2005 (8) TMI 293 - AT - Income Tax

Tribunal Affirms 60% Depreciation on Printers and Scanners as Computer Components; Xerox Machines at 25% Depreciation.

The ITAT upheld the Ld. CIT(A)'s decision, allowing 60% depreciation on the printer and scanner, affirming them as integral components of the computer ... Allowability of higher depreciation on computer system components - definition of 'computer system' under Explanation (a) to s.36(1) - integral part test: peripherals as part of a computer system - plant test for determining whether an asset is a tool/apparatus of tradeAllowability of higher depreciation on computer system components - definition of 'computer system' under Explanation (a) to s.36(1) - integral part test: peripherals as part of a computer system - plant test for determining whether an asset is a tool/apparatus of trade - Whether the printer and scanner purchased by the assessee constitute part of the 'computer system' and are therefore eligible for depreciation at the higher rate applicable to computers. - HELD THAT: - The Tribunal noted that 'computer system' is defined in Explanation (a) to sub section (xi) of section 36(1) as a device or collection of devices including input and output support devices and that a computer comprises components such as printers and scanners. The Inspector's factual verification indicated that the printer and scanner cannot be used independently and operate only when attached to and driven by a computer, showing they function as input/output devices of a computing system. The Tribunal applied the principle that assets which form part of, or serve as an apparatus or tool of, the taxpayer's business activities qualify as plant or part of the relevant apparatus, relying on the test in Kanodia Warehousing and the Supreme Court's exposition in Karnataka Power Corporation that whether an item is plant depends on its use and whether it serves the assessee's special technical requirements. On these findings, the Tribunal concluded that the printer and scanner are integral components of the computer system and fall within the definition for purposes of allowing the higher rate of depreciation. [Paras 4, 5, 6, 7]Printer and scanner are integral parts of the computer system and are eligible for depreciation at the higher rate (60%); revenue's ground disallowing excess depreciation is rejected.Final Conclusion: The revenue's appeal is dismissed; the order of the CIT(A) allowing depreciation at the higher rate on the printer and scanner is upheld. Issues:- Disallowance of depreciation at a higher rate for a colour Xerox machine.- Interpretation of the term 'computer' for depreciation purposes.- Whether the printer and scanner are integral parts of the computer system.Analysis:1. The appeal concerned the disallowance of depreciation on a colour Xerox machine at a higher rate. The Assessing Officer found the machine not eligible for the claimed 60% depreciation, reducing it to 20%. The Ld. CIT(A) sought a remand report, concluding the machine was not a computer and should receive 25% depreciation. The Departmental Representative argued against the higher rate, citing the machine's nature and its separation from the computer.2. The assessee contended that the printer and scanner were part of the computer system, thus eligible for 60% depreciation. Reference was made to the Institute of Chartered Accountants of India's definition of a computer, including input and output devices. The purchased scanner and printer were described as integral components of the computer, with software loaded in the CPU, supporting the claim for higher depreciation.3. The Tribunal noted the absence of a statutory definition for a computer but referred to the definition of a computer system under the Income Tax Act. The Institute of Chartered Accountants of India's definition was also considered, emphasizing the components and functions of a computer. The Inspector's report highlighted the interdependence of the printer and scanner with the computer, crucial for their operation.4. Relying on legal precedents, including the Allahabad High Court and the Supreme Court judgments, the Tribunal determined that the printer and scanner were integral parts of the computer system. Following the principle that assets serving specific technical requirements qualify as plants, the Tribunal upheld the Ld. CIT(A)'s decision to allow 60% depreciation on the printer and scanner, dismissing the appeal by the revenue.