DE Shaw India P. Ltd (earlier known as DE Shaw India Software P. Ltd.) Hyd, Hyderabad V. DCIT, Circle-1(2), Hyd, Hyderabad

ITA 1180/HYD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6270 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 15-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SITARAMA RAO
• Assessee Lawyers: SHANKAR KAPSE; SISTA VENKATESWARLU
• Keywords: Depreciation

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES A : HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA.NO.1180/HYD/2016 ASSESSMENT YEAR 2009-2010 D.E. SHAW INDIA PVT. LTD., (EARLIER KNOWN AS D.E. SHAW INDIA SOFTWARE PVT. LTD.,) HYDERABAD 500 096. VS. DCIT, CIRCLE-1(2), HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : SRI SISTA VENKATESWARLU & SRI SHANKAR KAPSE FOR REVENUE : SRI A. SITARAMA RAO DATE OF HEARING : 15.12.2016 DATE OF PRONOUNCEMENT : 11 . 0 1.201 7 ORDER PER D. MANMOHAN, V.P. THIS APPEAL BY THE ASSESSEE-COMPANY IS DIRECTED A GAINST THE ORDER PASSED BY THE CIT(A)-5, HYDERABAD AND IT PERT AINS TO THE A.Y. 2009- 2010. THE MAIN CASE OF THE ASSESSEE IS THAT THE UNI NTERRUPTED POWER SUPPLY (UPS) SYSTEMS PURCHASED WERE USED AS AN INTEGRAL P ART WITH THE COMPUTERS AND THEREFORE, IT IS ELIGIBLE FOR DEPRECIATION AT 6 0% UNDER THE BLOCK COMPUTERS AND COMPUTER EQUIPMENT. THE DETAILS O F THE DEPRECIATION CLAIMED BY THE ASSESSEE ARE AS UNDER : S.NO. DESCRIPTION OF THE ASSET. ASSET VALUE/ WDV DEPRECIATION CLAIM OF THE ASSESSEE ELIGIBLE DEPRECIATION EXCESS CLAIM OF DEPRECIATION 1. UPS FOR HOME PC 107500 64500 10750 53750 2. UPS SYSTEMS FOR HOME PCS 62400 37440 6240 31200 3. UPS SYSTEMS FOR HOME PCS 42000 25200 4200 21000 4. UPS SYSTEM FOR THIRD FLOOR 2207511 1324507 220751 1103756 TOTAL 2419411 1451647 241941 1209706 2 ITA.NO.1180/HYD/2016 D.E. SHAW INDIA PVT. LTD., HYDERABAD. 2. THE A.O. OBSERVED THAT UPS IS AN ELECTRICAL DEV ICE AND AN INSTRUMENT FOR STORAGE OF ELECTRICAL ENERGY FOR SHO RT DURATION BUT IT IS NOT AN ESSENTIAL INGREDIENT FOR THE PURPOSE OF THE COMPUTE RS. IN OTHERWORDS, UPS IS USED TO PREVENT THE FREQUENT INTERRUPTIONS IN ELECT RICAL TRANSMISSION AND THEREFORE, IT CAN BE CATEGORISED AS ELECTRICALS A ND ELECTRICAL FITTINGS ON WHICH DEPRECIATION IS ALLOWABLE AT 10% AND THUS CON CLUDED THAT THE ASSESSEE IS NOT ENTITLED TO DEPRECIATION AT 60% ON SUCH EQUI PMENT. 3. AGGRIEVED, ASSESSEE CONTENDED BEFORE THE LD. CI T(A) THAT UPS IS USED WITH THE COMPUTER SYSTEMS ITSELF AND UNDER AN IDENTICAL CIRCUMSTANCES THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SONY INDIA P. LTD., (2012) 210 TAXMAN 149 (DEL.) HELD THAT COMPUTER ACCESSORIE S AND PERIPHERALS FORM AN INTEGRAL PART OF A COMPUTER SYSTEM ON WHICH DEPR ECIATION @ 60% IS ALLOWABLE AND THUS CONTENDED THAT EVEN ON UPS 60% D EPRECIATION IS ALLOWABLE. 4. LD. CIT(A) OBSERVED THAT COMPUTER SYSTEM CAN FU NCTION INDEPENDENTLY WITHOUT THE UPS; UPS IS GENERALLY USE D TO ENSURE UNINTERRUPTED POWER SUPPLY TO OTHER EQUIPMENT AS WE LL BESIDES COMPUTERS AND HENCE IT CANNOT BE TREATED AS AN INTEGRAL PART OF THE COMPUTER SYSTEM LIKE PRINTERS, SCANNERS ETC., HE ALSO OBSERVED THAT DEPR ECIATION IS PROVIDED ON COMPUTERS MAINLY BECAUSE TECHNOLOGY USED IN THE MAK ING OF A COMPUTER IS RAPIDLY DEVELOPING AND THE SAME BECOMES OBSOLETE VE RY FAST. FROM THIS PERSPECTIVE, HE CONCLUDED THAT THE UPS CANNOT BE TR EATED AS PART OF A COMPUTER SINCE THE TECHNOLOGY WHICH GOES INTO MAKIN G UPS IS NOT RAPIDLY CHANGING AND HENCE IT WOULD NOT BECOME OBSOLETE IN A SHORT SPAN. ANALYSING THE ISSUE BY APPLYING THE FUNCTIONAL TEST HE OBSERV ED THAT UPS IS A SOURCE OF ALTERNATIVE SUPPLY OF POWER TO THE COMPUTER AND HEN CE IT CAN ONLY BE SAID TO BE A PART OF POWER SUPPLY SYSTEM AND NOT THE COMPUT ER SYSTEM. HE FURTHER STATED THAT UPS IS ALSO NOT INBUILT IN THE COMPUTER AS A BATTERY IN THE LAPTOP TO MAKE IT AN INTEGRAL PART OF THE COMPUTER SYSTEM SINCE UPS GIVES EXTERNAL AID TO THE COMPUTER BY ENSURING UNINTERRUPTED POWER SUPPLY IN EMERGENCY ONLY. 3 ITA.NO.1180/HYD/2016 D.E. SHAW INDIA PVT. LTD., HYDERABAD. 5. FURTHER AGGRIEVED ASSESSEE IS IN APPEAL BEFORE US. AT THE TIME OF HEARING, LEARNED COUNSEL FOR THE ASSESSEE, PLACED B EFORE US THE FOLLOWING ORDERS OF THE HONBLE DELHI HIGH COURT AS WELL AS T HE ORDERS OF THE ITAT [INCLUDING THE DECISION OF THE ITAT, SPECIAL BENCH, MUMBAI IN THE CASE OF DCIT VS., DATACRAFT INDIA LTD., (2011) 9 ITR 712 ( MUM.) (SB)] TO SUBMIT THAT THE FUNCTION OF THE CPU IS AKIN TO THE BRAIN PLAYIN G A PIVOTAL ROLE IN THE CONDUCT OF THE BODY; JUST AS THE BRAIN CANNOT BE IN DEPENDENTLY CALLED AS BODY, EVEN THE CPU ALONE CANNOT BE DESCRIBED AS COMPUTER BUT SINCE IT IS EXCLUSIVELY USED FOR THE OPTIMUM USE OF COMPUTERS IT HAS TO BE TREATED AS PART OF THE COMPUTER SYSTEM. 1. CIT VS. SONY INDIA P. LTD., (2012) 210 TAXMAN 149 ( DEL.) (HC) 2. CIT VS. ORIENT CERAMICS & INDUSTRIES LTD., (2011) 1 1 TAXMANN.COM 417 (DEL.) (HC) 3. TETRA SOFT (INDIA) (P.) LTD., VS. ACIT, HYDERABAD (2015) 40 ITR (TRIB) 479) (HYDERABAD) 4. SMT. NAN DURY SOBHA RANI, SHRI NANDURY TEJASWY VS. ADDL. CIT , HYDERABAD [ ITA.NO.332 & 333/HYD/2011 DATED 02.07.2 012 ] 5. ACIT VS. USHODAYA ENTERPRISES LTD., HYDERABAD (2012 ) 19 ITR 199 6. USHODAYA ENTERPRISES LTD., VS. DCIT, HYDERABAD (201 5) 155 ITD 701 (HYD.) 7. M/S. PERFORMICA SOFTWARE P. LTD., VS., DCIT, HYDERA BAD [ITA.NOS.1015 & 1128/HYD/2012 DATED 13.09.2013]. 8. EXPEDITORS INTERNATIONAL (INDIA) (P) LTD., VS. ADDL . CIT, DELHI ITAT (2010) 2 ITR 153 9. DCIT VS. DATACRAFT INDIA LTD., (2011) 9 ITR 712 (MU M.) (SB) 6. THE SPECIAL BENCH OF ITAT HAS ELABORATELY CONSI DERED THE ARGUMENTS ADVANCED BY THE REVENUE SUCH AS THE TEST OF PREDOMINANT FUNCTION OF THE DEVICE ETC., AND OBSERVED THAT THOUGH KEYBOA RD, MOUSE, ROUTERS ETC., CAN INDEPENDENTLY FUNCTION AND CAN ALSO BE USED FOR OTHER DEVICE, SO LONG AS IT IS USED AS PART AND PARCEL OF THE COMPUTER, IT S HOULD BE CLASSIFIED AS COMPUTER IN WHICH EVENT, DEPRECIATION @ 60% HAS T O BE ALLOWED ON THE COST OF SUCH COMPUTERS. 7. THE LD. D.R. ON THE OTHER HAND, SUBMITTED THAT UPS CAN FUNCTION INDEPENDENTLY AND IT CANNOT BE TREATED ON PAR WITH COMPUTER. HE FURTHER 4 ITA.NO.1180/HYD/2016 D.E. SHAW INDIA PVT. LTD., HYDERABAD. SUBMITTED THAT AS PER THE DETAILS FURNISHED BY THE ASSESSEE THE UPS SYSTEMS ARE INSTALLED IN THIRD FLOOR WITHOUT SPECIFYING AS TO WHETHER THEY ARE EXCLUSIVELY BEING USED FOR COMPUTERS OR THEY WERE A LSO USED FOR UNINTERRUPTED POWER SUPPLY FOR OTHER ELECTRICAL FITTINGS SUCH AS FANS, LIGHTS ETC., 8. JOINING THE ISSUE, LEARNED COUNSEL FOR THE ASSE SSEE, SUBMITTED THAT FOR THE ENTIRE BUILDING, GENERATOR IS PROVIDED AND THE UPS WAS UTILISED ONLY FOR EFFICIENT USE OF COMPUTERS IN THE THIRD FL OOR AND IN FACT, IT IS NOT THE CASE OF THE REVENUE AT ANY STAGE; SINCE NEITHER THE A.O. NOR THE CIT(A) BROUGHT OUT SUCH DISTINCTION AND THUS THE LD. D.R. CANNOT RAISE A NEW CLAIM INDEPENDENTLY. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTI ONS AND PERUSED THE RECORD. BOTH THE A.O. AS WELL AS THE LD. CIT(A) DISALLOWED THE CLAIM OF DEPRECIATION @ 60% ON THE LIMITED GROUND THAT THE U PS SYSTEMS ARE MEANT TO ENSURE UNINTERRUPTED POWER SUPPLY TO THE ANY OTHER EQUIPMENT BESIDES COMPUTERS AND HENCE IT IS NOT AN INTEGRAL PART OF T HE COMPUTER SYSTEM. NOWHERE IT WAS SPECIFIED THAT THE UPS UNITS PROVIDE D IN THE THIRD FLOOR WERE USED FOR ANY OTHER PURPOSE. SINCE IT IS NOT THE CAS E OF EITHER THE A.O. OR THE CIT(A) IT CANNOT NOW BE ARGUED THAT THE UPS SYSTEMS INSTALLED IN THE THIRD FLOOR ARE UTILISED FOR ANY OTHER PURPOSE OTHER THAN FOR CONNECTING THEM TO THE COMPUTERS. WITH REGARD TO THE INTERPRETATION OF THE EXPRESSION COMPUTER SYSTEMS, THERE ARE CATENA OF DECISIONS PLACED BEFO RE US WHEREIN THIS VERY ISSUE HAS COME UP FOR CONSIDERATION. THE HONBLE DE LHI HIGH COURT AS WELL AS THE ITAT, HYDERABAD BENCHES, APART FROM SPECIAL BEN CH OF ITAT, MUMBAI, CONSIDERED THE EXPRESSION COMPUTER AND OBSERVED T HAT WHEN A PARTICULAR SYSTEM IS INTEGRATED WITH A COMPUTER IT HAS TO BE C LASSIFIED AS COMPUTER SOFTWARE ON WHICH DEPRECIATION @ 60% SHOULD BE ALLO WED. IN THE INSTANT CASE, THERE IS NO DISPUTE THAT THE UPS SYSTEMS WERE INSTA LLED TO FACILITATE UNINTERRUPTED POWER SUPPLY TO THE COMPUTERS AND THE REFORE, IT WAS USED AS AN INTEGRAL PART OF THE COMPUTER HARDWARE. BY RESPE CTFULLY FOLLOWING THE 5 ITA.NO.1180/HYD/2016 D.E. SHAW INDIA PVT. LTD., HYDERABAD. DECISIONS CITED (SUPRA), WE HOLD THAT THE ASSESSEE- COMPANY IS ENTITLED TO DEPRECIATION @ 60% ON THE COST OF PURCHASE OF UPS L ISTED ABOVE. 10. IN THE RESULT, AS PRONOUNCED IN THE OPEN COURT , APPEAL FILED BY THE ASSESSEE-COMPANY IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11.01.2 017. SD/- SD/- (S. RIFAUR RAHMAN) (D.MANMOHAN) ACCOUNTANT MEMBER VICE PRESIDENT HYDERABAD, DATED 11 TH JANUARY, 2017. VBP/- COPY TO 1. D.E. SHAW INDIA PVT. LTD., PLOT NO. 573, B & C ROAD NO .1, JUBILEE HILLS, HYDERABAD 500 096. 2. THE DCIT, CIRCLE-1(2), HYDERABAD. 3. CIT(A)-5, SIGNATURE TOWERS, KONDAPUR, HYDERABAD 500 084. 4. PR. CIT-5, HYDERABAD. 5. D.R. ITAT A BENCH, HYDERABAD. 6. GUARD FILE