TaxTMI 
TaxTMI 
2019 (7) TMI 789
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the case are as follows: The assessee is a private limited company. It is engaged in the business of distribution of signals and internet supply to cable networking. For the assessment year 2014-2015, the assessee filed return of income on 11.08.2014 disclosing loss of Rs. 26,39,45,530. The assessment u/s 143(3) was completed vide order dated 31.12.2016 assessing the total income at Rs. 36,42,10,219. One of the disallowances made by the A.O. was depreciation on STB. The assessee had claimed depreciation on STB at Rs. 36,13,86,286 at the rate of 100%. The A.O. restricted the claim of depreciation to 15% [being Machinery and Plant not covered under sub-items (2), (3) and (8) of new Appendix - I, [i.e., table of rates at which the depreciation is admissible]. The A.O. in paragraphs 28 and 29 of the impugned assessment was of the view that the assessee had recouped the cost of STB in the name of installation charges from its customers, and handed over possession of the same. Hence the A.O. was of the view that the assessee was not entitled to depreciation on STB. However, in paragraph 28 of the impugned assessment order, the A.O. contradicts the view taken in paragraphs 26 and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s collected which includes cost of STB, the claim of depreciation on set top boxes was proposed to be disallowed as per pre-Assessment notice dated 14/12/2016 referred to above. The assessee's A.R., at the time of hearing on 19/12/1016 reiterated the same stand as has been taken earlier. 27. I am not able to accept the contention of the assessee's A.R. The total depreciation claimed on set top boxes comes to Rs. 54,78,24,795/- which has to be disallowed since the assessee has collected the cost of STBs and possession of the same has already been handed over. In view of these facts, there is no asset in the possession of the assessee and the assessee is not eligible to claim any depreciation on an item the cost of which has already been collected in the name of Installation charges. 28. Even if the claim of assessee for depreciation on STB is treated to be admissible, it cannot at any rate be admissible at 100% or 80% as claimed in form 3CD treating it as "building". The assessee also claims that form 3CD is generated online and in the depreciation blocks there is no item specified 100% other than head building, it was an accidental omission. The argument o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....relevant finding of the CIT(A) as regards the STB being the capital asset of the assessee-company and the findings that the assessee is entitled for depreciation at the rate of 80%, reads as follows:- "7.8 I have gone through the assessment order and the submissions of appellant. In para 27 of the Assessment order, the assessing officer concluded that the total depreciation claimed on set top boxes has to be disallowed since the appellant has collected the cost of STBs and possession of the same has already been handed over. The AO also observed that there is no asset in the possession of the appellant and the appellant is not eligible to claim any depreciation on an item the cost of which has already been collected in the name of Installation charges. However, the AO allowed the depreciation @ 15% to the appellant on said set top boxes. This would mean that the Assessing Officer has treated the said Set top Boxes as Capital Asset owned by the appellant. The treatment so given by AO is clearly at variance with the conclusions held by him in para 27 of the order. 7.9 Coming to merits of the case I have perused the Customer Registration Form. As per the Terms and Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... law, facts and circumstances of the case. 2. The learned Commissioner of Income Tax (Appeals) erred in deleting the addition of Disallowance of depreciation of Rs. 30,65,10,789/- on set top boxes and directing to allow the depreciation at the rate of 80% instead of 15% allowed by Assessing Officer. 3. The learned Commissioner of Income Tax (Appeals) erred in directing to allow depreciation at the rate of 80% on set top box instead of 15%. Depreciation at the rate of 80% is allowable as per new Appendix - 1(8)E(k) to IT Rules, 1962 to the following. "Remote terminal units/intelligent electronic devices, computer hardware/software, router/bridges, other required equipment and associated communication systems for supervisory control and data acquisition systems, energy management systems and distribution management systems for power transmission systems". The Set Top Box is not coming under any of the categories mentioned above. Hence depreciation on the same is applicable at the rate of 15% only. As per TRAI regulations dated 01.04.2015 the depreciation on the price of customer premises equipment (which included Set Top Box and remote control for ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd natural justice vide section 14A of the Income Tax Act, revenue and expense shall follow matching concept, the claim of assessee of depreciation at such higher rates is proper. 5) Alternatively, cost of digital set top boxes shall be allowed in full as revenue expenditure. 6) It is not true that needed documents/details were not furnished to the Assessing Officer. All needed and available documents/details were furnished as and when called for: 7) The appeal filed by the appellant in this case is timebarred as filed beyond the 60 days time limit allowed by law. 8) Such other grounds as may be urged at the time of hearing. 6. The learned Departmental Representative strongly relied on the assessment order and the grounds raised. 6.1 The learned AR, on the other hand, had filed written submission and also a paper book enclosing balance sheet for the year ending 31.03.2014, ledger account of SET TOP BOX, bill issued for activation charges etc. The Ld. AR submitted that the assessee is entitled for higher rate of depreciation as it is a capital expenditure for the following reasons:- 1. Claim for Depreciation at 80%-Depreciation. 32.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... includes power is the rate of doing work or transferring heat, the amount of energy transferred or converted per unit time. It includes Electrical, Mechanical, Chemical powers 6.4 The Ld. AR submitted that the operation of the company is all about data transfers only, through the cable network by way of signals. Various types of data routinely transferred in cable/satellite telecommunications can be broadly classified into three categories - audio data, video data and textual data. Whatever the type of data, data of all kinds are basically lifeless and, therefore, lack spontaneous movement of its own. To cause transfer/movement of such data from one place to another, some specific carrier (energy) is indispensably required. Without such carrier, the data cannot even be imagined to move an inch forward, let alone at the speed of light, such data carrier energy is the artificially created light energy (ACLE) which is acting as the sole driving force behind every type of data transfer in communications. ACLE is possessable in the same sense as the electrical energy, as the customers can use it any time they want the data to any destination, according to his choice of customers. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the assessee is entitled to depreciation claimed u/s. 8(ix)(E)(k) being energy devices and electric equipments. He also submitted that it is entitled to claim of depreciation under (8) (ix) (B) (c). It was submitted that alternatively, the device also fits in the below description in Appendix-I Rates of Depreciation which reads as follows: (8) (ix) Energy saving devices, being- B. Instrumentation and monitoring system for monitoring energy flows: (c) Micro-processor based control systems A White paper by BROADCOMM, which is a international technology leader in this field (manufacturer and supplier of 1C chipset for Set top boxes). As these devices are not manufacture of India, the same are imported from China, the suppliers from China use 1C chipsets from across the globe (like Broadcomm, Motorola etc. among several others) , this white paper details the superior advantage and benefits of digital technology based on 1C chipsets as compared to older analog RF tuners, are self explanatory, needs no further recourse. In page-2, para-2 , "Since analog tuners consume the largest amount power in the RF front end, the overall system power increases an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... installed central unit. CAS (Conditional access system) through which the Operating company (This assessee) can supply control and monitor and activate/deactivate signals from the control centre COMPUTER system which keeps track of the usage signals and channels viewed/accessed and duration of each of these. STB is a 2-way communicating unit at the customer end connected to the transmission and distribution system of the assessee company. 6.9.2 The Ld. AR relied on the order of the Tribunal in the case of Ushodaya Enterprises Ltd. vs. ACIT in ITA No.1241/Hyd/2008 dated 31/10/2013 wherein it was held that "various items like Editing equipments, charter generators and v. Sat equipments i.e., DVC transfer recorder, player, satellite receivers, encoders, vidilink transmit and receivers and fibre optic link work etc. are part of computer and eligible for higher depreciation at 60%. He also relied on the decision of the Tribunal in the case of Pankaj Almadi vs. DCIT in ITA No. 6883/Del/2015 dated 28/08/2017 and DCIT vs. Datacraft India Ltd., ITAT Mumbai. 6.9.3 He also submitted that the statutory compliance cost should be allowed as revenue expenditure. It was submitted that this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....echnical upgradation. He relied on the order of the Tribunal , Kolkata Bench in the case of DCIT vs. M/s. Alliance Broad Band Services in ITA No. 1318/Kol/2015 dated 6th December, 2017 wherein it was held that cost towards necessitated by technological up gradation due to compulsion for the replacement technology of existing Analog to digital to fulfill the requirement of cable television digitalisation policy of the government of India, so this is a technological up gradation so this capital expenditure should be treated as a revenue expenditure 6.9.6 He relied on the following case laws: 1. DCIT v. McLeod Russel India Ltd (2013) (24 lTR(Trib)262) (Kol) 2. Amway India Enterprises vs.Deputy CIT (2008) (301 ITR(AT)(Delhi) 3.CIT v Janakiram Mills Ltd (2005) (275 ITR 403) (Mad) 4.CIT V Sundram Clayton Ltd (2010) (321 ITR 69) (Mad) 5.DCIT v Lasik Centre (India) P Ltd (2013) (22 ITR (Trib)462) Chennai 6.9.7 The Ld. AR further relied on the judgment of the Supreme Court in the case of CIT vs. Vegetable Products Ltd. [(1972) (88 ITR 192) wherein it was held that "if two reasonable constructions of a taxing provisions are possible, that co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ost of the set top boxes from the customers in the name of "installation charges" apart from monthly charges of subscription for the connections and also annual service maintenance contract charges on each of the set top box installed. The Assessing Officer noted that the assessee did not produce sale bill or invoices showing installation charges of subscription for the connections and also annual service maintenance even after repeated requests and that the physical possession of set top boxes were handed over to the customers at the time of its installation and therefore installation charges collected included cost of set top boxes as per copy of bills produced in the case of Asianet Satellite Communication Ltd. The Assessing Officer observed that when the cost of STB was collected from the customers on its first installation, possession of the instrument stands handed over to the customers at the time of installation and subscription charges and annual maintenance charges are also collected, the claim of the assessee of having ownership over the same for that matter, the claim of depreciation @ 100% on the set top boxes is not justified. This was disallowed by the Assessing Offi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of STBs and possession of the same has already been handed over. In view of these facts, there is no asset in the possession of the assessee and the assessee is not eligible to claim any depreciation on an item the cost of which has already been collected in the name of installation charges". 7.2 However the Assessing Officer allowed 15% depreciation by observing as follows: "28. Even if the claim of assessee for depreciation on STB is treated to be admissible, it cannot at any rate be admissible at 100% or 80% as claimed in Form 3CD treating it as ""building". The assessee also claims that Form 3CD is generated online and in the depreciation blocks there is no item specified 100% other than head 'building', it was an accidental omission. The argument of the assessee's AR is not true and correct and not acceptable. Being a responsible chartered accountant who is supposed to certify correctness of entries in the statutory form 3CD, the assessee's AR is supposed to be well aware of the rate of depreciation of various block of assets specified under section 32 including building when the rate of depreciation on building is only 10% and not 100%. The equipments like STB ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct of the business or is intrinsically connected with the running of a business the expenditure is to be regarded as revenue expenditure even though the advantage may endure for some indefinite future. iv. A payment made with a view to obtain the benefit of technical assistance for running the assessee's business more efficiently so as to earn more profits and 'not by way of transfer of fruits of research once and for all', can be treated as an item of revenue expenditure v. Expenditure incurred in connection with the profit earning apparatus would be revenue expenditure. vi. Where the advantage is on the capital field the expenditure would be treated a capital Expenditure. If the advantage leaves the fixed capital untouched, the expenditure would be on revenue account. vii. Expenditure in the acquisition of a concern would be capital expenditure; expenditure in carrying on the concern would be revenue expenditure. xi. If the amount spent was for the purpose of bringing into existence a new asset or obtaining a new advantage, then obviously such an expenditure would fall in the category of capital expenditure. xii. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to account the period they were put to use. Depreciation at the rate of 100% was claimed for more than 180 days amounting to Rs. 17,47,76,077 and 50% on remaining items purchased from 01.10.2013 to 31.03.2014. The assessee was not able to point out the basis on which 100% depreciation was claimed on these STB's. In the course of assessment proceedings, the assessee furnished revised depreciation statement claiming depreciation at 80% in lieu of 100% already claimed in the return of income. In paragraphs 26 and 27 of the assessment order, the Assessing Officer was of the view that the depreciation claimed cannot be allowed to the assessee since the assessee had collected cost of STB's and the possession of the same was already handed over to its customers. However, the A.O. contradicted his earlier position mentioned in paragraphs 26 and 27 of the assessment order and in paragraph 28 concluded that the assessee was entitled to depreciation at the rate of 15% treating the cost of STB's as normal 'plant and machinery', as per new Appendix I Part A-III(1). In holding so, the A.O. states at para 28 of the impugned assessment order that he is taking a lenient view for granting depreciati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dix IA of the Income-tax Rules) (ii) in the case of any block of assets, such percentage on the written down value thereof as may be prescribed. (emphasis supplied) 7.2 The prescription in Rule 5(1) and Appendix I of Incometax Rules and the same reads as follows:- Appendix I of Income-tax Rules. Rates of depreciation III. Machinery and Plant Machinery and plant other than those covered by subitems (2)(3) and (8) below : 15%. 8.3 The Assessing Officer granted depreciation at the rate of 15% being machinery and plant other than those covered by sub-items (2), (3) and (8). According to the assessee, it is covered under sub-item (8)(ix)(E)(k). Sub-item (ix) of item (8) is energy saving device and (E) is electric equipment. For claiming higher rate of depreciation of 80%, assessee has to prove that the STB's are energy saving devices being electrical equipment. In the absence of proving so, STB's would be entitled for depreciation under general category of 'machinery and plant' and not a sub-item mentioned under (8) i.e. energy saving device being electric equipment. The finding rendered by the CIT(A) is insufficient to come to a conclu....