2020 (3) TMI 802 - AT - Income Tax

ATMs Classified as Computers: Depreciation Rate Set at 60%

M/s. Financial Software and Systems Private Limited Versus The Deputy Commissioner of Income Tax, Corporate Circle 2 (1), Chennai.

The Tribunal allowed the appeals for the assessment years 2015-16 and 2016-17, directing the Assessing Officer to allow depreciation at the rate of 60% on ... Disallowance of depreciation claimed on Automated Teller Machines (ATM) - @ 15% OR 60% - contention of the assessee that ATM machine falling within the meaning of ‘’computer’’ qualifying for depreciation @60% - HELD THAT:- The Karnataka Sales Tax Act and the Income-tax Act, 1961 are not similar, i.e., pari materia legislations. In the matter of interpretation of an entry under the sales tax laws ‘Trade Test’ or ‘Common Parlance Test’ is applied while considering whether a particular item/goods fall in an entry or not, whereas under the Income-tax Act, 1961, particularly when considering whether an item is to be considered as ‘plant and machinery’ and/or ‘building’ or any of the items specified in the Appendix to the Incometax Rules, 1962, functional test is the decisive test, as ruled by the Hon’ble Supreme Court of India in numerous cases, one such being CIT vs. Anand Theatres [2000 (5) TMI 4 - SUPREME COURT] In other words, the test would be: Does an ATM fulfil the functions of a Computer in the business activity of an assessee? Is it a tool of his trade with which it carries on his business? If the answer is in affirmative, it would be a computer and moreover the issue was already decided in favour of the assessee in assessee's own case by the Co-ordinate Bench of the Tribunal [2019 (6) TMI 1454 - ITAT CHENNAI] and hence, we do not find any reason to depart from the findings of the Co-ordinate Bench of the Tribunal. Accordingly, we direct the Assessing Officer to allow depreciation @60% as claimed by the assessee. Thus, the appeal filed by the assessee for assessment year 2015-2016 stands allowed. Issues Involved:1. Violation of principles of natural justice and provisions of the Income Tax Act.2. Improper adjustments to the reported loss of the appellant.3. Disallowance of depreciation claimed on Automated Teller Machines (ATMs).Analysis of the Judgment:1. Violation of Principles of Natural Justice and Provisions of the Income Tax Act:The appellant contended that the lower authorities erred in finalizing the order of assessment, which suffered from legal defects, including violations of principles of natural justice and provisions of the Income Tax Act. The assessment was completed without adequate inquiries and was contrary to the facts on record and applicable law. The Tribunal did not provide a specific ruling on this issue, focusing instead on the substantive issue of depreciation on ATMs.2. Improper Adjustments to the Reported Loss:The appellant argued that the lower authorities made improper adjustments to the reported loss by misapplying the provisions of the Act. This issue was not separately addressed by the Tribunal, as the primary focus was on the classification and depreciation of ATMs.3. Disallowance of Depreciation Claimed on ATMs:The central issue revolved around whether ATMs should be classified as computers, qualifying for a higher depreciation rate of 60% instead of 15%. The appellant claimed depreciation at 60%, arguing that ATMs are computerized telecommunication devices and should be classified as computers.The Tribunal noted that the issue was covered in favor of the assessee in its own case for the assessment years 2013-14 and 2014-15, where it was held that ATMs are eligible for depreciation at the rate of 60%. The Tribunal cited several precedents, including the case of CIT vs. Saraswat Infotech Ltd and the decision of the Kolkata Tribunal in the case of Royal Bank of Scotland N.V. vs. DDIT (International Taxation), which supported the classification of ATMs as computers.The Tribunal also referred to the Information Technology Act, 2000, which defines 'computers' to include 'computer networks.' It concluded that ATMs, being part of a computer network, should be classified as computers.The Tribunal rejected the reliance on the Karnataka High Court's decision in Diebold Systems (P.) Ltd., which was rendered under the Karnataka VAT Act and not the Income Tax Act. It emphasized that the functional test, rather than the common parlance test, should be applied under the Income Tax Act.The Tribunal directed the Assessing Officer to allow depreciation at the rate of 60% on ATMs, as the issue had already been decided in favor of the assessee in previous years. Consequently, the appeals for the assessment years 2015-16 and 2016-17 were allowed.Conclusion:The Tribunal allowed the appeals filed by the assessee for the assessment years 2015-16 and 2016-17, directing the Assessing Officer to allow depreciation at the rate of 60% on ATMs, consistent with previous rulings in the assessee's favor. The decision was based on the classification of ATMs as computers, supported by judicial precedents and the functional test under the Income Tax Act.