Computer peripherals and NPA interest treatment: integrated banking equipment may get higher depreciation, while NPA interest is taxed on receipt basis.

UPS, cash dispenser and ATM switch used as part of an integrated computer-driven banking system may qualify for depreciation at the higher rate applicable to computers and computer peripherals, subject to factual verification of their use. Interest on non-performing assets is treated as taxable only on receipt, not on mere accrual, where real income has not arisen and RBI prudential norms support receipt-based recognition; section 43D does not require accrual taxation on these facts. The discussion therefore turns on functional integration for depreciation and real income principles for NPA interest.

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Issues: (i) Whether UPS, cash dispenser and ATM switch were eligible for depreciation at the higher rate applicable to computers and computer peripherals; (ii) Whether interest on non-performing assets was taxable on accrual basis or only on receipt basis.

Issue (i): Whether UPS, cash dispenser and ATM switch were eligible for depreciation at the higher rate applicable to computers and computer peripherals.

Analysis: The higher depreciation rate was claimed on the footing that these items functioned as peripherals or accessories integrally connected with the computer system. The Tribunal followed the view taken in the assessee's own earlier year and noted that such devices, when used as part of an integrated computer-driven system, fall within the broader concept of computer equipment for depreciation purposes. UPS connected to the ATM or computer system was also treated as eligible for the higher rate, subject to factual verification of its use.

Conclusion: The issue was decided in favour of the assessee, and the matter was restored to the Assessing Officer for verification and consequential allowance.

Issue (ii): Whether interest on non-performing assets was taxable on accrual basis or only on receipt basis.

Analysis: The Tribunal followed the earlier year's decision and the settled principle that income is taxable when it accrues in the real sense. In view of the RBI prudential norms and the binding approach adopted in earlier decisions, notional accrual of interest on NPAs was held not to represent taxable income until actually received. Section 43D did not justify taxation of such interest on accrual basis in the facts considered.

Conclusion: The issue was decided in favour of the assessee and the addition on account of interest on NPAs was deleted.

Final Conclusion: The appeal succeeded only in part, with relief granted on the disputed depreciation issue and the NPAs interest addition, while the remaining grounds were either general or not pressed.

Ratio Decidendi: Computer peripherals and integrated banking equipment used as part of a computer system may qualify for higher depreciation, and interest on NPAs is not taxable on mere accrual where real income has not arisen and receipt-based recognition applies.

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