Functional test for depreciation: ATMs qualify as computers and attract the higher income-tax rate.

ATMs were treated as computers for income-tax depreciation because the decisive test was their functional role in business, not their classification under sales tax law. The equipment was found to perform logical, arithmetic and memory functions through embedded computer systems and software, and to operate only as part of a computer-linked network. The contrary sales tax view was held inapplicable because the two enactments are not pari materia. The tribunal also followed the assessee's own earlier-year decision and allowed depreciation at 60% on ATMs.

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Issues: Whether automated teller machines are to be treated as computers for the purpose of claiming depreciation at 60% under the Income-tax Act, 1961.

Analysis: The claim for higher depreciation turned on the proper characterisation of ATMs in the income-tax context. The reasoning accepted that, unlike sales tax classification, the relevant enquiry is the functional role of the equipment in the assessee's business. ATMs were found to perform logical, arithmetic and memory functions through embedded computer systems and software, and to operate only as part of a computer-linked network. The contrary view taken under sales tax law was held not to govern, since the two enactments are not pari materia. The issue had already been decided in the assessee's own case for earlier years, and that view was followed.

Conclusion: ATMs were held to fall within the computer block and depreciation at 60% was directed to be allowed in favour of the assessee.

Final Conclusion: The assessee succeeded on the sole substantive issue, and the assessments were interfered with to the extent necessary to grant the higher rate of depreciation on ATMs.

Ratio Decidendi: For income-tax depreciation, the decisive enquiry is the functional test, and an ATM that performs computer-based processing as an integral part of its operation is to be treated as a computer rather than as a mere electronic cash-dispensing device.

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