Ushodaya Enterprises ltd, Hyderabad v. ACIT, Hyderabad

ITA 1241/HYD/2008 | 2002-2003
Pronouncement Date: 31-10-2013 | Result: Allowed

Appeal Details

RSA Number 124122514 RSA 2008
Assessee PAN AAACU2690P
Bench Hyderabad
Appeal Number ITA 1241/HYD/2008
Duration Of Justice 5 year(s) 3 month(s) 26 day(s)
Appellant Ushodaya Enterprises ltd, Hyderabad
Respondent ACIT, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 31-10-2013
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 31-10-2013
Date Of Final Hearing 06-01-2011
Next Hearing Date 06-01-2011
Assessment Year 2002-2003
Appeal Filed On 04-07-2008
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD B BENCH HYDERABAD BEFORE SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER AND S HRI SAKTIJIT DEY JUDICIAL MEMBER ITA NOS.1241/HYD/2008 &591/HYD/2010 ASSTT. YEARS: 2002-03 & 2003-04 RESPE CTIVELY. USHODAYA ENTERPRISES LTD. -V- ACIT CIR-16(2) SOMAJIGUDA HYDERABAD. HYDERABAD. PAN:AAACU2690 P (APPELLANT) (RESPONDENT) APPEL LANT BY SHRI V. SHIV KUMAR RESPONDENT BY SHRI HARILAL NAYAK DATE OF HEARING 17 - 10 - 2013 DATE OF PRONOUNCEMENT 31 - 10 - 2013 ORDER PER SAKTIJIT DEY J.M: THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST SEPARATE ORDERS OF CIT (A)-V HYDERABAD AND THEY PERTAIN TO THE ASSESSMENT YEARS 2002-03 AND 2003-04 . SINCE IDENTICAL ISSUES ARE INVOLVED AND ASSESSEE IS ALSO COMMON IN THESE APPEALS THESE ARE CLUBBED TOGETHER AND DISPO SED OF BY THIS COMBINED ORDER FOR THE SAKE OF CONVENIENCE. 2. WE WILL FIRST TAKE UP THE ASSESSEES APPEAL IN ITA NO.1241/HYD/2008 RELATING TO ASSESSMENT YEAR 2002-0 3. 2 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. 3. THE ONLY ISSUE IN THE AFORESAID APPEAL IS WITH R EGARD TO THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.3 11 1 3 384/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT (A) ON CERTAIN EQUIPMENT AND PERIPHERALS BY TREATING THE M AS NOT FORMING PART OF COMPUTER. 4. BRIEFLY THE FACTS ARE THE ASSESSEE A LIMITED COM PANY IS ENGAGED IN THE BUSINESS OF PUBLISHING NEWSPAPERS S ATELLITE TELEVISION BROADCASTING APART FROM MANUFACTURE AND TRADING OF FOOD PRODUCTS AND HIRING OF SHOOTING SETS. FOR THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE FILED ITS RETURN OF I NCOME ON 30- 10-2002 DECLARING LOSS OF RS.35 11 65 028/-. THE A SSESSING OFFICER COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT VIDE ORDER DATED 22-10-2005 BY DETERMINING THE LOSS AT RS.34 86 50 028/-. SUBSEQUENTLY THE ASSESSING OFF ICER HAVING REASON TO BELIEVE THAT THERE WAS ESCAPEMENT OF INCO ME ON ACCOUNT OF EXCESS CLAIM OF DEPRECIATION IN RESPECT OF THE BLOCK OF ASSET OF COMPUTER REOPENED THE ASSESSMENT BY IS SUING A NOTICE U/S 148 ON 14-10-2006. IN RESPONSE TO THE S AID NOTICE THE ASSESSEE FILED A RETURN ON 8-11-2006 ADMITTING THE LOSS DETERMINED BY THE ASSESSING OFFICER IN THE ASSESSME NT ORDER PASSED U/S 143(3) OF THE ACT AT RS.34 86 50 028/- . DURING THE REASSESSMENT PROCEEDINGS THE ASSESSING OFFICER AFTER EXAMINING THE DETAILS OF ADDITIONS MADE TO COMPUTER AND OTHER ACCESSORIES SUBMITTED BY THE ASSESSEE CALLED UPO N THE ASSESSEE TO EXPLAIN WHY DEPRECIATION CLAIMED IN RE SPECT OF THE BLOCK OF COMPUTERS AT THE RATE OF 60% SHALL NOT BE DISALLOWED. 3 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. THE ASSESSEE IN ITS EXPLANATION SUBMITTED THAT THE ADDITIONS MADE TO THE COMPUTERS ON WHICH DEPRECIATION WAS CLA IMED AT THE RATE OF 60% COMPRISED OF VARIOUS ITEMS LIKE EDI TING EQUIPMENTS CHARTER GENERATORS AND V. SAT EQUIPMENT S I.E. DVC TRANSFER RECORDER PLAYER SATELLITE RECEIVERS ENCODERS VIDILINK TRANSMIT AND RECEIVERS AND FIBER OPTIC LIN K WORK ETC FORM PART OF COMPUTERS. IT WAS SUBMITTED THAT AL L THESE ITEMS WOULD COME UNDER COMPUTER AND COMPUTER SOFTWARE HAS FOUND PLACE IN ITEM III (5) AND PLANT AND MACHINERY AS PE R INCOME- TAX RULES 1962 AND RATE OF DEPRECIATION IS 60%. IT WAS SUBMITTED THAT ALL THESE ITEMS BEING INTEGRAL PART OF COMPUTER WITHOUT WHICH THE COMPUTER CANNOT WORK AND THEREFOR E TO BE HELD AS PART OF COMPUTER SYSTEM IN SUPPORT OF SUCH CONTENTION THE ASSESSEE RELIED UPON A DECISION OF INCOME-TAX A PPELLATE TRIBUNAL KOLKATA BENCH IN CASE OF ITO WARD-31(4) KOLKATA VS. SAMIRAN MAJUMDAR (280 ITR(AT) 74). 5. THE ASSESSING OFFICER HOWEVER DID NOT ACCEPT TH E CONTENTION OF THE ASSESSEE FOR THE REASON THAT THE COMPONENTS ON WHICH THE ASSESSEE HAD CLAIMED DEPRECIATION DO N OT FORM PART OF COMPUTER. THE AO WAS OF THE VIEW THAT EVERY PERIPHERAL DEVICE LIKE EDITING EQUIPMENTS CHARTER GENERATORS AND V. SAT EQUIPMENTS I.E. DVC TRANSFER RECORDER PLAYER SAT ELLITE RECEIVERS ENCODERS VIDILINK TRANSMIT AND RECEIVER S FIBER OPTIC LINE WORK ETC. WHICH RUN WITH THE HELP OF COMPUTER IS ALSO A COMPUTER. ACCORDINGLY THE ASSESSING OFFICER HELD THAT EVERY EQUIPMENT WHICH RUNS WITH THE HELP OF COMPUTER CANN OT BE HELD 4 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. TO BE A COMPUTER. HE ALSO FELT THAT THE INTENTION O F THE LEGISLATURE FOR PROVIDING 60% DEPRECIATION ON COMPU TER IS MAINLY DUE TO FAST TECHNOLOGICAL OBSOLESCE IN THIS TECHNICAL FIELD BUT THAT WILL NOT TAKE INTO ITS FOLD VARI OUS OTHER PERIPHERALS LIKE EDITING EQUIPMENTS CHARTER GENERA TORS AND V. SAT EQUIPMENTS COMPRISING DVC TRANSFER RECORDER PL AYER SATELLITE RECEIVERS ETC. HE THEREFORE HELD ALL THES E ITEMS ARE TO BE ALLOWED DEPRECIATION AT THE NORMAL RATE OF 25% AS IS APPLICABLE TO PLANT AND MACHINERY. THE ASSESSING OFFICER FURTHER HELD THAT SOFTWARE ADDED TO THE FIXED ASSE TS ARE LICENSED SOFTWARE AND ANY SOFTWARE IN THE NATURE OF KNOW- HOW PATENTS COPY RIGHTS TRADE MARKS LICENSES MACHIN ES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATU RE ARE TO BE TREATED AS INTANGIBLE ASSETS. HE THEREFORE HELD TH AT THE SOFTWARE PURCHASED BY THE ASSESSEE ARE VERSIONS DE PRECIATION ON THE SOFTWARE IS ALLOWABLE AT 25% ONLY WHICH IS A PPLICABLE FOR THE BLOCK PLANT AND MACHINERY. THE ASSESSING OFFI CER ACCORDINGLY COMPLETED THE ASSESSMENT BY DISALLOWING THE EXCESS DEPRECIATION OF 35% CLAIMED BY THE ASSESSEE AMOUNTING TO RS.11 95 58 702/- AND COMPLETED THE ASSESSMENT ACCORDINGLY. THE ASSESSEE BEING AGGRIEVED OF THE DI SALLOWANCE PREFERRED AN APPEAL BEFORE THE CIT (A). 6. IN COURSE OF HEARING OF THE APPEAL BEFORE THE CIT (A) THE ASSESSEE REITERATING THE STAND TAKEN BEFORE THE ASS ESSING OFFICER SUBMITTED THAT AS PER DEFINITION OF COMPUTE R AS GIVEN BELOW EXPLANATION UNDER CLAUSE (IX) TO SUB-SECTION (1) OF 5 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. SECTION 36 OF THE ACT IT IS THE COLLECTION OF DEV ICES WHICH CONTAIN COMPUTER PROGRAMMES ELECTRONIC INSTRUCTION S INPUT DATA AND OUTPUT DATA THAT PERFORMS FUNCTIONS INCLU DING BUT NOT LIMITED TO LOGIC ARITHMETIC DATA STORAGE AND RETRIEVAL COMMUNICATION AND CONTROL. IT WAS SUBMITTED THAT V ARIOUS EQUIPMENTS REFERRED TO BY THE ASSESSING OFFICER CAN NOT BE USED WITH ANY OTHER EQUIPMENT EXCEPT IN CONJUNCTION WITH COMPUTERS. IT WAS SUBMITTED THAT THESE ITEMS CANNO T BE USED FOR ANY OTHER PURPOSE EXCEPTING WITH THE COMPUTERS AND HENCE THEY CONSTITUTE INTEGRAL PART OF COMPUTER. THE CIT (A) HOWEVER WAS NOT CONVINCED WITH THE CONTENTIONS RAISED BY TH E ASSESSEE AND CAME TO HOLD THAT THE EQUIPMENTS ON WHICH THE A SSESSEE HAD CLAIMED DEPRECIATION AT AN HIGHER RATE ARE MERE LY PERIPHERAL DEVICE ATTACHED TO THE COMPUTER SYSTEM HE FURTHER HELD THAT EVERY PERIPHERAL DEVICE CONNECTED TO THE COMPUTER DOES NOT FORM PART OF THE COMPUTER AND ACCORDINGLY THE CIT (A) UPHELD THE VIEW OF THE ASSESSING OFFICER IN RESTRI CTING THE DEPRECIATION ON THOSE COMPONENTS TO 25%. 7. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE AS SESSEE AT THE VERY OUTSET BROUGHT TO OUR NOTICE THAT THERE WA S A MISTAKE COMMITTED BY THE ASSESSING OFFICER IN THE ASSESSMEN T ORDER WHILE DISALLOWING AN AMOUNT OF RS.11 95 58 702/- WH ICH HAS SUBSEQUENTLY BEEN RECTIFIED BY BRINGING DOWN THE D ISALLOWANCE TO RS.3 11 13 384/- IN AN ORDER U/S 154 DATED 30-9- 2007 IN PURSUANCE TO AN APPLICATION U/S 154 MADE BY THE ASS ESSEE. SO FAR AS THE MERITS OF THE ISSUE ARE CONCERNED THE L EARNED 6 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. AUTHORISED REPRESENTATIVE FOR THE ASSESSEE REFERRIN G TO THE DETAILS OF THE EQUIPMENT GIVEN UNDER ANNEXURE-B TO THE WRITTEN SUBMISSION SUBMITTED THAT THE ASSESSEE IS IN THE BU SINESS OF PUBLISHING OF NEWSPAPERS PUBLICATIONS TELECASTIN G AND MANUFACTURE AND SALE OF FOOD PRODUCTS VIZ. PICKL ES MASALAS TOFFEES ETC. IT WAS SUBMITTED THAT THE ACTIVITY OF PUBLISHING NEWSPAPERS SATELLITE TELEVISION BROADCASTING APART FROM MANUFACTURE AND TRADING OF FOOD PRODUCTS AND HIRING OF SHOOTING SETS. IT WAS SUBMITTED THAT THE ACTIVITY OF PUBLISHING NEWSPAPERS HAS UNDERGONE A SEA CHANGE IN THE RECENT YEARS AND IT HAS BECOME COMMON PRACTICE TO PUBLISH MULTIP LE EDITIONS OF NEWSPAPERS WITH SIMULTANEOUS PRINTING AT SEVERAL LOCATIONS. GATHERING OF DATA IS DONE FROM NUMEROUS LOCATIONS A ND THE EDITING OF THE DATA REQUIRES MOST MODERN COMPUTERIS ED SYSTEMS. 8. IT WAS SUBMITTED THAT TRANSMISSION OF ELECTRONI C DATA WITH UTMOST SPEED AND QUALITY REQUIRES SOPHISTICATED COM PUTER SYSTEMS DATA TRANSMISSION SYSTEMS AND EQUIPMENT INS TALLED IN MULTIPLE REMOTE NEWS CENTRES ACROSS THE COUNTRY IS USED BY NEWS REPORTERS WHO SHOOT NEWS EVENTS AND CONVERT TH EM INTO MPEG DIGITAL FILES AT THE REMOTE OFFICE. THESE MPE G FILES ARE TRANSMITTED TROUGH WIRELESS CHANNELS AND ARE RECEIV ED AT THE CENTRAL NEWS CHANNEL OFFICE. THE PUBLICATION OF IN TERNET EDITIONS OF NEWSPAPERS AND CONTINUOUS ONLINE MONITO RING OF THESE EDITIONS REQUIRES COMPUTER SYSTEMS AND THE DA TA TRANSMISSION APPARATUS OF COMPLEX NATURE. IT WAS S UBMITTED 7 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. THAT THE ASSESSEE ALSO RUNS TELEVISION CHANNELS WHI CH OPERATES ON 24X7 BASE. THESE ALSO REQUIRE COMPUTER SYSTEM SEVERAL TYPES OF SOFTWARE HAS ALSO EDITING AND BROADCASTING SYSTEMS WHICH RUN IN CONJUNCTION WITH HIGHLY SOPHISTICATED COMPUTERISED AUDIO AND VIDEO SYSTEMS. HENCE THESE ITEMS/EQUIPME NTS HAVE TO BE CONSIDERED AS INTEGRAL PART OF THE COMPUTER S YSTEM MAKING IT ELIGIBLE FOR AVAILING DEPRECATION AT TH E RATE OF 60% AS IS ALLOWABLE IN THE CASE OF COMPUTER. 9. THE LEARNED AUTHORISED REPRESENTATIVE FOR THE AS SESSEE SUBMITTED THAT FOR THE ASSESSMENT YEAR 2006-07 THE INCOME- TAX APPELLATE TRIBUNAL WHILE CONSIDERING AN IDENTIC AL ISSUE IN ASSESSEES OWN CASE HAS HELD THE ORDER OF THE CIT ( A) FOR ALLOWING DEPRECIATION AT THE RATE OF 60% IN RESPECT OF COMPUTERS AND ACCESSORIES SUCH AS KEY BOARD MOUSE UPS NET WORKING ETC. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND STRONGLY RELYING UPON THE ORDERS OF THE ASSES SING OFFICER AND CIT (A) SUBMITTED THAT THE APPENDIX TO THE INCO ME-TAX RULES ONLY MENTIONS COMPUTER AND NOT ACCESSORIES. HENCE DISALLOWANCE OF EXCESS DEPRECIATION CLAIMED BY THE ASSESSEE BY TREATING THEM AS PART OF THE COMPUTER IS IN ACCORDA NCE WITH STATUTORY PROVISIONS. 11. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE MATERIAL ON RECORD. AS PER THE LIST SUBMITTED BY THE ASSESSEE IN ANNEXURE-B AND THE DETAILED NOTE SUBMI TTED 8 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. EXPLAINING THEIR FIMCTION THE ITEMS ON WHICH THERE IS A DISPUTE REGARDING CLAIM OF DEPRECIATION ARE EDITING EQUIPM ENTS EDIT CONTROL UNIT CHARTER GENERATOR V. SAT EQUIPMENTS E TC. AND SEVERAL TYPES OF SOFTWARE AND VARIOUS PARTS AND C OMPONENTS. IT IS THE CONTENTION OF THE ASSESSEE THAT ALL THESE EQUIPMENTS FORM INTEGRAL PART OF THE COMPUTER SYSTEM AND THEY CANNOT FUNCTION INDEPENDENTLY EXCEPT IN CONJUNCTION WITH A COMPUTER SYSTEM. AS CAN BE SEEN FROM THE ASSESSMENT ORDER THE PRIMARY BASIS ON WHICH THE ASSESSING OFFICER CONCLU DED THAT DEPRECIATION CLAIMED BY THE ASSESSEE IS NOT ALLOWAB LE AT 60% AS ACCORDING TO HIM COMPUTER MEANS A CPU WHICH IS A LSO CALLED AS MOTHER BOARD ALONG WITH ITS MEMORY. MONITOR KE Y BOARD MOUSE ARE ESSENTIAL TO RUN COMPUTER AS AN INDEPENDE NT ENTITY. THE AFORESAID FINDING OF THE ASSESSING OFFICER WAS UPHELD BY THE CIT (A) WHO ALSO HELD THAT EVERY PERIPHERAL DEV ICE CONNECTED TO THE COMPUTER DOES NOT FORM PART OF THE COMPUTER. LET US NOW EXAMINE HOW FAR THE FINDINGS OF THE REVE NUE AUTHORITIES ARE ACCEPTABLE IN THE CONTEXT OF THE RA TIO LAID DOWN BY THE INCOME-TAX APPELLATE TRIBUNAL MUMBAI (SPECI AL BENCH) IN CASE OF DCIT VS. DATACRAFT INDIA LIMITED (40 SOT 295) THE HONBLE SPECIAL BENCH BEING CONSCIOUS OF THE FACT THE TERM COMPUTER HAS NOT BEEN DEFINED UNDER THE IT ACT NO R IN THE GENERAL CLAUSES ACT 1987 THE MEANING OF THE TERM COMPUTER HAS TO BE UNDERSTOOD BY APPLYING THE PRINCIPLES OF STATUTORY INTERPRETATION I.E. ONE HAS TO GIVE THE MEANING TO THE EXPRESSION COMPUTER NOT MERELY BY GOING TO THE DI CTIONARY 9 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. MEANING BUT BY APPLYING COMMON PARLANCE OR COMMERCI AL PARLANCE TESTS AS WELL AS BY ANALYSING THE INTEND MENT OF LEGISLATURE IN PROVIDING HIGHER RATE OF DEPRECIATIO N. THE HONBLE SPECIAL BENCH AFTER INTERPRETING THE EXPRES SION COMPUTER IN COMMON PARLANCE AS WELL AS COMMERCIAL PARLANCE IN THE CONTEXT OF AVAILABILITY OF DEPRECIATION AT HIGHER RATE OF 60% IN THE CASE OF ROUTER AND SWITCHES WHETHER TO B E TREATED AS COMPUTER HELD AS UNDER:- 25. THUS IN ORDER TO DETERMINE WHETHER A PARTICULAR MACHINE CAN BE CLASSIFIED AS A COMPUTER OR NOT THE PREDOMINANT FUNCTION USAGE AND COMMON PARLANCE UNDERSTANDING WOULD HAVE TO BE TAKEN INTO ACCOUNT. TO ANALYSE FURTHER LET US TAKE THE CASE OF A TELEVISI ON THE PRINCIPAL TASK OF WHICH IS TO DELIVER VISUALS ACCOM PANIED WITH AUDIO. THE SIGNALS ARE RECEIVED THROUGH THE RELEVANT NET WORKS SUCH AS DISH TV TATA SKY ETC. B UT TV DOES NOT BECOME COMPUTER FOR THE REASON THAT ITS PRINCIPAL FUNCTION CANNOT BE DONE ONLY WITH THE AID OF 'COMPUTER FUNCTIONS' NOTWITHSTANDING THE FACT THAT IN THE ENTIRE PROCESS OF NETWORKING OR RECEIVING THE OUTPU T FROM DIFFERENT CHANNELS AND MAKING IT AVAILABLE TO THE VIEWERS SOME SORT OF COMPUTER FUNCTIONS ARE NECESS ARILY INVOLVED. SIMILARLY TAKE THE CASE OF MOBILE PHONE. ITS PRINCIPAL TASK IS TO RECEIVE AND SEND CALLS. IT IS NOT A STANDALONE APPARATUS WHICH CAN OPERATE WITHOUT THE RELEVANT NETWORK SUCH AS AIRTEL BSNL RELIANCE. IT THEREFORE FOLLOWS THAT ANY MACHINE OR EQUIP- MENT CANNOT BE DESCRIBED AS COMPUTER IF ITS PRINCI PAL OUTPUT OR FUNCTION IS THE RESULT OF SOME SORT OF 'C OMPUTER FUNCTIONS' IN CONJUNCTION WITH SOME NON-COMPUTER FUNCTIONS. IN ORDER TO BE CALLED AS COMPUTER IT IS SINE QUA NON THAT THE PRINCIPAL OUTPUT/ OBJECT/F UNCTION OF SUCH MACHINE SHOULD BE ACHIEVABLE ONLY THROUGH 'COMPUTER FUNCTIONS'. 26. HAVING ANALYSED THE MEANING OF 'COMPUTER' IN COMMON PARLANCE LET US PROCEED TO ASCERTAIN THE 10 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. CONCEPT MEANING AND FUNCTIONS OF 'ROUTER AGAIN WE FIND THAT THE TERM 'ROUTER' HAS NOT BEEN DEFINED IN THE INCOME- TAX ACT 1961. ACCORDINGLY IT ALSO NEEDS TO BE ASSIGNED THE MEANING AS IT IS UNDERSTOOD IN COMMON PARLANCE. THE LEARNED DEPARTMENTAL REPRESENTATIVE- TIVE HAS PLACED SOME LITERATURE FROM THE INTERNET EXPLAINING THE MEANING OF 'ROUTER' AS A DEVICE IN COMPUTER NETWORKING THAT FORWARDS DATA PACKETS TO THEIR DESTINATIONS BASED ON THEIR ADDRESSES. AS PER THIS LITERATURE THE WORKING OF ROUTER HAS BEEN EXPL AINED BY WHICH DATA PACKETS ARE TRANSMITTED OVER A NETWOR K (SAY THE INTERNET) THEY MOVE FROM MANY ROUTERS (BECAUSE THEY PASS THROUGH MANY NETWORKS) I N THEIR JOURNEY FROM THE SOURCE MACHINE TO BE DESTINA TION MACHINE. ROUTERS WORK WITH IP PACKETS MEANING THAT THEY WORK AT THE LEVEL OF THE IP PROTOCOL. EVERY ROUTER KEEPS INFORMATION ABOUT ITS NEIGHBOURS (OTHE R ROUTERS IN THE SAME OR OTHER NETWORKS). WHEN A PACK ET OF DATA ARRIVES AT A ROUTER ITS HEADER INFORMATION IS SCRUTINIZED BY THE ROUTER. BASED ON THE DESTINATION AND SOURCE IP ADDRESSES OF THE PACKET THE ROUTER DECIDES WHICH NEIGHBOUR IT WILL FORWARD IT T O. 27. THE ASSESSEE VIDE ITS LETTER DATED 21-2-2005 ADDRESSED TO THE ASSESSING OFFICER SUBMITTED A NOT E ON USE OF ROUTERS! SWITCHES BY EXPLAINING THAT THE ROU TERS ARE CRUCIAL DEVICE THAT LET THE MESSAGES FLOW FROM ONE COMPUTER TO ANOTHER. IT WAS FURTHER EXPLAINED THAT THE ROUTER HAS TWO SEPARATE BUT RELATED JOBS VIZ. (A) TO ENSURE THAT THE INFORMATION DOES NOT GO WHERE IT IS NOT NEEDED AND (B) IT MAKES SURE THAT THE INFORMATION DOES MAKE IT TO THE INTENDED DESTINATION. 28. A ROUTER IS A NETWORKING DEVICE WHOSE SOFTWARE AND HARDWARE ARE CUSTOMIZED TO THE TASKS OF ROUTING AND FORWARDING INFORMATION. A ROUTER HAS TWO OR MORE NETWORK INTERFACES WHICH MAY BE TO DIFFERENT PHYSI CAL TYPES OF NETWORK (SUCH AS COPPER CABLES FIBRE OR WIRELESS) OR DIFFERENT NETWORK STANDARDS. EACH NETW ORK INTERFACE IS A SMALL COMPUTER SPECIALIZED TO CONVER T ELECTRIC SIGNALS FROM ONE FORM TO ANOTHER. ROUTERS CONNECT TWO OR MORE LOGICAL SUBNETS WHICH DO NOT S HARE A COMMON NETWORK ADDRESS. THE SUBNETS IN THE ROUTER 11 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. DO NOT NECESSARILY MAP ONE-TO-ONE TO THE PHYSICAL INTERFACES OF THE ROUTER. THE TERM 'LA YER 3 SWITCHING' IS USED OFTEN INTERCHANGEABLY WITH THE T ERM 'ROUTING'. THE TERM SWITCHING IS GENERALLY USED TO REFER TO DATA FORWARDING BETWEEN TWO NETWORK DEVICES THAT SHARE A COMMON NETWORK ADDRESS. 29. IN SIMPLE WORDS A ROUTER MEANS A DEVICE THAT R OUTES DATA FROM ONE COMPUTER TO ANOTHER OR FROM ONE NETWO RK TO ANOTHER. ROUTERS PROVIDE CONNECTIVITY INSIDE ENTERPRISES BETWEEN ENTERPRISES AND THE INTERNET AND INSIDE INTERNET PROVIDERS. FROM THE ABOVE DISCUSSIO N IT TRANSPIRES THAT THE FUNCTION OF A ROUTER IS TO RECE IVE THE DATA FROM ONE COMPUTER AND MAKE IT AVAILABLE TO ANOTHER COMPUTER FOR VIEWING OR FURTHER PROCESSING. APART: FROM FACILITATING THE FLOW OF DATA BETWEEN T WO COMPUTERS THE ROUTERS ALSO. HELP IN THE TRANSFER OF DATA FROM NETWORK TO COMPUTER. THUS THE ESSENTIAL FUNCTI ON OF THE ROUTER IN A COMMERCIAL ORGANIZATION IS TO FA CILITATE THE FLOW OF DATA FROM ONE COMPUTER TO ANOTHER FOR I TS PROCESSING OR STORAGE. SWITCHES ARE SHORTER VERSION OF ROUTERS WHICH PERFORM SIMILAR FUNCTIONS AS THAT OF ROUTERS BUT WITHIN A LIMITED SPHERE. 30. ON FUNCTIONING OF A 'ROUTER' WE FIND THAT THERE IS NO DISPUTE ON THE FACT THAT A 'ROUTER' DOES NOT PERFOR M ANY LOGICAL ARITHMETIC AND INTERMEDIARY FUNCTIONS ON D ATA NOR IT MANIPULATES OR PROCESSES DATA THE WAY A COM - PUTER WOULD DO. A 'ROUTER' DOES NOT HAVE A 'CPU'. I T ONLY ENABLES TRANSMISSION OF DATA AND DATA PACKAGES IN A SOPHISTICATED MANNER TO INTENDED PLACES. A DATA CABLE ALSO CARRIES DATA FROM ONE PLACE TO ANOTHER BUT IT DOES NOT SELECTIVELY INTERCHANGE PACKETS OF DATA BETWEEN PLACES. THE DIFFERENCE BETWEEN A 'CABLE' AND A ROUT ER' IS THAT IN A 'ROUTER' DATA IS 'ROUTED' AS PER THE SPECIFICATION. THUS A 'ROUTER' MAY NOT BY ITSELF BE CALLED A COMPUTER. 31. NOW WE HAVE TO CONSIDER WHETHER A 'ROUTER' CAN BE CONSIDERED AS 'COMPUTER HARDWARE' OR A 'COMPUTER COMPONENT'. COMPUTER HARDWARE REFERS TO THE PHYSICA L PARTS OF A COMPUTER AND RELATED DEVICES. INTERNAL HARDWARE DEVICES INCLUDE MOTHERBOARDS HARD DRIVES 12 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. AND RAM. EXTERNAL HARDWARE DEVICES INCLUDE MONITORS KEYBOARDS MOUSE PRINTERS AND SCANNERS. THE INTER NAL HARDWARE PARTS OF A COMPUTER ARE OFTEN REFERRED TO AS 'COMPONENTS' WHILE EXTERNAL HARDWARE DEVICES AR E USUALLY CALLED 'PERIPHERALS'. TOGETHER THEY ALL FA LL UNDER THE CATEGORY OF COMPUTER HARDWARE. 'SOFTWARE' ON T HE OTHER HAND CONSIST OF THE PROGRAMS AND APPLICATION S THAT RUN ON COMPUTERS. BECAUSE SOFTWARE RUNS ON COMPUTER HARDWARE SOFTWARE PROGRAMS OFTEN HAVE 'SYSTEM REQUIREMENTS' THAT LIST THE MINIMUM HARDWA RE REQUIRED FOR THE SOFTWARE TO RUN. 31.1 IN SHORT 'ROUTER' IS A HARDWARE DEVICE THAT ROUTES DATA (HENCE THE NAME) FROM A LOCAL AREA NETWORK (LA N) TO ANOTHER NET WORK 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. NO W THE QUESTION IS WHETHER THIS 'MACHINE' CAN BE USED INDEPENDENT OF COMPUTER. IF YES THEN IT CANNOT BE CALLED 'COMPUTER HARDWARE' IN ALL CIRCUMSTANCES. 31.2 WHEN 'COMPUTER HARDWARE' IS USED AS A COMPONENT OF THE COMPUTER IT BECOMES PART AND PARC EL OF THE COMPUTER AS IN THE CASE OF OPERATING SOFTWA RE IN THE COMPUTER. IN SUCH A SITUATION HARDWARE IN QUES TION CAN BE CONSIDERED AS A PART OF A COMPUTER AND HENCE A 'COMPUTER'. PER CONTRA WHEN THE MACHINE IS NOT USED AS A NECESSARY ASSESSOR OR IN COMBINATION WITH A COMPUTER IT CANNOT BE CALLED A 'COMPUTER COMPONENT '. 31.3 COMING TO THE ROUTERS IT IS SEEN THAT THESE CAN ALSO BE USED WITH A TELEVISION AND IN SUCH USE E0 COMPUTER IS REQUIRED. THESE ARE ALSO CALLED T.V. RO UTERS. SIMILARLY 'INTERNET SERVICE PROVIDERS' GIVE CONNECTIVITY BY INSTALLING A ROUTER IN THE PREMISE S OF THE PERSONS !INSTITUTIONS AVAILING THE INTERNET CONNECTION. IN THESE CASES THE ROUTER IS NOT USED A LONG WITH A COMPUTER. IN SUCH A SITUATION IT WOULD BE A 'STAND ALONE' EQUIPMENT. IN SUCH CASES THIS CANNOT BE CONSIDERED A COMPONENT OF A COMPUTER OR COMPUTER HARDWARE. GIVING ANOTHER EXAMPLE A COMPUTER SOFTWARE CAN BE USED IN MANY DEVICES INCLUDING 13 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. WASHING MACHINE TELEVISIONS TELEPHONE EQUIPMENT ETC. WHEN SUCH SOFTWARE IS USED IN THOSE DEVICES IT INTEGRATES WITH THAT PARTICULAR DEVICES. THE PREDOMINANT FUNCTION OF THE DEVICE DETERMINES ITS CLASSIFICATION. ONLY IF THE COMPUTER SOFTWARE RE- SIDES IN A COMPUTER THEN IT BECOME A PART AND PARC EL OF A COMPUTER AND AS LONG AS IT IS AS INTEGRAL PART O F A COMPUTER IT IS CLASSIFIED AS A 'COMPUTER'. 31.4. IN VIEW OF THE ABOVE DISCUSSION WE ARE OF T HE CONSIDERED VIEW THAT ROUTER AND SWITCHES CAN BE CLASSIFIED AS A COMPUTER HARDWARE WHEN THEY ARE USED ALONG WITH A COMPUTER A ND WHEN THEIR FUNCTIONS ARE INTEGRATED WITH A COMPUTER. IN OTHER WORDS WHEN A DEVICE IS USED AS PART OF THE COMPUTE R IN ITS FUNCTIONS THEN IT WOULD BE TERMED AS A COMPUTER. 12 . WHILE COMING TO SUCH CONCLUSION THE HONBLE SPECIA L BENCH APPROVED THE VIEW TAKEN BY THE INCOME-TAX APP ELLATE TRIBUNAL KOLKOTA BENCH IN CASE OF ITO VS. SAMIRAN MAJUMDAR (98 ITD 119) BUT DID NOT AGREE WITH THE VIEW TAKEN BY THE INCOME-TAX APPELLATE TRIBUNAL MUMBAI BENCH IN THE CASE OF ROUTERMANIA TECHNOLOGIES (P) LTD. VS. ITO (16 SOT 3 84) BY HOLDING THAT THE MEANING OF EXPRESSION COMPUTER C ANNOT BE RESTRICTED ONLY TO THE CPU OF THE COMPUTER BY PULLI NG OUT THE IMPORT AND OUTPUT DEVICES FROM THE AMBIT OF COMPU TER. THE HONBLE SPECIAL BENCH FURTHER WENT ON TO HOLD THAT THOUGH FUNCTIONS OF THE COMPUTER AS ONE COMPOSITE UNIT IS FOR PERFORMING LOGICAL ARITHMETICAL OR MEMORY FUNCTION S ETC. BUT IT IS NOT THE ONLY EQUIPMENT WHICH PERFORMS SUCH FUNC TIONS THAT CAN BE CALLED AS COMPUTER. ALL THE INPUT AND OUT PUT DEVICES WHICH IN FACT SUPPORT IN THE RECEIPT OF INPUT AND O UTFLOW OF THE OUTPUT ARE ALSO PART OF THE COMPUTER. THEREFORE THE RATIO WHICH CAN BE CULLED OUT FROM THE AFORESAID DECISION OF HONBLE 14 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. SPECIAL BENCH (SPECIFICALLY PARAGRAPH 31.4 OF THE O RDER) IT IS TO BE SEEN THAT THE HONBLE SPECIAL BENCH HAS CLEAR LY HELD THAT WHEN A PARTICULAR HARDWARE OR SOFTWARE IS USED ALON G WITH A COMPUTER AND WHEN THEIR FUNCTIONS ARE INTEGRATED W ITH A COMPUTER OR IN OTHER WORDS WHEN THE DEVICE IS USED AS PART OF THE COMPUTER IN ITS FUNCTIONS EVEN THOUGH IT MAY B E HAVING USER ON STANDALONE BASIS BUT STILL THEN SUCH HARDW ARE OR SOFTWARE WOULD BE TERMED AS A COMPUTER. IN APPL YING THE AFORESAID RATIO TO THE FACTS OF THE PRESENT CASE I T CAN BE SEEN THAT THE REVENUE AUTHORITIES HAVE NOT DISPUTED THE FACT THAT THE ITEMS ON WHICH THE ASSESSEE HAS CLAIMED DEPRECIATIO N AT THE RATE OF 60% BY TREATING THEM AS COMPUTER ARE BEIN G USED AS INPUT OR OUTPUT DEVICE OF THE COMPUTERS. HOWEVER THE DEPARTMENTAL AUTHORITIES HAVE NEGATIVED THE CLAIM O F THE ASSESSEE SOLELY ON THE REASONING THAT EVERY PERIPH ERAL DEVICE CONNECTED TO THE COMPUTER CANNOT FORM PART OF THE C OMPUTER. HOWEVER SUCH VIEW OF THE REVENUE AUTHORITIES CANNO T BE THE CORRECT PROPOSITION OF LAW IN VIEW OF THE RATIO LAI D DOWN BY THE HONBLE SPECIAL BENCH IN CASE OF DCIT VS. DATACRAFT INDIA LIMITED (SUPRA) BY HOLDING THAT ANY DEVICE WHEN TH EY ARE USED ALONG WITH COMPUTER AND WHEN THEIR FUNCTIONS ARE I NTEGRATED WITH THE COMPUTER COMES WITHIN THE AMBIT OF THE EXP RESSION COMPUTER. WE MAY FURTHER OBSERVE THAT IN THE ASS ESSEES OWN CASE FOR THE ASSESSMENT YEAR 2006-07 INCOME-TAX AP PELLATE TRIBUNAL HYDERABAD BENCH WHILE DECIDING THE DEPART MENTAL APPEAL IN ITA NOS. 701/HYD/2009 AND 426/HYD/10 DATE D 9-7- 15 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. 2012 ALSO UPHELD THE ORDER PASSED BY THE CIT (A) IN ALLOWING DEPRECIATION AT THE RATE OF 60% BY TREATING THE SCR EEN KEY BOARD MOUSE UPS NET WORKING ROUTER AS PART OF THE COMPUTER SYSTEM AND THEREBY ELIGIBLE FOR DEPRECIATI ON AT THE RATE OF 60% AS AVAILABLE TO COMPUTER. IN THE AFOR ESAID VIEW OF THE MATTER WE ARE INCLINED TO ACCEPT THE ASSESSEE S CONTENTION THAT IT IS ENTITLED TO AVAIL DEPRECIATION AT THE RA TE OF 60% ON THOSE ITEMS AS IS APPLICABLE TO COMPUTER. ACCORD INGLY WE SET ASIDE THE ORDER PASSED BY THE CIT (A) BY ALLOWING T HE GROUNDS RAISED BY THE ASSESSEE. 13. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED. ITA NO.591/HYD/2010- ASST. YEAR: 2003-04 :- 14. THE ONLY ISSUE IN THE AFORESAID APPEAL IS WITH REGARD TO THE DISALLOWANCE OF DEPRECIATION AMOUNTING TO RS.2 30 9 6 110/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT (A) ON CERTAIN EQUIPMENT AND PERIPHERALS BY TREATING THE M AS NOT FORMING PART OF COMPUTER. 15. SINCE WE HAVE ALREADY DEALT WITH THE FACTS QUIT E EXHAUSTIVELY IN ASSESSEES APPEAL IN ITA NO.1241/HY D/2008 IT IS NOT NECESSARY TO DEAL WITH THEM OVER AGAIN IN TH IS APPEAL. HOWEVER SUFFICE IT TO SAY THAT IN THE IMPUGNED YE AR ALSO DURING THE SCRUTINY ASSESSMENT PROCEEDINGS THE ASSE SSING 16 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEPRE CIATION AT 60% ON VARIOUS ITEMS LIKE PRINTERS SCANNERS MODE MS SWITCHES HUBS CABLES/CARDS AND SOFTWARE ETC. BY TREATING THEM AS COMPUTER. THOUGH THE ASSESSEE ARGUED THAT ALL THESE ITEMS BEING INTEGRAL PART OF COMPUTER ARE ELIGIBLE FOR DEPRECIATION AT 60% BUT THE ASSESSING OFFICER REJEC TED ALL THE CONTENTIONS OF THE ASSESSEE AND ALLOWED DEPRECIATIO N @25% BY TREATING IT AS PLANT AND MACHINERY. WHILE COMING T O SUCH CONCLUSION THE ASSESSING OFFICER AS IN CASE OF ASS ESSMENT YEAR 2002-03 HELD THAT ONLY CPU MONITOR KEY BOARD MO USE CAN BE CONSIDERED TO BE COMPUTER WHEREAS OTHER PERIPHERALS LIKE PRINTERS SCANNERS MODEMS SWITCHES PHOTO/EDIT/EQ UIPMENT . UPS NET WORK CABLES AND SOFTWARE CANNOT BE CONSIDE RED AS COMPUTER. THIS VIEW OF THE ASSESSING OFFICER WAS A LSO UPHELD BY THE CIT (A). 16. WE HAVE HEARD THE SUBMISSIONS OF THE PARTIES AN D PERUSED THE MATERIAL ON RECORD. WE HAVE DECIDED IDENTICAL ISSUE IN ASSESSEES APPEAL IN ITA NO.1241/HYD/2008 FOR THE A SST. YEAR 2002-03. IN VIEW OF OUR FINDING IN PARA-11 AND 12 OF THE ORDER HEREINBEFORE WE ALSO DECIDE THIS ISSUE IN FAVOUR O F THE ASSESSEE BY HOLDING THAT DEPRECIATION CLAIMED AT 60 % ON PRINTERS SCANNERS MODEMS SWITCHES HUBS CABLES/ CARDS AND SOFTWARE ETC. SHOULD NOT BE DISALLOWED AS THESE DE VICES ARE USED ALONG WITH THE COMPUTER AND THEIR FUNCTIONS AR E INTEGRATED WITH THE COMPUTER. ACCORDINGLY WE SET ASIDE THE O RDER PASSED BY THE CIT (A) BY ALLOWING THE GROUNDS OF THE ASSES SEE. 17 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. 17. IN THE RESULT BOTH THE APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE COURT ON 31-10-2013. SD/- ( B. RAMAKOTAIAH) ACCOUNTANT MEMBER SD/- (SAKTIJIT DEY) JUDICIAL MEMBER HYDERABAD DATED THE 31 ST OCTOBER 2013 COPY TO:- 1) USHODAYA ENTERPRISES LTD. 6-3-570. SOMAJIGUDA HYDERABAD. 2) ACIT CIR-16(2) HYDERABAD. 3) CIT (A)) V HYDERABAD. 4) CIT IV HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE I.T.A.T. HYDERABAD. JMR* 18 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. 19 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD. 20 ITA NOS. 1241 AND 591 OF 2010 USHODAYA ENTAERPRISES LTD. HYD.