TaxTMI 
TaxTMI 
2020 (5) TMI 190
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....racted from the impugned orders of the lower authorities, are that the assessee is engaged in the business of Multi System Operators and Digital Cable Services (DCS). The DCS services are rendered to the customers through set top boxes. The assessee, thus, acts as an intermediate between local cable operators and broadcasters. The assessee for the assessment year under consideration declared a loss of R s .30,21,64,573/ in the return of income. During the course of assessment proceedings, the Assessing Officer (in short 'AO') noticed that the assessee had entered into a financial lease agreement with M/S CISCO Capital System India Pvt. Ltd. (hereinafter referred to as CISCO) for supply of Set Top Boxes (hereinafter referred to as ST B) and Head Ends. The Assessing Officer further noted that CISCO was a Non-Banking Finance Company (N BF C) registered with Reserve Bank of India and was in the business of providing different types of loans on assets/ equipments to its customers. The Assessing Officer found that the assessee had entered into the said agreement with CISCO through Master Lease Finance Agreement dated 7.12.2011 along with a number of schedules, wherein the lease t....
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....y the asses see amounting to R s. 2.40 crores and Further disallowance of interest, amounting to Rs. 28,68,096/ was also made, u/ s 36 (l)(iii) of the Act, on account of payments made on behalf of one M/S G. S. Majestic Developers Pvt. Ltd. treating the same to be in the nature of loan for non business purpose. Thus, after making above disallowances/ additions, the Assessing Officer assessed the income of the assessee at Rs. 21,19,85,703 as against loss of Rs. 30,21,64,573/ returned by the asses see. The asses see appealed against the aforesaid order of the Assessing Officer before the CIT (Appeals) but could not succeed on any of the issues raised. 5. Aggrieved by the order of the CIT (A), the assessee has come up in appeal before us raising the following Grounds: "1. That the Worthy Commissioner of Income Tax (Appeals)- 5, Gurgaon has grossly erred in dismissing all the grounds of appeal as taken before him by the appellant without appreciating the detailed 2. submissions and various contentions as raised by the assessee during the course of number of hearings and has passed the order in a summary manner and has just confirmed the additions, which are tota....
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....by the asses see. 9. The Ld. Counsel for the assessee in this respect has submitted that during the relevant year 2013-14 for 'STBs & head ends, there were two components of the lease payments made by the assessee to M/S CISCO Principal Component Rs. 58,87,16,983/- Interest Component Rs. 6,00,38,178/- Total Rs. 64,87,55,153/- The Ld. Counsel has further submitted that as per the accounting standards AS-19 prescribed by the Institute of Chartered Accountants of India (I CAI), the assessee capitalized the aforesaid total amount of Rs. 64,87,55,153/ in the books of account and claimed depreciation on it. The assessee did not debit the interest competent of Rs. 6,00,38,178/ in the profit and loss account, though inadvertently mentioned so in 'Note 2J' of the Audited Accounts that interest component has been debited. However, actually it was not done so. The Ld. Counsel in this respect has submitted that it is not the case of the Assessing Officer that the interest component was not allowable as deduction to the assessee but the limited issue that whether the assessee has claimed double deduction of the same which can be well verified from the accounts of....
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.... of the amount of Rs. 6,00,38,178/ claimed as interest component of the total lease rental claim of Rs. 64,87,55153/-. However, the issue as to the allowability of deduction of principal component of Rs. 58,87,16,983/ has been contested vide ground Nos. 3 to 5 which has been discussed in the subsequent paras of this order. In view of this, the issue raised vide ground No. 2 of the appeal is accordingly restored to the file of the Assessing Officer in the terms as indicated above. 11. Grounds No 3 4 & 5: Ground Nos. 3, 4 and 5 raised by the asses see are against the action of the Ld. CIT (Appeals) in upholding the order of the Assessing Officer treating the lease agreement entered into by the assessee with CISCO as a finance lease agreement as against operating lease claimed by the assessee. Since the issues raised vide above grounds are interlinked, hence the same are taken together for adjudication. 12. We have heard the rival contentions of the Ld. Representatives of both the parties and have also gone through the record. The detailed submissions of the Ld. Counsel for the assessee on the issue are summed up point wise as under: - A) That there were both types o....
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..... H) That the entries in the books of account are not determinative of the nature of the transaction. The income for the purpose of levy of income tax is to be determined as per the provisions of the Income Tax Act, 1961, and the Accounting Standards are not relevant for the same. Reliance in this regard was placed on the decision of the apex court in Kedarnath Jute Manufacturing Co. ltd. vs CIT (1971) 83 ITR 363; Sutlej Cotton Mills Ltd. Vs CIT 116 ITR 1 and further upon the CBDT Circular No.2 of 2001 dated 9.2.2001 stating that the Accounting Standards on leases will have no implication on the allowance of depreciation on asset under the provisions of Income Tax Act. Reliance was further placed on notification issued by the CBDT dated 9.1.2015 and further dated 29.9.2016 pointing out therefrom that the Accounting Standards19 relating to accounting for leases has not been notified for the purpose of applicability under the Income Tax Act. I) That in finance lease there is outright sales and the seller tries to secure itself with collateral security as virtually ownership is transferred to lessee, which is absent in the present case where CISCO has no security rat....
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.... 6. CIT Vs Cosmo Films Ltd. (2011) 338ITR 226 7. CIT vs Punjab State Electricity Board (2010) 320 ITR 469 (PB & Hry.) 8. Bombay Dyeing & Mfg. Co. Ltd. Vs. DCIT ITA 4599/Mum./2002 (Mumbai Tribunal). 9. Minda Corporation limited vs DCIT ITA No. 1962/Del/2012 (ITAT Delhi). The Ld. Counsel concluding his arguments, has submitted that in any case it would be a revenue neutral exercise. Either the assessee would be entitled to lease charges or to depreciation. He is this respect has relied upon the decision of the Delhi High Court in the case of "CIT v. Triveni Engineering and Industries Ltd." [2011] 336 ITR 374 (Delhi). 13. The Department has also filed various documents and written submissions in support of its contention. The main thrust of the Ld. DR has been that the impugned agreement was a loan/finance agreement, with the assessee being the owner of the asset for all practical purposes and CISCO being the financer. The arguments of the Ld. DR are summed up as under:- A. That the assessee as per its own will and as per the actual nature of the transaction has followed AS-19, which does not mandate or require an assessee to claim a tra....
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....33A or under section 131 of the Act, reaffirmed that the transaction was that of a loan. L. That the assessee through letter dated 24.2.2014 addressed to DDIT(Investigation) had stated that it had shown the lease finance as unsecured loan in its books. M. That CISCO is a Non Banking Finance Company (NBFC) and its main activity is of financing and not leasing. N. That all the risks and rewards associated with ownership lay with the assessee, the lessee. The risks agreed to be borne by the lessee as per the terms of the MLFA are as under: a) As per clause 1.2 of the agreement the risks and responsibility associated with the procurement of the asset lay solely upon the assessee. b) The lessee was solely responsible for delivery, installation, maintenance and repayment of the equipment, warrantees, indemnities and insurance. All fees, taxes and charges levied by the Government were the responsibility of the lessee. (Clause 5.15.3) c) The risks associated with loss, theft, damage, destruction of asset lay with the lessee. (Clause 5.4) d) The lessee was required to obtain and maintain the risk insurance coverage with respect to the eq....
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.... followed by the Companies for making accounting entries, however, the said standard has no relevance so far as the computation of the income under the provisions of Income Tax Act was concerned. The Ld. counsel in this respect has relied upon the decision of the Apex Court in the case of 'Kedarnath Jute Manufacturing Co. Ltd. vs CIT' (supra) and CBDT Circular No. 2 of 2001 dated 9.2.2001. 15. On the other hand, the Ld. DR in his submissions as noted above and further relying upon the decision of the Special Bench of the Tribunal in the case of 'IndusInd Bank Ltd. vs ACIT' (supra) as well as of Hon'ble Supreme Court in the case of 'Association of Leasing and Financing Services Co. Ltd v Union of India' [2011] 2 SCC 352 has submitted that the assessee himself had treated the aforesaid lease as 'Finance Lease' as per AS-19 and further that as per AS-19, the assessee is entitled to only depreciation on the equipment as per the rules; That after analyzing the contents of the agreement in question, the Assessing Officer rightly held that the transaction in question was a Finance Lease and hence, the Assessing Officer rightly denied the deduction of alleged lease rental paid to CI....
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....e purpose of business of the assessee is allowable as a deduction of expenditure u/s 37 of the Act. 20. The question before us is as to whether the principal component of lease rental claimed by the assessee is a Revenue expenditure falling u/s 37 of the Act or a capital expenditure incurred for the purpose of capital assets upon which the assessee can be allowed depreciation as per the provisions of section 32 of the Income Tax Act. 21. The assessee in this case has pleaded that the assets / equipment in question was the property of CISCO which was taken by the assessee on lease from CISCO against payment of lease charges; Whereas, the sum and substance of the arguments of the Ld. DR has been that the transaction in fact, was a finance lease as defined by the ICAI in its AS-19. The AS-19 prescribed by the ICAI reads as under:- "3.1 A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. 3.2 A finance lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset. 3.3 An operating lease is a lea....
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....iple laid down by the Supreme Court in the case of McDowel & Co. Ltd. (1985) 47 CTR (SC) 126 : (1985) 154 ITR 148 (SC). 2. It has come to the notice of the Board that the new Accounting Standard on 'Leases' issued by the Institute of Chartered Accountants of India require capitalization of the asset by the lessees in financial lease transaction. By itself, the accounting standard will have no implication on the allowance of depreciation on assets under the provisions of the Income-tax Act. 3. The contents of this Circular may be brought to the notice of all concerned. [F. No. 225/86/2000/ITA-II-From Central Board of Direct Taxes]" SOURCE : (2001) 165 CTR (St) 25 23. Moreover, a perusal of the said AS-19 reveals that the same in fact talks of a loan agreement described as a lease. In our view, more confusion will be created if the reliance is placed on AS-19 prescribed by ICAI for deciding the claim of deduction under the Income Tax Act. When the Income Tax Act does not distinguishes between various type of leases, we find no justifiable reason to firstly describe and categorise a particular type of transaction/agreement as a form of lease name....
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....the moot question before us is that whether the assessee is the owner of the equipment or the same is hired on rent by the assessee from CISCO or to say in other words whether the agreement with CISCO is of a "lease" as claimed by the assessee or the same is mere loan / finance agreement. Though the contention of the Ld. AR has been that since the AO himself termed the transaction as Finance Lease which admittedly is a form of lease hence, the assessee is entitled to deduction of lease rental paid as revenue expenditure. However, we are not convinced with the above contention of the Ld. Counsel for the assessee. Hon'ble Supreme in the case of " Sundaram Finance Ltd vs State Of Kerala And Another" 1966 AIR 1178, 1966 SCR (2) 828 (by the majority view) has held that the true effect of a transaction may be determined from the terms of the agreement considered in the light of the surrounding circumstances. In each case the Court has, unless prohibited by statute, power to go behind the documents and to determine the nature of the transaction, whatever may be the form of the document. Though both the Ld. Representatives of the parties have relied upon various case laws in support of the....
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....for a fixed time or for indefinite time and in lieu of getting the right to possess and enjoy the property, the lessee has to pay certain considerations either in cash or in kind to the lessor. Hence, the lease is an arrangement whereby lessor conveys user rights in an asset to the lessee. The asset is owned for all practical purposes by the lessor, having all rights and bearing all risks associated with ownership, and the lessee is given only the user rights in the asset. The dominant control over the asset remains with the lessor. However, in a loan transaction, the asset is owned and possessed by the loanee/debtor. The loanee/debtor bears al the risk relating to the asset. The creditor is entitled to the return of the principal amount along with interest etc. as per agreement between the creditor and debtor. The creditor, however, for the security of the money advanced may get a lien over the asset purchased with the loan amount until his dues are paid back by the debtor. However, the confusion arises in case of certain transaction which, though, apparently appears to be of lease of asset viz. asset/s purchased by lessor and further leased out to the lessee; but in actual ....
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.... in which the customer is the owner of the goods and with a view to finance his purchase, he enters into an arrangement which is in the form of a hire-purchase agreement with the financier, but in substance evidences a loan transaction subject to a hiring agreement under which the lender is given the license to seize the goods. 26. Now, after analysis of the various clauses of the lease deed in question, it is to be noted: a) That as per clauses 1.2 and 8.1 of the agreement, the lessee has to select the equipment to be procured and inform the lessor accordingly. The obligation of the lessor is restricted only to the payment of the price of the equipment to the vendor. So much so that as per the said clauses, if the lease does not consummate, the lessee shall be liable to pay to the vendor in accordance with the applicable purchase order or shall have to indemnify the lessor and hold the lessor harmless from any liability arising in connection with any supply contract or lessor right, title, interest in the equipment. b) Further as per clause 10.2 of the agreement, the lessee in any case has to pay the full rental agreed upon and even the related items of financ....
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.... terms of the contract looked into with the relevant circumstances that are determinative of the nature of the such contracts, we have no hesitation to hold that the transaction in the present case is that of a loan/Finance. After going through the various terms of the deed, we find that the only role of the lessor in the present arrangement is to finance the transaction of purchase of equipment, with the lessee selecting the equipment to be supplied by the dealer, using it for its expected economic life, paying back the entire cost of the equipment over the lease tenure and exercising all rights of ownership over the asset and also bearing the risks of losses, damages, etc. associated with the ownership of the asset and no option to the lessee to terminate the lease and return the asset before the end of the lease term. Thus, it is neither a lease, nor a hire purchase agreement, but a loan/finance arrangement between the parties. So far as the contention of the Ld. Counsel for the assessee that the title of the asset remains with the lessor is concerned, we find from the clauses of the agreement that the said title is retained for the purpose of security for recovery of princip....
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....wned fully or partly by an assessee. The contention of the Ld. Counsel that the Ld. CIT(A) himself has mentioned, "there is no doubt about the genuineness of the lease agreement", in our view, is of no help to the assessee. The impugned order is to be read as a whole, and a single line or word can not be chosen to interpret a different meaning. What the Ld. CIT(A) has conveyed is that though the execution of the lease deed is not doubted but the real intention behind the deed is to be gathered from the various clauses of the deed and facts and circumstances of the case. Thus, we have no hesitation in holding that the arrangement in the present case was a loan / finance arrangement in the guise of a lease agreement. 28. However, the controversy does not end here. Though the assessee is held to be the owner of the asset, however, the next question that arise is whether the asset is held by the assessee as business/trading asset or as a capital asset. The assessee, admittedly, further gives on hire the STBs to various consumers and installs those in their premises. The consumers deposit refundable security amount almost equal to the cost of the STBs to the assessee. Assessee cha....
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....itional ground is to be admitted, the same may be restored to the file of the CIT(A). She, in this respect, has relied upon the decision of the Hon'ble M.P. High Court in the case of "CIT Vs. M/s Tollaram Hassomal" (2006) 153 Taxmann 532 (MP). However, The Ld. AR of the assessee has submitted that the issue as to 'whether the assessee is eligible for depreciation at the rate of 60%?' was well before the Assessing Officer and all the relevant facts have been discussed by the AO in the order for AY 2012-13 and 2013-14. He has further submitted that the issue of classification of computer peripherals as computer equipment eligible for depreciation was decided by the Hon'ble Delhi High Court in the case of "CIT Vs Birlasoft Ltd.", ITA No.1284/2011 which was further affirmed by the Hon'ble Supreme Court. He, therefore has submitted that the mere fact that the issue of classification was admitted in both the High Court and Supreme Court goes to prove that it is a legal issued as both the courts, as per the provisions of Income Tax Act, 1961, can only entertain appeals which have a question of law. The Ld. Counsel has further submitted that if the relevant facts are already on record i....
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....he return of income can be allowed at this stage? The Ld. Counsel for the assessee in this respect has placed reliance on the decision of the Hon'ble Supreme Court in the case of "National Thermal Power Co. Ltd." vs. CIT" 229 ITR 383. The facts before the Hon'ble Supreme Court were that the assessee in that case offered the interest amount for taxation and the assessment was completed on that basis. Before the Ld. CIT(A), the assessee though had taken a number of grounds of appeal, however, the inclusion of the said amount of interest was not challenged. The inclusion of the said amount of interest was not objected to even in the grounds of appeal as originally filed before the Tribunal. However, the assessee by way of subsequent letter raised the additional ground in relation to the said inclusion of interest into the income of the assessee. In the above circumstances, the question before the Hon'ble Supreme Court was "Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same?" The Hon'ble Supreme Court whi....
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....ch would indicate that the appellate authorities are confined to considering only the objections raised before them or allowed to be raised before them either by the assessee or by the department, as the case may be. They can consider the entire proceedings to determine the tax liability of the assessee." 32. The Hon'ble Bombay High Court in the case of "CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd." (2012) 349 ITR 336 (Bom.) has observed that the assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional clams before them. The appellate authorities have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The words 'could not have been raised' must be construed liberally and not strictly. There may be several factors justifying the raising of a new plea in an appeal and each case must be considered on its own facts. In view of the above discussion, the additional ground raised by the assessee is admitted for adjudication. Since as discusse....
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.... -Tuner(s); -Modulators and demodulators; Demultiplexer and decryptor; -Decoders; Graphic processors; CPU and memory; - Storage devices; - Physical interfaces; and - Physical characteristics A set-top box contains one or more microprocessors for running the operating system, possibly Linux or Windows CE, and for parsing the MPEG transport stream. It also includes RAM, an MPEG decoder chip, and more chips for audio decoding and processing. Further it contains a hard drive for storing recorded television broadcasts, for downloaded software, and for other applications provided by DTV service provider. Definition/Meaning of the term Computer/Computers including Computer Software Definition under Income Tax Act The term "computer" has not been defined under the Act. However, the term 'computer system' has been defined under Explanation (a) to clause (xi) of section 36(1) of the Act which reads as under: '"computer system' means a device or collection of devices including input and output support devices and excluding calculators which are not programmable and capable of being u....
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....of STB, how it classifies as STB 1. Device that contains computer programme and electronic instructions A Set Top Box comprises of algorithms which enable the network to determine which channel to operate based on the electronic instructions received by it. 2. Has the capability of receiving inputs and then transforming then input into the desired output using the electronic instructions it is an audio-visual equipment that decodes and performs input /output processing functions wherein the Conditional Access System (CAS) sends input to the STB which in turn enables the STB to give output as to which package should be displayed on this (Refer Table 3 at Page 3 of the specifications). 3. Comprises of a Central Processing Unit (CPU) STB comprises of Powerful 420 DMIPs 32 bit RISC Processor, which is evident from the specification enclosed. (Refer Table 3 at Page 3 of the specifications). 4. Comprises of an Operating system which enables the giving of various commands. Power KEY Conditional Access System, which secures digital services using an RSA encryption algorithm that mathematically matches pairs of keys and is compliant with DVB (ETR 289) Com....
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....processing unit), power key, processor etc. on the lines of the computers. Detailed technical specifications are enclosed herewith as per Annexure-2. Thus, for the aforesaid reason too, it is respectfully submitted that since the functioning of STB's are dependent on computers and software, thus on this account as well they are eligible to be classified as "computers" and eligible for depreciation @ 60%. It has been concluded from the above discussion that the Set Top boxes and audio visual streaming equipment are same as former being the trade name of the equipment. Further Set Top Boxes are itself minicomputer with inbuilt hardware and software, Technical specification of Set Top Boxes has already been discussed above which verbatim tallies with technical specifications of computer such as Decoders, graphic processors, CPU and memory etc. It has also been proved that computer is integrated with back end servers and computers for transmission of signals. Then judicial pronouncements also support the contention of the assessee that the Set Top Box is out and out computer and thus have to be classified under the category of computer and software for the purpose....
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....then sends it over a digital line. The decoder reverses the processes at the receiving end and this compression and decompression allows large amount of data to be transferred across a network at close to real time. Conferencing systems make use of various end points in a system such as video input consisting of camera, video output in the form of microphones and speakers etc. The data transmission happens in a number of ways depending on the technology being used including digital technologies as well as analog technologies, broadband internet connection and radio frequencies which can include satellite transmission and Wifi. Therefore, according to the learned counsel for the assessee, computer system is extremely important to conferencing process and therefore the audio visual transmission equipment should be considered as part of a computer. 8.2 Regarding the video streaming equipment, it was submitted that the video streaming allows user to begin viewing the video clips stored in a server without first downloading the entire file and after a brief period of initiating and buffering, the file will begin to stream or play in real time. Video streaming involves a series ....
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....strued as computer for the purpose of granting depreciation at the rate of 60% after providing the assessee due opportunity of hearing. 8.3 In the case before us also, all the components of the equipment are necessary for fulfillment of the objective of the audio-visual conferencing and video streaming. Some of the components may exist independently and may also be functioning independently but in the assessee's business they are only performing the functions as input and output devices. The assessee can also use this equipment independent of the computer system used in the audio visual conferencing and video streaming activity. But did the assessee use them independently is the question. In view of the same, we are of the opinion that the AO, instead of classifying the entire equipment as plant and machinery and not computer, is required to examine each item in detail as regards its functional dependency on the computer and its independent existence. The items which are functionally dependent on computers are definitely part of computer and the items with independent existence may not be computers but wherever it is found that the device is not used independent of the....
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....IT vs Birlasoft Ltd: SLP No. 20645/2012. It was held likewise by the jurisdictional Delhi High Court in the case of CIT vs. BSES Rajdhani Powers Ltd. in ITA No 1266/2010. In that case, the Court while adjudicating the issue of depreciation on computer accessories and peripherals held that computer accessories and peripherals such as printers, scanners and server, etc., form an integral part of the computer system. Further, the Court observed that computer accessories and peripherals cannot be used without the computer and consequently, as they are the part of the computer system, they are entitled to depreciation at higher rate of 60%. Reliance is also placed on the following decisions wherein depreciation at higher rate of 60% applicable to computers has been upheld in respect of various equipment and peripherals attached to the computer system: * Income Tax Officer vs Samiran Majumdar : 98 ITD 119 (Kol) * DCIT vs Datacraft India Ltd : (2010) 133 TTJ 377 (Mum) (SB) * Inspecting Assistant Commissioner vs Commission and General Agency : 17 ITD 6 (Bangalore) * Escorts Tractors Ltd vs Asstt CIT : 101 Taxmann 171 (Delhi) * CIT vs Karna....
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....onferencing and video streaming equipment's. This matter has been decided by Income Tax Appellate Tribunal Bangalore Bench-C Bangalore vide its order dated 19-09-2014 for the AY 2008-09, at page 10 of this order it was held that the above said equipment, is to be treated as computer and accordingly the AO shall thus allow depreciation @60%. Similarly for the AY 201011 vide its order dated 19-02-2016 ITAT Bangalore-A Bench Bangalore has also held that the depreciation @60% of the equipment shall be allowed. Keeping in view the import of detailed submissions made above it is crystal clear that the appellant company is entitled to claim of lease rentals paid to M/s CISCO Systems Capital (India) Private Limited and it is prayed that the appeal be kindly adjudicated accordingly." 34. The Ld. DR on the other hand, has submitted that the contention of the Ld. Counsel is that the CISCO has been allowed depreciation @ 60% on STBs is not coming out of the order of the Tribunal (supra); That in the case of CISCO, depreciation @ 60% has been allowed on routers and switches and not on STBs. The Ld. DR has further submitted that STBs are Information Application Devices designed t....
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....rams. • Cisco being the owner of Set Top Boxes has claimed depreciation @60% on Set Top Boxes. • In the Hon^ble IT AT Income Tax Appellate Bengalore Bench 'C Bengalore in case of Cisco Systems Capital (India) Private Limited for the AY 2008-09 it was held that "as regard Audio visual conferencing equipment's and video steaming, the learned counsel for the assessee has filed detailed submissions before the AO as well as before us to convince us that they are also part of the computer system and are not independently functional. He has drawn our attention to the detailed submissions filed by the assessee which has also been reproduced by the AO in his order". • It is evident that a set top box is a technical device whose functions are similar to a computer in as much as set top boxes too respond to a specific set of instructions in a well defined manner and perform input/output processing. • It is respectfully submitted that since the functioning of STB's are dependent on computers and software, thus on this account as well they are eligible to be classified as "computers" and eligible for depreciation @ 60%. â....
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....pparatus which can operate without the relevant network, such as Airtel, BSNL, Reliance. It, therefore, follows that any machine or equipment cannot be described as computer, if its principal output or function is the result of some sort of 'computer Junctions' in conjunction with some non-computer functions. In order to be called as computer, it is sine qua non that the principal output/obiect/function of such machine should be achievable only through 'computer functions" 3.2 From the above exposition it is evident that just because some sort of computer functions are necessarily involved, mechanical system cannot be said to be computer unless its principal function cannot be done without the aid of computer function. In other words, any machine or equipment cannot be described as computer if its principal output or function is the result of some sort of 'computer functions' in conjunction with some non-computer functions. It was held that in order to be called as computer, it is sine qua non that the principal output/object/function of such machine could be achieved only through 'computer functions' 4. STB is an information appliance ....
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....encing devices and depreciation of 60% has been allowed by the Hon'ble ITAT and thus by the A.O. on such Audit Video Conference devices. The important points of the judgment are mentioned as below: • Audio and video conferencing system comprise of audio-video devices/equipments which facilitate in bringing people at different sites together for a meeting. Besides the audio and visual and meeting activities, these systems can also be used to share document, computer information and boards, Conferencing works across IT net-work, ISD through computers/computer network etc., • Conferencing systems make use of various end points in a system such as video input consisting of camera, video output in the form of microphones and speakers etc. The data transmission happens in a number of ways depending on the technology being used including digital technologies as well as analog technologies, broadband internet connection and radio frequencies which can include satellite transmission and Wifi • Video streaming allows user to begin viewing the video clips stored in a server without first downloading the entire file and after a brief period of initiat....
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....s smart card embedded in STBs then the corresponding signal will not be decoded by the STB. 2. When we recharge SIM of mobiles, then telecom operators change few bits of the signals transmitted by the mobiles which allow the user to make phone calls. Similarly, when the customer requests the MSO or makes an online payment to recharge its smart card the MSO merely modify few bits of the encrypted signal which gives the commands to STB to decode the same and thus allow the customer to enjoy the program. This is analogous to Mobile recharge as discussed above. 3. The mobiles are not the part of the computer/server systems installed at the premises of the telecom operators. Although Hardware/Software installed at the telecom operator premises control the mobile phone functioning by giving commands. For example to keep the control over the billing payment of the mobile phones the telecom operator uses number of servers and other devices. Further, the functioning of the mobiles is also enriched by the hardware and software installed at the premises of the telecom operators. However, it cannot be said that the mobiles are part of the servers systems installed at the prem....
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....obile phones are not computers, the assessee was not entitled to depreciation at 60 per cent. In view of the above mentioned discussion, it is requested to Hon'ble ITAT depreciation rate of 60 % on Set Top Boxes should not be allowed to assessee." 35. However, the Ld. Counsel for the assessee has made the following submissions to rebut the observations of the Assessing Officer and as well as regarding the applicability of the decision of the special bench of the ITAT in the case of "Data Craft" (supra): Reasoning against Assessment Order for AY 2012-13 where 60% not allowed Para No. As per Order Applicability to Fastway 6.2.4 The Ld. AO has stated that the said equipments are neither computers nor energy saving devices as per the requirement of the Appendix I & IA of Income Tax Rules 1962. It also goes to say that the STB's are not electrical equipments. It is submitted that the Ld. AO did not go into the technicality of the product and has summarily decided that STB's are not computers without citing any reasoning or rationale. 6.2.5 Reliance on the Order of CISCO by the assessee is not in place because the order does not talk about S....
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....case of Samiran Majumdar (supra) which has been followed, directly or indirectly, in most of the subsequent cases. We will take up this case for discussion, in which the question was whether printer and scanner could be allowed a higher rate of depreciation as applicable to computers. The Bench noticed that the printer and scanner cannot be used without computer. It was on this appreciation of the factual position that the printer and scanners were held to be part of computer qualifying for depreciation at the rate applicable to computer. The Hon'ble Bench has reiied on the judgement of Samiran Majumdar wherein the)1 have argued that printers and scanners cannot be used without computers and therefore they are eligible to be treated as computers. Similarly, STB's again, while being computer in themselves, cannot be used independently unless integrated with a computer and thus qualifying the assessee for depreciation of a computer. 32 In the opposition the orders taking view in favour of the Revenue are led by the case of routermania Technologies(supra). In this case it was observed that the router is a device which links or connects the computers for the exchange o....
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....to agree with the view taken by the Kolkata Bench in Samiran Majumdar (supra). In the instant case, the assessee has already filed detailed chart of the system how a STB functions which establishes the fact that they are an absolute integral part of the CAS Server Computer and without the STB these computers cannot function. It is the STB's that while performing their independent functions as a computer, give the entire network the functioning. As has been held by the Hon'ble Bench that the brain cannot be called the body alone and that all parts of the body along with the brain comprise of the body. Similarly, the STB's cannot be seen in isolation and have to be seen part of the entire computer/network system which it is an integral part of in the industry of the assessee. Thus, in light of these submissions, the assessee is entitled to depreciation as computers. 36. A perusal of above submissions reveals that both the ld. Representatives of the parties in their rival submissions have tried to demonstrate from the operation and functioning of the STBs as to the whether the STBs perform functions as that of a standard 'computer' or not. The counsel for the assesse....
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....e case of CISCO, 60% depreciation has been allowed by the ITAT on audio / video conference devices. However, the assesses in the present case has failed to justify how STBs are at par with Audit / Video conferencing devices. Further, the ld. DR has submitted that the functioning of the STBs is analogues to the functioning of the mobile phones. The ld. DR, therefore, has submitted that since the mobile phones cannot be said to be computers, hence, similarly, the STBs also cannot be said to be computers. On the other hand, the Ld. Counsel for the assessee also relying upon the decision of the Special Bench in 'DCIT vs Data Craft India Ltd.' (2010) 40 SOT 295 (Mum)(SB)(ITAT) has submitted that the assessee has also demonstrated that STBs have all the capabilities of a computer and that they are not only mini computers in itself but also part of a larger computer system at the back-end. That the STBs cannot be used independently unless integrated with a computer. The ld. counsel for the assessee in this respect has relied upon the decision of the tribunal in the case of 'Samiran Majumdar' ( supra), wherein, it has been held that the printer and scanner cannot be used without compute....
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....t has been mentioned that 'computer software means any computer programme recorded on any disc, tape perforate media or other information storage device.' The various courts of law while adjudicating on the issue of allowability of rate of depreciation have interpreted 'computer and computer software' as a 'computer system' which includes the other associated equipment attached with the CPU such as monitor, mouse, key board, printer, scanner etc. as these equipment/devices though, in themselves will not be doing the function of computer but they are required to be attached with the computers and cannot be operated independently. The life span of these devices attached to the CPU goes with that of the computer. In the modern era of fast evolution in technology sector, the technological devices based on computer programming and software are being replaced or required to be replaced in a very short span of time with their new and improved versions with enhanced capabilities and performance features etc. due to revolutionary developments in this sector. A businessman has to replace the old equipment with the new/improved one to compete in the market. Hence, these types of computer devi....
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....n, has been given:- "k) 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." A perusal of the above reveals that in case of the aforesaid devices used for supervisory control and data acquisition systems, energy management system and distribution management system for power transmission systems, the various devices which are either computer hardware or software or are closely linked to or associated with or attached to and generally performing either the same or identical functions, have not only been placed under the same category but they have been mentioned together but separated with "/" (slash) which means same or similar or inclusive of or to say 'either / or" . It is used for connecting non-contrasting items or as a shorter substitute for the conjunction "or" and 'inclusive of' i.e., 'A' or 'B' or 'Both'. When certain things are so closely related that one overlaps the other and it is difficult to make a clear d....
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....lligent electronic devices', however, STBs since are not are electric energy saving devices, hence, the same will not be eligible for higher rate of deprecation @ 80%. However, clue from the above can be taken to include the above devices for claim of depreciation as is eligible for 'computer and software' as these devices(STBs) are identical to computers not only in their architectural design but also in their functioning. Even it has also not been disputed by the ld. DR that the STBs also perform computing functions but he has only tried to make distinction between the two by stating that the main function of an STB is decoding of audio video signals. However, in our view, such hyper technical criteria cannot be adopted in view of the general and broader criteria adopted in Appendix 1 relating to the classification of the items for the purpose of depreciation rate. So far as the argument of the Ld. DR that since like a smart TV or a mobile telephone cannot be said to be computer, hence, the STBs can also be not categorized as computer, in our view, has no force. Now a days, the smart TVs are in market. The word 'smart' added before a TV shows that it is capable of performing cert....
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.... Ld. DR , relying upon the decision of Special Bench in the case of "Data Craft India Limited" (supra), has been that any machine or equipment cannot be described as computer unless its principal output or function is the result of some sort of computer function in conjunction with some non-computer functions; that since the main function of STBs is to deliver the Audio / Video feed to user, thus the major function of the STBs i.e. decoding and thus delivering the audio video signals to the TV sets is independent of the various servers installed at the premises of Multi System Operator (MSO). He, therefore, has submitted that STBs cannot be described as computer rather at the best called informatization appliances attached to TV set to enjoy multiple contents. The main argument of the Ld. DR, thus, has been that as per the decision of the 'DCIT vs Data Craft India Limited.' (supra) since the televisions cannot be treated as computers and hence any assembly attached to television, i.e. STBs in this case cannot be treated as computers. However, in our view, the STBs are not just attachments to the television. They are essential for the business of the assessee to provide the broadcas....
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....rguments has also stressed that STB is information appliance. Under the circumstances, the case of the assessee can not be differentiated from that of CISCO on the issue of rate of depreciation admissible on such 'Information Appliances' being treated as part of the computer systems in the case of CISCO. 42. So far as the reliance of the Ld. DR on the decision of the coordinate Cochin Bench of the Tribunal in the case of ACIT vs Kerala Communicators Cable Limited (supra) is concerned, we find that at in that case the assessee had claimed the depreciation at the rate of 80% by claiming them to be energy saving devices. The coordinate Bench held that the STBs did not fall within the definition of energy saving devices. The facts of the said case are therefore distinguishable. 43. Even otherwise, it is the own case of the Department that the STBs has a short life of three years. Referring to the clauses of the Master Lease Agreement with CISCO, as discussed above, it has been vehemently contended by the Department that the lease deed was so devised that the term of lease ends with the life of the equipment; that after the payment of the last installment, the equipment is rendere....
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....ation charges Nil 7. Smart Card/Viewing Card Charges Nil 8. Repair and Maintenance Charges for three years from the date of installation Nil The Assessing Officer has observed that as per the above tariff plan adopted by the assessee with the consumers, at the end of 3 years from the date of installation of the STB in consumer's premises, the consumer becomes the owner of the property. The assessing officer in this respect has observed that if the assessee was not the owner of the equipment, how can it pass on the ownership to the consumer after 3 years from the date of installation. We have already agreed in this respect with the contention of the Department. However, as per the TRAI notification also, the life of the STBs has been taken at 3 years. As per the said notification of the TRAI, after 3 years, the consumer becomes the owner of the equipment but at the same time, the service provider (assessee herein) is also absolved of the liability of any warranty / guarantee or maintenance of the equipment, meaning thereby the assessee recovers the rent for 3 years from the consumer and further the security deposit received from the consumer is forfeited/a....
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....e of the equipment at the end of 3 years from the sale price received. However, the peculiar facts and circumstances of the case are that it is the own case of the department that the life of the equipment is 3 years and that the asset in the hands of the assesssee is a capital asset, then we cannot understand, how can the department press an argument for the grant of depreciation at a lower rate which may be extended beyond the life of the asset. Under these circumstances also, the assessee, in our view, is entitled to the higher rate of depreciation which is commensurate with the life of the asset. In view of our findings given above, it is held that the assessee is entitled to deprecation @ 60% as applicable to the computers for the year under consideration. This ground is accordingly stands allowed. 44. Ground No. 6:. Vide Ground No.6 the assessee has contested the confirmation of disallowance of the deduction claimed u/s 35D of the Act of 1/5th of the preliminary expenses amounting to Rs. 2.40 crores. 45. The facts of the case are that the assessee had acquired 100% shares in a company 'Cable Network Limited' (CBSL) from its parent company which had owned 100% shares ....
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....denied the claim of deduction u/s 35D of the Act only. We, therefore, restore this issue to the CIT(A) to examine all the facts of the case on this issue and thereafter decide the claim in accordance with law. 48. Ground No. 7. The Ld. counsel for the assessee has stated at Bar that ground No. 7 is not pressed, hence, the same is dismissed as not pressed. 49. Ground Nos.8: Vide Ground No. 8, the assessee has challenged the disallowance of interest expenditure u/s 36(1)(iii) of the Act. 50. Brief facts relating to the issue are that during the course of survey at the business premises of the assessee, a document mentioning transactions between M/s G.S. Majestic and Municipal Corporation Ludhiana was seized. On being confronted with the same during assessment proceedings, it was submitted by the assessee, that it was working in the rental office owned by M/s G.S Majestic Developers Pvt. Ltd. and an amount of Rs. 3.20 crores was given as an advance to the company for booking of corporate office. The A.O. did not accept the contention of the assessee as Rs. 2 crores was received back by the assessee company as per ledger account out of the advance stated to be given for bookin....
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....cles (P) Ltd Vs. CIT' 379 ITR 347 (SC) and also on the latest decision of the Hon'ble Supreme Court in the case of 'CIT (LTU) Vs. Reliance Industries Ltd.' [2019] 410 ITR 466 (SC). Thus, as per the settled law no disallowance u/s 36(1)(iii) of the Act is warranted on this issue. This ground is accordingly allowed in favour of the assessee. 55. Ground No. 9:- Ground No. 9 is general in nature and does not require any specific adjudication. This appeal of the assessee stands partly allowed. ITA NO. 139/Chd/2019 (A.Y. 2012-13) 56. The assessee in ITA No.139/Chd/2019 has raised the following grounds of appeal:- 1. That the order dated 29.12.2018 passed u/s 250(6) of the Income Tax Act, 1961 (hereinafter called the "Act") by the Learned Commissioner of Income-Tax (Appeals)-3, Gurgaon is against law and facts on the file in as much as he was not justified to uphold the action of the Ld. Assessing Officer in restricting the claim of depreciation on set top boxes at the rate of 15% as against the claimed by the Appellant at the rate of 60% thereby restricting the claim of depreciation by Rs. 18,49,30,878/-. 2. That the order dated 29.12.2018....
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....sing Officer as well as the Ld. CIT(A) have in this respect relied upon the decision of the Hon'ble Supreme Court in the case of CIT Vs. Sun Engineering Works Pvt. Ltd. (1992) 198 ITR 297 (SC) to hold that the proceedings u/s 147 of the Act are for the benefit of the Revenue and not for the benefit of the assessee. The Ld. CIT(A) in this respect has observed that mere fact of the issue u/s 148 of the Act calling for filing of return of income and deeming such return as a return filed u/s 139 of the Act did not entitle the assessee for an extended period of limitation u/s 139(5) of the Act. He observed that the benefit of section 139(5) is not available to an assessee in relation to a return filed pursuant to notice u/s 148 of the Act. 60. We have heard the rival contentions on this issue and also gone through the decision of the Hon'ble Supreme Court in the case of 'CIT Vs. Sun Engineering Works Pvt. Ltd.'(supra) and find that that the Hon'ble Supreme Court in the said case has held that the proceedings under section 147 are for benefit of revenue and are aimed at gathering 'escaped income' of an assessee, and that the same cannot be allowed to be converted as 'revis....
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....ee has made a claim in that respect or not. Hence the plea that the assessee can not make a claim of higher admissible rate of depreciation is not available to the revenue in view of the express statutory provisions of Explanation 5 to section 32(1) of the Act. The Assessing officer is duty bound to apply and allow correct rate of depreciation irrespective of the fact that after allowing such depreciation, the assessed income of the assessee may get reduced from the returned income. Explanation 5 to section 32(1) has been held to be mandatory and prospectively applicable w.e.f. 01.04.2002 through various judicial pronouncements. Reliance in this respect can be placed on the decisions of Kerala High Court in the case of "CIT v. Kerala Electric Lamp Works Ltd." [2003] 261 ITR 721; Madras High Court in the case of "CIT v. Sree Senhavalli Textiles (P.) Ltd."[2003] 259 ITR 77; Punjab and Haryana High Court in the case of "Ram Nath Jindal and Jagjiwan Ram v. CIT" [2001] 252 ITR 590; Kolkata Bench of ITAT in "Bhagwati Sponge (P.) Ltd. v. DCIT" [2016] 72 taxmann.com 40 ; "Dilip Kumar Roy v. DCIT" [2011] 11 taxmann.com 107 (Kolkata); "Surat Textile Mills Ltd. v. Income-tax Officer" [2014] 4....
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.... chosen was not a correct one; thus, judgment of Supreme Court in Goetze (India) Ltd.'s case (supra) would not apply in that case; it was further held that as per Explanation 5 to section 32(1), depreciation would be allowed whether or not assessee has claimed depreciation in computing total income; therefore, assessing officer was duty bound to allow depreciation computed at correct rate provided under Act. The Tribunal in this respect while relying upon the decisions of the Hon'ble Punjab & Haryana High Court rendered in the case of 'CIT v. Ramco International' [2011] 332 ITR 306/[2009] 180 Taxman 584 (Punj. & Har.); of Hon'ble Gujarat High Court in the case of "Chokshi Metal Refinery v. CIT" [1977] 107 ITR 63 (Guj.) and of Chennai Bench in the case of " K.K.S.K. Leather Processors (P) Ltd. v ITO" [ 2010] 126 ITD 215 has held as under: "18. Regarding the question, whether a claim made by the assessee in the course of assessment proceedings by way of other than filing a revised return, we have to state that exactly similar issue was considered by the Punjab & Haryana High Court in the case of Ramco International ( supra). In that case, the assessee had claimed ded....
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.... be carefully applied in the matters of statutory allowances available to an assessee. There is a genetic difference in the concept of deduction by way of statutory allowance and deduction by way of other expenditure." (emphasis supplied by us) 63. Similarly the co-ordinate Pune Bench of the Tribunal in the case of "Income-tax Officer v. Gajraj Constructions" [2015] 62 taxmann.com 18 has observed as under: "So, however, even if one were to import the reasoning raised by the learned Departmental representative based on the judgment of the hon'ble Supreme Court, to the present case, yet we do not find that it would debar the assessee from claiming deduction under section 80-IB(10) of the Act on the impugned additional income declared in the return filed in response to notice under section 153A(1)(a) of the Act. In the present case, the claim of deduction under section 80-IB(10) of the Act was made in the return of income originally filed and in the return filed in pursuance to the notice under section 153A(1)(a) of the Act, the claim under section 80-IB(10) of the Act is only enhanced and therefore, it is not a fresh claim. Therefore, in our view, the j....
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....nce made by the A.O. in respect of deprecation claimed on the STBs which were not put to use during the year and further in restricting the claim of depreciation at the lower rate in respect of the STBs which were not put to use before September, 2011 on the ground that the same were used for a period less than 180 days. The relevant findings of the CIT(A on the issue are reproduced as under: "The AO has made this disallowance on following grounds:- (i) With regard to bill of entry of Remotes for Rs. 59,36,553/- and Rs. 10,89,452/- the appellant could not file any documentary evidence to prove that these were put to use during the year itself and hence depreciation claimed on the same was disallowed. (ii) With regard to bill of entry for purchase of STBs dated 23.09.2011 amounting Rs. 1,68,56,293/-, the appellant could not file any documentary evidence to prove that these assets were put to use before September 2011 and therefore depreciation was allowed for a period less than 180 days and not for the complete year as claimed by the appellant. During the appellate proceedings, no submission or any evidence to rebut the findings of the AO have bee....
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....ome and allowing the depreciation u/s 32 of the Act, which was never claimed on the leasehold assets by the Appellant. 4. That the Ld. CIT(A) has erred in holding that the agreement with M/s CISCO Ltd. was on "financial lease" and not on "operational lease" and has wrongly interpreted the various clauses of the agreement of lease with M/s CISCO Ltd., to hold that it was case of "finance lease" and not an "operational lease" as claimed by us during the course of assessment proceedings. 5. That the Ld.CIT(A) has grossly erred in following the judgment of special Bench of ITAT in the case of "Induslnd Bank Ltd" and of the "Asea Brown Boveri Ltd", which has later on been distinguished by number of judicial pronouncements of Hon'ble Supreme Court and Hon'ble High Court and various Benches of the ITAT, wherein, both the above judgments as relied upon by the CIT(A) have been distinguished and not relied upon. Thus, the reliance by the CIT(A) on such Judgments is not proper. 6. That the disallowance of lease rental have been made against the facts and circumstances of the case. 7. That the Ld. CIT(A) has erred in dismissing the ground of appeal w....
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....omponent paid by the assessee to the CISCO along with lease rental, the assessee had deducted TDS @ 1% instead of 2% as was required under the provisions of section 194A r.w.s. 194-I of the Act . He therefore made the impugned disallowance u/s 40(a) (ia). The Ld. CIT(A) has confirmed the additions so made by the AO. 73. Before us, the Ld. Counsel for the assessee has submitted that the Assessing Officer has made a separate addition of Rs. 8,21,25,816/- on the interest component on account of nondeduction of TDS. It is submitted that it has been the submission of the assessee before the AO that this interest was part of lease charges claimed u/s 37 of the Act and the assessee had deducted TDS @ 2% on the entire amount of lease charges aggregating to Rs. 63,59,83,732/- (comprising of lease charges and interest). The assessing Officer in para 4.13(iv) at page 54 of the Assessment Order has observed that TDS has been deducted @ 1% on payment made to CISCO which is factually incorrect whereas the assessee has deducted TDS @ 2% as was stipulated under the relevant provisions of the Act. This issue, therefore, requires to be factually verified at the end of the Assessing Officer.....
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....sessee has not earned any income not forming part of the total income. This issue is accordingly decided in favour of the assessee. The disallowance made by the lower authorities on the above issue is ordered to be deleted. 77. Ground No.12: The above ground is general in nature. 78. 140/Chd/2018 (A.Y. 2015-16):- The assessee in this appeal has taken following grounds of appeal:- 1. That order passed u/s 250(6) of the Income Tax Act, 1961 by the Learned Commissioner of Income Tax (Appeals)-3, Gurgaon is against law and facts on the file in as much as he was not justified uphold the action of the Learned Assessing Officer in disallowing the deduction on account of lease rental amounting to Rs. 80,44,97,240/- as claimed by the appellant in the computation of income. 2. That the Learned CIT(A) gravely erred in upholding the action of the Learned Assessing Officer in treating the lease agreement between the appellant and CISCO System Capital India Ltd. as a financial lease instead the same being operating lease. 3. That the Learned CIT(A) further gravely erred in upholding the action of the Learned Assessing Officer in disallowing a sum of Rs. 2,4....