2016 (9) TMI 1617 - AT - Income Tax

Tribunal directs higher depreciation rate for computer software, clarifying treatment as integral asset.

National Collateral Management Services P. Ltd. Versus ADDL CIT RG 7 (1), Mumbai

The Tribunal allowed the appeal, directing the Assessing Officer to allow depreciation at 60% for computer software as it qualifies for higher rates due ... Depreciation on computer softwares - forming part of the block of assets of computers at the rate of 25% OR rate of 60% claimed by the appellant - restricting the claim of depreciation on computer softwares forming part of the block of assets - HELD THAT:- ‘Software’ consists of the programs and application that run on computers, and computer including computer software on which rate of depreciation has been prescribed as 60%. And the said rates are effective from Assessment Year 2003-04 wherein the “Computer Software” has already been included in the category of “Computer” for the purpose of allowing depreciation at the higher rate of 60%. As per the provisions of Income Tax Act are considering up to Assessment Year 2002-03 “ computers” were eligible for depreciation @ 60% from Assessment Year 2003-04, benefit of such enhanced depreciation rate has been extended also to “Computer Software”. In this respect our attention was drawn to note no. 7 to Appendix I as applicable from Assessment Year 2003-04 which defines “Computer Software to mean any computer programme recorded on any disc, type, perforated media or other information storage device. Thus for Income Tax purposes “software” has to be shown under the block of assets ‘computers including computer software’. We are also of the view that “Computer Software” cannot work in isolation and also working on computer system, without a software would be futile and even computer software which is installed on computer system separates the computer hardware and being on integral part is eligible for depreciation. Amway India [2008 (2) TMI 454 - ITAT DELHI-C] wherein it has observed that ‘computer’ and ‘computer software’ are two different item of assets. With effect from 1st April, 2003. ‘computer software’ has been classified as a tangible asset under the heading “Plant” in Appendix I to the IT Rules entitled to depreciation at 60% from 1st April 2003. Thus we allow this ground raised by the assessee, and AO is directed to re-compute assessment by giving depreciation @ 60% to the assessee. - Decided in favour of assessee. Issues:Restriction of claim of depreciation on computer softwares forming part of the block of assets.Analysis:The appeal was filed against the order restricting the claim of depreciation on computer software at 25% instead of the claimed 60%. The assessee argued that computer software was included in the depreciation rate table at 60% from 2003-04. The Assessing Officer restricted the depreciation based on section 32(1)(ii) for intangible assets. The AR argued against this decision, citing relevant case laws like Amway India Vs. DCIT and Container Corporation of India Ltd. Vs. ACIT. The AR emphasized that software is an integral part of computers and should be eligible for higher depreciation rates.The Tribunal analyzed the situation and found that computer software is part of the block of assets 'computers including computer software.' They noted that software cannot work in isolation and is essential for computer hardware. Relying on case laws like Amway India Vs. DCIT and DCIT Vs. Datacraft India Ltd., the Tribunal concluded that computer software qualifies for higher depreciation rates. They highlighted that computer software was classified as a tangible asset eligible for 60% depreciation from April 1, 2003. The Tribunal directed the AO to re-compute the assessment by allowing depreciation at 60% for the assessee. As a result, the appeal of the assessee was allowed.The judgment clarifies the treatment of computer software as part of the block of assets 'computers including computer software' and establishes its eligibility for higher depreciation rates. The decision is based on a thorough analysis of relevant provisions of the Income Tax Act and supported by precedents set by previous cases. The Tribunal's ruling provides clarity on the depreciation rate applicable to computer software and ensures consistent application of the law in similar cases.