2015 (11) TMI 17 - AT - Income Tax

Tribunal favors assessee on payment nature, depreciation issues under Income Tax Act

Tata Consultancy Services Limited Versus The Assistant Commissioner of Income Tax (OSD) Range 9 (1), Mumbai and Vica-Versa

Tata Consultancy Services Limited Versus The Assistant Commissioner of Income Tax (OSD) Range 9 (1), Mumbai and Vica-Versa - TMI Issues Involved:1. Nature of payment for processing contracts.2. Depreciation on leased cars.3. Rate of depreciation on cars leased and used by the assessee.4. Depreciation on leased computers.5. Depreciation on cars used for own business.6. Disallowance of computer repairs and maintenance expenses.7. Validity of notice issued under Section 148 of the Income Tax Act.Issue-wise Analysis:1. Nature of Payment for Processing Contracts:The primary issue is whether the payment of Rs. 23,80,000 made to Citicorp Information Technology Services Limited (CITIL) for the purchase of processing contracts is capital or revenue in nature. The assessee claimed it as revenue expenditure under Section 37 of the Act, arguing that the contracts were acquired in the ordinary course of business. The CIT(A) held it as capital expenditure, classifying it as an intangible asset entitled to depreciation at 25%. The Tribunal, however, found that the payment was for acquiring service agreements, not a processing division, and should be treated as revenue expenditure, thus deleting the addition made by the assessing officer.2. Depreciation on Leased Cars:The assessee claimed depreciation of Rs. 30,052,849 on cars leased to its associated concerns, which the assessing officer disallowed, treating the transactions as financial leases rather than operating leases. The CIT(A) upheld this view, relying on the Special Bench decision in Indus Ind Bank Ltd. The Tribunal, referencing the Supreme Court judgment in ICDS Ltd., concluded that the assessee was the owner of the cars and entitled to depreciation, thus deleting the disallowance.3. Rate of Depreciation on Cars Leased and Used by the Assessee:The assessee argued for a 40% depreciation rate on cars purchased after 1.10.1998, claiming they were commercial vehicles. The assessing officer allowed only 20%, stating the cars were used for office purposes. The CIT(A) upheld this view. The Tribunal, however, agreed with the assessee, holding that the cars were commercial vehicles entitled to 40% depreciation as per the amended provisions of Section 32 of the Act.4. Depreciation on Leased Computers:The assessee claimed depreciation of Rs. 3,288,246 on leased computers, which the assessing officer disallowed, treating the transactions as financial leases. The CIT(A) upheld this disallowance. The Tribunal, referencing the Supreme Court judgment in ICDS Ltd., concluded that the assessee was the owner of the computers and entitled to depreciation, thus deleting the disallowance.5. Depreciation on Cars Used for Own Business:The assessee claimed 40% depreciation on cars purchased after 1.10.1998 for its own use. The assessing officer restricted this to 20%, and the CIT(A) upheld this view. The Tribunal held that the cars were commercial vehicles entitled to 40% depreciation, thus deleting the disallowance.6. Disallowance of Computer Repairs and Maintenance Expenses:The assessing officer disallowed Rs. 30,00,000 out of Rs. 3,198,207 claimed for computer repairs and maintenance, considering it excessive. The CIT(A) restricted the disallowance to Rs. 4,40,000. The Tribunal found no defects in the books of accounts and allowed the full claim of the assessee, deleting the disallowance.7. Validity of Notice Issued Under Section 148:The Revenue's appeal concerned the validity of a notice issued under Section 148 for the assessment year 2002-03. The CIT(A) quashed the notice, and the Tribunal upheld this decision, noting that the original assessment had duly considered the interest expenses, and the re-assessment was merely a change of opinion, which is not permissible under the law.Conclusion:The Tribunal allowed the appeals of the assessee and dismissed the appeal of the Revenue, providing detailed reasons for each decision, ensuring that the legal principles and factual findings were thoroughly examined and applied.