On Mobile Global Limited, Bangalore V. Addl.C.I.T., Bangalore

ITA 1163/BANG/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73393 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 5 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 11-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Capital asset; Depreciation; Services rendered outside India; Competent authority; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 10B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P. BOAZ, ACCOUNTANT MEMBER ITA NO.1163/BANG/2012 (ASSESSMENT YEAR : 2008-09) M/S. ONMOBILE GLOBAL LTD. , NO.26, BANNERGHATTA ROAD, J.P. NAGAR, III PHASE, BANGALORE. .. APPELLANT. PAN AAACO 3900E VS. ADDL. COMMISSIONER OF INCOME TAX , RANGE 12, BANGALORE. . RESPONDENT. I.T.A. NO.1175/BANG/2012 (ASSESSMENT YEAR : 2008-09) DY. COMMISSIONER OF INCOME TAX , CIRCLE 12(2), BANGALORE. . APPELLANT VS. M/S. ONMOBILE GLOBAL LTD. , J.P. NAGAR, BANGALORE. .. RESPONDENT. ASSESSEE BY : SHRI K.R. VASUDEVAN. REVENUE BY : SHRI FARHAT HUSSAIN QURESHI. DATE OF HEARING : 09.12.2013. DATE OF PRONOUNCEMENT : 21.02.2014. O R D E R PER SHRI JASON P. BOAZ : THESE ARE CROSS APPEALS, ONE EACH BY THE ASSESSEE AND REVENUE, DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I II, BANGALORE DT.27.6.2012. 2. THE FACTS OF THE CASE, BRIEFLY, ARE AS UNDER : 2 ITA NOS.1163 & 11 75/BANG/2012 2.1 THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINE SS OF PROVIDING MOBILE VALUE ADDED SERVICES (MVAS IN SHORT) AND PRODUCTS SUCH AS CAL LER AND RING BACK TONES, DYNAMIC VOICE MAIL, MISSED CALL ALERT SERVICE AND OTHER INTERACTIVE MED IA SOLUTIONS LIKE TELE-VOTING, INTERACTIVE PROGRAMMING, ETC. FOR ASSESSMENT YEAR 2008-09, THE ASSESSEE FILED ITS RETURN OF INCOME ELECTRONICALLY ON 30.9.2008 DECLARING INCOME OF RS .58,96,36,736. THE RETURN OF INCOME WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX AC T, 1961 (HEREIN AFTER REFERRED TO AS 'THE ACT'). THE ASSESSEE FILED A REVISED RETURN OF INCO ME ON 30.3.2010 DECLARING INCOME OF RS.58,48,05,807 WHICH WAS ON ACCOUNT OF CLAIMING DE DUCTION U/S.80JJAA OF THE ACT TO THE TUNE OF RS.48,30,929. THE CASE WAS SELECTED FOR SC RUTINY AND THE ASSESSMENT WAS COMPLETED BY AN ORDER UNDER SECTION 143(3) OF THE ACT DT.30.1 2.2010 WHEREIN THE INCOME OF THE ASSESSEE WAS DETERMINED AT RS.70,98,59,466 BY VIRTUE OF VARI OUS ADDITIONS / DISALLOWANCES MADE BY THE ASSESSING OFFICER. 2.2 AGGRIEVED BY THE ORDER OF ASSESSMENT FOR ASSESS MENT YEAR 2008-09 DT.30.12.2010, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (APPEAL S) III, BANGALORE. THE LEARNED CIT (APPEALS) DISPOSED THE ASSESSEE'S APPEAL BY ORDER DT.27.6.2012 GRANTING THE ASSESSEE PARTIAL RELIEF. 3.0 AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) I II, BANGALORE DT.27.6.2012 FOR ASSESSMENT YEAR 2008-09, BOTH THE ASSESSEE AND REVE NUE ARE IN APPEAL BEFORE THIS TRIBUNAL RAISING VARIOUS GROUNDS. 3.1 IN ITS APPEAL, REVENUE HAS RAISED THE FOLLOWING GROUNDS : 1. THE ORDER OF THE LEARNED CIT (APPEALS) IS OP POSED TO LAW AND FACTS OF THE CASE. 3 ITA NOS.1163 & 11 75/BANG/2012 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E THE LEARNED CIT (APPEALS), EVEN WHILE ACCEPTING THE EXPENDITURE OF STAMP DUTY AMOUNTING TO RS.6,87,770 AS CAPITAL EXPENDITURE, ERRED IN DIRECT ING THE ASSESSING OFFICER TO ALLOW THE SAME UNDER SECTION 35D OF THE ACT. THE H ON'BLE SUPREME COURT DECISION IN THE CASE OF GIV VS. CIT, 286 ITR 232 (SC) ON THI S ISSUE IS VERY CLEAR THAT EXPENSES INCURRED FOR ISSUE OF FRESH SHARE CAPITAL IS CAPITAL EXPENDITURE. 3. THE CIT (APPEALS) ERRED IN GRANTING DEDUCTION UN DER SECTION 80JJAA IGNORING THE FACT THAT THE BUSINESS OF THE ASSESSEE IS PROVIDING TELECOM SERVICES AND SUCH SERVICES CANNOT BE TERMED AS IT ENABLED SE RVICES. THE CIT (APPEALS), ON THE OTHER HAND HAS REJECTED ASSESSEE'S CONTENTION T HAT MEDIA RESOURCES BOARDS (NMS CG CARDS) ARE COMPUTERS BY HOLDING THAT THE AS SESSEE IS ENGAGED IN PROVIDING TELECOM SERVICES AND NOT IN THE ACTIVITY OF MANUFAC TURING OF ANY ARTICLE OR THING. 4. THE CIT (APPEALS) FURTHER ERRED IN ALLOWING DEDU CTION UNDER SECTION 10A BY HOLDING THAT THE ASSESSEE IS ENGAGED IN THE MANUFAC TURE OF ARTICLE OR THING WHEREAS WHILE DECIDING THE ISSUE OF DEPRECIATION, HE HAS CL EARLY HELD THAT THE ASSESSEE IS ENGAGED IN TELECOM SERVICES WHICH ARE NOT IN THE NA TURE OF IT ENABLED SERVICES TO CLAIM DEDUCTION UNDER SECTION 10A. THE CIT (APPEAL S) MERELY RELIED ON THE WORDS CONTENT MANAGEMENT IN THE NOTIFICATION OF THE BOA RD ON IT ENABLED SERVICES WHILE THAT CONTENT MANAGEMENT WAS IN CONJUNCTION WITH DAT A PROCESSING WHEREAS THE ASSESSEE'S CONTENT DEVELOPMENT WAS IN THE CONTEXT O F TELECOM SERVICES. 5. FOR THESE AND OTHER GROUNDS THAT MAYBE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT (APPEALS) IN SO FA R AS IT RELATES TO THE ABOVE GROUNDS MAYBE REVERSED AND THAT OF THE ASSESSING OF FICER MAY BE RESTORED. 6. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND / OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 3.2 THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS I N ITS APPEAL : DISALLOWANCE OF LEGAL AND PROFESSIONAL CHARGES RS .2,20,40,131 . 1.A. PROFESSIONAL CHARGES FOR CONDUCTING DUE DILI GENCE FOR ACQUISITION OF VOX MOBILI RS.1,96,32,131. A. THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT AN AMOUNT OF RS.1,96,32,131 PAID TOWARDS LEGAL AND PROFESSIONAL CHARGES FOR CONDUCTI NG DUE DILIGENCE FOR ACQUISITION OF VOX MOBILI, FRANCE IS CAPITAL IN NATURE. B. THE LEARNED CIT (APPEALS) ERRED IN NOT APPRECIA TING THAT THE ACQUISITION OF VOX MOBILE, FRANCE WAS NOT IN THE NATURE OF AN INVESTME NT FOR FUTURE GAINS, BUT FOR INTEGRATING THE BUSINESS OF VOX MOBILI WITH THE BUS INESS OF THE APPELLANT. THE 4 ITA NOS.1163 & 11 75/BANG/2012 LEARNED CIT (APPEALS) ERRED IN NOT APPRECIATING THA T THE ACQUISITION OF VOX MOBILI DID NOT INCREASE THE PRODUCTION CAPACITY OF THE APP ELLANT. IN VIEW OF THE ABOVE, THE SAME OUGHT TO HAVE BEEN CONSIDERED AS REVENUE EXPEN DITURE. C. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CI T (APPEALS) ERRED IN NOT APPRECIATING OUR ALTERNATIVE GROUND, FOR ALLOWING D EDUCTION UNDER SECTION 35D OF THE INCOME TAX ACT,1961. D. THE LEARNED CIT (APPEALS) ERRED IN HOLDING O UT THAT DEDUCTION UNDER SECTION 35D WILL NOT BE AVAILABLE FOR TECHNO-FINANCIAL ANAL YSIS MADE UPON ACQUIRING AN EXISTING BUSINESS. 1.B. LEGAL AND PROFESSIONAL CHARGES FOR FILING P ATENT APPLICATION RS.24,08,000. A. THE LEARNED CIT (APPEALS) ERRED IN HOLDING T HAT AN AMOUNT OF RS.24,08,000 PAID TOWARDS LEGAL AND PROFESSIONAL CHARGES FOR FIL ING PATENT APPLICATION IS CAPITAL IN NATURE. B. THE LEARNED CIT (APPEALS) ERRED IN NOT APPRECIAT ING THAT LEGAL CHARGES PAID FOR REVIEWING AND FILING PATENT APPLICATION WERE EX PENSES INCURRED IN THE REGULAR COURSE OF BUSINESS OF THE APPELLANT AND THEREFORE, WERE NOT CAPITAL IN NATURE. 2. ADJUSTMENT IN DEPRECIATION RS.9,06,45,983. A. THE LEARNED CIT (APPEALS) ERRED IN HOLDING OUT THAT MEDIA RESOURCE BOARDS WOULD FORM PART OF PLANT & MACHINERY AND NOT COM PUTERS FOR THE PURPOSES OF COMPUTING DEPRECIATION UNDER THE ACT. B. THE LEARNED CIT (APPEALS) ERRED IN CONSIDERIN G THE MEDIA RESOURCE BOARDS AS TELECOM EQUIPMENT, AND THEREFORE CLASSIFIED AS P LANT AND NOT COMPUTERS. THE LEARNED CIT (APPEALS) DID NOT APPRECIATE THAT THE M EDIA RESOURCE BOARDS, IS A PART OF THE SERVER, AND HENCE OUGHT TO BE CLASSIFIED AS COMPUTERS. BEFORE US, BOTH THE LEARNED DEPARTMENTAL REPRESENT ATIVE AND LEARNED AUTHORISED REPRESENTATIVE WERE HEARD AT LENGTH. THE LEARNED A UTHORISED REPRESENTATIVE ALSO FILED DETAILED NOTES ON ARGUMENTS TO SUPPORT THE CONTENTI ONS PUT FORTH ON THE VARIOUS ISSUES INVOLVED. WE SHALL FIRST DEAL WITH THE ISSUES RAIS ED BY REVENUE IN ITS APPEAL. 5 ITA NOS.1163 & 11 75/BANG/2012 ITA NO.1175/BANG/2012 REVENUES APPEAL FOR ASSESS MENT YEAR 2008-09. 4. THE GROUNDS RAISED BY REVENUE AT S.NOS.1, 4 AND 5 ARE GENERAL IN NATURE AND THEREFORE NO ADJUDICATION IS CALLED FOR THEREON. 5. DISALLOWANCE OF STAMP DUTY : RS.6,87,770. 5.1 IN THE GROUND RAISED AT S.NO.2 , REVENUE CONTENDS THAT THE LEARNED CIT (APPEALS), EVEN WHILE ACCEPTING THE EXPENDITURE OF STAMP DUTY AMOU NTING TO RS.4,87,770 AS CAPITAL EXPENDITURE ERRED IN DIRECTING THE ASSESSING OFFIC ER TO ALLOW THE SAME UNDER SECTION 35D OF THE ACT, WITHOUT APPRECIATING THAT THE EXPENDITURE INCURRED IN CONNECTION WITH THE INCREASE IN AUTHORIZED SHARE CAPITAL IS NOT AN ITEM OF EXPENDIT URE EXPRESSLY ALLOWABLE UNDER SECTION 35D OF THE ACT. IT IS SUBMITTED THAT THE HON'BLE APEX COURT DECISION IN THE CASE OF GENERAL INSURANCE CORPORATION V CIT (286 ITR 232) ON THE SA ME ISSUE IS VERY CLEAR THAT EXPENSES INCURRED FOR THE ISSUE OF FRESH SHARE CAPITAL IS CA PITAL EXPENDITURE. 5.2 IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE AS SESSING OFFICER OBSERVED THAT OUT OF LEGAL AND PROFESSIONAL CHARGES, OUT OF STAMP DUTY DEBITED TO THE EXTENT OF RS.50,74,350, AN AMOUNT OF RS.38,50,000 PERTAINED TO STAMP DUTY PAID FOR INCREASING THE ASSESSEE'S AUTHORIZED SHARE CAPITAL BY ISSUE OF BOTH BONUS AND FRESH ISSU E OF SHARES THROUGH IPO. THE ASSESSING OFFICER ON EXAMINATION OF THE SAME ALLOWED DEDUCTIO N OF THE EXPENDITURE CLAIMED TOWARDS THE STAMP DUTY RELATED TO THE ISSUE OF BONUS SHARES, BU T HOWEVER, DISALLOWED THE PORTION OF THE STAMP DUTY RELATING TO THE ISSUE OF FRESH SHARE CA PITAL THROUGH THE IPO AMOUNTING TO RS.6,87,770. 6 ITA NOS.1163 & 11 75/BANG/2012 5.3 ON APPEAL, THE LEARNED CIT (APPEALS) UPHELD THE DISALLOWANCE OF THE ENTIRE AMOUNT OF STAMP DUTY AMOUNTING TO RS.6,87,720 PAID FOR INCREA SING THE AUTHORIZED SHARE CAPITAL OF THE ASSESSEE COMPANY THROUGH ISSUE OF BONUS SHARES AND THE IPO AS CAPITAL IN NATURE. WITH REGARD TO THE ASSESSEE'S ALTERNATE CLAUSE FOR DEDUCTION OF THE SAID EXPENSES UNDER SECTION 35D OF THE ACT, THE LEARNED CIT (APPEALS) ALLOWED AMORTISA TION OF THE SAME UNDER SECTION 35D OF THE ACT OBSERVING THAT :- I) IT IS A SETTLED PRINCIPLE THAT IPO EXPENSES ARE IN THE NATURE OF CAPITAL EXPENSES AND THE BONUS ISSUE IF LINKED TO THE SAME ALSO PARTAKE THE CHARACTER OF THE SAME; II) WHEN SEVERAL OTHER EXPENSES ON ISSUE OF SHARES ARE ALLOWED, INCLUDING ADVERTISEMENT OF THE PROSPECTUS, BROKERAGE, ETC., IT IS NOT CONCLUSIVELY ARGUABLE THAT A STATUTORY LEVY ON SUCH ISSUE OF SHARES SHALL BE AUTOMATICALLY EXCLUDED; III) STATUTORY LEVIES, EXCEPT INCOME TAX, ARE ALLO WED AS BUSINESS DEDUCTION UNDER ALL SECTIONS OF THE ACT AND ALSO TOWARDS COST OF CAPITAL GAINS COMP UTATION. THEREFORE, THERE IS NO REASON WHY STAMP DUTY SHOULD BE DENIED AMORTIZATION MERELY BEC AUSE OF A LACK OF SPECIFIC MENTION IN SECTION 35D(2)( C ) OF THE ACT. 5.4 IN SUPPORT OF THE GROUNDS RAISED, THE LEARNED D EPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE DECISION OF THE LEARNED CIT (APPEALS) IS E RRONEOUS ON LEGAL PRINCIPLES. THE LEARNED DEPARTMENTAL REPRESENTATIVE POINTED OUT THAT WHILE THE ASSESSING OFFICER HAS MADE A DISTINCTION BETWEEN THE STAMP DUTY RELATED TO THE I SSUE OF BONUS SHARES AND THE IPO, THE DECISION OF THE LEARNED CIT (APPEALS) HAS BLURRED T HE DISTINCTION MADE BY THE ASSESSING OFFICER. THE LEARNED DEPARTMENTAL REPRESENTATIVE C ONTENDED THAT WHEN THE ISSUE OF STAMP 7 ITA NOS.1163 & 11 75/BANG/2012 DUTY ON THE ISSUE OF BONUS SHARES WAS NOT EVEN AGI TATED BEFORE THE LEARNED CIT (APPEALS), EVEN THEN THE LEARNED CIT (APPEALS) ADJUDICATED THE REON. IN VIEW OF THIS ANAMOLY, THE LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ORDE R OF THE LEARNED CIT (APPEALS) IS DEFECTIVE AND PRAYED THAT THE ORDER ON THIS ISSUE B E SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5.5 PER CONTRA, THE LEARNED AUTHORISED REPRESENTATI VE STRONGLY SUPPORTED THE DECISION OF THE LEARNED CIT (APPEALS) IN ALLOWING AMORTIZATION OF THE EXPENSES BY INVOKING THE PROVISIONS OF SECTION 35D(2)( C )(IV) OF THE ACT. IT WAS SUBM ITTED THAT THE PROCEEDS FROM THE ISSUE OF SHARES WERE PRIMARILY UTILIZED FOR BUSINESS EXPANSI ON AND HENCE THE STAMP DUTY INCURRED TOWARDS SUCH ISSUE WOULD QUALIFY AS A DEDUCTIBLE EX PENDITURE UNDER SECTION 35D OF THE ACT. IT WAS ALSO SUBMITTED THAT THE RELIANCE PLACED BY THE ASSESSING OFFICER ON THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF GENERAL INSURANCE CORPORATION (SUPRA) IS MISPLACED; SINCE THE DECISION WAS ON THE ALLOWABILITY AS REVENUE, O F EXPENDITURE INCURRED IN CONNECTION WITH THE ISSUE OF BONUS SHARES. IN SUPPORT OF ITS CLAIM, TH E ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS : I) CIT (APPEALS) V SHREE SYNTHETICS LTD. (162 ITR 819) (M.P) II) AMTREX APPLIANCES LTD. V DCIT (94 TTJ 396). 5.6.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD INCLUDING THE JUDICIAL DECISIONS CITED BY BOTH PARTIES. ADMITTEDLY, THE STAMP DUTY CHARGES CLAIMED AS DEDUCTION BY THE ASSESSEE INCLUD ED THE CHARGES PERTAINING TO BOTH THE ISSUE OF BONUS SHARES AND THE IPO. IT IS SETTLED LAW THA T THE EXPENDITURE RELATED TO THE ISSUE OF 8 ITA NOS.1163 & 11 75/BANG/2012 BONUS SHARES IS REVENUE EXPENDITURE AS HELD BY THE HON'BLE APEX COURT IN THE CASE OF GENERAL INSURANCE CORPORATION(SUPRA). IN THIS VIEW OF THE M ATTER, THE ASSESSING OFFICERS ACTION IN ALLOWING THE STAMP DUTY CHARGES RELATED TO THE ISSU E OF BONUS SHARES AS REVENUE EXPENDITURE IS IN ORDER. 5.6.2 AS POINTED OUT BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, THE DECISION OF THE LEARNED CIT (APPEALS) IN DISALLOWING THE ENTIRE STA MP DUTY CHARGES BY HOLDING IT TO BE CAPITAL IN NATURE, IS NOT IN TUNE WITH THE DECISION OF THE HON 'BLE APEX COURT IN GENERAL INSURANCE CORPN. (SUPRA). SINCE THE ASSESSEE HAS NOT RAISED ANY GRO UND CHALLENGING THIS DECISION OF THE LEARNED CIT (APPEALS), WE REFRAIN FROM RENDERING ANY DECISI ON ON THE SAME. THIS MISTAKE, IS ITSELF, CANNOT BE A GROUND FOR SETTING ASIDE THE ISSUE, AS REQUESTED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, AS THE ISSUE INVOLVED IS A LEGAL PR INCIPLE AND THERE IS NO VERIFICATION REQUIRED TO BE MADE. 5.6.3 SECTION 35D(3)( C ) OF THE ACT READS AS UNDER : 35D(2) THE EXPENDITURE REFERRED TO IN SUB-SEC TION (1) SHALL BE THE EXPENDITURE SPECIFIED IN ANY ONE OR MORE OF THE FOLLOWING CLAUS ES, NAMELY : (A) .. (B) (C) WHERE THE ASSESSEE IS A COMPANY, ALSO EXPENDIT URE (I) BY WAY OF LEGAL CHARGES FOR DRAFTING THE MEMOR ANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY; (II) ON PRINTING OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION; (III) BY WAY OF FEES FOR REGISTERING THE COMPANY U NDER THE PROVISIONS OF THE COMPANIES ACT, 1956 (1 OF 1956); 9 ITA NOS.1163 & 11 75/BANG/2012 (IV) IN CONNECTION WITH THE ISSUE, FOR PUBLIC SUBS CRIPTION, OF SHARES IN OR DEBENTURES OF THE COMPANY, BEING UNDERWRITING COMMISSION, BROKERAGE A ND CHARGES FOR DRAFTING, TYPING, PRINTING AND ADVERTISEMENT OF THE PROSPECTUS; THE ISSUE IN QUESTION IS WHETHER STAMP DUTY CHARGE S ARE INCLUDED WITHIN THE SCOPE OF THE EXPENDITURE ENUMERATED IN THE AFORESAID SECTION . THE HON'BLE MADHYA PRADESH HIGH COURT IN THE CASE OF CIT V SHREE SYNTHETICS LTD. (SUPRA) HAS HELD THAT THE ITEMS OF EXPENDITURE MENTIONED IN SECTION 35D(2)( C ) OF THE ACT IS ONLY ILLUSTRATIVE AND NOT RESTRICTIVE. IN THE CITED CASE, THE COMPANY HAD INCURRED CERTAIN EXPENDITURE IN CONNECTION WITH THE ISSUE OF SHARES. THE ASSESSING OFFICER DISALLOWED THE ASSESSEE'S CLA IM WITH RESPECT TO EXPENDITURE INCURRED IN CONNECTION WITH REFUNDING THE OVER SUBSCRIBED AMOUN T CONTENDING THAT THE SAME IS NOT COVERED UNDER SECTION 35D(2)(C)(IV) OF THE ACT. THE HON'BL E HIGH COURT HELD AS UNDER : . CLAUSE ( C ) OF SUB-SECTION (2) OF SECTION 35D STARTS WITH THE WORDS WHERE THE ASSESSEE IS A COMPANY, ALSO EXPENDITURE, WHICH IF READ WITH SUB-CLAUSE (IV) IN CONNECTION WITH THE ISSUE, FOR PUBLIC SUBSCRIPTION, OF SHARES IN OR DEBENTURES OF THE COMPANY, BEING UNDERWRITING COMMISSION, BROKERAGE A ND CHARGES FOR DRAFTING, TYPING, PRINTING AND ADVERTISEMENT OF THE PROSPECTU S WOULD INDICATE THAT THE WORD BEING USED HERE IS ILLUSTRATIVE AND NOT RESTRICT . ON THE CONTRARY, IF AFTER THE WORDS ALSO EXPENDITURE, SUB-CLAUSE (IV) WOULD HA VE STARTED WITH THE WORDS BEING UNDERWRITING COMMISSION, BROKERAGE AND CHARGES FOR DRAFTING, TYPING PRINTING AND ADVERTISEMENT OF THE PROSPECTUS, IN CONNECTION WITH THE ISSUE, FOR PUBLIC SUBSCRIPTION OF SHARES IN OR DEBENTURES OF THE COMP ANY, THE SUBMISSION OF LEARNED COUNSEL FOR THE REVENUE WOULD HAVE SOME FORCE BECAU SE THIS WORD BEING AS IT STANDS TODAY IN THE SECTION CANNOT BE READ BACKWARD S, BUT HAS TO BE READ AS A WHOLE. THEREFORE, WE ARE OF THE OPINION THAT THE W ORD BEING HAS BEEN USED HERE BY WAY OF ILLUSTRATION AND IS NOT RESTRICTED ONLY T O THE WORDS UNDERWRITING COMMISSION, BROKERAGE AND CHARGES FOR DRAFTING, TYP ING, PRINTING AND ADVERTISEMENT OF THE PROSPECTUS. THUS QUESTIONS NOS.(1) AND (2) HAVE TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE DEPARTMENT. 10 ITA NOS.1163 & 11 75/BANG/2012 5.6.4 FOLLOWING THE DECISION OF THE HON'BLE MA DHYA PRADESH HIGH COURT IN SHREE SYNTHETICS LTD. (SUPRA), THE ITAT, AHMEDABAD BENCH IN THE CASE OF AMTREX APPLIANCES LTD. V DCIT REPORTED IN 94 TTJ 369 HELD THAT ALL EXPENDITU RE INCURRED IN CONNECTION WITH THE ISSUE OF IPO, ETC INTER ALIA INCLUDING STAMP DUTY TO BE A LLOWABLE EXPENDITURE U/S.35D OF THE ACT. FOLLOWING THE AFORESAID DECISIONS (SUPRA), WE HOLD THAT STAMP DUTY CHARGES INCURRED BY THE ASSESSEE FOR THE PUBLIC ISSUE OF SHARES ETC. IS ALL OWABLE AS DEDUCTION UNDER SECTION 35D OF THE ACT. IN THIS VIEW OF THE MATTER, THE GROUND NO.2 R AISED BY REVENUE IS DISMISSED. 6. DEDUCTION U/S.80JJA OF THE ACT . 6.1 IN THE GROUND AT S.NO.3 , REVENUE CONTENDS THAT THE LEARNED CIT (APPEALS) E RRED IN GRANTING THE ASSESSEE DEDUCTION UNDER SECTION 80JJA A IGNORING THE FACT THAT THE ASSESSEE'S BUSINESS IS PROVIDING TELECOM SERVICES AND THAT SUC H SERVICES CANNOT BE TERMED AS IT ENABLED SERVICES. IT IS CONTENDED THAT, ON THE OTHER HAND, THE LEARNED CIT (APPEALS) HAS REJECTED THE ASSESSEE'S CONTENTION THAT MEDIA RESOURCES BOARDS ( NMS CG CARDS) ARE COMPUTERS, HOLDING THAT THE ASSESSEE IS ENGAGED IN PROVIDING TELECOM S ERVICES AND NOT IN THE ACTIVITY OF MANUFACTURING AN ARTICLE OR THING. 6.2 THE FACTUAL POSITION ON THIS ISSUE, AS EMANATE FROM THE RECORD, IS THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.48,30,929 UNDER SECTION 80J JAA OF THE ACT WITH RESPECT TO WAGES PAID TO NEW WORKMEN. THE ASSESSING OFFICER DID NOT ALLOW THE ASSESSEE THE DEDUCTION CLAIMED, HOLDING THAT THE ASSESSEE IS NOT AN INDUSTRIAL UND ERTAKING ENGAGED IN THE MANUFACTURE OF AN ARTICLE OR THING. THE ASSESSING OFFICER ALSO HELD THAT THE SAID EMPLOYEES OF THE ASSESSEE DO 11 ITA NOS.1163 & 11 75/BANG/2012 NOT FALL UNDER THE DEFINITION OF WORKMEN AS THEIR AVERAGE SALARY IS TO THE TUNE OF RS.3.28 LAKHS PER ANNUM. 6.3 ON APPEAL, THE LD. CIT(A) ALLOWED THE ASSESSEE S CLAIM FOR DEDUCTION U/S.80JJAA OF THE ACT HOLDING THAT THE ACTIVITIES OF THE ASSESSEE QUA LIFY IT TO BE CONSIDERED AS AN INDUSTRIAL UNDERTAKING ENGAGED IN THE PRODUCTION OF COMPUTER S OFTWARE WHICH IS IN THE NATURE OF AN ARTICLE OR THING IN THE RELEVANT CONTEXT. 6.4 BOTH THE LD. D.R. FOR REVENUE AND THE LD. A.R O F THE ASSESSEE WERE HEARD. THE LEARNED D.R. RELIED ON THE ORDER OF THE A.O. TO ARGUE THAT THE DECISION OF THE LD. CIT(A) BE REVERSED. PER CONTRA, THE LEARNED A.R. STRONGLY SUPPORTED THE DECISION OF THE LD. CIT(A) AND SUBMITTED THAT THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT V TEXAS INSTRUMENTS INDIA (P) LTD. (2006) 115 TTJ 476 IS SQ UARELY APPLICABLE TO THE FACTS OF THE ISSUE UNDER CONSIDERATION. 6.5.1 WE HAVE HEARD THE RIVAL CONSIDERATION AND PER USED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD, INCLUDING THE JUDICIAL DECISION S CITED. SECTION 80JJAA OF THE ACT ALLOWS FOR DEDUCTION OF ADDITIONAL WAGES PAID TO NEW WORKM EN FOR AN INDUSTRIAL UNDERTAKING. WHILE THE TERM INDUSTRIAL UNDERTAKING HAS NOT BEEN DEFI NED IN SECTION 80JJAA OF THE ACT, IT HAS BEEN DEFINED IN OTHER PROVISIONS OF THE ACT; LIKE S ECTION 10(15) AND 72A SO AS TO INCLUDE UNDERTAKING WHICH IS ENGAGED, INTER ALIA, IN : - THE MANUFACTURE OF COMPUTER SOFTWARE - THE MANUFACTURE OF COMPUTER SOFTWARE OR RECORDING OF PROGRAMME ON ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION DEVICE. 12 ITA NOS.1163 & 11 75/BANG/2012 6.5.2 IT IS SEEN THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT V TEXAS INSTRUMENTS INDIA (P) LTD. (2006) 115 TTJ 976, HAS HELD THAT A COMPANY THAT IS ENGAGED IN DEVELOPMENT, DESIGN AND MANUFACTURE OF SOFTWARE SHO ULD BE CONSIDERED AS BEING AN INDUSTRIAL UNDERTAKING FOR THE PURPOSES OF SECTION 80JJAA OF T HE ACT. AS THE ASSESSEE IS ENGAGED IN THE DEVELOPMENT AND MANUFACTURE OF SOFTWARE, THE AS SESSEE IS COVERED WITHIN THE DEFINITION OF INDUSTRIAL UNDERTAKING. 6.5.3 ANOTHER CONDITION STIPULATED UNDER THE ACT IS THAT THE ASSESSEE SHOULD BE ENGAGED IN THE MANUFACTURE OR PRODUCTION OF ARTICLE OR THING. THE DEFINITION OF INDUSTRIAL UNDERTAKING AS STIPULATED IN SECTION 10(15) AND SECTION 72A OF THE ACT EXTENDS TO UNDERTAKINGS THAT ARE ENGAGED, INTER ALIA, IN THE MANUFACTURE OF COMPUTER SOFTWARE OR RECORDING OF PROGRAMME ON ANY DISC, TAPE, PERFORATED MEDIA OR OTHER INFORMATION D EVICES. 6.5.4 SECTION 80JJAA REFERS TO WORKMEN AS DEFINED IN SECTION 2(5) OF THE INDUSTRIAL DISPUTES ACT, 1947,WHEREIN A WORKMEN IS DEFINED A S : WORKMEN MEANS ANY PERSON (INCLUDING AN APPRENTIC E) EMPLOYED IN ANY INDUSTRY TO DO ANY MANUAL, UNSKILLED, SKILLED, TECHNICAL, OPERA TIONAL, CLERICAL OR SUPERVISORY WORK FOR HIRE OR REWARD, WHETHER THE TERMS OF EMPLOYMENT BE EXPRESS OR IMPLIED, AND FOR THE PURPOSES OF ANY PROCEEDING UNDER THIS ACT I N RELATION TO AN INDUSTRIAL DISPUTE, INCLUDES ANY SUCH PERSON WHO HAS BEEN DISM ISSED, DISCHARGED, OR RETRENCHED IN CONNECTION WITH, OR AS A CONSEQUENCE OF, THAT DISPUTE, OR WHOSE DISMISSAL OR DISCHARGE OR RETRENCHMENT HAS LED TO T HAT DISPUTE, BUT DOES NOT INCLUDE ANY SUCH PERSON (I) WHO IS SUBJECT TO THE AIR FORCE ACT, 1950 (45 OF 19 50), OR THE ARMY ACT, 1950 (44 OF 1950) OR THE NAVY ACT, 1950 (62 OF 1957) OR (II) WHO IS EMPLOYED IN THE POLICE SERVICE OR AS AN OFFI CER OR OTHER EMPLOYEE OF A PERSON; OR (III) WHO IS EMPLOYED MAINLY IN A MANAGERIAL OR ADMINISTR ATIVE CAPACITY; OR (IV) WHO, BEING EMPLOYED IN A SUPERVISORY CAPACITY; DRAW S USAGE EXCEEDING TEN THOUSAND RUPEES PER MENSEM OR EXERCISES, EITHER BY THE NATUR E OF DUTIES ATTACHED TO THAT 13 ITA NOS.1163 & 11 75/BANG/2012 OFFICE OR BY REASON OF THE POWERS VESTED IN HIM, FU NCTIONS MAINLY OF A MANAGERIAL NATURE. THE ABOVE DEFINITION INCLUDES EMPLOYMENT OF WORKMEN HAVING TECHNICAL SKILL BUT EXCLUDES ANY WORKMEN IN MANAGERIAL OR ADMINISTRATIVE OR SUPE RVISORY CAPACITY. IN THE CASE ON HAND, THE PERSONS IN RESPECT OF WHICH DEDUCTION U/S.80JJAA OF THE ACT IS BEING CLAIMED WOULD FALL WITHIN THE ABOVE DEFINITION OF THE TERM WORKMEN AS DEFIN ED IN THE INDUSTRIAL DISPUTES ACT, 1947. 6.5.5 A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE C ASE OF TEXAS INSTRUMENTS INDIA (P) LTD. (SUPRA) AT PARA 7 THEREOF HAS HELD THAT THE ASSESSE E WOULD BE ELIGIBLE FOR DEDUCTION U/S.80JJAA IN RESPECT OF SALARY PAID TO THE SOFTWAR E ENGINEERS NOT EMPLOYED IN THE SUPERVISORY ROLE BY HOLDING THAT : 7. AS STATED EARLIER THE ASSESSEE HAD FILED THE DETAILS OF THE SOFTWARE ENGINEERS EMPLOYED DURING THE YEARS UNDER CONSIDERATION CONTA INING THE NAMES OF THE EMPLOYEES, DESIGNATION AND DATE OF JOINING. FURTHER , IN THE SAME LIST THE DETAILS OF TOTAL NUMBER OF EMPLOYEES JOINED DURING BOTH THE AS SESSMENT YEARS, NUMBER OF EMPLOYEES WITHOUT SUPERVISORY ROLES, WORKMEN JOINED , NUMBER OF SUPERVISORS JOINED AND WORKMEN JOINED AND RELIEVED DURING THE YEARS UN DER CONSIDERATION. A CURSORY PERUSAL OF THIS LIST SHOWS THAT THE ASSESSEE HAD CL AIMED DEDUCTION IN RESPECT OF EMPLOYEES, WHO HAD JOINED AS ENGINEERS IN THEIR RES PECTIVE FIELD SUCH AS SYSTEMS ENGINEER, TEST ENGINEER, SOFTWARE DESIGN ENGINEER, IC DESIGN ENGINEER, LEAD ENGINEER ETC. A CURSORY PERUSAL OF THOSE LISTS ESTABLISHES T HAT THE ASSESSEE HAD CLAIMED DEDUCTION IN RESPECT OF THE ENGINEERS EMPLOYED NOT IN THE CATEGORY OF SUPERVISORY CONTROL. ALL THESE DETAILS WERE FILED BEFORE THE AS SESSING OFFICER DURING ASSESSMENT PROCEEDINGS. THESE FACTS WERE NOT PROPER LY CONSIDERED BY THE ASSESSING OFFICER. FURTHER, FROM THE ORDER OF THE C IT(A), IT IS SEEN THAT HE HAD TAKEN NOTE OF THE NOTIFICATION ISSUED BY THE GOVERN MENT OF KARNATAKA AND CONCLUDED THAT AS PER THE NOTIFICATION ISSUED, THE ASSESSEE COMPANY ENGAGED IN THE DEVELOPMENT OF SOFTWARE IS COVERED BY THE INDUSTRIA L DISPUTES ACT, 1947. FURTHER IT IS NOT THE CASE OF THE REVENUE THAT THE ASSESSEE DID NOT FULFILL THE CONDITIONS EXTRACTED ELSEWHERE IN THIS ORDER. CONSIDERING ALL THOSE FACTUAL MATTERS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT(A) ACCORDING RELIEF TO THE ASSESSEE. IN FACT HE HAD CLARIFIED THE RELEVANT PORTIONS RELATED TO I NDUSTRIAL DISPUTES ACT, 1947 AND INCOME-TAX ACT WHILE GRANTING RELIEF TO THE ASSSESS EE WHICH ARE EXTRACTED AT PP. 5 14 ITA NOS.1163 & 11 75/BANG/2012 AND 6 OF THIS ORDER. AFTER CAREFULLY CONSIDERING TH E SAME, WE ARE INCLINED TO ACCEPT THE REASONS SHOWN BY THE LEARNED CIT(A). THE LEARNE D CIT-DEPARTMENTAL REPRESENTATIVE COULD NOT ASSAIL THE FINDING REACHED BY THE LEARNED CIT(A) BY BRINGING IN ANY VALID MATERIALS. THE ORDER OF THE C IT(A) IS CONFIRMED. IT IS ORDERED ACCORDINGLY. AS THE FACTS OF THE ASSESSEE IN THE CASE ON HAND A RE SIMILAR TO THE FACTS OF THE ABOVE CITED CASE OF TEXAS INSTRUMENTS INDIA P. LTD. (SUPR A), THE DEDUCTION U/S.80JJAA OF THE ACT IS ALLOWED ON THE BASIS OF THE FOLLOWING FACTS :- I) THE BUSINESS OF THE ASSESSEE FALLS WITHIN THE DEFIN ITION OF THE TERM INDUSTRIAL UNDERTAKING; II) THE ASSESSEE IS ENGAGED IN PROVIDING INFORMATION T ECHNOLOGY ENABLED SERVICES (COMPUTER SOFTWARE); III) THE ASSESSEE HAS CLAIMED DEDUCTION OF ONLY THOSE PA YMENTS MADE TO WORKMEN WHO ARE NOT EMPLOYED IN SUPERVISORY CAPACITY. IN VIEW OF THE ABOVE, WE UPHOLD THE DECISION OF THE LEARNED CIT (A) IN ALLOWING THE ASSESSEE DEDUCTION U/S.80JJAA OF THE ACT. ACCORDINGLY, THE GROUND RAISED AT S.NO.3 BY REVENUE IS DISMISSED. 7. DEDUCTION U/S.10A OF THE ACT : RS.55,61,880 . 7.1 IN THE GROUND RAISED AT S.NO.4 , REVENUE HAS CHALLENGED THE DECISION OF THE LEARNE D CIT (A) IN ALLOWING DEDUCTION U/S.10A OF THE ACT HOLDIN G THAT THE ASSESSEE IS NOT ENGAGED IN THE MANUFACTURE OF ARTICLE OR THING. WHEREAS IN CONTRA ST WHILE DECIDING THE ISSUE OF DEPRECIATION, THE LEARNED CIT (A) HAS HELD THAT THE ASSESSEE IS E NGAGED IN TELECOM SERVICES WHICH ARE NOT IN THE NATURE OF IT ENABLED SERVICES TO CLAIM DEDUCTIO N U/S.10A OF THE ACT. IT IS CONTENDED THAT 15 ITA NOS.1163 & 11 75/BANG/2012 THE LEARNED CIT (A) MERELY RELIED ON THE WORDS CON TENT MANAGEMENT IN THE NOTIFICATION OF THE CBDT ON IT ENABLED SERVICES. WHILE THAT CONTE NT MANAGEMENT WAS IN CONJUNCTION WITH DATA PROCESSING, THE ASSESSEES CONTENT DEVELOPMENT WAS IN THE CONTEXT OF TELECOM SERVICES. 7.2 THE FACTS OF THE CASE ON THIS ISSUE ARE THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF AN AMOUNT OF RS.55,61,880 U/S.10A OF THE ACT. THE A.O . DISALLOWED THE ASSESSEES CLAIM FOR DEDUCTION U/S.10A OF THE ACT FOR THE FOLLOWING REAS ONS : I) MOBILE VALUE ADDED SERVICES ARE TELECOM SERVICES AN D NOT IT ENABLED SERVICES; II) THE ASSESSEE IS NOT ENGAGED IN THE MANUFACTURE OF A NY ARTICLE OR THING; III) THE VALUE ADDED SERVICES RENDERED BY THE ASSESSEE A RE NOT EXPORTED OUT OF INDIA. IV) THE STPI UNIT AND REGISTERED OFFICE OF THE ASSESSEE ARE LOCATED IN THE SAME PREMISES AND THEREFORE IT IS IMPOSSIBLE TO SEGREGATE AND IDE NTIFY COSTS OF THE STPI UNIT. 7.3 ON APPEAL BY THE ASSESSEE, THE LEARNED CIT (A) REVERSED THE DECISION OF THE A.O. AND ALLOWED THE ASSESSEE DEDUCTION U/S.10A OF THE ACT. IN DOING SO, THE LEARNED CIT (A) RENDERED THE FOLLOWING REASONS / OBSERVATIONS : I) THE ASSESSEE IS ENGAGED IN THE MANUFACTURE OF ARTIC LE OR THING; II) THE A.O. HAS NOT ESTABLISHED THAT THE ASSESSEE IS N OT PRODUCING ANY CONTENT AND IN VIEW OF CBDT NOTIFICATION NO.11521 DT.26.9.2000, THE ASS ESSEE CAN BE CONSIDERED AS AN IT ENABLED SERVICES UNDERTAKING; III) IT IS A FACT THAT THE IT ENABLED SERVICES IS PROVID ED FROM INDIA AND USED OUTSIDE INDIA AND THE PAYMENT FOR THE SAME IS RECEIVED IN CONVERT IBLE FOREIGN EXCHANGE AND AS SUCH THE REQUIREMENT OF EXPORT IS FOUND TO BE MET; 16 ITA NOS.1163 & 11 75/BANG/2012 IV) THE A.O. HAS REFERRED TO A SINGLE AGREEMENT TO INTE RPRET THAT LICENSING OF SOFTWARE AND CONTENT PROCURED OR DEVELOPED BY THE ASSESSEE I MPLIES ONLY AN ACCESS AND NOT AN EXPORT, WHEREAS THE ASSESSEE HAS EXPLAINED THE PROC ESS OF UPLOADING ONTO SERVERS ABROAD AND PROVIDING INTERNATIONAL ACCESS FOR A FEE AND THAT ITS SERVICES ARE ALSO COVERED UNDER THE EXPORT OF SERVICES RULES, 2005; V) IT IS CONTENT MANAGEMENT WHICH IS THE USP OF THE AS SESSEE AND WHAT ACTUALLY MAKES ITS PARTICULAR OFFERING ACCEPTABLE OR PREFERABLE OVER W HATEVER ELSE IS AVAILABLE IN THE MARKET. IF THERE WAS NO UNIQUE VALUE ADDITION OF T HE BOUGHT CONTENT, IT WOULD BE UNREALISTIC TO EXPECT THAT SUCH A LARGE AND TECHNOL OGY ADVANCED BUSINESS COULD BE ENGAGED IN MERE TRADING PROCESS ALONE; VI) THE STUDIO SETUP AND PROCEDURE FOR PROCESSING OF TH E MUSIC CONTENT IS PERFORMED IN A COMPUTERIZED ENVIRONMENT AND THE USE OF HIGH END PR OCESSING SOFTWARE SUCH AS PROTOCOLS AND ABODE AUDITION IS EVIDENT; VII) THE FINAL PRODUCT IS TRANSMITTED IN THE FORM OF A SOFTWARE PROGRAMME CARRYING THE ENHANCED AUDIO OFFERING WITHIN IT. IT IS THE PROGR AMME WHICH IS DOWN LOADED BY USERS AND NOT THE RAW CONTENT ITSELF. VIII) WITH REGARD TO THE SEGREGATION OF COSTS OF STP, THE A.O. HAS COME TO RATHER ABRUPT FINDING, BASED ON A NARRATIVE OBSERVATION UP ON THE NATURE OF THE ASSESSEES BUSINESS. NO SPECIFIC DISCREPANCIES ARE POINTED OU T, WHEREAS THE ASSESSEE HAS DEMONSTRATED THAT IT WAS DULY MAINTAINING SPLIT FIN ANCIALS. 17 ITA NOS.1163 & 11 75/BANG/2012 7.4.1 WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD. IN THIS REGARD, IT WOULD BE RELEVANT TO EXTRACT AND EXAMINE THE PROVISIONS OF SECTION 10A OF THE ACT : 10A. (1) SUBJECT TO THE PROVISIONS OF THIS SECTION, A DEDUCTION OF SUCH PROFITS AND GAINS AS ARE DERIVED BY AN UNDERTAKING FROM THE EXP ORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FOR A PERIOD OF TEN CONSECUTIVE A SSESSMENT YEARS BEGINNING WITH THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR I N WHICH THE UNDERTAKING BEGINS TO MANUFACTURE OR PRODUCE SUCH ARTICLES OR THINGS O R COMPUTER SOFTWARE, AS THE CASE MAY BE, SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE : (1A).. (1B). (1C) (2) . (3) THIS SECTION APPLIES TO THE UNDERTAKING, IF THE SALE PROCEEDS OF ARTICLES OR THINGS OR COMPUTER SOFTWARE EXPORTED OUT OF INDIA A RE RECEIVED IN, OR BROUGHT INTO, INDIA BY THE ASSESSEE IN CONVERTIBLE FOREIGN EXCHAN GE, WITHIN A PERIOD OF SIX MONTHS FROM THE END OF THE PREVIOUS YEAR OR, WITHIN SUCH F URTHER PERIOD AS THE COMPETENT AUTHORITY MAY ALLOW IN THIS BEHALF. AS CAN BE SEEN FROM THE ABOVE, SECTION 10A OF THE ACT STIPULATES THE FOLLOWING CRITERIA FOR AN UNDERTAKING TO CLAIM DEDUCTION UNDER THIS SE CTION : A) THE SAID UNDERTAKING SHOULD BE ENGAGED IN THE EXPOR T OF ARTICLES OR THINGS OR COMPUTER SOFTWARE; B) THE SALE PROCEEDS OF SUCH EXPORTS SHOULD BE RECEIVE D INTO INDIA IN CONVERTIBLE FOREIGN EXCHANGE WITHIN THE STIPULATED TIME PERIOD. 7.4.2 EXPLANATION 2 TO SECTION 10A DEFINES COMPU TER SOFTWARE AS UNDER : 18 ITA NOS.1163 & 11 75/BANG/2012 COMPUTER SOFTWARE MEANS - A) ANY COMPUTER PROGRAMME RECORDED ON ANY DISC, T APE, PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVICE; OR B) ANY CUSTOMIZED ELECTRONIC DATA OR ANY PRODUCT OR SERVICE OF SIMILAR NATURE AS MAY BE NOTIFIED BY THE BOARD, WHICH IS TRANSMITTED OR EXPORTED FROM INDIA TO ANY PLACE OUTSIDE INDIA BY ANY MEANS,.. 7.4.3 THE CBDT HAS ISSUED NOTIFICATION NO.11521 [SO 890(E) (F.NO.142/49/2000-TPL)] DT.26.9.2000 SPECIFYING THE INFORMATION TECHNOLOGY ENABLED PRODUCTS / SERVICES ELIGIBLE TO CLAIM DEDUCTION U/S.10A, 10B AND 80HHE OF THE ACT, WHICH INTER ALIA INCLUDES CONTENT DEVELOPMENT OR ANIMATION. THUS, IN ADDITION TO THE UNDERTAKINGS ENGAGED IN THE MANUFACTURE OR PRODUCTION, THE AFORESAID NOTIFICATION ALSO EXTENDS THE BENEFIT OF DEDUCTION U/S.10A OF THE ACT TO DATA PROCESSING AND CONTENT DEVELOPMENT UNDE RTAKINGS. 7.4.4 IN THE LIGHT OF THE PROVISIONS OF LAW AND THE CBDT NOTIFICATION ABOVE, WE SHALL EXAMINE THE ACTIVITIES OF THE ASSESSEE. IT IS SEEN THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MOBILE VALUE ADDED SERVICES, WHICH INVOLVE CONTENT DEVELO PMENT IN ITS STP UNIT. IT IS SEEN THAT THE ASSESSEE HAS A DEDICATED STUDIO IN ITS STP UNIT WHE RE MUSIC RELATED CONTENT IS DEVELOPED. THE ASSESSEE ALSO PROCURES MUSIC AND OTHER CONTENT FROM THIRD PARTIES. THE MUSIC CONTENT DEVELOPED IN HOUSE AND PROCURED BY THE ASSESSEE I S PROCESSED TO A CUSTOMIZED FORMAT TO MAKE IT COMPATIBLE FOR DEPLOYMENT. THE ASSESSEE AL SO DEVELOPS ITS OWN CONTENT (VIZ. MUSIC RING TONES, CALLER TUNES, ETC.) IN ITS STUDIO. THE ASSE SSEE ALSO USES ITS STUDIOS FOR THE CONTENT DEVELOPMENT. THE STUDIO OF THE ASSESSEE IS EQUIPPE D WITH DEDICATED COMPUTER SYSTEMS LOADED WITH THE REQUIRED SOFTWARE. THE ASSESSEE ALSO USES MULTIPLE SOFTWARES LIKE PROTOCOLS V7.4, M- 19 ITA NOS.1163 & 11 75/BANG/2012 POWERED, ADOBE AUDITION, ETC. THE ASSESSEE ALSO US ES OTHER ADVANCED EQUIPMENTS WHICH INCLUDES SEVERAL HARDWARE AND SYSTEMS LIKE SOUND CA RDS, MONITORS, MIDI CONTROLLERS, MICROPHONES, ETC. WHICH ARE USED FOR DEVELOPMENT OF CONTENT. THESE EQUIPMENTS, BOTH HARDWARE AND SOFTWARE SYSTEMS, ARE USED FOR PROCESS ING BEFORE IT IS MADE AVAILABLE FOR USE BY THE CUSTOMERS. ONCE ALL THE ACTIVITIES IN THE PROC ESS ARE COMPLETE, THE MOBILE COMPATIBLE CONTENT IS UPLOADED ON THE SOFTWARE PLATFORMS IN TH E SERVERS. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEES ACTIVITY OF DEVELOPING CONTENT AND CONVERSION OF THE PROCURED CONTENT INTO MOBILE READABLE FORMAT WOULD QUALIFY TO BE CLASSIF IED AS CONTENT DEVELOPMENT OR DATA PROCESSING SPECIFIED IN CBDTS NOTIFICATION NO.115 21 AND THEREFORE THE ASSESSEE CAN BE CONSIDERED AS RENDERING IT ENABLED SERVICES. 7.4.5 AS REGARDS EXPORTS, THE CONTENT DEVELOPED B Y THE ASSESSEE IS UPLOADED ON SOFTWARE PLATFORMS WHICH ARE THEN TRANSFERRED TO THE SERVERS SITUATED OUTSIDE INDIA FROM WHERE IT IS ACCESSED BY MOBILE SUBSCRIBERS OF THAT COUNTRY. TH IS, IN OUR CONSIDERED VIEW, WOULD QUALIFY AS EXPORTS FOR THE PURPOSES OF SECTION 10A OF THE ACT. 7.4.6 IN THE LIGHT OF THE FACTUAL AND LEGAL MATR IX OF THE CASE AS DISCUSSED ABOVE, IT IS SEEN THAT THE ASSESSEE SATISFIES THE TWIN CONDITIONS OF EXPORT OF COMPUTER SOFTWARE AND REPATRIATION OF EXPORTS PROCEEDS IN CONVERTIBLE FOR EIGN EXCHANGE AS PRESCRIBED IN SECTION 10A OF THE ACT. WE, THEREFORE, CONCUR WITH THE FINDING OF THE LEARNED CIT (A) THAT THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S.10A OF THE ACT. ACCO RDINGLY, GROUND NO.4 RAISED BY REVENUE IS DISMISSED. 8. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 20 ITA NOS.1163 & 11 75/BANG/2012 ITA NO.1163/BANG/2012 ASSESSEE'S APPEAL FOR ASSES SMENT YEAR 2008-09. 9. DISALLOWANCE OF LEGAL & PROFESSIONAL CHARGES : RS.2 ,20,40,131. 9.1 DISALLOWANCE OF PROFESSIONAL CHARGES FOR CONDUCTING DUE DILIGENCE FOR ACQUISITION OF VOX MOBILI : RS.1,96,32,131. IN GROUNDS RAISED AT 1.A(A) TO (D) , THE ASSESSEE CHALLENGES, AS ERRONEOUS, THE ORDER OF THE LEARNED CIT (APPEALS) IN HOLDING THAT THE AMOU NT OF RS.1,96,32,131 PAID TOWARDS LEGAL AND PROFESSIONAL CHARGES FOR ACQUISITION OF VOX MOBILI, FRANCE IS CAPITAL NATURE AND NOT REVENUE EXPENDITURE AS CLAIMED BY THE ASSESSEE. IT IS ALSO CONTENDED THAT THE LEARNED CIT (APPEALS)S ORDER IN REJECTING THE ASSESSEE'S ALTERNATE GROUND / CLAIM FOR ALLOWING DEDUCTION OF THESE EXPENSES UNDER SECTION 35D OF THE ACT BY HOLDING TH AT THIS DEDUCTION IS NOT AVAILABLE FOR TECHNO-FINANCIAL ANALYSIS MADE FOR ACQUIRING AN EXI STING BUSINESS. 9.2 DISALLOWANCE OF LEGAL AND PROFESSIONAL CHARGES FOR FILING PATENT APPLICATION : RS.24,08,000. IN GROUNDS RAISED AT S.NO.1B( A ) AND ( B ) , THE ASSESSEE CONTENDS THAT THE ORDER OF THE LEARNED CIT (APPEALS) IS ERRONEOUS IN HOLDING THAT AN AMOUNT OF RS.24,08,000 PAID FOR LEGAL AND PROFESSIONAL CHARGES FOR FILING PATENTS APPLICATION S TO BE CAPITAL IN NATURE AND NOT REVENUE EXPENDITURE INCURRED BY THE ASSESSEE IN THE NORMAL COURSE OF ITS BUSINESS. 9.3 THE BRIEF FACTS OF THE MATTER, AS EMANATE FR OM THE RECORD, ARE THAT THE ASSESSEE HAD CLAIMED AN AMOUNT OF RS.6,68,98,726 AS EXPENDITURE INCURRED AS LEGAL AND PROFESSIONAL CHARGES IN ITS PROFIT AND LOSS ACCOUNT. OUT OF TH IS, THE ASSESSING OFFICER DISALLOWED AN AMOUNT OF RS.2,20,40,131 COMPRISING OF; 21 ITA NOS.1163 & 11 75/BANG/2012 (I) LEGAL & PROFESSIONAL CHARGES INCURRED IN CONNEC TION WITH THE ACQUISITION OF A COMPANY BY NAME VOX MOBILI IN FRANCE RS.1,96,32,131 AND (II) LEGAL AND PROFESSIONAL CHARGES TO FILE PATENT APPLICATION: RS.24,08,000. ON EXAMINATION THEREOF, THE ASSESSING OFFICER WAS OF THE VIEW THAT THESE PAYMENTS HAVE BEEN MADE IN CONNECTION WITH THE ACQUISITION O F A FOREIGN COMPANY AND ARE THEREFORE IN THE NATURE OF CAPITAL EXPENDITURE. THE ASSESSING O FFICER ALSO HELD THAT THE EXPENSES INCURRED FOR PATENT REGISTRATION IS ALSO CAPITAL IN NATURE S INCE THE PATENT IS A CAPITAL ASSET OF THE COMPANY. 9.4.1 ON APPEAL, THE LEARNED CIT (APPEALS) CONFIRME D THE AFORESAID DISALLOWANCE MADE BY THE ASSESSING OFFICER WITH THE FOLLOWING OBSERVATIONS : (I) THE ASSESSEE MAY EXPAND THEIR EXISTING BUSINES S BY ACQUIRING NEW ASSETS EITHER WITHIN THE COUNTRY OR GLOBALLY. THE FACT OF THE MATTER IS THA T A FOREIGN COMPANY HAS BEEN ACQUIRED, AND ACQUISITION OF BALANCE SHARES OF A RUNNING BUSINESS IS VERY MUCH IN THE NATURE OF A CAPITAL ACQUISITION. (II) THE FOREIGN COMPANY PLAYS A ROLE IN ADDING TO THE INFRASTRUCTURE AND APPARATUS OF THE ASSESSEE TO ENABLE IT TO GAIN A SHARPER BUSINESS ED GE; (III) THE ACQUISITION OF A FOREIGN COMPANY IS A LO NG TERM BUSINESS ARRANGEMENT THAT BRINGS TO THE ASSESSEE AN ENDURING BENEFIT WHICH SPANS THE EN TIRE LIFE TIME OF ITS EXISTENCE AS A BUSINESS ENTITY. ALSO, WITH THIS ACQUISITION, ALL THE LEGAL AND TECHNICAL RIGHTS, CUSTOMER BASE, KNOW HOW, ETC., ALREADY BEING ENJOYED BY VOX MOBILI PASS ON T O THE ASSESSEE. 22 ITA NOS.1163 & 11 75/BANG/2012 9.4.2 IN COMING TO THIS FINDING THE LEARNED CIT (AP PEALS) RELIED ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS, VIZ. ABDUL KAYOOM V CIT (1962) 44 I TR 689 (SC) AND ALEMBIC CHEMICAL WORKS CO. LTD. V CIT (177 ITR 377) (SC) TO HOLD THA T EVEN IF THE RIGHT IS ACQUIRED FOR A SHORT PERIOD, THE EXPENDITURE ON ACQUISITION SHOULD BE TR EATED AS CAPITAL EXPENDITURE AND THAT A NEW ACQUISITION COULD BE CONSIDERED OF REVENUE NATURE, ONLY IF IT DID NOT INCREASE THE VOLUME OF PRODUCTIVE CAPACITY OF THE UNDERTAKING. 9.4.3 THE LEARNED CIT (APPEALS) ALSO HELD THAT, THE SAME RATIO OF ENDURING BENEFIT HITS THE ASSESSEES CLAIM FOR PATENT APPLICATION TO BE ALLOW ED AS REVENUE EXPENDITURE AND IN THIS REGARD PLACED RELIANCE ON THE JUDGMENT OF THE ITAT, DELHI IN MODI REVLON PVT. LTD. (2 ITR (TRIB) 632 (DEL) WHICH FOLLOWED THE DECISION OF THE HON'BLE AP EX COURT IN THE CASE OF CIT V CIBA OF INDIA LTD. (69 ITR 692) TO HOLD THAT WHERE THE BENEFIT FR OM A PATENT ACQUISITION RESULTED IN ENDURING BENEFIT, THE SAID EXPENDITURE CANNOT BE CL AIMED AS REVENUE. 9.5.1 SUPPORTING THE GROUNDS RAISED AT 1A(A ) TO (D), THE LEARNED AUTHORISED REPRESENTATIVE ASSAILED THE IMPUGNED ORDER OF THE LEARNED CIT (APP EALS) SUBMITTING THAT THE EXPENDITURES IN QUESTION WERE NOT INCURRED FOR ACQUIRING A CAPITAL ASSET OR ANY ENDURING BENEFIT BUT ONLY FOR THE PURPOSE OF CONDUCTING DUE DILIGENCE ON VOX MOBI LI, FRANCE BEFORE ACQUISITION. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ACQUI SITION WAS FOR STRATEGIC REASONS AND WAS NOT IN THE NATURE OF AN INVESTMENT FOR FUTURE GAIN S. IT WAS FURTHER SUBMITTED THAT SINCE THE EXPENDITURE WAS INCURRED ON CONDUCTING DUE DILIGENC E AND FEASIBILITY STUDIES BEFORE ACQUIRING A COMPANY OR MAKING INVESTMENT, IT IS IN THE NATURE OF REVENUE EXPENDITURE. THE SAID EXPENDITURE MAY OR MAY NOT RESULT IN THE INVESTMENT BEING FINALLY MADE. IT IS ONLY A PRELIMINARY 23 ITA NOS.1163 & 11 75/BANG/2012 STEP TO DETERMINE THE FEASIBILITY OF UNDERTAKING A PARTICULAR PROJECT AND IS PURELY REVENUE IN NATURE. IN SUPPORT OF ITS ARGUMENTS, THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING JUDICIAL PRONOUNCEMENTS : I) INTERCONTINENTAL HOTELS GROUP INDIA P. LTD. (201 3) 33 TAXMAN.COM 153. II) KESORAM INDUSTRIES & COTTON MILLS LTD. V CIT (1 96 ITR 845) (CAL) (III) CIT V PRIYA VILLAGE ROADSHOWS LTD. 332 ITR 59 4 (DEL) (IV) MAHARAJA SHRI UMAID MILLS LTD. V CIT (175 ITR 72) (RAJ) (V) JAY ENGINEERING WORKS LTD. V CIT 166 TAXMANN 1 15 (DEL) 9.5.2 THE LEARNED AUTHORISED REPRESENTATIVE ALSO PUT FORTH THE ASSESSEES ALTERNATE PLEA, THAT IF THE AFORESAID EXPENDITURE IS NOT ALLOWED AS REVENUE EXPENDITURE, THEN IT SHOULD BE ALLOWED AS A DEDUCTION IN ACCORDANCE WITH THE PROVI SIONS OF SECTION 35D OF THE ACT. 9.6 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESE NTATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9.7 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD INCLUDING THE JUDICIAL DECISIONS CITED REGAR DING THE ISSUE OF THE ALLOWABILITY OR OTHERWISE OF PROFESSIONAL CHARGES OFRS.1,96,32,134 FOR CARRYI NG OUT OF DUE DILIGENCE FOR ACQUISITION OF VOX MOBILI, FRANCE VIZ. GROUNDS OF APPEAL 1A(A) TO (D)]. IT IS NOT IN DISPUTE THAT THE AFORESAID EXPENDITURE HAS BEEN INCURRED IN CONDUCTING DUE DIL IGENCE, IN PREPARATION OF A FEASIBILITY REPORT ON VOX MOBILI, FRANCE IN WHICH INVESTMENTS A RE BEING MADE LEADING TO ITS ACQUISITION. ON A CAREFUL APPRECIATION OF THE FACTS OF THE MATTER I N THE CASE ON HAND, WE FIND THAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE DECISION OF THE DELHI BENCH OF THE ITAT IN THE CASE OF INTERCONTINENTAL HOTELS GROUP INDIA P. LTD. (SUPRA) WHEREIN AT PARA 6 THEREOF, IT WAS HELD THAT PAYMENTS IN RELATION TO DUE DILIGENCE AND RISK ANAL YSIS OF POTENTIAL TARGETS WOULD NOT BE CAPITAL 24 ITA NOS.1163 & 11 75/BANG/2012 IN NATURE AND HELD THAT SUCH EXPENDITURE IS INCURRE D IN THE ORDINARY COURSE OF BUSINESS OF THE ASSESSEE AND ACCORDINGLY IS REVENUE IN NATURE. FOL LOWING THIS DECISION OF THE ITAT, DELHI BENCH, WE HOLD THAT THE EXPENDITURE INCURRED BY THE ASSESSEE FOR CONDUCTING DUE DILIGENCE IN REPORT OF VOX MOBILI, FRANCE WHICH WAS TO BE ACQUI RED BY THE ASSESSEE IS REVENUE IN NATURE AND IS ACCORDINGLY ALLOWED AS A DEDUCTIBLE EXPENDIT URE UNDER SECTION 37(1) OF THE ACT. ACCORDINGLY THE ASSESSEE'S GROUNDS RAISED AT 1A(A) TO (D) ARE ALLOWED. SINCE THE ASSESSEE'S GRIEVANCE HAS BEEN ADDRESSED BY OUR ORDER (SUPRA), THERE IS NO REQUIREMENT FOR US TO ADJUDICATE ON THE ALTERNATE GROUNDS RAISED AT 1A(C) AND (D) IN RESPECT OF THE CLAIM OF DEDUCTION UNDER SECTION 35D OF THE ACT AT THIS STAGE. 9.8.1. REGARDING THE GROUNDS RAISED AT 1B (A) & (B) IN RESPECT OF LEGAL AND PROFESSIONAL CHARGES OF RS.24,08,000 INCURRED FOR FILING PATENT APPLICAT ION, THE LEARNED A.R. IN SUPPORT OF THE GROUNDS RAISED SUBMITTED THAT THESE LEGAL CHARGES P AID FOR REVIEWING AND FILING OF THE PATENT APPLICATION WERE EXPENSES INCURRED IN THE REGULAR C OURSE OF BUSINESS OF THE ASSESSEE, AND ARE NOT CAPITAL IN NATURE. IT WAS ALSO SUBMITTED THAT T HE PURPOSE OF INCURRING THESE CHARGES WAS NOT TO ACQUIRE ANY ENDURING BENEFIT BUT WAS ONLY A PRELIMINARY STEP TO PROTECT THE PATENT ACQUIRED AND IS THEREFORE REVENUE IN NATURE. IN SU PPORT OF THIS PROPOSITION THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE APEX COURT IN THE CA SE OF CIT V FINLAY MILL LTD. (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER : IN OUR OPINION, THE CONTENTION URGED ON BEHALF OF THE APPELLANT MUST FAIL. IT IS NOT CONTENDED THAT BY THE TRADE MARKS ACT A NEW ASSET H AS COME INTO EXISTENCE. IT WAS CON- TENDED THAT AN ADVANTAGE OF AN ENDURING NA TURE HAD COME INTO EXISTENCE. IT WAS ARGUED THAT JUST AS MACHINERY MAY ATTAIN A H IGHER VALUE BY AN IMPLEMENTATION CAUSING GREATER PRODUCTIVE CAPACITY, IN THE PRESENT CASE THE TRADE MARK WHICH 25 ITA NOS.1163 & 11 75/BANG/2012 EXISTED BEFORE THE TRADE MARKS ACT ACQUIRED AN ADVA NTAGE OF AN ENDURING NATURE BY REASON OF THE TRADE MARKS ACT AND THE FEES PAID FOR REGISTRATION THERE UNDER WERE IN THE NATURE OF CAPITAL EXPENDITURE. IN OUR O PINION, THIS ANALOGY IS FALLACIOUS. THE MACHINERY WHICH ACQUIRES A GREATER PRODUCTIVE C APACITY BY REASON OF ITS IMPROVEMENT BY THE INCLUSION OF SOME NEW INVENTION NATURALLY BECOMES A NEW AND ALTERED ASSET BY THAT PROCESS. SO LONG AS THE MACHI NERY LASTS, THE IMPROVEMENT CONTINUES TO THE ADVANTAGE OF THE OWNER OF THE MACH INERY. THE REPLACEMENT OF A DILAPIDATED ROOF. BY A MORE SUBSTANTIAL ROOF STANDS ON THE SAME FOOTING. THE RESULT HOWEVER OF THE TRADE MARKS ACT IS ONLY TWO-FOLD. BY REGISTRATION, THE OWNER IS ABSOLVED FROM THE OBLIGATION TO PROVE HIS OWNERSHIP OF THE TRADE MARK. IT IS TREATED AS PRIMA FACIE PROVED ON PRODUCTION OF THE REGISTRA TION CERTIFICATE. IT THUS MERELY SAVES HIM THE TROUBLE OF LEADING EVIDENCE, IN THE E VENT OF A SUIT, IN A COURT OF LAW, TO PROVE HIS TITLE TO THE TRADE MARK. IT HAS BEEN SAID THAT REGISTRATION IS IN THE NATURE OF COLLATERAL SECURITY FURNISHING THE TRADER WITH A CHEAPER AND MORE DIRECT REMEDY AGAINST INFRINGERS, CANCEL THE REGISTRATION AND HE HAS STILL HIS RIGHT ENFORCEABLE AT COMMON LAW TO RESTRAIN THE PIRACY OF HIS TRADE MARK . IN OUR OPINION, 'THIS IS NEITHER SUCH AN ASSET NOR AN ADVANTAGE AS TO MAKE PAYMENT F OR ITS REGISTRATION A CAPITAL EXPENDITURE. IN THIS CONNECTION IT MAY BE USEFUL TO NOTICE THAT EXPENDITURE INCURRED BY A COMPANY IN DEFENDING TITLE TO PROPERTY IS NOT CONSIDERED EXPENSE OF A CAPITAL NATURE. IN SOUTHERN (H. M. INSPECTOR OF TAXES) V. B ORAX CONSOLIDATED LIMITED(1). IT IS THERE STATED THAT WHERE A SUM OF MONEY IS LAID O UT FOR THE ACQUISITION OR THE IMPROVEMENT OF A FIXED CAPITAL ASSET IT IS ATTRIBUT ABLE TO CAPITAL, BUT IF NO ALTERATION IS MADE IN THE FIXED CAPITAL ASSET BY TH E PAYMENT, THEN IT IS PROPERLY ATTRIBUTABLE TO REVENUE, BEING IN SUBSTANCE A MATTE R OF MAINTENANCE, THE MAINTENANCE OF THE CAPITAL STRUCTURE OR THE CAPITAL ASSET OF THE COMPANY. IN OUR OPINION, THE ADVANTAGE DERIVED BY THE OWNER OF THE TRADE MARK BY REGISTRATION FALLS WITHIN THIS CLASS OF EXPENDITURE. THE FACT THAT A T RADE MARK AFTER REGISTRATION COULD BE SEPARATELY ASSIGNED, AND NOT AS A PART OF THE GOODWILL OF THE BUSINESS ONLY, DOES NOT ALSO MAKE THE EXPENDITURE FOR REGISTRATION A CAPITAL EXPENDITURE. THAT IS ONLY AN ADDITIONAL AND INCIDENTAL FACILITY GIVEN TO THE OWNER OF THE TRADE MARK. IT ADDS NOTHING TO THE TRADE MARK ITSELF. IT IS THE CONTENTION OF THE LEARNED AUTHORISED REPR ESENTATIVE OF THE ASSESSEE THAT THE PRINCIPLES LAID DOWN BY THE HON'BLE APEX COURT IN R ESPECT OF TRADE MARKS IN THAT CASE ARE EQUALLY APPLICABLE TO THE ISSUE OF PATENTS IN TH E CASE ON HAND AND PRAYED THAT IN VIEW OF THIS, THE EXPENDITURE OF RS.24,08,000 INCURRED BY THE ASS ESSEE BE ALLOWED AS REVENUE EXPENDITURE. 26 ITA NOS.1163 & 11 75/BANG/2012 9.8.2 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE ORDER OF THE LEARNED CIT (A) ON THIS ISSUE. 9.8.3 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CA REFULLY CONSIDERED THE MATERIAL ON RECORD INCLUDING THE JUDICIAL DECISIONS REFERRED. THE FACTS OF THE MATTER ON THIS ISSUE ARE NOT IN DISPUTE. THE ASSESSING OFFICER WAS HOWEVER OF THE VIEW THAT THIS EXPENDITURE INCURRED FOR FILING THE PATENT APPLICATION IS FOR REGISTRATION O F PATENT AND THE SAME IS CAPITAL EXPENDITURE SINCE THE PATENT IS A CAPITAL ASSET OF THE ASSESSEE COMPANY. AS HELD BY THE HON'BLE APEX COURT IN THE CASE OF FINLAY MILL LTD. (SUPRA) IN RE SPECT OF TRADEMARKS; EXPENSES INCURRED FOR THE PURPOSE OF REGISTRATION OF TRADEMARKS GOES TO P ROTECT THE TRADEMARK AND NOT CREATE THE TRADEMARK PER SE, WE ARE OF THE CONSIDERED OPINION THAT THE SAME ANALOGY WOULD APPLY IN THE CASE ON HAND TO EXPENSES INCURRED FOR FILING PATENT APPLICATION; I.E. THAT SUCH EXPENDITURE WOULD GO TO PROTECT THE PATENT AND NOT CREATE THE P ATENT PER SE. IN THIS VIEW OF THE MATTER, WE HOLD THAT THE EXPENDITURE OF RS.24,08,000 INCURR ED AS LEGAL CHARGES FOR FILING THE PATENT APPLICATION IS REVENUE EXPENDITURE INCURRED IN THE COURSE OF THE ASSESSEE'S BUSINESS AND IS TO BE ALLOWED AS A DEDUCTION. IT IS ACCORDINGLY ORDER ED. THE GROUNDS RAISED BY THE ASSESSEE AT 1B(A) & (B) ARE ACCORDINGLY ALLOWED. 10. ADJUSTMENT IN DEPRECIATION : RS.9,06,45,983 10.1 IN THE GROUNDS RAISED AT 2(A) AND (B) , THE ASSESSEE CONTENDS THAT THE ORDER OF THE LEARNED CIT (A) IS ERRONEOUS IN SO FAR AS IT HELD T HAT MEDIA RESOURCE BOARDS ARE TELECOM EQUIPMENT AND WOULD THEREFORE FORM PART OF PLANT AND MACHINERY AND NOT COMPUTERS FOR THE PURPOSES OF COMPUTING ALLOWABLE DEPRECIATION U/S.32 OF THE ACT, FAILING TO COMPREHEND THAT 27 ITA NOS.1163 & 11 75/BANG/2012 MEDIA RESOURCE BOARDS ARE A PART OF THE SERVER AND THEREFORE OUGHT TO BE CLASSIFIED AS COMPUTERS. 10.2 THE FACTS OF THE MATTER ARE THAT IN THE PERIOD UNDER CONSIDERATION, THE ASSESSEE PURCHASED MEDIA RESOURCE BOARDS (MRB IN SHORT) AM OUNTING TO RS.29,33,43,011 ADDED THE SAME TO THE BLOCK OF ASSETS VIZ. COMPUTERS AND CLAI MED DEPRECIATION THEREON @ 60%. THE ASSESSING OFFICER ON EXAMINATION OF THE ASSESSEE'S CLAIM, DID NOT ACCEPT THE SAME, RECLASSIFIED THE MRB AS PLANT AND MACHINERY HOL DING THEM TO BE TELECOM EQUIPMENT AND ALLOWED DEPRECIATION AT 15% AS APPLICABLE TO PLANT AND MACHINERY. 10.3 THE LEARNED CIT (A) IN HIS ORDER, UPHELD TH E ORDER OF THE ASSESSING OFFICER OBSERVING AS UNDER : (I) IT MAY NOT ALWAYS BE PROPER TO LABEL ALL TECHNI CAL SYSTEMS WHICH USE COMPUTERS AS THEIR BASIC INTERFACE TO FUNCTION AS COMPUTERS ; (II) ALL KINDS OF BUSINESS TODAY MODIFY OR TWEAK B ASIC COMPUTER PROCESSES WITH ADDITIONAL HARDWARE OR SOFTWARE TO GAIN DELIVERY OF THEIR UNIQ UE PRODUCTS; (III) IT MAY NOT DO FOR THE DESCRIPTION OF THESE P ROCESSES TO BE OVER SIMPLIFIED AND TAKEN UP IN A CASUAL MANNER. THE CHENNAI BENCH OF THE ITAT IN THE CASE OF ITO V ACCURUM INDIA (P) LTD. IN 128 TTJ 249 DT.27.11.2009 RAISED THIS VERY APPRE HENSION, INVOLVING THE DEDUCTION UNDER SECTION 10A OF THE ACT, AND WARNED AGAINST THE DANG ER OF VIEWING THE COMPLEX PROCESS OF SOFTWARE DEVELOPMENT FOR EXPORT IN AN OVER SIMPLIFI ED WAY. (IV) IN THE ASSESSEE'S CASE THE MRBS HAVE A SPECI FIC FUNCTION AND IT IS NOT ONLY TO STORE, PROCESS AND RETRIEVE DATA FOR GENERAL PURPOSES. TH EY DO NOT LEAD THEMSELVES TO THE USAGE 28 ITA NOS.1163 & 11 75/BANG/2012 EXCEPT FOR A VERY SPECIFIC FUNCTION OF FACILITATING SPECIALIZED TELECOMMUNICATIONS WHICH IS A PART OF THE BUSINESS STRATEGY AND GOAL OF THE ASSES SEE ; (V) BECAUSE THE MRB IS USED AS A PART OF THE COMPUT ER SERVER THAT DOES NOT AUTOMATICALLY MAKE IT A COMPUTER PART AND IT CONTINUES TO REMAI N WHAT IT WAS ALWAYS INTENDED TO BE, I.E. A PIECE OF TELECOMMUNICATION EQUIPMENT. THE COMPUTER SERVER ONLY PROVIDES THE COMMON PLATFORM FOR THE TELECOMMUNICATION CARD TO FUNCTION , INTERACT WITH OTHERS AND DELIVER ITS CUSTOMIZED OFFERING ; (VI) AS ANALOGY CAN BE DRAWN TO THE BASIC NEED FOR TRANSPORTATION WHICH FUELLED R&D OF THE INTERNAL COMBUSTION ENGINE IN THE LAST DECADE OF TH E 19 TH CENTURY. THAT ENGINE, WHICH HAS BEEN FURTHER DEVELOPED AND MODIFIED TILL THE PRESENT DAY , HAS BEEN UTILIZED TO POWER AIRCRAFT, SHIPS, VEHICLES, INDUSTRIAL MACHINERY, AGRICULTURAL EQUIPM ENT, ELECTRICITY GENERATION PLANTS, MINING MACHINERY AND SUCH LIKE GADGETS AND EQUIPMENT WHICH CAN BE NAMED AD-INFINITUIM. (VII) NONE OF THESE MECHANICAL MARVELS AND GADGETS COULD HAVE BEEN POSSIBLE WITHOUT THE BASIC PLATFORM OF THE INTERNAL COMBUSTION ENGINE, F ROM WHICH THEY DERIVED THEIR PRIMARY REQUIREMENT OF ENERGY. HOWEVER, THIS FACT BY ITSEL F DOES NOT MAKE FOR THE CLASSIFICATION OF THESE MYRIAD TECHNOLOGICAL INNOVATIONS AS INTERNAL COMBUSTION ENGINES; (VIII) AN AIRCRAFT, SHIP OR VEHICLE REMAIN DISTINC T AS MEANS OF COMMUNICATION OR FREIGHT AS DO ALL OTHER PRODUCTS USING THE ENGINE, FROM POWER HOU SES TO FACTORIES AND COUNTLESS KINDS OF PRODUCTION FACILITIES. THEY REMAIN UNIQUE IN THEIR FUNCTIONALITY AND ARE DEFINED BY IT, RATHER THAN BY THE COMMON PLATFORM OF ENERGY PROVIDING TEC HNOLOGY IN THE FORM OF THE ENGINE; 29 ITA NOS.1163 & 11 75/BANG/2012 (IX) IN SIMILAR FASHION, IN THE CASE ON HAND, THE C OMPUTER SERVER PROVIDES THE BASIC PLATFORM FOR ALL KINDS OF TECHNOLOGICAL DEVICES TO FUNCTION; BY ITS VERY NOMENCLATURE, IT SERVES MYRIAD APPLICATIONS AND TECHNOLOGICAL PROCESSES. BY BEING ATTACHED TO THE COMPUTER SERVER, THESE DEVICES AND PROCESSES DO NOT AUTOMATICALLY BECOME C OMPUTER SYSTEMS, AS HAS BEEN CONTENDED BY THE ASSESSEE. IT IS AN OVER-SIMPLIFICATION OF A COMPLEX TECHNOLOGICAL ENVIRONMENT TO TAKE THAT VIEW; (X) IF ALL CUSTOMIZED AND SPECIALIZED SYSTEMS USED IN THESE ACTIVITIES ARE PEGGED AS COMPUTER SYSTEMS MERELY BECAUSE THEY ARE CONNECT ED TO A COMPUTER SERVER, EITHER PHYSICALLY OR REMOTELY, THEN THE DANGER OF OVER-SIMPLIFIED DES CRIPTION OF COMPLEX TECHNOLOGICAL PROCESSES, WHICH THE TRIBUNAL APPREHENDED IN THE CA SE OF ACCUMEN INDIA P. LTD. (SUPRA), IS VERY CLEARLY INVITED IN; (XI) IT IS SEEN FROM THE SUBMISSIONS THAT ON THE ON E HAND THE ASSESSEE IS CERTIFYING THE SPECIALIZED FUNCTIONAL NATURE OF THE GADGET AND ON THE OTHER HAND, IGNORES THAT VERY FUNCTIONAL CLASSIFICATION WHILE HOLDING IT TO BE NOTHING BUT A COMPUTER SYSTEM. YET, IN THE SAME BREATH, IT ALSO DRAWS REFERENCE ON THE HOUSE OF LORDS CASE, BA RCLAY, CURLE AND CO. (76 ITR 62)WHICH SANCTIFIES FUNCTIONALITY AS THE ONLY EFFECTIVE TEST ; (XII) THE PATENT CONTRADICTION OF OVER-SIMPLIFICATI ON AND GENERALIZATION IN ASSESSEE'S ARGUMENTS ARE THUS APPARENT. BY ITS VERY NARRATIVE NATURE, A COMPUTER SYSTEM IS A DATA STORAGE, PROCESSING AND RETRIEVAL DEVICE AND BUT FO R THE MEDIA RESOURCE BOARDS, ITS CAPABILITY TO RENDER THESE PARTICULAR TELECOMMUNICATION SERVIC ES WOULD NOT EXIST; 30 ITA NOS.1163 & 11 75/BANG/2012 (XIII) BY INSISTING THAT THERE ARE DEDICATED SERVER S FOR SUCH COMMUNICATION PURPOSES ONLY, THE ASSESSEE IS IN DANGER OF EXPOSING ITSELF TO THE ENT IRELY PLAUSIBLE ARGUMENT THAT BY INCORPORATION OF THE MRBS, THE ENTIRE SERVER ITSELF UNDERGOES A FUNCTIONAL TRANSFORMATION AND BECOMES A PIECE OF TELECOMMUNICATION EQUIPMENT RA THER THAN A MERE PLAIN VANILLA COMPUTER SYSTEM. 10.4.1 THE LEARNED AUTHORISED REPRESENTATIVE WAS HEARD IN SUPPORT OF THE GROUNDS RAISED. IT WAS CONTENDED THAT THE LEARNED AUTHORISED REPRESENT ATIVE, THAT THE MRBS CANNOT BE CLASSIFIED AS PLANT AND MACHINERY AND THE ONLY CL ASSIFICATION POSSIBLE FOR MRBS IS UNDER COMPUTERS. IT WAS SUBMITTED THAT MRBS PROVIDE PO RT CAPABILITIES AS TO SUPPORT A VARIETY OF FUNCTIONS LIKE VOICE PLAY / RECORD, TONE DETECTION / GENERATION, ECHO CANCELLATION AND VOICE COMPRESSION, AS WELL AS TRUNKING, FAX, CONFERENCING AND VOIP FUNCTIONS IN A SINGLE PCI, COMPACT PCI OR PCI EXPRESS SLOT. IT ELIMINATES THE NEED TO USE MULTIPLE SPECIALIZED BOARDS, PROVIDES EASY ACCESS TO ALL SUPPORTED FEATURES AND REDUCES T HE TIME SPENT ON CONFIGURATION AND DEVELOPMENT. 10.4.2 THE LEARNED AUTHORISED REPRESENTATIVE ALS O SUBMITTED THAT THE MRBS CAN BE USED ONLY IN COMPUTER SERVERS AND DO NOT HAVE ANY A LTERNATE USE. THE MRBS FORM PART OF THE COMPUTER SERVERS, SIMILAR TO MODEMS, AND HELP IN IN TERPRETING CALLS AND CONVERSION OF CALLS FROM DIGITAL FORM TO VOICE AND VICE-VERSA. THESE ARE CO NNECTED TO THE COMPUTER SERVERS AND HELP IN INTERPRETING THE CALLS LANDING IN THE NET WORK AND ROUTES TO THE RESPECTIVE CONTENT FILLERS FOR RING BACK TONE SERVICES AND OTHER VALUE ADDED SERVI CES WHICH THE ASSESSEE PROVIDES TO ITS CUSTOMERS. THE LEARNED AUTHORISED REPRESENTATIVE SU BMITTED THAT IN VIEW OF THE ABOVE, MRBS 31 ITA NOS.1163 & 11 75/BANG/2012 IN CONJUNCTION WITH THE COMPUTER AND SERVERS WOULD CONSTITUTE A COMPLETE COMPUTER SYSTEM, WHICH ENABLES COMPUTER SERVERS TO PERFORM MORE ADVA NCED FUNCTIONS THAN A COMPUTER WOULD GENERALLY BE REQUIRED TO DO. IN SUPPORT OF THE PROP OSITION, THE LEARNED AUTHORISED REPRESENTATIVE RELIED ON THE FOLLOWING JUDICIAL DEC ISIONS : (I) DCI V DATACRAFT INDIA LTD., 6 TAXMANN.COM 85 (M UM) (II) DCIT V MICROSOFT CORPN. INDIA (P) LTD., 139 TT J 40 (DEL) (III) NCR CORPORATION PVT. LTD. V ACIT (ITA NO.353 /BANG/2010) DT.28.2.2011. 10.5 PER CONTRA, THE LEARNED DEPARTMENTAL REPRESE NTATIVE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND PRAYED FOR THE DISMISSAL OF T HE ASSESSEE'S APPEAL ON THIS ISSUE OF DEPRECIATION FOR MRBS. 10.6.1 WE HAVE HEARD BOTH PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD INCLUDING THE JUDICIAL DECISIONS CITED. THE ISSUE FOR OUR CONSIDERATION IS WHETHER MRBS ARE TO BE CLASSIFIED AS PLANT AND MACHINERY OR C OMPUTERS FOR THE PURPOSES OF DEPRECIATION. IN THIS REGARD, IT WOULD BE RELEVANT TO UNDERSTAND TH E TERM COMPUTER. WHILE COMPUTER HAS NOT BEEN DEFINED IN THE INCOME TAX ACT, 1961, THE TERM COMPUTER SYSTEM HAS BEEN DEFINED UNDER EXPLANATION (A) TO SECTION 36(1)(XI) OF THE ACT AS UNDER : (A ) 'COMPUTER SYSTEM' MEANS A DEVICE OR COLLECTION O F DEVICES INCLUDING INPUT AND OUTPUT SUPPORT DEVICES AND EXCLUDING CALCULATORS WH ICH 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, L OGIC, ARITHMETIC, DATA STORAGE AND RETRIEVAL, COMMUNICATION AND CONTROL; FROM THE ABOVE DEFINITION, IT FOLLOWS THAT A COMPU TER SYSTEM WOULD ENCOMPASS A COLLECTION OF DEVICES INCLUDING INPUT AND OUTPUT SU PPORT DEVICES THAT PERFORM FUNCTIONS 32 ITA NOS.1163 & 11 75/BANG/2012 INCLUDING, BUT NOT LIMITED TO, LOGIC, ARITHMETIC, D ATA STORAGE AND RETRIEVAL COMMUNICATION AND CONTROL. 10.6.2 IN THE LIGHT OF THE ABOVE DEFINITION OF COM PUTER SYSTEM, THE FUNCTIONS OF MRBS REQUIRE TO BE EXAMINED. FROM THE DETAILS ON RECORD , IT APPEARS THAT THE FUNCTION OF MRBS IS TO SUPPORT A COMBINATION OF FUNCTIONS, PERFORMED IN CO NJUNCTION WITH THE COMPUTER AND SERVERS. THE MRBS ARE BOARDS WHICH ARE CONNECTED TO COMPUTER SERVERS WHICH ASSIST IN RECEIVING CALLS AND WOULD FUNCTION ONLY WHEN ATTACHED TO THE COMPUT ER. THE MRBS INCREASE THE WORKING CAPACITY OF THE COMPUTERS TO THE EXTENT THE COMPUTE RS RECEIVE CALLS AND CONVERT THEM INTO DIGITAL FORM. THE MRBS WORK IN CONJUNCTION WITH AN D AS A PART OF THE COMPUTER SERVERS AND CANNOT, IN ANY WAY, BE CALLED AS TELECOM EQUIPMENT . WE ALSO FIND THAT THE FACTS OF THIS ISSUE IN THE CASE ON HAND, IS SIMILAR TO THE FACTS OF THE CASE DCIT V DATACRAFT INDIA LTD. (2010) 40 SOT 295 (MUM) (SB) WHEREIN THE SPECIAL BENCH OF THE MUMBAI TRIBUNAL O F THIS ORDER HELD AS UNDER : 31. NOW WE HAVE TO CONSIDER WHETHER A ROUTER C AN 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 INTER NAL 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, 33 ITA NOS.1163 & 11 75/BANG/2012 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. 31.2. WHEN COMPUTER HARDWARE, IS USED AS A COMPON ENT OF THE COMPUTER, IT BECOMES PART AND PARCEL OF THE COM PUTER, AS IN THE CASE OF OPERATING SOFTWARE IN THE COMPUTER. IN SUCH 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 C OMPUTER, 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. I N 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 TH E 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 COMPUTER IN IT S FUNCTIONS, THEN IT WOULD BE TERMED AS A COMPUTER. 32. NOW WE WILL ADVERT TO THE DECISIONS RELIED ON B Y 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 34 ITA NOS.1163 & 11 75/BANG/2012 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 ROUTER MANIA 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. 33. WE PREFER THE VIEW TAKEN IN THE CASE OF SAMIRAN MAJUMDAR (SUPRA) OVER THAT IN THE CASE OF ROUTER MANIA TECHNOLOGIES (SUPRA) ; WITH UTMOST RESPECT, THE MUMBAI BENCH HAD TAKEN A NARROW VIEW O N THIS ISSUE, BY HOLDING THAT ONLY A DEVICE WHICH CAN PERFORM LOGICAL, ARIT HMETICAL OR MEMORY FUNCTIONS BY MANIPULATIONS OF ELECTRONIC IMPULSES E TC. 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 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 ROUTER MANIA (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 T HE MEANING OF COMPUTER DISCUSSED IN EARLIER PARAS, WE ARE INCLINED TO AGRE E WITH THE VIEW TAKEN BY THE KOLKATA BENCH IN SAMIRAN MAJUMDAR (SUPRA). 34. WE THEREFORE ANSWER THE QUESTION REFERRED TO TH IS 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 T HE RATE OF 60%. 35 ITA NOS.1163 & 11 75/BANG/2012 10.6.3 THE ABOVE DECISION OF THE ITAT, MUMBAI SP ECIAL BENCH IN THE CASE OF DATACRAFT INDIA LTD. (SUPRA) HAS BEEN FOLLOWED BY THE DELHI TRIBUNA L IN THE CASE OF DCIT V MICROSOFT CORPN. INDIA (P) LTD., REPORTED IN 139 TTJ 40 WHEREIN AT P ARA 16 OF THE ORDER, IT WAS HELD THAT : 16. .. IT IS CLEAR THAT THE ABOVE EQUIPMENT PRI MARILY INCLUDE THE ROUTERS, SWITCHES, MODEMS, ETC. WHICH ARE IN THE NATURE OF INPUT AND O UTPUT SUPPORT DEVICES WHICH PERFORMS THE FUNCTIONS INCLUDING COMMUNICATION AND CONTROL AND, THUS, THEY ARE COMPUTER HARDWARE WHEN THEY ARE USED ALONG WITH COM PUTER AND WHEN THEIR FUNCTIONS ARE INTEGRATED WITH COMPUTER. SUCH DEV ICES USED AS PART OF THE COMPUTER IN ITS FUNCTIONS AND, THUS, IT CAN BE TERM ED AS COMPUTER ONLY, THEREFORE, ELIGIBLE FOR DEPRECIATION @ 60%. THEREFORE, ALSO W E FIND NO INFIRMITY IN THE CLAIM OF THE ASSESSEE OF DEPRECIATION @ 60% OF ITG NETWOR KING EQUIPMENTS. 10.6.4 A SIMILAR VIEW WAS ADOPTED BY A CO-ORDINAT E BENCH OF THIS TRIBUNAL IN THE CASE OF NCR CORPORATION PVT. LTD. V ACIT (SUPRA) WHEREIN AT PAR A 10 THEREOF IT WAS HELD AS UNDER : 10. HAVING HEARD BOTH THE PARTIES AND HAVING GON E THROUGH THE MATERIAL ON RECORD, WE FIND THAT THIS ISSUE IS MORE OR LESS COVERED BY THE DECISION OF THE SPECIAL BENCH IN THE CASE OF DATACRAFT INDIA LTD. (CITED SUPRA) W HEREIN IT HAS BEEN HELD THAT AS LONG AS THE FUNCTIONS OF THE COMPUTER ARE PERFORMED ALONG WITH OTHER FUNCTIONS AND THE OTHER FUNCTIONS ARE DEPENDENT UPON THE FUNCTION S OF THE COMPUTER IT IS A COMPUTER ENTITLED TO THE HIGHER RATE OF DEPRECIATIO N. THE SPECIAL BENCH HAS ALSO STATED THAT ALL THE INPUT AND OUTPUT DEVICES OF THE COMPUTER SUCH AS KEY BOARD, MOUSE, MONITOR, ETC ARE TO FORM PART OF THE BLOCK O F COMPUTERS. IN THE CASE BEFORE US ALSO THE ATM MACHINE IS DOING BOTH THE LOGICAL, ARITHMETIC AND MEMORY FUNCTIONS BY MANIPULATIONS OF ELECTRONIC MAGNETIC OR OPTICAL IMPULSES GIVING DEBIT OR CREDIT CASH AND THEREAFTER DISPENSES THE CASH AND GIVES A PRINTED RECEIPT. THUS AS CAN BE SEEN, THE COMPUTER IS AN INTEGRAL PART OF THE ATM M ACHINE AND ON THE BASIS OF THE INFORMATION PROCESSED BY THE ITA NO.353(BANG)/2010, COMPUTER IN THE ATM MACHINE ONLY, THE MECHANICAL FUNCTIONS OF THE DISPE NSATION OF CASH OR DEPOSIT OF CASH IS DONE. ITS FUNCTIONS ARE NOT LIMITED TO THE LOCATION AT WHICH IT IS PLACED BUT IT ALSO RECORDS THE INCREASE OR DECREASE OF THE BAL ANCE IN THE ASSESSEE'S ACCOUNT IN THE BANK CONSEQUENT TO SUCH DEPOSIT OR WITHDRAWAL A ND ALL THIS IS DONE INSTANTLY. THUS IT INVOLVES THE USE OF INTERNET FACILITIES ALS O TO DISCHARGE THE ABOVE FUNCTIONS. 10.6.5 IN THE ABOVE CASES, A DISTINCTION HAS BEEN D RAWN BETWEEN A COMPUTER COMPONENT BEING A NECESSARY ACCESSORY TO BE CALLED A COMPUTER COMPON ENT AND NOT BEING A NECESSARY COMPONENT. 36 ITA NOS.1163 & 11 75/BANG/2012 THE MRBS OPERATE ALONG WITH THE SERVERS AND COMPUTE RS AND ARE A NECESSARY COMPONENT OF THE COMPUTER SYSTEM. THE MRB CANNOT FUNCTION WITHOUT THE COMPUTERS AND THE COMPUTERS CANNOT PERFORM THE NECESSARY FUNCTIONS REQUIRED IN THE CASE ON HAND WITHOUT THE PRESENCE OF THE MRBS. IN THIS VIEW OF THE MATTER, WE ARE OF TH E OPINION THAT MRBS FIT INTO THE DEFINITION OF A COMPUTER COMPONENT AS EXPLAINED ABOVE AND TH EREFORE THE DECISION OF THE ITAT SPECIAL BENCH OF MUMBAI IN THE CASE OF DATACRAFT INDIA LTD. (SUPRA) RENDERED IN RESPECT OF ROUTERS IS EQUALLY APPLICABLE TO THE MRBS USED BY THE ASS ESSEE. FOLLOWING THE PRINCIPLE AS EXPLAINED IN AFORE-CITED DECISION OF THE SPECIAL BENCH OF THE IT AT, MUMBAI (SUPRA), WE HOLD THAT THE MRBS ARE TO BE CLASSIFIED AS COMPUTERS FOR THE PURPOSE S OF THE CLAIM OF DEPRECIATION @ 60%. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE AT S.NOS.2 (A) & (B) ARE ALLOWED. 11. IN THE RESULT, REVENUES APPEAL IS DISMISSED AN D THE ASSESSEE'S APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21 T FEBRUARY, 2014. SD/- SD/- (GEORGE GEORGE K) (JASON P BOAZ) JUDICIAL MEMBER ACCOUNTANT MEMB ER *REDDY GP COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE. (TRUE COPY ) BY ORDER SR. PVT. SECRETARY, ITAT, BANGALORE