2010 (7) TMI 642 - AT - Income Tax

Routers and switches qualify as part of 'computer' for 60% depreciation under s.32; broader interpretation approved

ITAT, MUMBAI-AT held that routers and switches used exclusively with computer systems form part of the 'computer' block and are entitled to depreciation ... Claim for depreciation u/s 32 - Classification of routers and switches - depreciation at 60% or have to be classified as general plant and machine entitled to depreciation only at 25% - Section 32, which grants depreciation allowance, does not define the word 'Computer' - HELD THAT:- As per the General Clauses Act, 1897, if a particular word is not defined in the Central statute then meaning given to such expression under General Clauses Act may be considered for guidance and adoption in the former enactment. We prefer the view taken in the case of Samiran Majumdar [2005 (8) TMI 293 - ITAT CALCUTTA-B] over that in the case of Routermania Technologies [2007 (4) TMI 389 - ITAT MUMBAI]; With utmost respect, the Mumbai Bench had taken a narrow view on this issue, by holding that only a device which can perform logical, arithmetical or memory functions by manipulations of electronic impulses etc. is computer. It has restricted the meaning of computer only to the CPU of the computer and pulled out the input and output devices from the ambit of computer. No doubt the function of the computer, as one composite unit, is to perform logical, arithmetical or memory functions etc., but it is not only the equipment which performs such functions that can be called as computer; All the input and output devices, as discussed above, which support in the receipt of input and outflow of the output are also part of computer. CPU alone, in our opinion, cannot be considered as synonymous to the expression ‘Computer’. The function of CPU is akin to the 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 not perform logical, 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). We therefore answer the question referred to this Special Bench in affirmative by holding that the routers and switches in the circumstances of the case, are to be included in the block of ‘Computer’ entitled to depreciation at the rate of 60%. In the result, both the appeals stands dismissed. Issues Involved:1. Classification of routers and switches for depreciation purposes.2. Determination of applicable depreciation rate for routers and switches.3. Interpretation of the term 'computer' under the Income Tax Act.Detailed Analysis:1. Classification of Routers and Switches for Depreciation Purposes:The primary issue was whether routers and switches should be classified as computers eligible for a depreciation rate of 60% or as general plant and machinery eligible for a depreciation rate of 25%. The assessee argued that routers and switches are integral parts of computers and should be classified under the block of computers. The Assessing Officer (AO) disagreed, classifying them as networking tools not fitting the definition of computers.2. Determination of Applicable Depreciation Rate for Routers and Switches:The assessee claimed depreciation at 60% for routers and switches, treating them as computers. The AO reduced the depreciation rate to 25%, arguing that routers and switches do not perform the functions of a computer, such as logic, arithmetic, data storage, retrieval, communication, and control. The AO relied on the definition of 'computer' from the Oxford Dictionary and past judgments to support this classification.3. Interpretation of the Term 'Computer' under the Income Tax Act:The term 'computer' is not defined in the Income Tax Act or Rules. The assessee and the AO referred to various definitions, including those from the Information Technology Act and judicial precedents, to support their arguments. The Tribunal examined these definitions and the functional aspects of routers and switches to determine their classification.Tribunal's Findings:Classification and Depreciation Rate:The Tribunal concluded that routers and switches, when used as part of a computer system, should be classified as computer hardware. This classification is based on their integral role in facilitating data transmission between computers, making them essential for the computer's operation. The Tribunal emphasized that the predominant function and usage of these devices should be considered.Interpretation of 'Computer':The Tribunal noted that the term 'computer' should be understood in its common parlance and commercial sense. It includes not only the CPU but also input and output devices that are essential for the computer's operation. The Tribunal rejected the narrow interpretation that only devices performing logical, arithmetic, and memory functions should be classified as computers.Judicial Precedents:The Tribunal referred to various judicial precedents, including the cases of Samiran Majumdar and Routermania Technologies. The Tribunal preferred the broader interpretation from Samiran Majumdar, which included input and output devices as part of the computer, over the narrower view from Routermania Technologies.Conclusion:The Tribunal held that routers and switches, when used as part of a computer system, should be classified under the block of computers and are entitled to a depreciation rate of 60%. This decision was based on the functional integration of these devices with computers and their essential role in data transmission.Order:Both appeals were dismissed, and the Tribunal pronounced the order on July 9, 2010, affirming the classification of routers and switches as computers for depreciation purposes.