TaxTMI 
TaxTMI 
TaxTMI 
2020 (5) TMI 190
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....orities, 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 term was 48 months for the supply of 7, 91,924 num....
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....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 totally uncalled for and against the facts and circumstances of the case. 3. That the Wor....
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....ad 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 the assessee by the Assessing Officer. The Ld. counsel for the assessee in this respect has further submitted that Assessing Officer mistook the figure of R....
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....y 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 of transactions done by the assessee with CISCO i.e. some equipment were leased out by the CISCO and the other were purchased directly by the assessee. In case of direct pur....
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....e 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 rather ownership and control over the asset and there is no charge registered with the ROC also by CISCO which is mandatory if there is ownership of lessee. J) The Ld. Counsel for the assessee has further submitted that so....
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....s 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 transaction as a financial lease. AS-19 simply prescribes as to what is the operating lease and finance lease. Assessee having itself categorized it as financial lease in the books was estopped from taking a different stand for the purpose of taxation. B. The assesse for the purpose of deferment of tax has given the different treatment to the aforesaid transa....
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....y 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 equipment insured, against any casualty to the equipment, any commercial liability etc., with the insurance policy naming the lessee as the insured. (Clause 5.5) e) The lessee was required to indemnify the lessor against all claims such as demands, actions, debts, settlements, etc. arising on account of leasing documents, equipment, ownership of equipment, infringement of patent, copyright, etc. It was pointed out that by virtue of the indemnity clause the lessee had ....
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....ial 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 CISCO as the same was not a revenue expenditure. 16. At this stage, it is appropriate, in our view, to firstly discuss the relevant provisions of the Act relating to allowability of claim of deduction as depreciation on capital assets and also relating to the allowability of revenue expenditure. 17. Section 32 of the Income Tax Act prescribes for allowance of deduction on account of depreciation on Capital Assets and reads as under: Section 32 of the Income Tax Act. "Depreciation. Section - 32 32.....
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....st 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 lease other than a finance lease." 22. After considering the rival submissions, we find force in the contention of the Ld. Counsel for the assessee that the Income Tax Act does not recognize or differentiate between different types of lease transactions. As per the provisions of the Income Tax Act, any expenditure incurred on capital assets cannot be allowed as deduction of expenditure, however, an assessee can claim depreciation as prescribed by the rules on the value of such an asset. However, if such an asset, as claimed in this case by the assessee, is not owned by the assessee, rather, the same has been procured on lea....
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....) 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 named "finance lease" and then to say that the provisions of section 37 of the Income Tax Act for claim of expenditure on lease rental will not be applicable on such type of lease; this, in our view, will be against the provisions of the Income Tax Act. On the one hand, terming and placing a transaction / agreement under the genre of 'Lease' and then to say that such particular species of that genre will not be entitled to the deductions as prescribed for the lease transactions under the Income Tax Act, in our view, serves no purpose other than confusion and conflict of opinion giving rise to the dispute and litigation on the issue. As per the provisions of the Income Tax Act what is to....
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....r" 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 their contentions, however, without separately discussing the facts of each of the case law relied upon, it may be well observed that it is nowhere held in any of the case laws that the nomenclature given to a transaction by the parties is sacrosanct or is determinative of the nature of the transaction. It is only after considering the relevant facts and circumstances and the various clauses of the agreement that the real intention of the parties behind the agreement is gathered which is determinative of the nature of such transaction/agreement. A perusal of the case laws cited reveals that the judges of the Hon'ble Apex Court as well of the Hon'ble High Courts are unanimous to hold that t....
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.... 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 this type of transaction is an arrangement of financing the purchase of the asset for the so called lessee (debtor) and such an lessee in fact is the owner of the asset and is liable to bear all type of risks associated with such asset. In this form of arrangement, the so-called lessor's role is confined to only financing the purchase and he has no other interest or is not liable for any risk associated with the asset. It is the so called lessee who, for all practical purposes, is the owner of the asset exercising all rights of ownership and bearing all risks associated with the asset, paying back the entire cost of the asset to the lessor over the term of the lease which generally is the economic life of th....
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...., 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 financing transaction, even if it prematurely terminates the contract thus ensuring the repayment to the lessor of the amount financed by it. The relevant clause is as under: "10.2 Prepayment. Lessee may terminate a Lease or Financing Transaction by prepaying its remaining Rent. Lessee shall provide Lessor with at least one (1) month prior written notice of the intended prepayment date, Lessor may, depending on market Conditions at the time, reduce the remaining Rent to reflect such pre payment and shall advise Lessee of the balance to be paid. If a lease is terminated, Lessee shall at the same time prepay any related line items of Financing transaction." c) As per clause 1.3 of deed, the lease is a non- cancelable lease and....
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.... 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 principal amount. So far as the contention of the Ld. counsel for the assessee that in view of the mandatory requirement for the companies Act as per Companies Act to follow the Accounting Standard AS-19, the lease transaction with CISCO was booked as Finance Lease is concerned, though the law is well settled that the entries in the books of account are not determinative of the nature of the transaction , however we do not agree with the contention that the assessee in this case was mandatorily required to treat the lease as Finance lease in the books of account. We agree with the submission of the Ld. DR that AS19 only defines the nature of the lease transaction; however, it does not mandate that every lease transaction is to be treated as finance lease in the books of account. The assessee in this ca....
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....e 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 charges monthly rent from the consumers for three years. After the expiry of three years, the STBs become the property of the consumers and at the same time the security deposit gets forfeited and appropriated to the income of the assessee, which is also offered/subjected to income tax. The transaction with consumers, thus, apparently appears to be of a "hirepurchase", the assessee being the lesser cum seller, the detail of the transaction we will discuss in the later part of the order. However, the question that will arise at this stage as to an asset, held or further given on hire- purchase by an assessee who is in the business of letting & selling a particular type of good (STBs) on hire-purchase basis which is essential to and integral part of main business of 'broadcasting of channels' of the assessee,....
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....ore 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 in respect an additional claim which in this case is purely a legal issue, there is no bar in raising the same at any stage of the litigation. He in this respect has relied on the decision of the Hon'ble Supreme Court in the case of "NTPC Vs. CIT", 229 ITR 383 (SC). 31. We have considered the rival submissions of the Ld. representatives of the parties on this issue. It is not disputed that the issue raised by way of additional ground of appeal was already before the Assessing Officer in the proceedings for assessment year 2012-13, the appeal against which is also being adjudicated with this common order. Even for the year under consideration, the assessee had raised this issue before the AO by way of rectification application u/s 154 of the Act. Neither any new fact, nor any new evidence is required to be produce....
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.... 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 while answering the said question observed that under section 254 of the Income Tax Act, the power of the Tribunal in dealing with the appeals is expressed in the widest possible terms; the power of the Tribunal under section 254 is not restricted only to decide the grounds which arise from the order of the Commissioner of Income Tax (Appeals); that both the assessee as well as the department have a right to file an appeal/cross objection before the Tribunal and the Tribunal is not prevented from considering questions of law arising in assessment proceedings although not raised earlier. While answering the question in affirmative, the Hon'ble Supreme Court concluded that the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability....
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....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 discussed above, all the facts relevant to the issue raised through the above stated additional ground of appeal are on record and even the identical ground has already been adjudicated by the Ld. CIT(A) in assessment year 2012-13 and the appeal against the said order of the CIT(A) for assessment year 2012-13 is being adjudicated with this common order wherein the said ground has been taken as one of the main grounds, hence in our view, no useful purpose will be served for restoring the additional ground of appeal to the file of the CIT(A) for the year under consideration. Hence, we proceed to adjudicate the additional ground of appeal. 33. The Assessing Officer has allowed the depreciation @ 15%, whereas, the contention of the counsel for the assessee is that STBs were classifiable under the head "Computers including Computer Software" as pro....
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....use (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 used in conjunction with external files, or more of which contain computer programmes, electronic instructions, input data and output data, that performs functions including, but not limited to, loeic, arithmetic, data storase and retrieval, communication and control" Definition under Information Technology Act 2000 Further, the term "computer" has been defined in the Information Technology Act, 2000, to mean electronic, magnetic, optical or other high-speed data processing device or system which performs logical, arithmetic and memory functions by manipulations of electronic, magnetic or optical impulses, and includes all input, output, processing, storage, computer software or communication facilities which are connected or relates to the computer in a computer system or computer network. Definition as per ICAI Attention in this regard is further invited to the study material for PEE II Information Technology Paper VI issued by ....
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....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) Common Scrambling Algorithm (Refer Table 3 at Page 3 of the specifications). 5. Performs the function of Logic/Arithmetic Already explained above. (Refer Table 3 at Page 3 of the specifications.) 6. Performs the function of Data Storage Base model contains - 4MB Flash Ram Memory (upto 8Mb option) - 32MB DRAF, 4KB EEPROM Refer Table 3 at Page 3 of the Specifications.) Thus, it is evident that a set top box is a nothing but a computer for the Cable Industry to function in as much as set top boxes too responds to a specific set of instructions in a welldefined manner and perform input/output processing. Thus, in view of the above, it may be appreciated that set top boxes clearly qualify as "computer". Without prejudice to the above, it is submitted that STB's are capable of being a computer and are also an integral part of the network of computers, such as Oracle Based Billing System and Conditional Access System (CAS) which processes the content and the individual STB usage for the ....
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....ut and out computer and thus have to be classified under the category of computer and software for the purpose of depreciation." 15. Apart from above submissions, the Ld. Counsel for the assessee has placed reliance on the decision of Specific reliance in this regard is placed on the decision of Bangalore Bench of Tribunal in the case of Cisco Systems Capital (India) Pvt. Ltd. vs. ACIT: ITA No. 1558 of 2012 to submit that under similar facts and circumstances, the CISCO has been granted 60% depreciation on the audio visual conferencing equipment. The Ld. Counsel has further submitted that the assessee has always been allowed depreciation @ 60% on STB's in the preceding as well as subsequent assessment year(s) in assessments concluded under section 143(3) of the Act in respect of STB's that were owned by the assessee. Hence the principle of consistency should be followed. He in this respect has made the following submissions: "Specific reliance in this regard is placed on the decision of Bangalore Bench of Tribunal in the case of Cisco Systems Capital (India) Pvt. Ltd. vs. ACIT: ITA No. 1558 of 2012. In that case, the assessee claimed depreciation @ 60% on audio visual co....
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....will begin to stream or play in real time. Video streaming involves a series of steps involving the use of media content, a computer that runs encoding software, servers for upholding the streamed media format and access to such media through various devices. From the above submissions, it is clear that the equipment used by the assessee for audio visual conferencing and also video streaming involves the use of computer. As certain input and output equipment may have independent functionality and existence but the computer devices which are involved in these activities would be of no use if these input and output devices are not used. Therefore, thoueh the input and output devices may have independent existence and functionality in so far as the activity of the assessee is concerned, they do form part of the computer network system without which the computer used for the purpose of audio and video conferences would be useless. The Special Bench of the Tribunal in the case of Datacraft India Ltd., (cited supra) has held that peripheral equipments used along with computer are also part of the computer. We find that a similar issue had come up before 'B' Bench of the Tribunal ....
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....but wherever it is found that the device is not used independent of the computer system and the purpose of audio visual conferencing and video streaming, the same shall be treated as computers and wherever it is used independently for any other purpose it shall be treated as plant and machinery. The A O, shall, thus allow depreciation at the rate of 60% on the equipment which could be classified as computer and at the rate of 15% on the equipment which could be classified as plant and machinery. This issue is accordingly set aside to the file of the AO for re-adjudication in accordance with law and our observation above. " (emphasis supplied) It is pertinent to note that in the remand proceedings, the assessing officer allowed depreciation @ 60% on audio-visual equipments. Further, it is submitted that in the assessment order passed in the case of CISCO for the assessment year 2013-14, the assessing officer has accepted the fact that audio-visual equipments (Set-Top Boxes) are eligible for depreciation at the rate of 60%. The relevant findings of the assessing officer are reproduced as under: "9.1 The issue of the percentage of depreciation to be allowed in the case ....
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.... CIT vs Karnataka Power Corporation : 247 ITR 268 * Expeditors International (India) (P) Ltd vs Addl CIT : 118 TTJ 652 Accordingly, it is respectfully prayed that the assessing officer may kindly be directed to allow depreciation @60% on the aforesaid STB's, in case the appellant is deemed to be the owner of such assets. " Principle of Consistency The appellant is providing 'Digital Cable Service' to its customers since 2009 and for carrying on this business, it had purchased Set Top Boxes ('STBs') in the earlier assessment years out of its own funds and claimed depreciation @ 60% thereon which was allowed by the tax authorities after due application of mind. In this regard, it is respectfully submitted that though principle of res-judicata does not apply to income tax proceedings, it is well settled that if there being no change either in facts or in law, as compared to the earlier and subsequent years, the position accepted/ determined by the Department needs to be followed even on the principle of consistency. Reliance in this regard is placed on the following decisions: - CIT vs. Excel Industries Ltd.: 358 ITR 295 (SC) - Radhasoami Sa....
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....hose signals and pass on to TV. He, in this respect has relied upon the decision of the ITAT (Special Bench) of the Tribunal in the case of "Data Craft India Ltd." (2010) 40 SOT 295 (Mum.) (SB) ITAT), wherein it has been held that TV is not a computer. He has further submitted that a device can be said to be part of computer system when its functions depends upon computer. If it is independent of computer and it can function independently then it will not fall within the scope of the device that may be included in the term 'computer system'. He has submitted that the STBs just pass information to the TVs, it is not a computer. He has further submitted that the STBs would not also fall within the definition of Audio-Visual Equipment upon which depreciation @ 60% has been allowed in the case of CISCO. He, therefore, has submitted that the Assessing Officer has rightly allowed the depreciation @ 15%. The Ld. DR has also relied upon the observations and findings made by the Assessing Officer on this issue in the Assessment order for AY 2014-15. The Ld. DR, has also strongly relied upon the decision of the co-ordinate Cochin Bench of the Tribunal in the case of 'ACIT vs Kerala Communica....
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.... Further, it is submitted that in the assessment order passed in the case of CISCO for the assessment year 2013-14, the assessing officer has accepted the fact that audio-visual equipments (Set-Top Boxes) are eligible for depreciation at the rate of 60%. " 2. What is a Smart TV- A TV or a Computer ? Similarly what is a smart phone which can make video calls, display unlimited videos from youtube etc websites? So what is that distinguishes pre-configured special electronic devices from computers? Different devices now-a-days have embedded many different hardware like relays, transistors, memory chips, digital gates etc. and further they also include various software in order to execute pre-configured functions. Such devices include toasters, washing machines, microwave ovens, mobile phones, smart TVs, digital wristbands etc. 3. Therefore various courts have come with the concept of computer network. Further under Income tax act for computer or computer network 60 % depreciation is allowable. What falls under computer and computer network has been defined 3.1 ITAT Special Bench in the case of Datacraft India Ltd. (supra) had the occasion to consider the meaning of word &#....
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....play device. They are used in cable television, satellite television, and over-the-air television systems, as well as other uses. 4.1 The main purpose of STBs is to deliver the audio-video signals to the TV viewers. But using the complex technology, more and more value is added for the operator i.e. maintaining the database of the clients, maintaining the viewer's log registers, the list of the channels subscribed by viewers, the payment schedule of the viewers etc. these additional features are achieved using computers at the back end. The STBs installed at the premises of the users helps the operator to actualize this informational and supervisory control. However, the main function of the STBs is to deliver the audio-video feed to users. The major function of the STBs i.e. decoding and thus delivering the audit video signals to the TV sets is independent of the various servers installed at the premises of MSO (Multiple System Operator). Therefore, the main functions of the STBs do not depend on servers and other electronic devices installed in the premises of operator. This main function is not dependent on backend computers installed at the premises of operator because ST....
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....above submissions, it is clear that the equipment used by the assessee for audio visual conferencing and also video streaming involves the use of computer. As certain input and output equipment may have independent functionality and existence but the computer devices which are involved in these activities would be of no use if these input and output devices are not used. Therefore, though the input and output devices may have independent existence and functionality in so far as the activity of the assessee is concerned, they do form part of the computer network system without which the computer used for the purpose of audio and video conferencing would be useless * However the assessee in the present case has failed to justify how STBs are on par with Audio-Video Conferencing Devices. * Further, it is observed that the assessee himself has made claim of depreciation of 15% on STBs in previous years. It is worth noting that for AY 2012-13 to AY 2016-17, the assessee has always been claiming 15 % depreciation on STBs. For AY 2017-18, the assessee for the first time has claimed that it is eligible for 60 % depreciation on STBs. Therefore, it is inferred that without any proper jus....
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....the mobile phones as well as STBs do not depend on such servers. 6.2 Since, it is established fact that the mobile phones are eligible for 15% depreciation. Further, the assessee has no fair justification how STBs are a part of computer systems or how STBs are on par with Audio Video Conferencing Devices, therefore the claim of the assessee for higher depreciation is inadmissible. Further the Reliance is also placed on the following case laws:- * ITAT Special Bench in the case of Datacraft India Ltd. (supra) had the occasion to consider the meaning of word 'computer1., as explained in above mentioned paras. * In the case of DCIT Mumbai v. Data Craft India Ltd.(2010) 40 SOT 295 (Mum.) (SB) ITAT), the issue was related to router and switches which were part and parcel of le "computer" hardware and other functions were found to be integrated one. In the case of CIT v. Bses Yamuna Powers Ltd. ITA 1267 of 2010 (Delhi High Court, depreciation was allowed at the rate of 60% on "computer" accessories and peripherals such as printers, scanners and server as these were integral part of the computer system responsible for completing the required working. Here is not the case like th....
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....h has allowed audio visual streaming equipment to be part of computer system, STB is way advanced and a computer in itself. The Ld. Assessing Officer did not examine this in detail and has summarily concluded that it is not part of a computer. Applicability of DCIT vs Datacraft India Limited to the case of Fastway Transmissions Private Limited Para No. As per Order Applicability to Fastway 31.1 In short, "Router" is a hardware device that routes data (hence the name) from a local area network (LAN) to another network connection. A router acts like a coin sorting machine, allowing only authorized machines to connect to other computer systems. Most routers also keep log files about the local network activity. Now the question is whether this "machine" can be used independent of Computer. If yes, then it cannot be called "Computer Hardware" in all circumstances. It is submitted that the assessee has already established that the STB's have all the capabilities of a computer and therefore eligible for depreciation of a computer. 31.4 In view of the above discussion, we are of the considered view that router and switches can be classified as a computer Hardware when they....
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....#39;s have their own CPU, Operating System, Input / Output mechanism enabling them to carry out all the functions of a computer. Accordingly, it is submitted that the said judgement is not applicable to the company. 33 We prefer the view taken in the case of Samiran Majumdar (supra) over that in the case of Routermania Technologies (supra) ; With utmost respect, the Mumbai Bench had taken a narrow view on this issue, by holding that only a device which can perform logical, arithmetical or memory functions by manipulations of electronic impulses etc. is computer. It has restricted the meaning of computer only to the CPU of the computer and pulled out the input and output devices from the ambit of computer. No doubt the function of the computer, as one composite unit, is to perform logical, arithmetical or memory functions etc., but it is not only the equipment which performs such functions that can be called as computer ; All the input and output devices, as discussed above, which support in the receipt of input and outflow of the output are also part of computer. CPU alone, in our opinion, cannot be considered as synonymous to the expression 'Computer'. The function of CP....
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.... the functioning of the STBs that an STB performs function of a computer with a slightly reduced instructions set. That the system software or the device drivers are also as that in a personal computer but instructed to perform the specialized functioning meant for the STBs.; that even the application software in STBs is same and developed with the same programming language as for a computer, but for specific and specialized functions. However, the main thrust of the argument of the Ld. DR has been that just because some sort of computer functions are necessarily involved, mechanical system cannot be said to be a computer unless its principal function cannot be done without the aid of the computer function. The ld. DR relying upon the decision of Special Bench in the case of "Data Craft India Limited" (supra) has submitted 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 vi....
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....el of a larger computer system also, whereas, the Ld. DR has stressed that although the STB may be performing many functions as that of a computer, yet the primary function of the STB is decoding of the audio - video signals and further delivering the audio - video signals to TV sets, hence, the primary function is not of computing, hence, they cannot be said to be computers. 37. In our view, though both the ld. representatives have gone too technical regarding the specific functions of the STBs to submit whether they fall within the definition and scope of computer or not? However, in our view, neither under the provisions of Income Tax Act nor in the Appendix 1 to Income Tax Rules, 1962 (providing for rate of depreciation) any such hyper technical approach has been taken. The rate of depreciation on a capital asset under the provisions of Income Tax Act and Rules thereto has been provided taking into consideration the general or approximate age of the asset and the speed at which it depreciates. Similar type of assets irrespective of their quality, make or the material used in, are placed under the same category on which rate of depreciation is same/equal e.g. all type of buildi....
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....chnology sector is very fast and the older devices become useless and obsolete, not always due to the reason that these devices have outlived their life but due to the fact that they are required to be replaced with their new version to keep pace with the time and to compete in the market. In our view, it is not only the primary function that may be the sole criteria for deciding whether the STBs will be eligible for depreciation as applicable to the computers or not, rather the overall facts and circumstances such as the architectural design, nature of its components, the economic life of the STBs and their functions both primary and other functions, that are the deciding factors. A perusal of the Appendix 1 to Income Tax Rules,1962 reveals that the rate of depreciation provided is not item or quality specific, rather, the depreciation rate has been mentioned taking the genre of the particular type of assets and not on the basis of any specific species or to say not on the basis of differentiating nature or qualities of the assets falling within one genre/category. As noted above, different type of assets may be of different species but falling in one or same genre will be eligi....
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.... Colour Doppler (f) SPECT Gamma Camera (g) Vascular Angiography System including Digital Subtraction Angiography (h) Ventilator used with anaesthesia apparatus (i) Magnetic Resonance Imaging System (j) Surgical Laser (k) Ventilator other than those used with anaesthesia (l) Gamma knife (m) Bone Marrow Transplant Equipment including silastic long standing intravenous catheters for chemotherapy (n) Fibre optic endoscopes including, Paediatric resectoscope/audit resectoscope, Peritoneoscopes, Arthoscope, Microlaryngoscope, Fibreoptic Flexible Nasal Pharyngo Bronchoscope, Fibreoptic Flexible Laryngo Bronchoscope, Video Laryngo Bronchoscope and Video Oesophago Gastroscope, Stroboscope, Fibreoptic Flexible Oesophago Gastroscope (o) Laparoscope (single incision)" A perusal of the above details reveals that separate items though falling under the heading "Life Saving Medical Equipment" have been mentioned separately under different alphabetic numbers, however, the items at (n) above shows that Paediatric resetoscope and audit resectoscope have been separated with " / " (slash), whereas, the other items though of similar nature have been separated with ", " (....
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....licate and sensitive and the functioning of such devices being a mixture of communication and computing, which is akin to that is performed by a computer, the mobile phones, in our view, cannot be placed and equated with simple plant and machinery of every type, rather, it will be appropriate to place these under the genre 'computers and software'. So far as the argument of the Ld. DR that just because some sort of computer functions are necessarily involved, mechanical system cannot be said to be computer, we agree to that extent with this argument of the Ld. DR. Now a days with the advancement of technology, even the machines meant to perform mechanical functions such as a washing machine or a Lift have also been embedded with some sort of computer device, which gives command to said machine to perform certain specific functions; however, considering the material and components of such machines, their life, their main and associated functions and characteristics, they can be categorized either as mechanical devices, electrical devices, electronic devices or computer devices. Even where such division is generally not possible, the composition of such type of machines can be divide....
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....rt and attachment of the computer systems. 40. Even it is an admitted fact that in the case of CISCO, the matter relating to the depreciation on audio visual conference devices had been restored by the Tribunal to the file of the assessing officer for decision a fresh on the issue as per the observations/guidelines of the tribunal. It is also an admitted fact that the Assessing officer in the set aside proceedings has granted depreciation @ 60% on those Audio-Visual equipment on the analogy that they being attached, form part of the computer systems. However, the sole contention of the Ld. DR in this respect has been that it is not proved that STBs and Audio visual conference device mentioned in the CISCO's case were similar to the STBs. However the Ld. Counsel for the assessee in this respect has submitted that a letter was written by the Assessing Officer himself to the CISCO for clarification on this point, to which the CISCO vide their letter dated 18.02.2016 replied as under: '"5. Details of Depreciation claimed by us on Assets under Lease with Fastway transmission for AY 2013-14 & AY 2014-15: The Assets provided on Lease to M/s Fastway Transmission Pvt. Ltd. are "Networ....
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....istant Manager (accounts) in the assessee company since 2008 (page 143 of DPB-III) wherein he had categorically stated that 'that usage life of STB is approx. 3-4 years only and lease tenure is also 34 years'. The tenure as per lease schedule is nearly the same as economic life of the equipment. Thus, lease period is settled in such a way so that the CISCO fully recovers the investment in the asset together with interest thereon within the life span of the asset." Further, in the written submissions dated 26.2.2018, it has been submitted as under:- "The physical life of the assets is not relevant here. It is the economic life span of STB which is relevant as per ITAT Special Bench decision in Indus Ind Bank and accounting standard. As per TRAI guideline and sworn statement u/s 131 of Shri Sushil Thakur the economic life span is 3 to 4 years. Even otherwise the assessee has charged depreciation of these assets @ 27.82% (page 176 of DPB 1 on STB / Headends) in its books viz-a-viz charging of depreciation on other assets @ 14%. Thus major part of the life of STB is covered in 3 to 4 years." Further, the assessing officer has also placed reliance on TRAI notification No. 1-19/201....
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....ges received from the consumer during the period already offered to the income tax, how can the deduction of corresponding investment / expenditure incurred for the purchase of such equipment can be postponed beyond such date of sale of equipment? The income under the Income Tax Act is the resultant profit after deduction of the investment / expenditure incurred from the total sale price received / receivable. Therefore, when the total receipt relating to the equipment either in the shape of hire charges or sale price in the shape of security deposit appropriated at the end of 3 years, is accounted for as receipt/income, then the deduction of the corresponding expenditure either in the shape of depreciation or in the shape of revenue expenditure, under no circumstances, can be delayed or postponed beyond the date of sale of equipment. The expenditure incurred for the purchase of such equipment is required to be set off from the final receipt / sale price by whatever manner either as a deduction on account of depreciation or as revenue expenditure. When the assessee no more remains the owner of the equipment, how can it claim depreciation on the same, which is sine qua non for claim....
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....ITL only user rights of the fibre links could be given by CBSL to any other concern. As per the A.O. the leasing out agreement was, therefore, void ab initio and hence any transaction entered into in pursuance to the same was not a business transaction and the assessee, therefore, could not be claim any benefit out of this transaction. 2) That this was not even normal lease agreement since no service tax had been paid by the assessee which it was bound to pay if it was a lease agreement. 3) That it was only a pay out to CBSL as part of consideration of takeover in the guise of IRU agreement. 4) That even otherwise the payment was not for expansion of the business of the assessee but was only for carrying out the current business since it could be used only own existing cable TV licence. 5) In the books of CBSL the said transaction had been shown as a loan and, therefore, the claim of the assessee was of preliminary expenses, was only an afterthought. 6) Lastly, that even otherwise it did not qualify as a preliminary expense as provided for in section 35D of the Act. 46. The CIT(A) confirmed the disallowance so made by the A.O. 47. Before us, the Ld. counsel for assessee....
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....unsel for assessee has contended that in the light of the above facts, no disallowance u/s 36(1)(iii) of the Act was warranted. He in this respect has relied on the decision of the Hon'ble Jurisdictional High Court in the case of M/s Bright Enterprises Pvt. Ltd., reported in 381 ITR 160. 53. The Ld. DR, on the other hand, has relied upon the orders of the lower authorities. 54. We have heard the rival contentions. We find merit in the contention of the Ld. counsel for assessee. The Ld. Counsel has demonstrated that there were sufficient own funds available with the assessee company in the form of share capital and reserves to the tune of Rs. 105 crores and Rs. 107 crores respectively to meet the advance given of Rs. 3.20 crores. The issue is now squarely covered by the various decisions of the High Courts as well as of the apex court of the country including that of the Hon'ble Jurisdictional High Court in the case of 'Bright Enterprises Pvt. Ltd Vs. CIT, Jalandhar' (supra), 'CIT Vs. Kapsons Associates' (2016) 381 ITR 204 (P&H) and the latest decision of the Coordinate Bench of the Tribunal in the case of 'ACIT Vs. Janak Global Resources Pvt Ltd' ITA No. 470/Chd/2018 orde....
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....against law and facts on the file in as much as he has gravely erred in adjudicating the grounds of appeal relating to the appeal. 5. That the appellant company reserves its rights to raise any additional gads of appeal. 57. Ground No.1 : A perusal of above reproduced ground No.1 reveals that the issue taken in this ground is identical to that has been adjudicated vide ground Nos.2 to 5 of ITA No.547/Chd/2017 as above. The only differentiating fact pointed out by both the learned representatives of the parties is that in this case the claim of deduction of depreciation @ 60% as against 15% allowed by the A.O. was taken by the assessee during the reassessment proceedings carried out u/s 147 of the Act carried out by the Assessing Officer. The Assessing Officer noticed that the assessee had claimed depreciation on STBs @ 35% i.e. @15% and also further additional depreciation @ 20%. The Assessing Officer after recording reasons show caused the assessee as to why the depreciation on STBs be not restricted to 15% as the assessee was not engaged in the business of manufacturing or production. The assessee however in the return of income filed in response to notice u/s 148 of the Act c....
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....is stance of application of higher rate on the said issue as against of lower rate proposed by the AO. However, we are of the further view that even the above proposition laid down by the Hon'ble Supreme Court otherwise will not be applicable as such in this case because of the direct statutory provisions on the issue involved of allowability of depreciation. Explanation 5 to section 32(1) Inserted by the Finance Act, 2001, w.e.f. 1-4-2002 reads as under: " Explanation 5.-For the removal of doubts, it is hereby declared that the provisions of this sub-section shall apply whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income;" As per Section 32 (1) of the Income Tax Act, 1961 (as reproduced in the earlier para of this order) an assessee is entitled to claim of deduction on account of depreciation on tangible as well as intangible assets owned or partly owned by the assessee and used for business purposes at the rate as may be prescribed. Hence, in view of Explanation 5 to section 32(1), the Assessing Officer is duty bound to allow depreciation at the prescribed rates as admissible to an assessee on the assets irrespective ....
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....eturn though filed belatedly could be considered by the Appellate Authority and hence we hold that the assessee is entitled to make its claim by way of revised return." It has been further observed, "when there is a mandate to grant depreciation to the assessee whether or not such claim is made by the assessee in the return in terms of Explanation 5, it would be just and fair that the same mandate would get automatically extended to the claim of additional depreciation also". 62. The ITAT Chennai Bench in the case of "ITO v. Sri Balaji Sago & Starch Products" [2012] 19 taxmann.com 313/53 SOT 15 where in the assessee was engaged in power generation and claimed depreciation on a newly installed windmill on the basis of WDV method at the rate of 15% and subsequently, when assessee realised its mistake noting that the correct rate of depreciation to which it was entitled to was @ 80%, hence, it filed a letter before Assessing Officer to rectify claim and to provide depreciation at the rate of 80%.The Assessing Officer rejected this claim purportedly following the decision of the Supreme Court in Goetze (India) Ltd.'s case (2006] 157 Taxman 1 (SC)/[2006] 284 ITR 323 (SC)/[2006....
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.... on WDV method but the rate chosen was not a correct one. The assessee asked for adopting the correct rate which is in fact, was only a prayer to rectify a mistake apparent on record. The assessee was not claiming any fresh claim before the assessing authority. Therefore, the judgment of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra) does not apply to the present case. 19. The above position is fortified by the order of the ITAT, Chennai Bench 'D' rendered in the case of K.K.S.K. Leather Processors (P.) Ltd. (supra). The Tribunal, after examining the Explanation 5 to subsec. (1) of sec.32, held that the provisions of sub-sec.(1) of sec.32 was applied whether or not the assessee has claimed the deduction in respect of depreciation in computing his total income. The Tribunal held that the Assessing Officer is duty bound and under obligation to allow the deduction of depreciation as per the provisions of sec.32(1). When such a statutory obligation is cast on the assessing authority, it is incumbent on him to apply the correct rate of depreciation, especially in the present case where the option exercised by the assessee is manifestly clear. 20. ....
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....t does not impinge or curtail the Powers of the Tribunal and higher authorities to entertain an Additional/ fresh claim based on the facts on the file in the light of proposition laid down by the hon'ble supreme court in the case of "NTPC Ltd." (supra) and other case laws ( supra) as discussed in earlier paras (Para No. 31 & 32 above) of this order. In view of the above discussion, we hold that the Assessing Officer as well as the Ld. CIT(A) were legally duty bound to consider and entertain the issue raised by the assessee of admissibility of statutory deduction of depreciation at a higher rate as prescribed and adjudicate upon it. Even there is no bar on the Tribunal in this respect to entertain and adjudicate upon the issue of rate of depreciation despite the fact that the claim relating to admissibility of higher rate of depreciation was made for the first time in the return filed in response to section 148 of the Act. So far the issue on merits is concerned, in view of our detailed discussion as above on the issue while adjudicating upon the additional ground taken in assessee's appeal bearing ITA NO.547/Chd/2017 and in view of our decision rendered therein and the facts bein....
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....safely concluded that the assessee had put the STBs in its business from the date it acquired/purchased the same. In view of this, the assessee is entitled to deprecation irrespective of the date of installation of STBs in the premises of the consumers. This issue is accordingly allowed in favour of the assessee. 67. Ground Nos.3 to 5: The above grounds are general in nature. In view of our findings given above, this appeal of the assessee stands allowed. 842/Chd/2018 (A.Y. 2014-15):- 68. The assessee in this appeal has taken following grounds of appeal:- 1. That, the Ld. Commissioner of Income Tax (Appeals)-3,Gurgaon has erred in deciding the case without affording sufficient and reasonable opportunity of being heard. 2. That it had been contended before the Ld.CIT(A) that the appeal for earlier year of the same assessee involving same issue i.e. for Asstt. Year 2013-14 was being heard before the Hon'ble Bench of ITAT, Chandigarh Bench, Chandigarh and, as such, it was requested for keeping the appeal in abeyance till the disposal of earlier year's appeal by the ITAT, Chandigarh Bench, Chandigarh and which should have been considered. 3. Notwithstanding, the abo....
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....was no exempt income and, as such, the disallowance u/s 14A is wholly unjustified. 12. That the Appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off." 69. Apart from the above grounds of appeal, the assessee has taken the following additional grounds of appeal : "Without prejudice, the assessing officer erred in not allowing depreciation on Set top boxes at the eligible rate of 60%" 70. Ground Nos.1 to 6 : The issue taken vide ground Nos.1 to 6 as to the allowability of lease rental as revenue expenditure has already been adjudicated in favour of Revenue as per our findings given above while adjudicating ground Nos. 3 to 5 of assessee's appeal in ITA No.547/Chd/2017. Our findings given above on these issues will mutatis mutandis apply to these grounds also. 71. Additional Ground of Appeal: It was common ground that the above ground is similar to additional ground taken in the appeal of the assessee in ITA NO.547/Chd/2017 and our decision rendered therein will apply mutatis mutandis to this additional ground also. This issue is accordingly decided in favour of the assessee. 72. Ground Nos.7 & 8: Ground Nos.7 and 8 ....
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....und is relating to the disallowance of expenditure claimed u/s 36(1)(iii) of the Act, which is identical to ground No.8 of the assessee's appeal; ITA No.547/Chd/2017 and the facts being identical and the assessee being possessed of sufficient funds to meet the advance given, hence, our findings and directions given above on ground No.8 in ITA No.547/Chd/2017 will apply mutatis mutandis to this ground also. 76. Ground No.11: Vide ground No.11 the assessee has agitated the confirmation of disallowance made by the AO u/s 14A of the Act in respect of the expenditure incurred for earning of tax exempt income. The Ld. Counsel for the assessee has submitted that the assessee did not earn any tax exempt income during the year. Hence, no disallowance u/s 14A was warranted. We find that the issue is now squarely covered by the various decisions of the High Courts in favour of the assessee viz.'CIT, Faridabad Vs. Lakhani Marketing Inc.' 226 Taxman 45 (P&H ), 'CIT Vs. Winsome Textiles' (2009) 319 ITR 204 (P&H), 'Cheminvest Ltd Vs. ITO' (2015) 378 ITR 33 (Delhi), 'Corrtech Energy P. Ltd.' (2014) 45 Taxman.com 116 (Gujarat High Court) 'CIT Vs. M/s Shivam Motors (P) Ltd' (2014) 272 CTR (All) 2....