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Issues: (i) Whether UPS attached to computers was eligible for depreciation at 80% as an energy-saving device or only at 60% as part of the computer system; (ii) whether the assessee was entitled to deduction under section 10B of the Income-tax Act, 1961, and alternatively under section 10A of the Income-tax Act, 1961; and (iii) whether the disallowance under section 40(a)(ia) was to be added back while computing deduction under section 10A.
Issue (i): Whether UPS attached to computers was eligible for depreciation at 80% as an energy-saving device or only at 60% as part of the computer system.
Analysis: The Tribunal accepted the view that UPS, when attached to computers, forms part of the computer system and is not to be treated as an independent energy-saving device for the purpose of the higher rate of depreciation. It followed the jurisdictional view that such equipment is eligible only for depreciation applicable to computers.
Conclusion: The claim for depreciation at 80% was rejected and depreciation at 60% was upheld.
Issue (ii): Whether the assessee was entitled to deduction under section 10B of the Income-tax Act, 1961, and alternatively under section 10A of the Income-tax Act, 1961.
Analysis: Deduction under section 10B was denied because the required approval by the competent board under the Industrial Development and Regulation framework had not been obtained. On the alternative claim under section 10A, the Tribunal held that the relevant provisions were not properly examined and that eligibility could not be rejected merely on the footing that the unit was registered with STPI rather than SEZ, since section 10A also covers eligible undertakings in software technology parks.
Conclusion: Deduction under section 10B was denied, but the claim under section 10A was remanded to the Assessing Officer for fresh examination.
Issue (iii): Whether the disallowance under section 40(a)(ia) was to be added back while computing deduction under section 10A.
Analysis: Since the claim for deduction under section 10A was restored for fresh consideration, the related question whether the disallowance under section 40(a)(ia) should be included in business profits for that computation was also required to be reconsidered in the same exercise.
Conclusion: This issue was also remanded for fresh consideration.
Final Conclusion: The appeal succeeded only to the extent of remand on the section 10A-related issues, while the restriction of depreciation on UPS was sustained.
Ratio Decidendi: UPS attached to computers is to be treated as part of the computer system for depreciation purposes, and eligibility for deduction under section 10A must be examined with reference to the specific statutory conditions applicable to software technology park undertakings.
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