ACIT 1(2), MUMBAI v. M/S DATACRAFT INDIA LTD., MUMBAI

ITA 7462/MUM/2007 | 2003-2004
Pronouncement Date: 09-07-2010 | Result: Dismissed

Appeal Details

RSA Number 746219914 RSA 2007
Assessee PAN FICER1974C
Bench Mumbai
Appeal Number ITA 7462/MUM/2007
Duration Of Justice 2 year(s) 6 month(s) 26 day(s)
Appellant ACIT 1(2), MUMBAI
Respondent M/S DATACRAFT INDIA LTD., MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 09-07-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted K
Date Of Final Hearing 14-12-2009
Next Hearing Date 14-12-2009
Assessment Year 2003-2004
Appeal Filed On 14-12-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D : MUMBAI BEFORE SHRI D. MANMOHAN HONBLE VICE PRESIDENT SHRI R.S. SYAL ACCOUNTANT MEMBER AND SHRI J. SUDHAKAR REDDY ACCOUNTANT MEMBER ITA. NO. 7462 & 754/MUM/2007 ASSESSMENT YEARS 2003-2004 & 2002-2003 DCIT 2 (1) MUMBAI-020. VS. DATACRAFT INDIA LTD. MUMBAI 400 013 PAN AAACD-2145-G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R.N. JHA (DR) RESPONDENT BY : S/SHRI VIJAY MEHTA & AMIT N. PA TEL ORDER PER BENCH 1. IN EXERCISE OF THE POWERS VESTED IN THE HONBLE PRESIDENT UNDER SECTION 255(3) OF THE ACT FOLLOWING QUESTION WAS REFERRED TO SPECIAL BENCH AND THUS IT WAS PLACED BEFORE US FOR CONSIDERATION. WHETHER ROUTERS AND SWITCHES CAN BE CLASSIFIED A S COMPUTER ENTITLED TO DEPRECIATION AT 60% OR HAVE TO BE CLASSIFIED AS GENERAL PLANT AND MACHINE ENTITLED TO DEPRECIATION ONLY AT 2 5%. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN DATA COMMUNICATION DESIGN DEVELOPMENT PURCHASE AND SALE OF NETWORKING PRODUCTS THEIR MAINTENANCE AND INSTALLATION ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 2 ETC. IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMEN T YEAR 2002- 2003 THE ASSESSEE CLAIMED DEPRECIATION AMOUNTING T O RS.3 27 67 150 AT THE RATE OF 60% UNDER THE HEAD C OMPUTERS. ON THE PERUSAL OF THE STATEMENT ANNEXED TO THE RETURN OF INCOME THE ASSESSING OFFICER FOUND THAT THE IT HAD INCLUDED RO UTERS AND SWITCHES ETC. IN THE BLOCK OF COMPUTERS. THE ASSES SEE WAS CALLED UPON TO EXPLAIN THE USE OF ROUTERS AND SWITCHES. A DETAILED NOTE VIDE LETTER DATED 21-2-2005 WAS SUBMITTED BY THE AS SESSEE ABOUT THE FUNCTIONING OF ROUTERS AND SWITCHES WHEREIN IT WAS EXPLAINED THAT MESSAGE FROM ONE COMPUTER IS RECEIVED BY ANOTH ER COMPUTER THROUGH ROUTERS BECAUSE THESE ARE THE CRUCIAL DEVIC ES THAT LET MESSAGES FLOW BETWEEN NETWORKS RATHER THAN WITHIN NETWORKS. ROUTER HAS TWO SEPARATE BUT RELATED JOBS VIZ. ( I) IT ENSURES THAT INFORMATION DOES NOT GO WHERE IT IS NOT NEEDED; AND (II) IT MAKES SURE THAT INFORMATION DOES MAKE IT TO THE INTENDED DESTINATION. SWITCHES AND ROUTERS TAKE SIGNALS FROM COMPUTERS OR NETWORKS TO PASS ON TO OTHER COMPUTERS AND NETWORKS. IT WAS FUR THER STATED THAT THE ROUTERS ARE SPECIALIZED EQUIPMENTS USED FOR CON NECTING AND NETWORKING OF THE BRANCH OFFICES WHEREAS THE SWITC HES HAVE THE SAME USE IN INTERNAL NETWORKING OF AN OFFICE. 3. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESS EES VIEWPOINT OF INCLUDING THE ROUTERS AND SWITCHES IN THE BLOCK OF COMPUTERS ON WHICH DEPRECIATION IS ALLOWABLE AT THE RATE OF 60% AS PER APPENDIX-I TO THE INCOME TAX RULES. THE REASON GIVEN BY THE A.O. WAS THAT THESE ARE THE EQUIPMENTS WHICH ARE NE TWORKING TOOLS ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 3 AND THUS DO NOT FIT IN THE DEFINITION OF COMPUTERS . IN REACHING THIS CONCLUSION HE ALSO TOOK ASSISTANCE FROM THE DEFIN ITION OF COMPUTER GIVEN IN OXFORD DICTIONARY. HE THEREFORE OPINED THAT ROUTERS AND SWITCHES WERE ENTITLED TO DEPRECIATION AT THE GENERAL RATE OF 25% AS APPLICABLE TO MACHINE AND NOT AS CLA IMED BY THE ASSESSEE AT 60%. 4. IN THE FIRST APPEAL IT WAS CONTENDED ON B EHALF OF THE ASSESSEE THAT ROUTERS HAVE NO INDEPENDENT UTILITY EXCEPT AS AN ATTACHMENT TO THE COMPUTERS. THESE BEING INTEGRAL PART OF THE COMPUTER WERE CLAIMED AS ELIGIBLE FOR DEPRECIATION AT THE RATE OF 60%. ASSISTANCE WAS TAKEN FROM THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN CIT VS. DELHI AIRPORT SERVICES 255 ITR 91 IN WHICH IT WAS HELD THAT AN AIR-CONDITIONER FIXED IN A BUS IS AN INTEGRAL PART OF THE BUS AND HENCE DEPRECIATION SHOULD BE ALLOWED ON AIR- CONDITIONER AT THE RATE WHICH IS APPLICABLE TO THE BUS. 5. THE LEARNED CIT(A) CONCURRED WITH THE SUBMISSIO NS ADVANCED ON BEHALF OF THE ASSESSEE AND TOOK THE VIE W THAT THE ROUTERS AND SWITCHES FALL UNDER THE BLOCK OF COMPU TERS AS THE COMPUTER INCLUDES AN INPUT DEVICE LIKE KEYBOARD OR MOUSE ETC. AND ALSO OUTPUT DEVICE LIKE PRINTER ALONG WITH MAIN CEN TRAL PROCESSING UNIT (CPU). IN HIS VIEW THE ASSESSING OFFICER HAD U NREASONABLY RESTRICTED THE MEANING OF THE COMPUTER TO THE CPU A LONE. HE THUS ACCEPTED THE ASSESSEES CLAIM. ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 4 6. THE FACTS FOR ASSESSMENT YEAR 2003-04 ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF THE EARLIER YEAR DISCUSSED ABO VE. IN THIS YEAR THE ASSESSEE CLAIMED DEPRECIATION AMOUNTI NG TO RS. 1.74 CRORES ON ROUTERS AND SWITCHES WHICH WAS REDUCED B Y THE AO TO RS.66.81 LACS AND THE LD. CIT(A) REJECTED THE VIEW OF THE ASSESSING OFFICER. 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE OPENED HIS ARGUMENTS BY SUBMITTING THAT HIGHER RATE OF DEPRECI ATION AT 60% WAS PROVIDED IN THE APPENDIX I TO INCOME-TAX RULES ONLY IN RESPECT OF COMPUTERS. HE ARGUED THAT THE FUNCTION OF ROUT ER WAS ONLY TO TRANSMIT DATA FROM ONE COMPUTER TO ANOTHER OR FROM ONE NETWORK TO ANOTHER. IT WAS ONLY A TELECOMMUNICATION DEVICE ME ANT FOR TRANSMITTING DATA FROM ONE NETWORK TO ANOTHER OR FR OM ONE COMPUTER TO ANOTHER. RELYING UPON THE DEFINITION OF THE EXPRESSION COMPUTERS AS GIVEN IN THE OXFORD DICTIONARY HE SUBMITTED THAT THE FUNCTION OF A COMPUTER IS TO PERFORM THE LOGIC ARITHMETIC DATA STORAGE RETRIEVABLE COMMUNICATION AND CONTROL FUN CTIONS. SINCE NONE OF THESE FUNCTIONS COULD BE PERFORMED BY ROUTE RS IT WAS STATED THAT ROUTERS COULD NOT BE INCLUDED IN THE BLOCK OF `COMPUTER AS THE FUNCTION OF THE FORMER WAS ONLY TO TRANSMIT DA TA FROM SOURCE TO DESTINATION AND THERE WAS NO DATA PROCESSING INVOLV ED IN THAT. HE STATED THAT IF ONE GOES TO MARKET FOR PURCHASING A COMPUTER NO SHOPKEEPER WILL SUPPLY ROUTER ALONG WITH CPU MONIT OR KEYBOARD AND MOUSE ETC. WHICH ITEMS ARE INTEGRAL PART OF CO MPUTER. IN SUPPORT OF HIS CONTENTION THAT THE ASSESSEE WAS NO T ENTITLED TO ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 5 DEPRECIATION ON ROUTERS AT THE RATE APPLICABLE TO T HE COMPUTERS HE RELIED ON THE ORDER PASSED BY THE MUMBAI BENCH OF T HE TRIBUNAL IN ROUTERMANIA TECHNOLOGIES (P.) LTD. VS. ITO [(2007) 16 SOT 384 (MUM.)] . IT WAS POINTED OUT THAT IN CERTAIN CASES DECID ING THE CONTROVERSY IN FAVOUR OF ASSESSEE THE BENCHES HAV E ADOPTED THE DEFINITION OF `COMPUTER CONTAINED IN THE INFORMATI ON TECHNOLOGY ACT 2000 AS ALSO THAT PROVIDED IN EXPLANATION (A) TO SECTION 36(1)(XI) OF THE INCOME TAX ACT 1961 WHICH COURSE WAS IMPER MISSIBLE. HE STATED THAT HIGHER DEPRECIATION AT 60% WAS AVAILABL E ONLY TO COMPUTERS AND NOT COMPUTER SYSTEM WHICH WAS TH E SUBJECT MATTER OF SECTION 36(1)(XI). HE FURTHER PUT FORTH THAT THE DEFINITION OF COMPUTER GIVEN IN INFORMATION TECHNOLOGY ACT ALS O COULD NOT BE CONSIDERED FOR THE PURPOSES OF GRANTING DEPRECIATIO N INASMUCH AS THE SAID DEFINITION HAS BEEN GIVEN IN THE CONTEXT O F AN ALTOGETHER DIFFERENT ENACTMENT. THE LD. DR REFERRED TO THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COURT SMT.SUNANDA DEVI SINGHANIA VS. CWT [(1993) 204 ITR 842 (CAL.)] AND THAT OF THE MADRAS HIGH COURT IN CIT VS. BUHARI SONS PVT. LTD. [(1983) 144 ITR 12 (MAD.) ] FOR CONTENDING THAT IT WAS NOT PERMISSIBLE TO PICK UP THE MEANING OF A WORD FROM ONE STATUTE TO INCORPORATE INTO ANOTHER STATUTE MO RE SPECIFICALLY WHEN BOTH THE ACTS ARE NOT PARI MATERIA . IN THE LIGHT OF THESE JUDGMENTS IT WAS SUBMITTED THAT THE DEFINITION OF COMPUTER AS GIVEN IN THE INFORMATION TECHNOLOGY ACT COULD NOT B E CONSIDERED FOR THE PURPOSE OF GRANTING DEPRECIATION UNDER THE INCO ME-TAX ACT FOR THE REASON THAT SCHEME OF BOTH THE ACTS WAS ENTIREL Y DIFFERENT. HE ARGUED THAT SINCE THE FUNCTION OF ROUTERS OR SWITCH ES IS THAT OF ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 6 TRANSMISSION OF DATA AND NOT THAT OF PERFORMING ANY LOGIC ARITHMETIC DATA STORAGE FUNCTIONS ETC. THE LEARN ED CIT(A) FELL IN ERROR BY ALLOWING DEPRECIATION AT THE RATE OF 60% O N ROUTERS AND SWITCHES WHICH WAS APPLICABLE ONLY TO THE COMPUTERS . 8. THE LEARNED COUNSEL FOR THE ASSESSEE ON THE OT HER HAND CONTENDED THAT THE LEARNED FIRST APPELLATE AUTHORIT Y HAS RIGHTLY HELD THAT THE ROUTERS AND SWITCHES ARE PART OF COMPUTER. IT WAS ARGUED THAT THE MEANING OF COMPUTER COULD NOT BE RESTRICT ED TO THE PROCESSING DEVICE ALONE BUT IT ALSO MEANT THE ESS ENTIAL INPUT AND OUTPUT DEVICES WHICH FACILITATE THE OPERATION OF COMPUTER. IT WAS PUT FORTH THAT ROUTERS AND SWITCHES ARE NOTHING BU T INPUT/OUTPUT DEVICES OF COMPUTER AS THEY HAVE NO INDEPENDENT U TILITY AND HAVE TO WORK NECESSARILY WITH THE COMPUTERS ALONE. IN S UPPORT OF HIS CONTENTION THE LEARNED A.R. RELIED ON THE FOLLOWIN G DECISIONS :- (I) ITO VS. SAMIRAN MAJUMDAR [(2006) 280 ITR (AT) 74 (KOL.)] ITAT KOLKATA BENCH . (II) CONTAINER CORPORATION OF INDIA LTD. VS. ACIT [(2009) 30 SOT 284 (DEL.)] ITAT DELHI BENCH. (III) ACIT VS. M/S.CINCOM SYSTEM INDIA (P) LTD. ITA NO.1534/DEL/2008 DATAD 13.4.2009 ITAT DELHI BENCH. (IV) ITO VS. M/S.NIRMAL DATACOM LEASING P.LTD. ITA NO.9392/MUM/2004 DATAD 3.5.2007 ITAT MUMBAI BENCH. (V) ITO VS. M/S.KEY NOTE CAPITAL P. LTD. ITA NO.7049/MUM/2004 DATAD 22.11.2007 ITAT MUMBAI BENCH. ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 7 (VI) EXPEDITORS INTERNATIONAL (INDIA) PVT. LTD. VS. ADDL.CIT ITA NO.4364(DEL)/2006 DATAD 19.07.2007 ITAT DELHI BENCH. (VII) POONAWALA FINVEST & AGRO (P) LTD. VS. ACIT [(2008) 118 TTJ (PUNE) 68] 9. DERIVING SUPPORT FROM THE REASONING AND THE RATIO DECIDENDI OF THESE ORDERS IT WAS ARGUED THAT ROUTERS AND SWITCHES HAVE BEEN RIGHTLY HELD TO BE ELIGIBLE FOR HIGHER RATE OF DEPRECIATION AS APPLICABLE TO THE COMPUTERS. 10. THE NEXT PROPOSITION OF THE LD. AR WAS THAT SINCE ROUTERS AND SWITCHES ARE ATTACHED TO THE MAIN COMPU TER THEY BECOME AN INTEGRAL PART OF THE COMPUTER. TO BUTTRE SS THIS SUBMISSION HE RELIED UPON THE JUDGMENT IN THE CAS E OF GUJCO CARRIERS VS. CIT [(2002) 256 ITR 50 (GUJ.)] WHEREIN IT WAS HELD THAT A CRANE MOUNTED ON TRUCK BECOMES A TRUCK CRANE AND IS ELIGIBLE FOR DEPRECIATION AT THE RATE APPLICABLE TO MOTOR LORRY. HE ALSO REFERRED TO THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN CIT VS. ENGINE VALVES LTD. [(1980) 126 ITR 347 (MAD.)] IN WHICH IT WAS HELD THAT BUILDING USED AS CANTEEN FOR FACTORY WORKERS BECOME S FACTORY BUILDING ELIGIBLE FOR HIGHER RATE OF DEPRECIATION. IN VIEW OF THESE JUDGMENTS IT WAS CONTENDED THAT WHEN ROUTERS ARE AT TACHED TO THE COMPUTER THEY BECOME PART AND PARCEL OF COMPUTER I TSELF. HE ALSO PRESSED INTO SERVICE THE FUNCTIONAL TEST FOR SUBMIT TING THAT THE FUNCTIONING OF ROUTERS WITHOUT COMPUTER WAS IMPOSSI BLE AND HENCE THE ROUTERS BE HELD AS PART OF COMPUTER. HE RELIED ON THE JUDGMENT ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 8 OF THE HONBLE SUPREME COURT IN THE CASE OF SCIENTIFIC ENG INEERING HOUSE P. LTD. VS. CIT [(1986) 157 ITR 86 (SC)] FOR THIS PROPOSITION. THE SUM AND SUBSTANCE OF HIS ARGUMENTS WAS THAT TH E ROUTERS AND SWITCHES ARE INPUT/OUTPUT DEVICES TO THE COMPUTER AND SINCE THEY CANNOT FUNCTION WITHOUT COMPUTER THEY QUALIFY TO BE GRANTED DEPRECIATION AT THE SAME RATE AS IS APPLICABLE TO C OMPUTERS . 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AT LE NGTH IN THE LIGHT OF MATERIAL PLACED BEFORE US AND PRECEDEN TS RELIED UPON. THE CHIEF QUESTION WHICH FALLS FOR OUR ADJUDICATION IS WHETHER ROUTERS AND SWITCHES ARE PART OF COMPUTER OR NOT FO R THE PURPOSES OF DEPRECIATION. SECTION 32(1) PROVIDES THAT WHERE ASS ETS ARE OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND USED FOR THE P URPOSE OF BUSINESS OR PROFESSION DEDUCTION SHALL BE ALLOWED. CLAUSE (II) OF SUB-SECTION (1) PROVIDES THAT IN CASE OF ANY BLOCK OF ASSET THE DEDUCTION SHALL BE ALLOWED AT SUCH PERCENTAGE ON TH E WRITTEN DOWN VALUE THEREOF AS MAY BE PRESCRIBED. RULE 5 (1) STIP ULATES THAT DEPRECIATION IN RESPECT OF ANY BLOCK OF ASSET SHALL BE CALCULATED AT THE PERCENTAGES SPECIFIED IN THE SECOND COLUMN OF T HE TABLE IN THE APPENDIX I OF THESE RULES ON THE WRITTEN DOWN VALUE OF SUCH BLOCK OF ASSET AS ARE USED FOR THE PURPOSE OF BUSINESS OR PROFESSION OF THE ASSESSEE AT ANY TIME DURING THE PREVIOUS YEAR. APPE NDIX-I AS APPLICABLE TO ASSESSMENT YEAR 2002-2003 UNDER CONSI DERATION HAS DIFFERENT BLOCKS OF ASSETS. WE ARE CONCERNED WITH T HE BLOCK OF ASSETS OF MACHINE AND PLANT. GENERAL RATE OF DEPRECIATION PROVIDED IS 25% AGAINST ITEM 1 IN RESPECT OF MACHINE AND PLANT OTHE R THAN THOSE COVERED BY SPECIFIC SUB-ITEMS. SUB-ITEM (2B) IS CO MPUTERS AND ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 9 THE RATE OF DEPRECIATION PRESCRIBED IS 60%. SIMILAR LY FOR THE ASSESSMENT YEAR 2003-2004 WHICH IS ALSO UNDER CONS IDERATION THE GENERAL RATE OF DEPRECIATION ON MACHINE AND PLANT OTHER THAN THOSE COVERED BY SPECIFIC SUB-ITEMS IS 25%. SUB-ITEM 5 I S COMPUTERS INCLUDING COMPUTER SOFTWARE ON WHICH RATE OF DEPRE CIATION HAS BEEN PRESCRIBED AS 60%. IT IS ONLY WITH EFFECT FROM ASSESSMENT YEAR 2003-2004 THAT COMPUTER SOFTWARE HAS ALSO BEEN INCL UDED IN THE CATEGORY OF COMPUTERS FOR THE PURPOSES OF ALLOWING DEPRECIATION AT THE HIGHER RATE OF 60%. THUS WHEREAS UP TO ASSESSM ENT YEAR 2002- 2003 ONLY COMPUTERS WERE ELIGIBLE FOR DEPRECIATION AT THE RATE OF 60% FROM ASSESSMENT YEAR 2003-2004 THE BENEFIT OF SUCH ENHANCED DEPRECIATION RATE HAS BEEN EXTENDED ALSO T O COMPUTER SOFTWARE. NOTE NO. 7 TO THE APPENDIX I AS APPLICAB LE FROM A.Y. 2003-04 DEFINES COMPUTER SOFTWARE TO MEAN ANY CO MPUTER PROGRAM RECORDED ON ANY DISC TAPE PERFORATED MEDI A OR OTHER INFORMATION STORAGE DEVICE. NO DEFINITION OF COMP UTERS HAS BEEN GIVEN IN THE APPENDIX UNLIKE THAT OF COMPUTER SOFT WARE. IT IS NOBODYS CASE THAT THE ROUTERS OR SWITCHES ARE COMP UTER SOFTWARE. THUS WE SHALL RESTRICT OURSELVES IN UNDERSTANDING T HE MEANING OF THE EXPRESSION COMPUTERS IN THE FACTS AND CIRCUM STANCES OF THE CASE. 12. SECTION 32 WHICH GRANTS DEPRECIATION ALLOWANC E DOES NOT DEFINE THE WORD COMPUTER. IT IS AN ADMITTED P OSITION THAT THE WORD COMPUTER HAS NOT BEEN DEFINED IN THE INCOME TAX ACT OR INCOME TAX RULES. WE FIND THAT THE TERM COMPUTER S YSTEM HAS BEEN DEFINED IN EXPLANATION BELOW SECTION 36(1) (XI ) AS FOLLOWS :- ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 10 (A) COMPUTER SYSTEM MEANS A DEVICE OR COLLECTION OF DEVICES INCLUDING INPUT AND OUTPUT SUPPORT DEVICE AND EXCLU DING 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 LOGIC ARITHMETIC DATA STORAGE AND RETRIEVAL COMM UNICATION AND CONTROL; 13. AT THIS JUNCTURE IT WILL BE RELEVANT TO NOTE T HAT CLAUSE (XI) OF SECTION 36(1) WAS INSERTED BY THE FINANCE ACT 1 999 WITH EFFECT FROM 1.4.2000 WITH A VIEW TO ALLOWING RELIEF IN OVE RCOMING THE IMMEDIATE PROBLEM OF Y2K LIKELY TO COME UP AT THE C LOSE OF THE CALENDAR YEAR 1999. FROM THE BUDGET SPEECH OF THE F INANCE MINISTER IN 1999 (236 ITR (ST.) 26) IT CAN BE SEEN THAT THE GOVERNMENT ASSISTED BUSINESS SECTOR IN OVERCOMING T HE Y2K PROBLEM BY PROPOSING THAT THE EXPENDITURE INCURRED IN MAKING THE COMPUTER SYSTEM Y2K COMPLAINT BE ALLOWED AS REVENU E EXPENDITURE. IT WAS WITH THIS INTENTION THAT CLAUSE (XI) OF SECTION 36 (1) WAS INSERTED WHICH IS RELEVANT ONLY FOR FINANCI AL YEAR 1999-2000 PROVIDING FOR DEDUCTION OF ANY EXPENDITURE INCURRED BY THE ASSESSEE ON OR BEFORE THE 1 ST DAY OF APRIL 1999 BUT BEFORE THE FIRST DAY OF APRIL 2000 WHOLLY AND EXCLUSIVELY IN RESPECT OF A NON-Y2K COMPLAINT COMPUTER SYSTEM OWNED BY THE ASSESSEE AN D USED FOR THE PURPOSES OF HIS BUSINESS OR PROFESSION. IT WAS IN THIS CONTEXT THAT PHRASE COMPUTER SYSTEM CAME TO BE DEFINED SO LELY FOR THE PURPOSE OF CLAUSE (XI) OF SECTION 36 (1). ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 11 14. FROM THE ABOVE DISCUSSION IT IS SEEN THAT THE EXPLANATION (A) DEFINES COMPUTER SYSTEM AND NOT COMPUTER AN D THAT TOO ONLY FOR THE PURPOSES OF CLAUSE (XI) OF SECTION 36 (1) WHICH HAS FORCE ONLY FOR ONE YEAR. AS SUCH WE ARE NOT INCLINED TO ADOPT THIS DEFINITION OF COMPUTER SYSTEM FOR THE PURPOSES OF GRANTING DEPR ECIATION U/S 32 OF THE ACT ON COMPUTERS. RECENTLY THE HONBLE SUP REME COURT VIDE ITS JUDGMENT DATED 07.05.2010 HAS HELD IN JCIT VS. SAHELI LEASING & INDUSTRIES LTD. THAT : A PARTICULAR WORD OCCURRI NG IN ONE SECTION OF THE ACT HAVING A PARTICULAR OBJECT CANNOT CARRY THE SAME MEANING WHEN USED IN DIFFERENT SECTION OF THE SAME ACT WHICH IS ENACTED FOR DIFFERENT OBJECT. IN OTHER WORDS ONE W ORD OCCURRING IN DIFFERENT SECTIONS OF THE ACT CAN HAVE DIFFERENT ME ANING IF THE OBJECT OF THE TWO SECTIONS ARE DIFFERENT AND WHEN B OTH OPERATE IN DIFFERENT FIELDS. IN VIEW OF THE FACT THAT THE OBJ ECT OF SECTION 36(1)(XI) IS QUITE DISTINCT FROM THAT OF SECTION 32 WE ARE O F THE CONSIDERED OPINION THAT THE DEFINITION OF THE TERM COMPUTER S YSTEM GIVEN IN THE EXPLANATION TO SECTION 36 (1) (XI) CANNOT BE AP PLIED AS SUCH (FOR GIVING MEANING TO COMPUTER) IN THE CONTEXT OF SEC TION 32. 15. IN SOME OF THE CASES DECIDED BY THE TRIBUNAL RELIANCE HAS BEEN PLACED ON THE DEFINITION OF COMPUTER GIV EN BY THE INFORMATION TECHNOLOGY ACT 2000 SECTION 2 (I) WH ICH IS AS UNDER :- (I) COMPUTER MEANS ANY ELECTRONIC MAGNETIC OPT ICAL OR OTHER HIGH SPEED DATA PROCESSING DEVICE OR SYSTEM W HICH PERFORMS LOGICAL ARITHMETIC AND MEMORY FUNCTIONS B Y MANIPULATIONS OF ELECTRONIC MAGNETIC OR OPTICAL IM PULSES ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 12 AND INCLUDES ALL INPUT OUTPUT PROCESSING STORAGE COMPUTER SOFTWARE OR COMMUNICATION FACILITIES WHICH ARE CONNECTED OR RELATED TO THE COMPUTER IN A COMPUTER SYSTEM OR COMPUTER NETWORK. 16. BEFORE WE GO ON TO APPLY THIS DEFINITION IN TH E CONTEXT OF SECTION 32 THE SCHEME OF THE INFORMATION TECHNOLOG Y ACT 2000 NEEDS TO BE EXAMINED. ITS PREAMBLE INDICATES THAT I T IS AN ACT TO PROVIDE LEGAL RECOGNITION FOR TRANSACTIONS CARRIED OUT BY MEANS OF ELECTRONIC DATA INTERCHANGE AND OTHER MEANS OF ELEC TRONIC COMMUNICATION COMMONLY REFERRED TO AS ELECTRONIC COMMERCE WHICH INVOLVES THE USE OF ALTERNATIVES TO PAPER-BAS ED METHODS OF COMMUNICATION AND STORAGE OF INFORMATION TO FACIL ITATE ELECTRONIC FILING OF DOCUMENTS WITH THE GOVERNMENT AGENCIES AN D FURTHER TO AMEND THE INDIAN PENAL CODE THE INDIAN EVIDENCE AC T 1872 THE BANKERS BOOKS EVIDENCE ACT 1891 AND THE RESERVE B ANK OF INDIA ACT 1934 AND FOR MATTERS CONNECTED THEREWITH OR IN CIDENTAL THERETO. THE STATEMENT OF OBJECTS AND REASONS OF THIS ACT DI VULGES THAT NEW COMMUNICATION SYSTEMS AND DIGITAL TECHNOLOGY HAVE M ADE DRAMATIC CHANGES IN THE WAY WE LIVE. A REVOLUTION IS OCCURRI NG IN THE WAY PEOPLE TRANSACT BUSINESS. BUSINESS AND CONSUMERS AR E INCREASINGLY USING COMPUTERS TO CREATE TRANSMIT AND STORE INFOR MATION IN THE ELECTRONIC FORM INSTEAD OF TRADITIONAL PAPER DOCUME NTS. INFORMATION STORED IN ELECTRONIC FORM HAS MANY ADVANTAGES. PARA S 3 AND 4 OF THE STATEMENT OF OBJECTS AND REASONS WHICH ARE RELEVAN T FOR OUR PURPOSE READ AS UNDER :- ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 13 3. THERE IS A NEED FOR BRINGING IN SUITABLE AMENDM ENTS IN THE EXISTING LAW IN OUR COUNTRY TO FACILITATE E- COMMERCE. IT IS THEREFORE PROPOSED TO PROVIDE FOR LEGAL REC OGNITION OF ELECTRONIC RECORDS AND DIGITAL SIGNATURES. THIS WIL L ENABLE THE CONCLUSION OF CONTRACTS AND THE CREATION OF RIG HTS AND OBLIGATIONS THROUGH THE ELECTRONIC MEDIUM. IT IS AL SO PROPOSED TO PROVIDE FOR A REGULATORY REGIME TO SUPE RVISE THE CERTIFYING AUTHORITIES ISSUING DIGITAL SIGNATUR E CERTIFICATES. TO PREVENT THE POSSIBLE MISUSE ARISIN G OUT OF TRANSACTIONS AND OTHER DEALINGS CONCLUDED OVER THE ELECTRONIC MEDIUM IT IS ALSO PROPOSED TO CREATE CI VIL AND CRIMINAL LIABILITIES FOR CONTRAVENTION OF THE PROVI SIONS OF THE PROPOSED LEGISLATION. 4. WITH A VIEW TO FACILITATE ELECTRONIC GOVERNANCE IT IS PROPOSED TO PROVIDE FOR THE USE AND ACCEPTANCE OF ELECTRONIC RECORDS AND DIGITAL SIGNATURES IN THE GOVERNMENT OFFICES AND ITS AGENCIES. THIS WILL MAKE THE CITIZENS INTERACTION WITH THE GOVERNMENTAL OFFICES HASSLE FREE. 17. HAVING SEEN THE OBJECT OF THE INFORMATION TECH NOLOGY ACT 2000 THE QUESTION WHICH ARISES FOR CONSIDERATION I S THAT CAN WE IMPORT THE DEFINITION OF COMPUTER AS GIVEN IN IT IN THE INCOME TAX ACT 1961 FOR THE PURPOSES OF SECTION 32 ? IT HAS B EEN HELD BY THE HONBLE SUPREME COURT IN CIT VS. VENKATESWARA HATCH ERIES (1999) 237 ITR 174 (SC) THAT THE MEANING ASSIGNED TO A PARTICULAR WORD IN ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 14 A PARTICULAR STATUTE CANNOT BE IMPORTED TO A WORD U SED IN A DIFFERENT STATUTE. SIMILAR VIEW HAS BEEN EXPRESSED BY THE HONBLE RAJASTHAN HIGH COURT IN ARIHANT TILES & MARBLES (P) LTD. VS. ITO (2007) 295 ITR 148 (RAJ.) HOLDING THAT THE INTERPRETATION OF ANY EXPRESSION USED IN THE CONTEXT OF ONE STATUTE IS NO T BE AUTOMATICALLY IMPORTED WHILE INTERPRETING SIMILAR E XPRESSION IN ANOTHER STATUTE. THIS JUDGMENT HAS BEEN APPROVED BY THE HONBLE SUPREME COURT IN ITO VS. ARIHANT TILES & MARBLES (P ) LTD. (2010) 320 ITR 79 (SC). 18. FROM THE AFORE STATED PORTION OF THE STATEMENT OF OBJECTS AND REASONS AND THE PREAMBLE OF THE ACT IT IS EVID ENT THAT THE RATIONALE BEHIND THE INFORMATION TECHNOLOGY ACT 20 00 IS QUITE DISTINCT FROM THAT OF THE INCOME-TAX ACT AS CAN BE SEEN FROM ITS PREAMBLE WHICH IS AN ACT TO CONSOLIDATE AND AMEND THE LAW RELATING TO INCOME-TAX AND SUPER TAX THUS IT IS P ALPABLE THAT BOTH THESE ACTS ARE NOT IN PARI MATERIA . THERE IS SIGNIFICANT DIFFERENCE IN THE SCOPE PURPOSE AND SUBSTANCE OF THESE TWO STATU TES. EX CONSEQUENTI THE DEFINITION OF COMPUTER AS GIVEN IN THE INFOR MATION TECHNOLOGY ACT 2000 CANNOT BE APPLIED IN THE CONT EXT OF SECTION 32 OF THE INCOME-TAX ACT. HOWEVER THOUGH THE LEAR NED AUTHORISED REPRESENTATIVE ALSO AGREED THAT THE DEFINITION IN T HE INFORMATION TECHNOLOGY ACT CANNOT BE IMPORTED WE ARE OF THE OP INION THAT A PERUSAL OF THE OBJECTS OF THAT ENACTMENT AND A PERU SAL OF THE DEFINITION OF THE TERM COMPUTER GIVEN IN THE INFO RMATION TECHNOLOGY ACT 2000 ARE NOTHING BUT COMMON PARLANC E DEFINITION ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 15 WHICH CAN BE OF SOME USE IN THE DEFINITION OF A COM PUTER. THUS IN OUR CONSIDERED VIEW AID CAN BE TAKEN OF THE DEFINI TION OF THE TERM COMPUTER GIVEN IN INFORMATION TECHNOLOGY ACT 200 0. 19. AS PER THE GENERAL CLAUSES ACT 1897 IF A PAR TICULAR WORD IS NOT DEFINED IN THE CENTRAL STATUTE THEN MEA NING GIVEN TO SUCH EXPRESSION UNDER GENERAL CLAUSES ACT MAY BE CO NSIDERED FOR GUIDANCE AND ADOPTION IN THE FORMER ENACTMENT. HOWE VER IT IS NOTICED THAT THE WORD COMPUTER HAS NOT BEEN DEFIN ED THEREIN. UNDER SUCH CIRCUMSTANCES MEANING OF AN EXPRESSION H AS TO BE UNDERSTOOD BY APPLYING THE PRINCIPLES OF STATUTORY INTERPRETATION I.E IN THIS CONTEXT WE HAVE TO GIVE A MEANING TO THE EX PRESSION COMPUTER NOT MERELY GOING BY THE DICTIONARY MEANI NG BUT BY APPLYING COMMON PARLANCE AND COMMERCIAL PARLANCE TE STS AS WELL AS BY ANALYSING THE INTENDMENT OF PROVIDING FOR HIG HER RATE OF DEPRECIATION. WE MAY REFER TO SEVERAL CASE LAW TO A NALYSE AS TO WHICH FORMULA WOULD APTLY SUIT THE SITUATION IN THE GIVEN CASE. 20. IN INDIAN HOTELS CO. LTD. & ORS. VS. ITO & ORS . (2000) 245 ITR 538 (SC) THE ISSUE WAS ABOUT THE GRANTING OF DEDUCTION U/S. 80J TO AN INDUSTRIAL UNDERTAKING. IT WAS NOTIC ED THAT SECTION 80J PROVIDES FOR GRANT OF DEDUCTION TO AN ASSESSEE WHO DERIVES INCOME FROM AN INDUSTRIAL UNDERTAKING OR A SHIP OR THE BUSINESS OF A HOTEL TO WHICH THE SECTION APPLIES AND THE SECTIO N APPLIES TO ANY INDUSTRIAL UNDERTAKING ANY SHIP OR BUSINESS OF ANY HOTEL IF THE CONDITIONS PRESCRIBED UNDER SUB-SECTIONS (4) (5) A ND (6) RESPECTIVELY ARE SATISFIED. IT WAS NOTICED THAT TH E WORDS INDUSTRIAL ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 16 UNDERTAKING HAVE NOT BEEN DEFINED IN THE ACT. IN T HIS BACKGROUND OF FACTS THE HONBLE COURT POSED THE QUESTION TO I TSELF AS TO WHETHER THE ASSESSEE HAS DERIVED PROFITS AND GAINS FROM AN INDUSTRIAL UNDERTAKING OR FROM THE BUSINESS OF A HOTEL. AFT ER DISCUSSING THE ISSUE THREADBARE IT WAS HELD THAT : INDUSTRIAL UN DERTAKING IS NOT GIVEN ANY MEANING UNDER THE ACT HENCE IT IS TO BE UNDERSTOOD AS PER COMMON PARLANCE LANGUAGE. TAKING INTO THIS ACCO UNT APPARENTLY THE BUSINESS OF THE ASSESSEE IS THAT OF A HOTEL WHICH IS A TRADING ACTIVITY AND NOT THAT OF AN INDUSTRIAL UN DERTAKING. RESULTANTLY THE BENEFIT OF DEDUCTION WAS DENIED. 21. IN ASPINWALL & CO. LTD. VS. CIT (2001) 251 ITR 323 (SC ) THEIR LORDSHIPS WERE CONCERNED WITH THE QUESTION OF GRANTING INVESTMENT ALLOWANCE FOR WHICH ONE OF THE PRE-REQU ISITE CONDITIONS AS PER SECTION 32A WAS THAT THE INDUSTRIAL UNDERTAK ING SHOULD BE ENGAGED INTER ALIA IN THE MANUFACTURING. IT WAS NOTICED THAT THE WORD MANUFACTURE WAS NOT DEFINED IN THE INCOME-TA X ACT. IN SUCH CIRCUMSTANCES IT WAS HELD THAT : IN THE ABSENCE OF A DEFINITION THE WORD MANUFACTURE HAS TO BE GIVEN A MEANING AS IS UNDERSTOOD IN COMMON PARLANCE. IT IS TO BE UNDERSTOOD AS MEANING THE PRODUCTION OF ARTICLES FOR USE FROM RAW OR PREPARED MATERIALS BY GIVING SUCH MATERIALS NEW FORMS QUALITIES OR COMBINATIONS WHET HER BY HAND LABOUR OR MACHINES. IF THE CHANGE MADE IN THE ARTIC LE RESULTS IN A NEW AND DIFFERENT ARTICLE THEN IT WOULD AMOUNT TO M ANUFACTURING ACTIVITY. ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 17 22. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE SUPREME COURT IN MANGULU SAHU RAMAHARI VS. THE STATE TAX OF FICER 1974 CTR (SC) 14 BY HOLDING THAT IN THE ABSENCE OF SPECIFIC DEFINIT ION THE MEANING AS UNDERSTOOD IN COMMON PARLANCE HAS TO BE ADOPTED. FROM THE LEGAL POSITION AS ENUNCIATED IN THE ABOVE JUDGMENTS IT IS CRYSTAL CLEAR THAT WHERE A WORD HAS NOT BEEN DEFINE D IN THE ACT IT IS DESIRABLE TO COMPREHEND ITS MEANING AS IS UNDERSTOO D IN ITS NATURAL SENSE. 23. A COMPUTER IN COMMON SENSE AND AS POPULARLY UNDERSTOOD REFERS TO ANY ELECTRONIC OR OTHER HIGH SPEED DATA PROCESSING DEVICE WHICH PERFORMS LOGICAL ARITHMET IC AND MEMORY FUNCTIONS ON DATA (HEREINAFTER CALLED THE COMPUTE R FUNCTIONS) AND INCLUDES ALL INPUT AND OUTPUT DEVICES WHICH ARE CON NECTED TO OR RELATED TO IT. PARA 24 OF THE ASSESSMENT ORDER INDI CATES THAT THE ASSESSING OFFICER WAS ALSO OF THE OPINION THAT THE MEANING OF THE WORD COMPUTER AS UNDERSTOOD IN THE COMMON PARLAN CE IS AN ELECTRONIC DEVICE FOR STORING AND PROCESSING DATA A ND MAKING CALCULATING AND CONTROLLING MACHINE WHICH ALSO INCL UDES INPUT DEVICE LIKE KEYBOARDS OR MOUSE AND THE OUTPUT DEVIC ES LIKE THE PRINTER OR MONITOR. 24 WE WOULD LIKE TO CLARIFY HERE THAT THE MEANING OF COMPUTER CANNOT BE EXTENDED TO A DEVICE OR SET OF D EVICES WHICH ARE MEANT TO PERFORM SOME INDEPENDENT FUNCTION(S) EVEN THOUGH IN ACHIEVING SUCH DESIRED INDEPENDENT FUNCTION(S) SOM E SORT OF COMPUTER FUNCTIONS ARE ALSO INVOLVED. TODAY IS AN ELECTRONIC AGE. ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 18 MOST OF THE PRODUCTS USED BY US INVOLVE SOME SORT O F MECHANISM WHICH MAY BE LOOSELY CALLED AS COMPUTER FUNCTIONS. TAKE THE INSTANCE OF TELEVISION SET MOBILE PHONE AND CARS E TC. ALL OF WHICH INTER ALIA INVOLVE ONE FORM OR THE OTHER OF COMPUTER FUNCTIONS . SIMPLY BECAUSE SOME COMPUTER FUNCTIONS ARE INVOLV ED IN THESE EQUIPMENTS OR THE ASSISTANCE OF COMPUTERS IS TAKEN AS SUCH AT ONE STAGE OR THE OTHER IN THEIR OPERATION THESE WILL N OT BECOME COMPUTER. THE MEANING OF COMPUTER CANNOT BE EXTENDE D TO ANOTHER MACHINE THAT OPERATES WITH THE ASSISTANCE OF COMPUT ER. CONVERSELY AN ITEM WHICH IS AN INTEGRAL PART OF THE COMPUTER CANNOT BE DEFINED BY ITS OPERATIONS WHICH IT IS CAPABLE OF P ERFORMING FOR EG : A WIRE AND PLUG ARE ELECTRICAL ITEMS IN GENERAL BUT COST OF A WIRE INTEGRALLY CONNECTED TO TELEVISION MAY BE ADDED TO COST OF TV WHEREAS A WIRE AND PLUG ATTACHED TO THE COMPUTER SY STEM HAS TO BE TREATED AS COMPUTER. 25. THUS IN ORDER TO DETERMINE WHETHER A PARTICULA R MACHINE CAN BE CLASSIFIED AS A COMPUTER OR NOT THE PREDOMI NANT FUNCTION USAGE AND COMMON PARLANCE UNDERSTANDING WOULD HAVE TO BE TAKEN INTO ACCOUNT. TO ANALYSE FURTHER LET US TAKE THE CASE OF A TELEVISION THE PRINCIPAL TASK OF WHICH IS TO DELIV ER VISUALS ACCOMPANIED WITH AUDIO. THE SIGNALS ARE RECEIVED TH ROUGH THE RELEVANT NETWORKS SUCH AS DISH TV TATA SKY ETC. BU T TV DOES NOT BECOME COMPUTER FOR THE REASON THAT ITS PRINCIPAL F UNCTION CANNOT BE DONE ONLY WITH THE AID OF COMPUTER FUNCTIONS N OTWITHSTANDING THE FACT THAT IN THE ENTIRE PROCESS OF NETWORKING O R RECEIVING THE ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 19 OUTPUT FROM DIFFERENT CHANNELS AND MAKING IT AVAILA BLE TO THE VIEWERS SOME SORT OF COMPUTER FUNCTIONS ARE NECESS ARILY INVOLVED. SIMILARLY TAKE THE CASE OF MOBILE PHONE. ITS PRINCI PAL TASK IS TO RECEIVE AND SEND CALLS. IT IS NOT A STANDALONE APPA RATUS WHICH CAN OPERATE WITHOUT THE RELEVANT NETWORK SUCH AS AIRTE L BSNL RELIANCE. IT THEREFORE FOLLOWS THAT ANY MACHINE O R EQUIPMENT CANNOT BE DESCRIBED AS COMPUTER IF ITS PRINCIPAL O UTPUT OR FUNCTION IS THE RESULT OF SOME SORT OF COMPUTER FUNCTIONS IN CONJUNCTION WITH SOME NON-COMPUTER FUNCTIONS. IN ORDER TO BE CA LLED AS COMPUTER IT IS SINE QUA NON THAT THE PRINCIPAL OUTPUT/OBJECT/FUNCTION OF SUCH MACHINE SHOULD BE AC HIEVABLE ONLY THROUGH COMPUTER FUNCTIONS. 26. HAVING ANALYSED THE MEANING OF COMPUTER IN C OMMON PARLANCE LET US PROCEED TO ASCERTAIN THE CONCEPT MEANING AND FUNCTIONS OF ROUTER. AGAIN WE FIND THAT THE TERM ROUTER HAS NOT BEEN DEFINED IN THE INCOME-TAX ACT 1961. ACCORDING LY IT ALSO NEEDS TO BE ASSIGNED THE MEANING AS IT IS UNDERSTOOD IN C OMMON PARLANCE. THE LEARNED DEPARTMENTAL REPRESENTATIVE H AS PLACED SOME LITERATURE FROM THE INTERNET EXPLAINING THE ME ANING OF ROUTER AS A DEVICE IN COMPUTER NETWORKING THAT FORWARDS DA TA PACKETS TO THEIR DESTINATIONS BASED ON THEIR ADDRESSES. AS PE R THIS LITERATURE THE WORKING OF ROUTER HAS BEEN EXPLAINED BY WHICH D ATA PACKETS ARE TRANSMITTED OVER A NET WORK (SAY THE INTERNET) THE Y MOVE FROM MANY ROUTERS (BECAUSE THEY PASS THROUGH MANY NETWORKS) I N THEIR JOURNEY FROM THE SOURCE MACHINE TO BE DESTINATION MACHINE. ROUTERS WORK ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 20 WITH IP PACKETS MEANING THAT THEY WORK AT THE LEVE L OF THE IP PROTOCOL. EVERY ROUTER KEEPS INFORMATION ABOUT ITS NEIGHBORS (OTHER ROUTERS IN THE SAME OR OTHER NETWORKS). WHEN A PACK ET OF DATA ARRIVES AT A ROUTER ITS HEADER INFORMATION IS SCRU TINIZED BY THE ROUTER. BASED ON THE DESTINATION AND SOURCE IP ADDR ESSES OF THE PACKET THE ROUTER DECIDES WHICH NEIGHBOR IT WILL F ORWARD IT TO. 27. THE ASSESSEE VIDE ITS LETTER DATED 21-2-2005 ADDRESSED TO THE ASSESSING OFFICER SUBMITTED A NOTE ON USE O F ROUTERS/SWITCHES BY EXPLAINING THAT THE ROUTERS ARE CRUCIAL DEVICE THAT LET THE MESSAGES FLOW FROM ONE COMPUTER TO ANO THER. IT WAS FURTHER EXPLAINED THAT THE ROUTER HAS TWO SEPARATE BUT RELATED JOBS VIZ. (A) TO ENSURE THAT THE INFORMATION DOES NOT G O WHERE IT IS NOT NEEDED AND (B) IT MAKES SURE THAT THE INFORMATION D OES 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 INTER FACES WHICH MAY BE TO DIFFERENT PHYSICAL TYPES OF NETWORK (SUCH AS COPPER CABLES FIBER OR WIRELESS) OR DIFFERENT NETWORK STA NDARDS. EACH NETWORK INTERFACE IS A SMALL COMPUTER SPECIALIZED T O CONVERT ELECTRIC SIGNALS FROM ONE FORM TO ANOTHER. ROUTERS CONNECT T WO OR MORE LOGICAL SUBNETS WHICH DO NOT SHARE A COMMON NETWOR K ADDRESS. THE SUBNETS IN THE ROUTER DO NOT NECESSARILY MAP ON E-TO-ONE TO THE PHYSICAL INTERFACES OF THE ROUTER. THE TERM LAYER 3 SWITCHING IS USED OFTEN INTERCHANGEABLY WITH THE TERM ROUTING. THE TERM ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 21 SWITCHING IS GENERALLY USED TO REFER TO DATA FORWAR DING BETWEEN TWO NETWORK DEVICES THAT SHARE A COMMON NETWORK ADDRESS . 29. IN SIMPLE WORDS A ROUTER MEANS A DEVICE THAT ROUTES DATA FROM ONE COMPUTER TO ANOTHER OR FROM ONE NETWO RK TO ANOTHER. ROUTERS PROVIDE CONNECTIVITY INSIDE ENTERPRISES BE TWEEN ENTERPRISES AND THE INTERNET AND INSIDE INTERNET PROVIDERS. FR OM THE ABOVE DISCUSSION IT TRANSPIRES THAT THE FUNCTION OF A ROU TER IS TO RECEIVE THE DATA FROM ONE COMPUTER AND MAKE IT AVAILABLE TO ANOTHER COMPUTER FOR VIEWING OR FURTHER PROCESSING. APART F ROM FACILITATING THE FLOW OF DATA BETWEEN TWO COMPUTERS THE ROUTERS ALSO HELP IN THE TRANSFER OF DATA FROM NETWORK TO COMPUTER. THUS THE ESSENTIAL FUNCTION OF THE ROUTER IN A COMMERCIAL ORGANIZATION IS TO FACILITATE THE FLOW OF DATA FROM ONE COMPUTER TO ANOTHER FOR I TS PROCESSING OR STORAGE. SWITCHES ARE SHORTER VERSION OF ROUTERS W HICH PERFORM SIMILAR FUNCTIONS AS THAT OF ROUTERS BUT WITHIN A L IMITED SPHERE. 30. ON FUNCTIONING OF A ROUTER WE FIND THAT THER E IS NO DISPUTE ON THE FACT THAT A ROUTER DOES NOT PERFOR M ANY LOGICAL ARITHMETIC AND INTERMEDIARY FUNCTIONS ON DATA NOR IT MANIPULATES OR PROCESSES DATA THE WAY A COMPUTER WOULD DO. A ROUTER DOES NOT HAVE A C.P.U. IT ONLY ENABLES TRANSMISSION OF DATA AND DATA PACKAGES IN A SOPHISTICATED MANNER TO INTENDED PL ACES. A DATA CABLE ALSO CARRIES DATA FROM ONE PLACE TO ANOTHER BUT IT DOES NOT SELECTIVELY INTERCHANGE PACKETS OF DATA BETWEEN PLA CES. THE DIFFERENCE BETWEEN A CABLE AND A ROUTER IS THAT IN A ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 22 ROUTRE 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 CA N BE CONSIDERED AS COMPUTER HARDWARE OR A COMPUTER CO MPONENT. COMPUTER HARDWARE REFERS TO THE PHYSICAL PARTS OF A COMPUTER AND RELATED DEVICES. INTERNAL HARDWARE DEVICES INCLUDE MOTHERBOARDS HARD DRIVES AND RAM. EXTERNAL HARDWARE DEVICES INC LUDE MONITORS KEYBOARDS MOUSE PRINTERS AND SCANNERS. THE INTERNAL HARDWARE PARTS OF A COMPUTER ARE OFTEN REFERRED TO AS COMPO NENTS WHILE EXTERNAL HARDWARE DEVICES ARE USUALLY CALLED PERIP HERALS. TOGETHER THEY ALL FALL UNDER THE CATEGORY OF COMPUTER HARDWA RE. SOFTWARE ON THE OTHER HAND CONSIST OF THE PROGRAMS AND APPLICA TIONS THAT RUN ON COMPUTERS. BECAUSE SOFTWARE RUNS ON COMPUTER HAR DWARE SOFTWARE PROGRAMS OFTEN HAVE SYSTEM REQUIREMENTS THAT LIST THE MINIMUM HARDWARE 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 (LAN) TO ANOTHER NETWORK CONNECTION. A ROUTER ACTS LIKE A COIN SORTI NG MACHINE ALLOWING ONLY AUTHORIZED MACHINES TO CONNECT TO OTH ER 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. ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 23 31.2. WHEN COMPUTER HARDWARE IS USED AS A COM PONENT OF THE COMPUTER IT BECOMES PART AND PARCEL OF THE COM PUTER AS IN THE CASE OF OPERATING SOFTWARE IN THE COMPUTER. IN SUC H A SITUATION HARDWARE IN QUESTION CAN BE CONSIDERED AS A PART OF A COMPUTER AND HENCE A COMPUTER. PER CONTRA WHEN THE MACHIN E IS NOT USED AS A NECESSARY ASSESSORY 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 NO COMPUTER IS REQUIRED. THESE ARE ALSO CALLED T.V. ROUTERS. SIMILARLY INT ERNET SERVICE PROVIDERS GIVE CONNECTIVITY BY INSTALLING A ROUT ER IN THE PREMISES OF THE PERSONS/INSTITUTIONS AVAILING THE INTERNET C ONNECTION. IN THESE CASES THE ROUTER IS NOT USED ALONG WITH A COM PUTER. 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 SOFTWA RE CAN BE USED IN MANY DEVICES INCLUDING WASHING MACHINE TEL EVISIONS 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 CLASSIFICATIO N. ONLY IF THE COMPUTER SOFTWARE RESIDES IN A COMPUTER THEN IT B ECOME A PART AND PARCEL OF A COMPUTER AND AS LONG AS IT IS AS I NTEGRAL PART OF 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 ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 24 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 COMPUTER IN IT S FUNCTIONS THEN IT WOULD BE TERMED AS A COMPUTER. 32. NOW WE WILL ADVERT TO THE DECISIONS RELIED ON BY THE RIVAL PARTIES. WE HAVE SET OUT ABOVE THE CASES DECIDED BY VARIOUS BENCHES OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. THE LEAD ORDER IS IN THE CASE OF SAMIRAN MAJUMDAR (SUPRA) WHICH HAS B EEN FOLLOWED DIRECTLY OR INDIRECTLY IN MOST OF THE SUBSEQUENT C ASES. 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 PRINT ER AND SCANNERS WERE HELD TO BE PART OF COMPUTER QUALIFYING FOR DEP RECIATION AT THE RATE APPLICABLE TO COMPUTER. IN THE OPPOSITION THE ORDERS TAKING VIEW IN FAVOUR OF THE REVENUE ARE LED BY THE CASE O F ROUTERMANIA TECHNOLOGIES (SUPRA). IN THIS CASE IT WAS OBSERVED THAT THE ROUTER IS A DEVICE WHICH LINKS OR CONNECTS THE COMPUTERS FOR THE EXCHANGE OF RELEVANT DATA. IN REACHING THE CONCLUSION THAT ROUT ER IS NOT ELIGIBLE FOR DEPRECIATION AT THE RATE APPLICABLE TO COMPUTER THE BENCH NOTICED THAT THE ROUTER AT ITS OWN DOES NOT PERFORM ANY LOGICAL ARITHMETICAL OR MEMORY FUNCTIONS BY MANIPULATIONS O F ELECTRONIC MAGNETIC OR OPTICAL IMPULSES. ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 25 33. WE PREFER THE VIEW TAKEN IN THE CASE OF SAMIRA N MAJUMDAR (SUPRA) OVER THAT IN THE CASE OF ROUTERMAN IA TECHNOLOGIES (SUPRA) ; WITH UTMOST RESPECT THE MUM BAI BENCH HAD TAKEN A NARROW VIEW ON THIS ISSUE BY HOLDING THAT ONLY A DEVICE WHICH CAN PERFORM LOGICAL ARITHMETICAL OR MEMORY F UNCTIONS BY MANIPULATIONS OF ELECTRONIC IMPULSES ETC. IS COMPUT ER. IT HAS RESTRICTED THE MEANING OF COMPUTER ONLY TO THE CPU OF THE COMPUTER AND PULLED OUT THE INPUT AND OUTPUT DEVICES FROM TH E 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 SUC H FUNCTIONS THAT CAN BE CALLED AS COMPUTER ; ALL THE INPUT AND OUTPU T DEVICES AS DISCUSSED ABOVE WHICH SUPPORT IN THE RECEIPT OF IN PUT AND OUTFLOW OF THE OUTPUT ARE ALSO PART OF COMPUTER. CPU ALONE IN OUR OPINION CANNOT BE CONSIDERED AS SYNONYMOUS TO THE EXPRESSIO N COMPUTER. THE FUNCTION OF CPU IS AKIN TO THE BRAIN PLAYING A PIVOTAL ROLE IN THE CONDUCT OF THE BODY. AS WE DO NOT CALL THE BRAIN AL ONE AS THE BODY SIMILARLY THE CPU ALONE CANNOT BE DESCRIBED AS COMP UTER. THUS THE COMPUTER HAS TO NECESSARILY INCLUDE THE INPUT AND O UTPUT DEVICES WITHIN ITS SCOPE SUBJECT TO THEIR EXCLUSIVE USER W ITH THE COMPUTER AS DISCUSSED ABOVE. IF WE CONSTRICT THE DEFINITION OF COMPUTER ONLY TO PROCESSING UNIT AS HAS BEEN HELD IN THE CASE OF ROUTERMANIA (SUPRA) THEN EVEN THE KEYBOARD AND MOUSE ETC. WILL NOT QUALIFY TO BE CALLED AS COMPUTER BECAUSE THESE EQUIPMENTS ALSO DO NOT PERFORM LOGICAL ARITHMETICAL OR MEMORY FUNCTIONS. IN THE LIGHT OF THE MEANING OF COMPUTER DISCUSSED IN EARLIER PARAS W E ARE INCLINED TO ITA. NOS. 7462 & 754/MUM/2007 DATACRAFT INDIA LTD. 26 AGREE WITH THE VIEW TAKEN BY THE KOLKATA BENCH IN S AMIRAN MAJUMDAR (SUPRA). 34. WE THEREFORE ANSWER THE QUESTION REFERRED TO T HIS SPECIAL BENCH IN AFFIRMATIVE BY HOLDING THAT THE ROUTERS AN D SWITCHES IN THE CIRCUMSTANCES OF THE CASE ARE TO BE INCLUDED IN TH E BLOCK OF COMPUTER ENTITLED TO DEPRECIATION AT THE RATE OF 60%. 35. IN THE RESULT BOTH THE APPEALS STANDS DISMISS ED. ORDER PRONOUNCED ON THIS 09 TH DAY OF JULY 2010. SD/- SD/- SD/- (J.SUDHAKAR REDDY) (R.S. SYAL) (D.MANMOHAN) ACCOUNTANT MEMBER ACCOUNTANT MEMBER VICE PRESIDENT MUMAI DATE 09 TH JULY 2010 VBP/- COPY TO 1. DCIT CIRCLE 2 (1) AAYAKAR BHAVAN R.NO. 575 5 TH FLOOR M.K. ROAD MUMBAI. 2. DATACRAFT INDIA LTD. UNIT NO. 204/206 2 ND FLOOR WELSPUN HOUSE KAMLA MILLS COMPOUND S. BAPAT MARG LOWER PAREL MUMBAI 400 013 PAN AAACD-2145-G 3. CIT (A)-II MUMBAI. 4. CIT MUMBAI CITY-II MUMBAI. 5. D.R. D BENCH 6. GUARD FILE. (TRUE COPY) BY ORDER ASST. REGISTRAR ITAT MUMBAI BENCHES MUMBAI.