the principal output/object/function of such machine could be achieved only through 'computer functions'

the television screen or other display device. They are used in cable television, satellite television, and over-the-air television systems, as well as other uses.

4.1 The main purpose of STBs is to deliver the audio-video signals to the TV viewers. But using the complex technology, more and more value is added for the operator i.e. maintaining the database of the clients, maintaining the viewer's log registers, the list of the channels subscribed by viewers, the payment schedule of the viewers etc. these additional features are achieved using computers at the back end. The STBs installed at the premises of the users helps the operator to actualize this informational and supervisory control. However, the main function of the STBs is to deliver the audio-video feed to users. The major function of the STBs i.e. decoding and thus delivering the audit video signals to the TV sets is independent of the various servers installed at the premises of MSO (Multiple System Operator). Therefore, the main functions of the STBs do not depend on servers and other electronic devices installed in the premises of operator. This main function is not dependent on backend computers installed at the premises of operator because STBs are devices which are used even in cable television, over the air televisions etc.

4.2 Therefore STBs are neither a part of Computer Systems nor a dependent on Computers. They can be at best called as Information Appliances attached to Television sets to enjoy multiple contents. Further as per case law of DCIT Mumbai v. Data Craft India Ltd. (2010) 40 SOT 295 (Mum.) (SB) ITAT), it is already decided by Hon'ble ITAT that televisions cannot be treated as computers. Therefore, any assembly attached to televisions i.e. STBs in this case cannot be treated as 'Computers'. Therefore, depreciation rate of 60 % should not be allowed to assessee.

• However, first of all it is observed that the order of Hon'ble ITAT in the case of CISCO System(India) Pvt. Limited is related to the Audit Video Conferencing devices and depreciation of 60% has been allowed by the Hon'ble ITAT and thus by the A.O. on such Audit Video Conference devices. The important points of the judgment are mentioned as below:

o Audio and video conferencing system comprise of audio-video devices/equipments which facilitate in bringing people at different sites together for a meeting. Besides the audio and visual and meeting activities, these systems can also be used to share document, computer information and boards, Conferencing works across IT net-work, ISD through computers/computer network etc.,

o Conferencing systems make use of various end points in a system such as video input consisting of camera, video output in the form of microphones and speakers etc. The data transmission happens in a number of ways depending on the technology being used including digital technologies as well as analog technologies, broadband internet connection and radio frequencies which can include satellite transmission and Wifi

o Video streaming allows user to begin viewing the video clips stored in a server without first downloading the entire file and after a brief period of initiating and buffering, the file will begin to stream or play in real time. Video streaming involves a series of steps involving the use of media content, a computer that runs encoding software, servers far upholding the streamed media format and access to such media through various devices

o From the above submissions, it is clear that the equipment used by the assessee for audio visual conferencing and also video streaming involves the use of computer. As certain input and output equipment may have independent functionality and existence but the computer devices which are involved in these activities would be of no use if these input and output devices are not used. Therefore, though the input and output devices may have independent existence and functionality in so far as the activity of the assessee is concerned, they do form part of the computer network system without which the computer used for the purpose of audio and video conferencing would be useless

• However the assessee in the present case has failed to justify how STBs are on par with Audio-Video Conferencing Devices.

• Further, it is observed that the assessee himself has made claim of depreciation of 15% on STBs in previous years. It is worth noting that for AY 2012-13 to AY 2016-17, the assessee has always been claiming 15 % depreciation on STBs. For AY 2017-18, the assessee for the first time has claimed that it is eligible for 60 % depreciation on STBs. Therefore, it is inferred that without any proper justification assessee is claiming higher depreciation rate i.e. 60% on the same kind of STBs which is not acceptable.

under:-

6.1 The STB is a self-contained system installed at the premises of the customers. The functioning of the STB is analogous to the functioning of the mobile phones.

6.2 Since, it is established fact that the mobile phones are eligible for 15% depreciation. Further, the assessee has no fair justification how STBs are a part of computer systems or how STBs are on par with Audio Video Conferencing Devices, therefore the claim of the assessee for higher depreciation is inadmissible. Further the Reliance is also placed on the following case laws:-

• ITAT Special Bench in the case of Datacraft India Ltd. (supra) had the occasion to consider the meaning of word 'computer1., as explained in above mentioned paras. • In the case of DCIT Mumbai v. Data Craft India Ltd.(2010) 40 SOT 295 (Mum.) (SB) ITAT), the issue was related to router and switches which were part and parcel of le "computer" hardware and other functions were found to be integrated one. In the case of CIT v. Bses Yamuna Powers Ltd. ITA 1267 of 2010 (Delhi High Court, depreciation was allowed at the rate of 60% on "computer" accessories and peripherals such as printers, scanners and server as these were integral part of the computer system responsible for completing the required working. Here is not the case like that. • In the case of Nestle India Ltd. v. DCIT111 TTJ 498 (ITAT Delhi) it has been held that UPS is not an integral part of computer, hence not entitled for higher rate of depreciation. Similarly, though ATM is run on the basis of computer devise, is not entitled for higher depreciation applicable to the computer. This propositions is there in the case of HDFC Bank Ltd. v. ACIT 2011 TIOL - 101 (ITAT Mumbai). Similarly, machines for designing and printing using computer technology had not been regarded as computers, vide: ST. Reddiar & Sons v. DCIT129ITD 475 (ITAT Cochin). • In the case law of Federal Bank Ltd. v. Asstt Commissioner of Income- tax Hon'ble Kerela high court held that the rate of depreciation at 60 per cent is available on computers. Since EPABX and mobile phones are not computers, the assessee was not entitled to depreciation at 60 per cent.

In view of the above mentioned discussion, it is requested to Hon'ble ITAT depreciation rate of 60 % on Set Top Boxes should not be allowed to assessee.”

Reasoning against Assessment Order for AY 2012-13 where 60% not allowed

Para As per Order Applicability to Fastway No. 6.2.4 The Ld. AO has stated that the said It is submitted that the Ld. AO did equipments are neither computers not go into the technicality of the nor energy saving devices as per the product and has summarily decided requirement of the Appendix I & IA that STB's are not computers of Income Tax Rules 1962. It also without citing any reasoning or goes to say that the STB’s are not rationale. electrical equipments.

6.2.5 Reliance on the Order of CISCO by It is submitted that when the the assessee is not in place because Hon'ble Bench has allowed audio the order does not talk about STB's visual streaming equipment to be but about audio visual conferencing part of computer system, STB is way equipments and video streaming advanced and a computer in itself. equipments, wherein it was contended that they were part of The Ld. Assessing Officer did not the computer system. examine this in detail and has summarily concluded that it is not Since the word STB was not part of a computer. mentioned in that order, the assessee is not eligible.

Further, it has also been mentioned that in the other judgement of CISCO it talks about giving depreciation to routers and switches @ 60% and not to STB's

Applicability of DCIT vs Datacraft India Limited to the case of Fastway Transmissions Private Limited

Para No. As per Order Applicability to Fastway 31.1 In short, "Router" is a hardware It is submitted that the device that routes data (hence the assessee has already established that the STB's name) from a local area network have all the capabilities of a (LAN) to another network computer and therefore eligible connection. A router acts like a for depreciation of a computer. 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.

31.4 In view of the above discussion, In the case of Fastway we are of the considered view that Transmission Private Limited, router and switches can be the STB's are computer in themselves and are also part classified as a computer Hardware of a larger computer system when they are used along with a at the back end. It is submitted computer and when their functions are integrated with a that while STB's are 'computer' In other words, when computers in themselves, the a device is used as part of the are also integrated with a computer in its functions, then it computer making them would be termed as a computer. eligible for depreciation of a computer

32 Now we will advert to the The Hon'ble Bench has reiied decisions relied on by the rival on the judgement of Samiran Majumdar wherein parties. We have set out above the the)1 have argued that printers cases decided by various Benches and scanners cannot be used of the Tribunal in favour of the without computers and assessee. The lead order is in the case of Samiran Majumdar therefore they are eligible to be (supra) which has been followed, treated as computers. directly or indirectly, in most of Similarly, STB's again, while the subsequent cases. We will being computer in themselves, cannot be used independently take up this case for discussion, in unless integrated with a which the question was whether computer and thus qualifying printer and scanner could be the assessee for depreciation of allowed a higher rate of depreciation as applicable to a computer. computers. The Bench noticed that the printer and scanner cannot be used without computer. It was on this appreciation of the factual position that the printer and scanners were held to be part of computer qualifying for depreciation at the rate applicable to computer.

32 In the opposition the orders In the opposing judgement, taking view in favour of the the argument was that routers do not perform any Revenue are led by the case of logical, arithmetical or routermania memory functions and thus Technologies(supra). In this not eligible. case it was observed that the

router is a device which links or In the case of the assessee, connects the computers for the the STB's have their own exchange of relevant data. In CPU, Operating System, reaching the Input / Output mechanism conclusion that router is not enabling them to carry out all eligible for depreciation at the the functions of a computer. rate applicable to computer, the Accordingly, it is submitted Bench noticed that the router at that the said judgement is not its own does not perform any applicable to the company. logical, arithmetical or memory functions by manipulations of electronic, magnetic or optical impulses. 33 We prefer the view taken in the case of Samiran Majumdar In the instant case, the (supra) over that in the case of assessee has already filed Routermania Technologies detailed chart of the system (supra) ; With utmost respect, how a STB functions which the Mumbai Bench had taken a establishes the fact that they narrow view on this issue, by are an absolute integral part holding that only a device of the CAS Server Computer which can perform logical, and without the STB these arithmetical or memory computers cannot function. functions by manipulations of It is the STB's that while electronic impulses etc. is performing their computer. It has restricted independent functions as a the meaning of computer only computer, give the entire to the CPU of the computer network the functioning. and pulled out the input and output devices from the As has been held by the ambit of computer. No doubt Hon'ble Bench that the the function of the computer, brain cannot be called the as one composite unit, is to body alone and that all parts perform logical, arithmetical or of the body along with the memory functions etc., but it is brain comprise of the body. not only the equipment which Similarly, the STB's cannot be performs such functions that seen in isolation and have to can be called as computer ; All be seen part of the entire the input and output devices, computer/network system as discussed above, which which it is an integral part of support in the receipt of input in the industry of the and outflow of the output are assessee. also part of computer. CPU alone, in our opinion, cannot be Thus, in light of these considered as synonymous to submissions, the assessee the expression 'Computer'. The is entitled to depreciation function of CPU is akin to the as computers. brain playing a pivotal role in the conduct of the body. As we do not call the brain alone as

the body, similarly the CPU alone cannot be described as computer. Thus the computer has to necessarily include the input and output devices within its scope, subject to their exclusive user with the computer, as discussed above. If we constrict the definition of computer only to processing unit, as has been held in the case of Routermania (supra),then even the keyboard and mouse etc. will not qualify to be called as computer because these equipments also do no performlogical, arithmetical or memory functions. In the light of the meaning of 'computer' discussed in earlier paras, we are inclined to agree with the view taken by the Kolkata Bench in Samiran Majumdar (supra).

Representatives of the parties in their rival submissions have

tried to demonstrate from the operation and functioning of the

STBs as to the whether the STBs perform functions as that of a

standard ‘computer’ or not. The counsel for the assessee, as

noted above, has firstly submitted that the components of the

STB are same as that of a computer and that the STB in itself is

a mini computer, the only difference being that it is devised to

perform specialized functions. That in the STBs hardware and

software architecture used is that of a computer. That the STBs

have their own CPU, operating system, input-output mechanism

enabling them to carry out all the functions of a computers.

Further, he has also demonstrated from the functioning of the

STBs that an STB performs function of a computer with a slightly

reduced instructions set. That the system software or the device

drivers are also as that in a personal computer but instructed to

perform the specialized functioning meant for the STBs.; that

even the application software in STBs is same and developed with

the same programming language as for a computer, but for

specific and specialized functions.

However, the main thrust of the argument of the Ld. DR has been

that just because some sort of computer functions are

necessarily involved, mechanical system cannot be said to be a

computer unless its principal function cannot be done without

the aid of the computer function. The ld. DR relying upon the

decision of Special Bench in the case of “Data Craft India

Limited” (supra) has submitted that any machine or equipment

cannot be described as computer unless its principal output or

function is the result of some sort of computer function in

conjunction with some non-computer functions. That since the

main function of STBs is to deliver the Audio / Video feed to

user, thus the major function of the STBs i.e. decoding and thus

delivering the audio video signals to the TV sets is independent of

the various servers installed at the premises of Multi System

Operator (MSO). That the main functions of the STBs do not

depend on servers and other electronic devices installed in the

premises of MSO. He, therefore, has submitted that STBs cannot

be described as computer rather at the best called

informatization appliances attached to TV set to enjoy multiple

contents. The main argument of the Ld. DR is that as per the

decision of the ‘DCIT vs Data Craft India Limited.’ (2010) 40 SOT

295 (Mum)(SB)(ITAT), the televisions cannot be treated as

computers and hence any assembly attached to television, i.e.

STBs in this case cannot be treated as computers. That in the

case of CISCO, 60% depreciation has been allowed by the ITAT on

audio / video conference devices. However, the assesses in the

present case has failed to justify how STBs are at par with Audit

/ Video conferencing devices. Further, the ld. DR has submitted

that the functioning of the STBs is analogues to the functioning

of the mobile phones. The ld. DR, therefore, has submitted that

since the mobile phones cannot be said to be computers, hence,

similarly, the STBs also cannot be said to be computers.

On the other hand, the Ld. Counsel for the assessee also

relying upon the decision of the Special Bench in ‘DCIT vs Data

Craft India Ltd.’ (2010) 40 SOT 295 (Mum)(SB)(ITAT) has

submitted that the assessee has also demonstrated that STBs

have all the capabilities of a computer and that they are not only

mini computers in itself but also part of a larger computer

system at the back-end. That the STBs cannot be used

independently unless integrated with a computer. The ld. counsel

for the assessee in this respect has relied upon the decision of

the tribunal in the case of ‘Samiran Majumdar’ ( supra), wherein,

it has been held that the printer and scanner cannot be used

without computer and, hence, were held to be a part of computer

qualifying for depreciation at the rate applicable to the

computers. The ld. representatives of both the parties, therefore,

have mainly stressed upon the functioning of the STBs to submit

whether they perform the functions of a computer or not;

although the submission of the Ld. counsel of the assessee is

that an STB is a computer itself and yet, it is further attached to

a larger computer network at back and thus being part and

parcel of a larger computer system also, whereas, the Ld. DR has

stressed that although the STB may be performing many

functions as that of a computer, yet the primary function of the

STB is decoding of the audio – video signals and further

delivering the audio – video signals to TV sets, hence, the

primary function is not of computing, hence, they cannot be said

to be computers.

too technical regarding the specific functions of the STBs to

submit whether they fall within the definition and scope of

computer or not? However, in our view, neither under the

provisions of Income Tax Act nor in the Appendix 1 to Income Tax

Rules, 1962 (providing for rate of depreciation) any such hyper

technical approach has been taken. The rate of depreciation on a

capital asset under the provisions of Income Tax Act and Rules

thereto has been provided taking into consideration the general

or approximate age of the asset and the speed at which it

depreciates. Similar type of assets irrespective of their quality,

make or the material used in, are placed under the same

category on which rate of depreciation is same/equal e.g. all

type of buildings except purely temporary erections have been

placed under the same category irrespective of their strength and

quality of the material used to erect such buildings. All types of

furniture and fittings have been placed in the same category. All

types of motor vehicles irrespective of their quality and material

used, which may affect their life span, have been placed in one

category and so on. The only difference is whether the asset is

used for commercial hiring/renting or for own

usage/consumption. At Serial No.5 of Appendix 1 to the rules,

the computer including computer software have been placed with

admissible rate of depreciation thereupon @ 60% . As per ‘Note

7’ appended below the appendix 1, it has been mentioned that

‘computer software means any computer programme recorded on

any disc, tape perforate media or other information storage

device.’ The various courts of law while adjudicating on the

issue of allowability of rate of depreciation have interpreted

‘computer and computer software’ as a ’computer system’ which

includes the other associated equipment attached with the CPU

such as monitor, mouse, key board, printer, scanner etc. as

these equipment/devices though, in themselves will not be doing

the function of computer but they are required to be attached

with the computers and cannot be operated independently. The

life span of these devices attached to the CPU goes with that of

the computer. In the modern era of fast evolution in technology

sector, the technological devices based on computer programming

and software are being replaced or required to be replaced in a

very short span of time with their new and improved versions

with enhanced capabilities and performance features etc. due to

revolutionary developments in this sector. A businessman has to

replace the old equipment with the new/improved one to compete

in the market. Hence, these types of computer devices become

obsolete very soon due to their new versions and substitutes.

Therefore, the higher rate of depreciation has been given on

computers and software as compared to ordinary plant and

machinery. There are many case laws wherein the expenditure

incurred on software etc. claimed as Revenue expenditure by

the assessee has been so allowed by the courts due to its short

life as it is required to be replaced with the new and improved

versions in a short span of time. The growth in technology sector

is very fast and the older devices become useless and obsolete,

not always due to the reason that these devices have outlived

their life but due to the fact that they are required to be replaced

with their new version to keep pace with the time and to

compete in the market.

In our view, it is not only the primary function that may be the

sole criteria for deciding whether the STBs will be eligible for

depreciation as applicable to the computers or not, rather the

overall facts and circumstances such as the architectural design,

nature of its components, the economic life of the STBs and

their functions both primary and other functions, that are the

deciding factors.

A perusal of the Appendix 1 to Income Tax Rules,1962 reveals

that the rate of depreciation provided is not item or quality

specific, rather, the depreciation rate has been mentioned taking

the genre of the particular type of assets and not on the basis

of any specific species or to say not on the basis of differentiating

nature or qualities of the assets falling within one

genre/category. As noted above, different type of assets may be of

different species but falling in one or same genre will be eligible

for deprecation at the same rate. A broader aspect of the nature

and type of asset has been taken under the Appendix 1. Apart

from the criteria of normal age of an asset, a higher rate of

depreciation has also been provided for certain assets for the

purpose of giving incentives in certain type of business such as

lifesaving equipment, energy saving equipment and environment

and pollution controlling equipment etc.

‘Energy Saving Devices’ mentioned under Serial No. 8 (ix) (E)

under Electrical Equipment, on the following type of devices a

higher rate of depreciation i.e. @ 80%, as applicable for the

assessment year under consideration, has been given:-

“k) Remote terminal units/intelligent electronic devices, computer hardware/software, router/bridges, other required equipment and associated communication systems for supervisory control and data acquisition systems, energy management systems and distribution management systems for power transmission systems.”

A perusal of the above reveals that in case of the aforesaid

devices used for supervisory control and data acquisition

systems, energy management system and distribution

management system for power transmission systems, the

various devices which are either computer hardware or software

or are closely linked to or associated with or attached to and

generally performing either the same or identical functions, have

not only been placed under the same category but they have

been mentioned together but separated with “/” (slash) which

means same or similar or inclusive of or to say ‘either / or” . It

is used for connecting non-contrasting items or as a shorter

substitute for the conjunction “or” and ‘inclusive of’ i.e., ‘A’ or ‘B’

or ‘Both’. When certain things are so closely related that one

overlaps the other and it is difficult to make a clear distinction

between the two or both are inclusive irrespective of any

distinction, such items are separated by ‘/’ instead of symbol of

comma “ , ” which gives a separate identity to each of the item

included in the same list.

Another example in this respect is given in respect of ‘Life Saving

Medical Equipments’ which reads as under:

“(xia) Life saving medical equipment, being—

(a) D.C. Defibrillators for internal use and pace makers

(c) Heart lung machine

(d) Cobalt Therapy Unit

(e) Colour Doppler

(f) SPECT Gamma Camera

(g) Vascular Angiography System including Digital Subtraction Angiography

(h) Ventilator used with anaesthesia apparatus

(i) Magnetic Resonance Imaging System

(j) Surgical Laser

(k) Ventilator other than those used with anaesthesia

(l) Gamma knife

(m) Bone Marrow Transplant Equipment including silastic long standing intravenous catheters for chemotherapy

(n) Fibre optic endoscopes including, Paediatric resectoscope/audit resectoscope, Peritoneoscopes, Arthoscope, Microlaryngoscope, Fibreoptic Flexible Nasal Pharyngo Bronchoscope, Fibreoptic Flexible Laryngo Bronchoscope, Video Laryngo Bronchoscope and Video Oesophago Gastroscope, Stroboscope, Fibreoptic Flexible Oesophago Gastroscope

(o) Laparoscope (single incision)”

A perusal of the above details reveals that separate items though

falling under the heading “Life Saving Medical Equipment” have

been mentioned separately under different alphabetic numbers,

however, the items at (n) above shows that Paediatric resetoscope

and audit resectoscope have been separated with “ / ” (slash),

whereas, the other items though of similar nature have been

separated with “, ” (comma) and whereas, the other items which

are not similar but falling under the main head “life saving

equipments” have been separated with different alphabetic

numbers.

From the above discussion, it is logically inferred that the

devices such as Remote terminal units/intelligent electronic

devices, computer hardware/software, router/bridges are

inclusive of or are overlapping each other because of the

similarity of the functions or their functions are in aid to each

other’s functions for a collective main function. The STBs no

doubt would also fall within the category of the above named

‘intelligent electronic devices’, however, STBs since are not are

electric energy saving devices, hence, the same will not be

eligible for higher rate of deprecation @ 80%. However, clue from

the above can be taken to include the above devices for claim of

depreciation as is eligible for ‘computer and software’ as these

devices(STBs) are identical to computers not only in their

architectural design but also in their functioning. Even it has

also not been disputed by the ld. DR that the STBs also perform

computing functions but he has only tried to make distinction

between the two by stating that the main function of an STB is

decoding of audio video signals. However, in our view, such hyper

technical criteria cannot be adopted in view of the general and

broader criteria adopted in Appendix 1 relating to the

classification of the items for the purpose of depreciation rate.

So far as the argument of the Ld. DR that since like a smart TV

or a mobile telephone cannot be said to be computer, hence, the

STBs can also be not categorized as computer, in our view, has

no force. Now a days, the smart TVs are in market. The word

‘smart’ added before a TV shows that it is capable of performing

certain smart or intelligent functions as that of a computer. In

fact, these smart TVs have all the features and functions of a

computer and in the absence of any specific classification in

Appendix 1, It will be required to be seen whether such

appliance is a simple TV or an advance appliance with an inbuilt

computer system and performing functions as that of a computer.

There has been a great evolution in Mobile phones also. Now a

days, mobile phones are mini computers. Considering the speed

at which these devices are evolved to new and improved versions,

the component of such devices being delicate and sensitive and

the functioning of such devices being a mixture of

communication and computing, which is akin to that is

performed by a computer, the mobile phones, in our view, cannot

be placed and equated with simple plant and machinery of every

type, rather, it will be appropriate to place these under the genre

‘computers and software’. So far as the argument of the Ld. DR

that just because some sort of computer functions are

necessarily involved, mechanical system cannot be said to be

computer, we agree to that extent with this argument of the Ld.

DR. Now a days with the advancement of technology, even the

machines meant to perform mechanical functions such as a

washing machine or a Lift have also been embedded with some

sort of computer device, which gives command to said machine to

perform certain specific functions; however, considering the

material and components of such machines, their life, their main

and associated functions and characteristics, they can be

categorized either as mechanical devices, electrical devices,

electronic devices or computer devices. Even where such division

is generally not possible, the composition of such type of

machines can be divided and their components can be segregated

to find which component would fall in the category of plant and

machinery and which in computer category. Which device would

fall under what category of Appendix 1 will depend upon the

overall characteristics and not a single or sole factor can be said

to be determinative of. Hence, considering the nature of the

equipment, their architecture, their components, their functions

and also their average life, STBs in our view would fall under the

category of computer for the purpose of determination of rate of

depreciation.

of Special Bench in the case of “Data Craft India Limited”

(supra), has been that any machine or equipment cannot be

described as computer unless its principal output or function is

the result of some sort of computer function in conjunction with

some non-computer functions; that since the main function of

STBs is to deliver the Audio / Video feed to user, thus the major

function of the STBs i.e. decoding and thus delivering the audio

video signals to the TV sets is independent of the various servers

installed at the premises of Multi System Operator (MSO). He,

therefore, has submitted that STBs cannot be described as

computer rather at the best called informatization appliances

attached to TV set to enjoy multiple contents. The main argument

of the Ld. DR, thus, has been that as per the decision of the

‘DCIT vs Data Craft India Limited.’ (supra) since the televisions

cannot be treated as computers and hence any assembly attached

to television, i.e. STBs in this case cannot be treated as

computers. However, in our view, the STBs are not just

attachments to the television. They are essential for the business

of the assessee to provide the broadcasting/D2h services offered

by the assessee to the consumer’s premises. It is part of the

setup essential to transmit, decode and send the audio/video

signal to the television. These, thus are attached being its part

and parcel of the main server system of the operator receive

commands, decode them as per programming and transmit to the

TV. The mere attachment of STB with television will not be of any

use unless it is connected with the main server system. Under

the circumstances, even as per the parameters laid down by the

Special Bench in the case of ‘Data Craft India’ (supra), STBs

would form part and attachment of the computer systems.

matter relating to the depreciation on audio visual conference

devices had been restored by the Tribunal to the file of the

assessing officer for decision a fresh on the issue as per the

observations/guidelines of the tribunal. It is also an admitted

fact that the Assessing officer in the set aside proceedings has

granted depreciation @ 60% on those Audio-Visual equipment on

the analogy that they being attached, form part of the computer

systems. However, the sole contention of the Ld. DR in this

respect has been that it is not proved that STBs and Audio visual

conference device mentioned in the CISCO’s case were similar to

the STBs. However the Ld. Counsel for the assessee in this

respect has submitted that a letter was written by the Assessing

Officer himself to the CISCO for clarification on this point, to

which the CISCO vide their letter dated 18.02.2016 replied as

under:

‘“5. Details of Depreciation claimed by us on Assets under Lease with Fastway transmission for AY 2013-14 & AY 2014-15:

The Assets provided on Lease to M/s Fastway Transmission Pvt. Ltd. are “Networking Equipments’ which would fall within the “Computers” Blocks we have accordingly claimed the depreciation @ 60% as applicable to “Computers” Block. The total amount claimed as depreciation in our Tax Returns for AY 2013-14 is INR 573,385,590 & for AY 2014-15 depreciation claim is INR 812,535,709”

The matter therefore stands clarified by the CISCO itself.

mentioned in the order of the CISCO not be the same equipment

i.e STBs , but these would fall in the same category being

‘Information Appliances’. Ld. DR in his arguments has also

stressed that STB is information appliance. Under the

circumstances, the case of the assessee can not be differentiated

from that of CISCO on the issue of rate of depreciation

admissible on such ‘Information Appliances’ being treated as

part of the computer systems in the case of CISCO.

coordinate Cochin Bench of the Tribunal in the case of ACIT vs

Kerala Communicators Cable Limited (supra) is concerned, we

find that at in that case the assessee had claimed the

depreciation at the rate of 80% by claiming them to be energy

saving devices. The coordinate Bench held that the STBs did not

fall within the definition of energy saving devices. The facts of

the said case are therefore distinguishable.

the STBs has a short life of three years. Referring to the clauses

of the Master Lease Agreement with CISCO, as discussed above,

it has been vehemently contended by the Department that the

lease deed was so devised that the term of lease ends with the

life of the equipment; that after the payment of the last

installment, the equipment is rendered valueless; That the

average life of the STBs is three years only and that is why the

lease deed also ends at three years. In this respect, in the

written submissions filed on 13.12.2017 by the Department,

strong reliance has been placed on the observations of the

Assessing officer in the assessment order in this respect, which

reads as under:-

“The economic life span of asset namely Set Top Box (STB) is 3 to 4 years. This fact is ascertained

as per the TRAI guideline (page 232, Para 19 & 21 of DPB-II) and the sworn statement recoded u/s 131 on 20.2.2014 of Sh Sushil Thakur S/o Sh. Karam Singh Thakur working as Assistant Manager (accounts) in the assessee company since 2008 (page 143 of DPB-III) wherein he had categorically stated that ‘that usage life of STB is approx. 3-4 years only and lease tenure is also 3- 4 years’. The tenure as per lease schedule is nearly the same as economic life of the equipment. Thus, lease period is settled in such a way so that the CISCO fully recovers the investment in the asset together with interest thereon within the life span of the asset.”

Further, in the written submissions dated 26.2.2018, it has been

submitted as under:-

“The physical life of the assets is not relevant here. It is the economic life span of STB which is relevant as per ITAT Special Bench decision in Indus Ind Bank and accounting standard. As per TRAI guideline and sworn statement u/s 131 of Shri Sushil Thakur the economic life span is 3 to 4 years. Even otherwise the assessee has charged depreciation of these assets @ 27.82% (page 176 of DPB 1 on STB / Headends) in its books viz-a-viz charging of depreciation on other assets @ 14%. Thus major part of the life of STB is covered in 3 to 4 years.” Further, the assessing officer has also placed reliance on TRAI

notification No. 1-19/2012-B&CS dated 27.3.2013 as reproduced

in the assessment order as under:

Sl. Particulars Tariff

The Assessing Officer has observed that as per the above tariff

plan adopted by the assessee with the consumers, at the end of 3

years from the date of installation of the STB in consumer’s

premises, the consumer becomes the owner of the property. The

assessing officer in this respect has observed that if the assessee

was not the owner of the equipment, how can it pass on the

ownership to the consumer after 3 years from the date of

installation. We have already agreed in this respect with the

contention of the Department.

However, as per the TRAI notification also, the life of the STBs

has been taken at 3 years. As per the said notification of the

TRAI, after 3 years, the consumer becomes the owner of the

equipment but at the same time, the service provider (assessee

herein) is also absolved of the liability of any warranty /

guarantee or maintenance of the equipment, meaning thereby the

assessee recovers the rent for 3 years from the consumer and

further the security deposit received from the consumer is

forfeited/appropriated to the assessee at the end of 3 years and

on the other hand the consumer becomes the owner of the

equipment. As observed in the assessment order, at the end of

the 3 years, the security deposit so forfeited or appropriated to it

is offered as income by the assessee. The equipment thus is

deemed to be sold to the consumer. Thus, the agreement of the

assessee with consumers in substance is a hire purchase

agreement for a term of 3 years. The equipment remains on hire

for 3 years with the consumer but is deemed to be sold at the end

of 3 years. Here, the interesting point is that when at the end of

3 years, the equipment is sold and the receipt / sale price along

with the hire charges received from the consumer during the

period already offered to the income tax, how can the deduction

of corresponding investment / expenditure incurred for the

purchase of such equipment can be postponed beyond such date

of sale of equipment? The income under the Income Tax Act is

the resultant profit after deduction of the investment /

expenditure incurred from the total sale price received /

receivable. Therefore, when the total receipt relating to the

equipment either in the shape of hire charges or sale price in the

shape of security deposit appropriated at the end of 3 years, is

accounted for as receipt/income, then the deduction of the

corresponding expenditure either in the shape of depreciation or

in the shape of revenue expenditure, under no circumstances,

can be delayed or postponed beyond the date of sale of

equipment. The expenditure incurred for the purchase of such

equipment is required to be set off from the final receipt / sale

price by whatever manner either as a deduction on account of

depreciation or as revenue expenditure. When the assessee no

more remains the owner of the equipment, how can it claim

depreciation on the same, which is sine qua non for claim of

depreciation. The entire cost incurred by the assessee on the

equipment is required to be squared off at the time of sale of

equipment. Hence, under the circumstances, the assessee will be

entitled either to the deduction of the cost of the equipment

either as revenue expenditure and if the same is to be treated as

capital asset, then depreciation cannot be postponed beyond the

actual life / ownership of the equipment and the assessee will be

entitled to the deduction of the written down value of the

equipment at the end of 3 years from the sale price received.

However, the peculiar facts and circumstances of the case are

that it is the own case of the department that the life of the

equipment is 3 years and that the asset in the hands of the

assesssee is a capital asset, then we cannot understand, how can

the department press an argument for the grant of depreciation

at a lower rate which may be extended beyond the life of the

asset. Under these circumstances also, the assessee, in our

view, is entitled to the higher rate of depreciation which is

commensurate with the life of the asset.

In view of our findings given above, it is held that the assessee is

entitled to deprecation @ 60% as applicable to the computers for

the year under consideration. This ground is accordingly stands

allowed.

contested the confirmation of disallowance of the deduction

claimed u/s 35D of the Act of 1/5 t h of the preliminary

expenses amounting to Rs.2.40 crores.

100% shares in a company ‘Cable Network Limited’ (CBSL)

from its parent company which had owned 100% shares in it

namely DIGI Western Network Pvt. Ltd. (DWNPL) in financial

year 2010-11 for Rs.1 crores. On 1.8.2010 it had entered into

an IRU agreement with CBSL and as per the said agreement it

was given fibre links on lease on a route of 2000 kms for a

period of five years commencing from 1.4.2010. A payment of

Rs.12 crores was made for the same. This payment was treated

as preliminary expenses by the assessee and 1/5 t h of the same

was claimed as deduction u/s 35D of the Act. The A.O. denied

the same to the assessee for the following reasons:

1) CBSL had acquired the user rights of these fibre links from a company HFCL Infotel Ltd.(HITL) and as

per the terms of agreement entered into by CBSL with HITL only user rights of the fibre links could be given by CBSL to any other concern. As per the A.O. the leasing out agreement was, therefore, void ab initio and hence any transaction entered into in pursuance to the same was not a business transaction and the assessee, therefore, could not be claim any benefit out of this transaction.

2) That this was not even normal lease agreement since no service tax had been paid by the assessee which it was bound to pay if it was a lease agreement.

3) That it was only a pay out to CBSL as part of

consideration of takeover in the guise of IRU

agreement.

4) That even otherwise the payment was not for expansion of the business of the assessee but was only for carrying out the current business since it could be used only own existing cable TV licence.

5) In the books of CBSL the said transaction had been shown as a loan and, therefore, the claim of the assessee was of preliminary expenses, was only an afterthought.

6) Lastly, that even otherwise it did not qualify as a preliminary expense as provided for in section 35D of the Act.

A.O.

may be the expenses incurred for acquiring lease rights of

fibre links did not fall within the definition and scope of

preliminary expenses under the provisions of section 35D,

however the same were allowable either as business expenses

or as depreciation on the leased asset acquired by virtue of

this IRU agreement. This contention has been raised before us

for the first time. Even the CIT(A) has not gone into this

aspect having denied the claim of deduction u/s 35D of the

Act only. We, therefore, restore this issue to the CIT(A) to

examine all the facts of the case on this issue and thereafter

decide the claim in accordance with law.

stated at Bar that ground No. 7 is not pressed, hence, the

same is dismissed as not pressed.

challenged the disallowance of interest expenditure u/s

36(1)(iii) of the Act.

of survey at the business premises of the assessee, a document

mentioning transactions between M/s G.S. Majestic and

Municipal Corporation Ludhiana was seized. On being

confronted with the same during assessment proceedings, it

was submitted by the assessee, that it was working in the

rental office owned by M/s G.S Majestic Developers Pvt. Ltd.

and an amount of Rs.3.20 crores was given as an advance to

the company for booking of corporate office. The A.O. did not

accept the contention of the assessee as Rs.2 crores was

received back by the assessee company as per ledger account

out of the advance stated to be given for booking of corporate

office. As the assessee failed to prove the business exigency of

this payment made, disallowance of interest @ 14% amounting

Rs.28,68,096/- was made u/s 36(l)(iii) of the Act.

Assessing Officer.

that it was possessed of sufficient own funds for the purpose

of making the impugned advance and, therefore, no

disallowance u/s 36(1)(iii) of the Act was warranted. It was

pointed out that the assessee company had reserves and

surplus of Rs.107.36 crores and share capital of Rs.105

crores, while advance given to M/s G.S. Majestic was Rs.3.20

crores only out of which a sum of Rs.2 crores had been

received back. The Ld. counsel for assessee has contended

that in the light of the above facts, no disallowance u/s

36(1)(iii) of the Act was warranted. He in this respect has

relied on the decision of the Hon'ble Jurisdictional High Court

in the case of M/s Bright Enterprises Pvt. Ltd., reported in

381 ITR 160.

orders of the lower authorities.

contention of the Ld. counsel for assessee. The Ld. Counsel

has demonstrated that there were sufficient own funds

available with the assessee company in the form of share

capital and reserves to the tune of Rs.105 crores and Rs.107

crores respectively to meet the advance given of Rs.3.20

crores. The issue is now squarely covered by the various

decisions of the High Courts as well as of the apex court of the

country including that of the Hon'ble Jurisdictional High

Court in the case of ‘Bright Enterprises Pvt. Ltd Vs. CIT,

Jalandhar’ (supra), ‘CIT Vs. Kapsons Associates’ (2016) 381

ITR 204 (P&H) and the latest decision of the Coordinate Bench

of the Tribunal in the case of ‘ACIT Vs. Janak Global

Resources Pvt Ltd’ ITA No. 470/Chd/2018 order dated

16.10.2018, holding that that if the assessee is possessed of

sufficient own interest free funds to meet the investments /

interest free advances, then, under the circumstances,

presumption will be that interest free advances / investments

have been made by the assessee out of own funds / interest

free funds. Reliance in this respect can also be placed on the

decision of the Hon'ble Supreme Court in the case of ‘Hero

Cycles (P) Ltd Vs. CIT’ 379 ITR 347 (SC) and also on the

latest decision of the Hon'ble Supreme Court in the case of

‘CIT (LTU) Vs. Reliance Industries Ltd.’ [2019] 410 ITR 466

(SC). Thus, as per the settled law no disallowance u/s 36(1)(iii)

of the Act is warranted on this issue. This ground is

accordingly allowed in favour of the assessee.

does not require any specific adjudication.

This appeal of the assessee stands partly allowed.

ITA NO. 139/Chd/2019 (A.Y. 2012-13)

following grounds of appeal:-

justified to uphold the action of the Ld. Assessing Officer in restricting the claim of depreciation on set top boxes at the rate of 15% as against the claimed by the Appellant at the rate of 60% thereby restricting the claim of depreciation by Rs. 18,49,30,878/-.

No.1 reveals that the issue taken in this ground is identical to

that has been adjudicated vide ground Nos.2 to 5 of ITA

No.547/Chd/2017 as above. The only differentiating fact

pointed out by both the learned representatives of the parties

is that in this case the claim of deduction of depreciation @

60% as against 15% allowed by the A.O. was taken by the

assessee during the reassessment proceedings carried out u/s

147 of the Act carried out by the Assessing Officer. The

Assessing Officer noticed that the assessee had claimed

depreciation on STBs @ 35% i.e. @15% and also further

additional depreciation @ 20%. The Assessing Officer after

recording reasons show caused the assessee as to why the

depreciation on STBs be not restricted to 15% as the assessee

was not engaged in the business of manufacturing or

production. The assessee however in the return of income filed

in response to notice u/s 148 of the Act claimed depreciation @

60% as allowable on computers. The Assessing officer did not

allow the above claim put by the assessee inter alia on the

ground that the above claim of higher depreciation cannot be

allowed to be taken for the first time in the reassessment

proceedings.

as well as the Ld. CIT(A) have in this respect relied upon the

decision of the Hon’ble Supreme Court in the case of CIT Vs.

Sun Engineering Works Pvt. Ltd. (1992) 198 ITR 297 (SC) to

hold that the proceedings u/s 147 of the Act are for the

benefit of the Revenue and not for the benefit of the assessee.

The Ld. CIT(A) in this respect has observed that mere fact of

the issue u/s 148 of the Act calling for filing of return of

income and deeming such return as a return filed u/s 139 of

the Act did not entitle the assessee for an extended period of

limitation u/s 139(5) of the Act. He observed that the benefit

of section 139(5) is not available to an assessee in relation to

a return filed pursuant to notice u/s 148 of the Act.

gone through the decision of the Hon’ble Supreme Court in the

case of ‘CIT Vs. Sun Engineering Works Pvt. Ltd.’(supra) and

find that that the Hon’ble Supreme Court in the said case has

held that the proceedings under section 147 are for benefit of

revenue and are aimed at gathering 'escaped income' of an

assessee, and that the same cannot be allowed to be converted

as 'revisional' or 'review' of assessment proceedings. That in a

reassessment proceeding under section 147, assessee cannot

seek a review of concluded item, unconnected with escapement of

income for purpose of computation of escaped income. However,

we note that in this case, the claim of the assessee is directly

related and connected with the issue on which the A.O. has

reopened the assessment. The case of the A.O. has been that the

assessee has claimed depreciation at a higher rate i.e. @ 35% as

against its entitlement of 15% whereas the assessee in the return

filed in response to notice u/s 148 of the Act has claimed the

depreciation @ 60%. The very issue of rate of depreciation was

the subject matter of the proceedings and under the

circumstances, in our view, the assessee had got right to put his

stance of application of higher rate on the said issue as against

of lower rate proposed by the AO. However, we are of the further

view that even the above proposition laid down by the Hon’ble

Supreme Court otherwise will not be applicable as such in this

case because of the direct statutory provisions on the issue

involved of allowability of depreciation. Explanation 5 to section

32(1) Inserted by the Finance Act, 2001, w.e.f. 1-4-2002 reads as

under:

“ Explanation 5.—For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income;”

As per Section 32 (1) of the Income Tax Act, 1961 (as reproduced

in the earlier para of this order) an assessee is entitled to claim

of deduction on account of depreciation on tangible as well as

intangible assets owned or partly owned by the assessee and

used for business purposes at the rate as may be prescribed.

Hence, in view of Explanation 5 to section 32(1), the Assessing

Officer is duty bound to allow depreciation at the prescribed

rates as admissible to an assessee on the assets irrespective of

the fact that the assessee has claimed it or not in the return of

income or otherwise. The Assessing Officer, thus, is mandatorily

required to allow the depreciation as per prescribed rates and as

legally admissible to the assessee especially when the very issue

of rate of depreciation is the subject matter of the proceedings

irrespective of the fact that whether the assessee has made a

claim in that respect or not. Hence the plea that the assessee can

not make a claim of higher admissible rate of depreciation is not

available to the revenue in view of the express statutory

provisions of Explanation 5 to section 32(1) of the Act. The

Assessing officer is duty bound to apply and allow correct rate of

depreciation irrespective of the fact that after allowing such

depreciation, the assessed income of the assessee may get

reduced from the returned income. Explanation 5 to section 32(1)

has been held to be mandatory and prospectively applicable

w.e.f. 01.04.2002 through various judicial pronouncements.

Reliance in this respect can be placed on the decisions of Kerala

High Court in the case of “CIT v. Kerala Electric Lamp Works

Ltd.” [2003] 261 ITR 721; Madras High Court in the case of “CIT

v. Sree Senhavalli Textiles (P.) Ltd.”[2003] 259 ITR 77; Punjab

and Haryana High Court in the case of “Ram Nath Jindal and

Jagjiwan Ram v. CIT” [2001] 252 ITR 590; Kolkata Bench of ITAT

in “Bhagwati Sponge (P.) Ltd. v. DCIT” [2016] 72 taxmann.com

40 ; “Dilip Kumar Roy v. DCIT” [2011] 11 taxmann.com 107

(Kolkata); “Surat Textile Mills Ltd. v. Income-tax Officer” [2014]

46 taxmann.com 419 (Gujarat); “Sakun Polymers Ltd. v. Joint

Commissioner of Income-tax” [2015] 57 taxmann.com 65

(Gujarat) and in the case of “Dr. Mrs. Sudha S. Trivedi Vs ITO”

318 ITR 356 (Mumbai- Tribunal).

ordinate Kolkata Bench of the tribunal has observed,

“ With regard to the claims made in the revised return, we find that the Learned CITA had not considered the same in view of the fact that the revised return was filed by the assessee beyond the prescribed period u/s 139(5) of the act. The Learned CITA had applied the decision of Goetze India Ltd. supra and accordingly rejected the claim of the assessee. But we find from the last paragraph of the decision of Goetze India Ltd,supra, wherein the Hon'ble Apex Court observed that revised return though filed belatedly could be considered by the Appellate Authority and hence we hold that the assessee is entitled to make its claim by way of revised return.”

It has been further observed,

“when there is a mandate to grant depreciation to the assessee whether or not such claim is made by the assessee in the return in terms of Explanation 5, it would be just and fair that the same mandate would get automatically extended to the claim of additional depreciation also”.

Sago & Starch Products” [2012] 19 taxmann.com 313/53 SOT

15 where in the assessee was engaged in power generation and

claimed depreciation on a newly installed windmill on the basis

of WDV method at the rate of 15% and subsequently, when

assessee realised its mistake noting that the correct rate of

depreciation to which it was entitled to was @ 80%, hence, it filed

a letter before Assessing Officer to rectify claim and to provide

depreciation at the rate of 80%.The Assessing Officer rejected

this claim purportedly following the decision of the Supreme

Court in Goetze (India) Ltd.'s case (2006] 157 Taxman 1

(SC)/[2006] 284 ITR 323 (SC)/[2006] 204 CTR 182 (SC) by stating

that a fresh claim cannot be made by assessee other than by

filing a revised return. The claim of the assessee was allowed at

the first appeal stage and on appeal by the Revenue the Tribunal

held that the assessee was not making a fresh claim before

Assessing Authority; In fact, assessee had made a claim for

depreciation but rate chosen was not a correct one; thus,

judgment of Supreme Court in Goetze (India) Ltd.'s case (supra)

would not apply in that case; it was further held that as per

Explanation 5 to section 32(1), depreciation would be allowed

whether or not assessee has claimed depreciation in computing

total income; therefore, assessing officer was duty bound to allow

depreciation computed at correct rate provided under Act. The

Tribunal in this respect while relying upon the decisions of the

Hon'ble Punjab & Haryana High Court rendered in the case of

‘CIT v. Ramco International’ [2011] 332 ITR 306/[2009] 180

Taxman 584 (Punj. & Har.); of Hon’ble Gujarat High Court in the

case of “Chokshi Metal Refinery v. CIT” [1977] 107 ITR 63 (Guj.)

and of Chennai Bench in the case of “ K.K.S.K. Leather

Processors (P) Ltd. v ITO” [ 2010] 126 ITD 215 has held as

under:

“ 18. Regarding the question, whether a claim made by the assessee in the course of assessment proceedings by way of other than filing a revised return, we have to state that exactly similar issue was considered by the Punjab & Haryana High Court in the case of Ramco International ( supra). In that case, the assessee had claimed deduction under sec.80IB. Though the assessee had furnished Form 10CCB and other requisite documents, the Assessing Officer made the assessment without referring to those documents. In first appeal, the Commissioner of Income-tax(Appeals) allowed the claim of the assessee which was the second appeal before the Tribunal. When the matter was again taken before the Hon'ble High Court, their Lord-ships held that as per Form 10CCB filed by the assessee in the assessment proceedings, the claim of deduction made by the assessee was admissible. The court held that the assessee was not making any fresh claim and had duly furnished and submitted the Form for claiming deduction under sec.80IB and in such circumstances, there was no requirement of filing any revised return. In the present case also, the assessee has made a claim for depreciation on WDV method but the rate chosen was not a correct one. The assessee asked for adopting the correct rate which is in fact, was only a prayer to rectify a mistake apparent on record. The assessee was not claiming any fresh claim before the assessing authority. Therefore, the judgment of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra) does not apply to the present case. 19. The above position is fortified by the order of the ITAT, Chennai Bench 'D' rendered in the case of K.K.S.K. Leather Processors (P.) Ltd. (supra). The Tribunal, after examining the Explanation 5 to sub- sec. (1) of sec.32, held that the provisions of sub-sec.(1) of sec.32 was applied whether or not the assessee has claimed the deduction in

respect of depreciation in computing his total income. The Tribunal held that the Assessing Officer is duty bound and under obligation to allow the deduction of depreciation as per the provisions of sec.32(1). When such a statutory obligation is cast on the assessing authority, it is incumbent on him to apply the correct rate of depreciation, especially in the present case where the option exercised by the assessee is manifestly clear. 20. In the present case, the assessee has not made any fresh claim, as far as depreciation is concerned. It has already made a claim for statutory allowance of depreciation, subject to the mistake occurred in choosing the correct rate. The ratio of the decision of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra) needs to be carefully applied in the matters of statutory allowances available to an assessee. There is a genetic difference in the concept of deduction by way of statutory allowance and deduction by way of other expenditure.” (emphasis supplied by us)

case of “Income-tax Officer v. Gajraj Constructions” [2015] 62

taxmann.com 18 has observed as under:

“ So, however, even if one were to import the reasoning raised by the learned Departmental representative based on the judgment of the hon'ble Supreme Court, to the present case, yet we do not find that it would debar the assessee from claiming deduction under section 80-IB(10) of the Act on the impugned additional income declared in the return filed in response to notice under section 153A(1)(a) of the Act. In the present case, the claim of deduction under section 80-IB(10) of the Act was made in the return of income originally filed and in the return filed in pursuance to the notice under section 153A(1)(a) of the Act, the claim under section 80-IB(10) of the Act is only enhanced and therefore, it is not a fresh claim. Therefore, in our

view, the judgment of the hon'ble Supreme Court in the case of Sun Engineering Works Pvt. Ltd. does not help the Revenue in the present case.”

issue that was settled by the Hon’ble Supreme Court was limited

to the bar on the power of the assessing officer to entertain a

claim for deduction otherwise than by filing a revised return ,

however, the Hon’ble Supreme Court made it clear that it does

not impinge on the power of the Income-Tax Appellate Tribunal

under section 254 of the Income-tax Act, 1961 as held by the

Apex Court in the case of “NTPC Ltd.” (supra). Applying the same

ratio, the bar, if any, to entertain a counter claim by the assessee

as laid down by the hon’ble supreme court in the case of “ Sun

Engineering” (supra) is on the powers of the Assessing Officer,

however, in our humble view, that does not impinge or curtail the

Powers of the Tribunal and higher authorities to entertain an

Additional/ fresh claim based on the facts on the file in the light

of proposition laid down by the hon’ble supreme court in the case

of “NTPC Ltd.” (supra) and other case laws ( supra) as discussed

in earlier paras (Para No. 31 & 32 above) of this order.

In view of the above discussion, we hold that the Assessing

Officer as well as the Ld. CIT(A) were legally duty bound to

consider and entertain the issue raised by the assessee of

admissibility of statutory deduction of depreciation at a higher

rate as prescribed and adjudicate upon it. Even there is no bar on

the Tribunal in this respect to entertain and adjudicate upon the

issue of rate of depreciation despite the fact that the claim

relating to admissibility of higher rate of depreciation was made

for the first time in the return filed in response to section 148 of

the Act.

So far the issue on merits is concerned, in view of our detailed

discussion as above on the issue while adjudicating upon the

additional ground taken in assessee’s appeal bearing ITA

NO.547/Chd/2017 and in view of our decision rendered therein

and the facts being similar in this appeal, the issue is

accordingly decided in favour of the assessee and it is

accordingly held that the assessee is entitled to depreciation on

the assets in question @ 60%.

assessee has agitated the action of the CIT(A) in confirming the

disallowance made by the A.O. in respect of deprecation

claimed on the STBs which were not put to use during the year

and further in restricting the claim of depreciation at the lower

rate in respect of the STBs which were not put to use before

September, 2011 on the ground that the same were used for a

period less than 180 days. The relevant findings of the CIT(A

on the issue are reproduced as under:

“The AO has made this disallowance on following grounds:- (i) With regard to bill of entry of Remotes for Rs.59,36,553/- and Rs.10,89,452/- the appellant could not file any documentary evidence to prove that these were put to use during the year itself and hence depreciation claimed on the same was disallowed. (ii) With regard to bill of entry for purchase of STBs dated 23.09.2011 amounting Rs.1,68,56,293/-, the appellant could not file any documentary evidence to prove that these assets were put to use before September 2011 and therefore depreciation was allowed for a period less than 180 days and not for the complete year as claimed by the appellant. During the appellate proceedings, no submission or any evidence to rebut the findings of the AO have been filed. The addition had been done by the AO on the facts of the case as per provisions of the Act. In view of the same, this ground of appeal of the appellant cannot be accepted and hence the addition made by the AO on this account is confirmed.”

though the assets may not be put to use as alleged above

during the relevant period, however, the assets were ready to

use. As per our observations as noted above, it has been held

that the transaction of acquiring of STBs by the assessee was

a loan/financial transaction meaning thereby the STBs were

purchased by the assessee to put to use in its business. As

further observed as above, the STBs are further given to the

consumers on hire purchase agreement which are deemed to

be sold to the consumers after three years from the date of

delivery/installation. Under the circumstances, it can be

safely concluded that the assessee had put the STBs in its

business from the date it acquired/purchased the same. In

view of this, the assessee is entitled to deprecation

irrespective of the date of installation of STBs in the premises

of the consumers. This issue is accordingly allowed in favour

of the assessee.

The above grounds are general in nature.

In view of our findings given above, this appeal of the

assessee stands allowed.

842/Chd/2018 (A.Y. 2014-15):-

appeal:-

principal component of lease rental amounting to Rs.63,59,83,743/- as claimed by the assessee in the computation of income and allowing the depreciation u/s 32 of the Act, which was never claimed on the leasehold assets by the Appellant.

taken the following additional grounds of appeal :

“Without prejudice, the assessing officer erred in not allowing depreciation on Set top boxes at the eligible rate of 60%”

6 as to the allowability of lease rental as revenue expenditure

has already been adjudicated in favour of Revenue as per our

findings given above while adjudicating ground Nos. 3 to 5 of

assessee’s appeal in ITA No.547/Chd/2017. Our findings given

above on these issues will mutatis mutandis apply to these

grounds also.

It was common ground that the above ground is similar to

additional ground taken in the appeal of the assessee in ITA

NO.547/Chd/2017 and our decision rendered therein will apply

mutatis mutandis to this additional ground also. This issue is

accordingly decided in favour of the assessee.

disallowance of the interest component of Rs.8,21,25,816/-

under section 40(a)(ia) of the Act for less deduction of TDS. The

assessing Officer observed that on the interest component paid

by the assessee to the CISCO along with lease rental, the

assessee had deducted TDS @ 1% instead of 2% as was required

under the provisions of section 194A r.w.s. 194-I of the Act . He

therefore made the impugned disallowance u/s 40(a) (ia).

The Ld. CIT(A) has confirmed the additions so made by the

AO.

that the Assessing Officer has made a separate addition of

Rs.8,21,25,816/- on the interest component on account of non-

deduction of TDS. It is submitted that it has been the submission

of the assessee before the AO that this interest was part of lease

charges claimed u/s 37 of the Act and the assessee had deducted

TDS @ 2% on the entire amount of lease charges aggregating to

Rs. 63,59,83,732/- (comprising of lease charges and interest).

The assessing Officer in para 4.13(iv) at page 54 of the

Assessment Order has observed that TDS has been deducted @

1% on payment made to CISCO which is factually incorrect

whereas the assessee has deducted TDS @ 2% as was stipulated

under the relevant provisions of the Act.

This issue, therefore, requires to be factually verified at the

end of the Assessing Officer.

Moreover, the issue relating to the alleged lease rental

paid by the assessee and claimed as revenue expenditure has

already been adjudicated by us as above vide ground Nos. 3 to 5

of ITA No.547/Chd/2017 and it has been held that the said lease

rentals in fact were repayment of the loan amount. The assessee,

therefore, was not required to deduct the TDS on the principal

component of the loan amount. The assessee, however, has

deducted TDS on the said component also, which under the

circumstances, is to be considered as deduction of TDS towards

interest component. The issued is accordingly restored to the file

of the Assessing Officer for decision a fresh as per our

observations made above.

disallowance of expenditure claimed u/s 35D of the Act, which is

identical to ground No.6 of the assessee’s appeal; ITA

No.547/Chd/2017 and our findings and directions given

thereupon will apply mutatis mutandis to this ground also.

disallowance of expenditure claimed u/s 36(1)(iii) of the Act,

which is identical to ground No.8 of the assessee’s appeal; ITA

No.547/Chd/2017 and the facts being identical and the assessee

being possessed of sufficient funds to meet the advance given,

hence, our findings and directions given above on ground No.8 in

ITA No.547/Chd/2017 will apply mutatis mutandis to this

ground also.

agitated the confirmation of disallowance made by the AO u/s

14A of the Act in respect of the expenditure incurred for earning

of tax exempt income.

The Ld. Counsel for the assessee has submitted that the

assessee did not earn any tax exempt income during the year.

Hence, no disallowance u/s 14A was warranted.

We find that the issue is now squarely covered by the

various decisions of the High Courts in favour of the assessee

viz.‘CIT, Faridabad Vs. Lakhani Marketing Inc.’ 226 Taxman 45

(P&H ), ‘CIT Vs. Winsome Textiles’ (2009) 319 ITR 204 (P&H),

‘Cheminvest Ltd Vs. ITO’ (2015) 378 ITR 33 (Delhi), ‘Corrtech

Energy P. Ltd.’ (2014) 45 Taxman.com 116 (Gujarat High Court)

‘CIT Vs. M/s Shivam Motors (P) Ltd’ (2014) 272 CTR (All) 277. In

all the above referred to case laws, the Hon'ble High Courts have

been unanimous to hold that no disallowance is attracted u/s

14A of the Act in case the assessee has not earned any income

not forming part of the total income. This issue is accordingly

decided in favour of the assessee. The disallowance made by the

lower authorities on the above issue is ordered to be deleted.

The above ground is general in nature.

The assessee in this appeal has taken following grounds of

appeal:-

taken the following additional grounds of appeal :

“Without prejudice, the assessing officer erred in not allowing depreciation on Set top boxes at the eligible rate of 60%”

Ground Nos. 1, 2 and Additional Ground of this appeal

are identical to ground Nos.3 to 5 and Additional Ground in

assessee’s appeal for assessment year 2013-14 in ITA

No.547/Chd/2017, hence our findings given above while

adjudicating ground Nos.3 to 5 and additional ground in ITA

No.547/Chd/2017 will apply mutatis mutandis to these

grounds also.

The above ground of appeal is identical to ground No.6 in ITA

NO.547/Chd/2017, hence our findings and directions given

above in ITA No.547/Chd/2017 will apply mutatis mutandis to

this ground also.

The above ground is not pressed.

This ground relates to disallowance made by the AO u/s

14A of the Act. The assessee admittedly did not earn any tax

exempt income during the year. Hence, as per our

observations made above while adjudicating ground No.11 of

assessee’s appeal for A.Y. 2014-15 in ITA No.842/Chd/2018,

no disallowance u/s 14A of the Act is warranted. This issue is

accordingly allowed in favour of the assessee.

Accordingly, this appeal of the assessee stand partly

allowed.

In the result the captioned appeals of the assessee are

treated as partly allowed.

Sd/- Sd/- (संजय गग� / SANJAY GARG) (एन. के. सैनी / N.K. SAINI) उपा�य� /Vice President �या�यकसद�य/ Judicial Member Dated : 06.05. 2020

“rati /आर.के.”

Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR

Assistant Registrar, ITAT, Chandigarh