ACIT CIR. 7(1), MUMBAI V. M/s. NATIONAL STOCK EXCHANGE OF INDIA LTD., MUMBAI

ITA 7492/MUM/2005

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49010 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 12-05-2011
• Assessment Year: 1997-1998
• Appeal Filed On: 23-12-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH
• Assessee Lawyers: ARVIND SONDE
• Keywords: Depreciation; Earning of tax free income; Commercial expediency; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B MUMBAI BEFORE SHRI R.V.EASWAR, PRESIDENT SHRI T.R.SOOD, ACCOUNTANT MEMBER & I.T.A.NO.7492/MUM/2005 - A.Y 1997-98 I.T.A.NO. 7493/MUM/2005 - A.Y 1998-99 I.T.A.NO. 9390/MUM/2004 - A.Y 2001-02 ASST. COMMISSIONER OF I.T., CIRCLE 7 (1), MUMBAI. VS. M/S. NATIONAL STOCK EXCHANGE OF INDIA LIMITED, EXCHANGE PLAZA, C-1, BLOCK-G, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI 400 051. PAN: AAACN 1797 L (APPELLANT) (RES PONDENT) C.O.NOS.200 & 201/MUM/2006 A.YRS.1997-98 & 1998-9 9 (ARISING OUT OF I.T.A.NOS.7492 & 7493-MUM-2005) M/S. NATIONAL STOCK EXCHANGE OF INDIA LIMITED, MUMBAI VS. ASST. COMMISSIONER OF I.T., CIRCLE 7 (1), MUMBAI. (CROSS OBJECTOR) (RESPONDENT) I.T.A.NO. 9419/MUM/2004 - A.Y 2001-02 M/S. NATIONAL STOCK EXCHANGE OF INDIA LIMITED, MUMBAI VS. ASST. COMMISSIONER OF I.T., CIRCLE 7 (1), MUMBAI. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SATBIR SINGH. (CIT- DR) ASSESSEE BY : SHRI ARVIND SONDE. O R D E R PER T.R.SOOD, AM: IN ALL THESE APPEALS COMMON ISSUES ARE INVOLVED, T HEREFORE, THEY ARE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THI S CONSOLIDATED ORDER. 2 2. I.T.A.NO.9390-M- - A.Y.01-02 : IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT[A] ERRED IN DIRECTING THE AO TO TREAT THE E XPENDITURE INCURRED ON VSAT SHIFTING EXPENSES, VSAT INSTALLATI ON CHARGES AND SERVICES CHARGES TOWARDS REPAIR AND REP LACEMENT OF IDU AS REVENUE EXPENDITURE IGNORING THE FACT THAT T HE ASSESSEE HAD GAINED A NEW AND DIFFERENT ADVANTAGE AND BENEFI T OF ENDURING NATURE BY INCURRING THESE EXPENSES. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT[A] ERRED IN RESTRICTING THE EXPENDITURE CON NECTED WITH EARNING OF INTEREST INCOME EXEMPT U/S.10(15) FROM 2 % TO 0.5%. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT[A] ERRED IN DIRECTING THE AO TO GRANT DEPRE CIATION AS CLAIMED BY THE ASSESSEE ON VSAT EQUIPMENT INSTALLED AT THE PREMISES OF THE MEMBER BROKER AS AGAINST THE DISALL OWANCE OF 40% OF THE DEPRECIATION DISALLOWED BY THE AO BY INV OKING THE PROVISIONS OF SEC.38(2). 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LD. CIT[A] ERRED IN NOT APPRECIATING THE VSAT ANTEN NA AND CODING EQUIPMENT WAS INSTALLED AT THE MEMBERS PREMI SES AND THE VSAT NETWORK WAS MAINLY USED FOR THE MEMBERS FO R ON LINE AND SCREEN BASE TRADING. HENCE, PROVISIONS OF SECTION 38(2) HAD BEEN RIGHTLY APPLIED IN DISALLOWING DEPRECIATIO N. 3. GROUND NO.1 : AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFULLY , WE FIND THAT FOLLOWING EARLIER YEARS ORDERS AO HELD THAT EXPENDITURE INCURRED ON VSATS AND SHIFTING, VSAT INSTALLATION CHARGES AS WELL AS REPAIRS AND REPLACEMENT OF IDU WHICH WERE CLAIMED A S REVENUE EXPENDITURE, IS IN THE NATURE OF CAPITAL EXPENDITUR E AND, THEREFORE, SAME WAS DISALLOWED. 4. THE LD. COUNSEL OF THE ASSESSEE POINTED OUT THA T IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE TRIBUNAL IN ASSESS EES OWN CASE FOR THE A.Y 1998-99 AND THE ISSUE HAS BEEN DECIDED IN F AVOUR OF THE ASSESSEE IN I.T.A.NO.3799/MUM/2004, ORDER DATED 27/ 05/2011. 5. ON THE OTHER HAND, LD.DR SUPPORTED THE ORDER OF THE AO. 3 6. WE FIND THAT THE TRIBUNAL ADJUDICATED THIS ISSUE VIDE PARA-14 IN I.T.A.NO.3799/MUM/04 FOR A.Y 1998-99 AS UNDER: 14. WE HAVE CONSIDERED THE ISSUE. WE ARE OF THE OP INION THAT THE EXPENDITURE IS REVENUE IN NATURE AS THE ASSESSEE HA S TO REALIGN THE EXISTING NETWORK WHICH IS SYNCHRONISED WITH EARLIER SATELLITE TO A NEW SATELLITE WHICH DOES NOT GIVE ANY ENDURING ADVANTAG E. IT ALLOWED FOR SMOOTH CONDUCT OF THE EXISTING OPERATIONS WHICH ARE GENERALLY THROUGH THE SATELLITE ONLY FOR CONNECTIVITY WITH VA RIOUS NSE CENTERS AND DEALERS ALL OVER INDIA. IN FACT AS STATED BY TH E CIT(A), ASSESSEE IN A SHORT SPAN HAS TO DEPUTE TECHNICAL PERSONS TO VAR IOUS CENTRES TO REALIGN THE TRANSPONDERS TO THE SATELLITE. MOST OF THE EXPENSES ARE WITH REFERENCE TO SALARY AND TRAVEL EXPENSES PERTAI NING TO THE OFFICIALS/ TECHNICAL PERSONNEL AND NOT TO PURCHASE OF ANY ASSE T. IN VIEW OF THIS, WE AGREE WITH THE FINDING OF THE CIT(A) THAT THE EX PENDITURE IS REVENUE IN NATURE. THE CASE LAW RELIED UPON BY THE LEARNED D.R. ARE GIVEN IN DIFFERENT CONTEXT OF SHIFTING PHYSICAL PLA NTS EXISTING IN ONE PLACE TO ANOTHER PLACE. THIS IS NOT LIKE THAT. THIS IS A CONNECTION NETWORK OF ADVANCED NATURE IN WHICH ONLY THE TRANSP ONDERS WERE ALIGNED AND THE EXPENDITURE IS INCURRED FOR DEPUTIN G PERSONS TO DO THE JOB. THEREFORE, THE EXPENDITURE IS RIGHTLY CONSIDER ED BY THE CIT(A) AS REVENUE EXPENDITURE. WE REJECT THE GROUND. SINCE FACTS ARE IDENTICAL FOR THE YEAR UNDER APPEAL , AND IN FACT, THE ADDITION WAS MADE ONLY ON THE BASIS OF EARLIER YEAR S ORDERS, FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE AGAINST THE REVENUE . 7. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HA D SHOWN A SUM OF RS.11,22,74,697/- AS INTEREST ON TAX FREE BONDS WHICH WAS CLAIMED EXEMPT U/S.10[15]. HE FURTHER NOTICED THAT AS PER S EC.10[15] ONLY THE NET INCOME BY WAY OF INTEREST WAS EXEMPT AND NOT TH E GROSS INCOME. HE WAS OF THE VIEW THAT FOR MANAGING SUCH A LARGE P ORTFOLIO CERTAINLY SOME MANAGERIAL AND ADMINISTRATIVE TIME AS WELL AS EXPENDITURE MUST HAVE BEEN DEVOTED BY THE ASSESSEE. MOREOVER, THIS I TEM OF INCOME WAS NOT ASSESSEES MAIN BUSINESS AND, THEREFORE, SAME C OULD BE ASSESSED AS INCOME FROM OTHER SOURCES. ACCORDINGLY, HE ESTIM ATED 2% OF THIS INCOME AS EXPENDITURE AND ADDED THE SAME U/S.14A OF THE ACT. 4 8. ON APPEAL, LD. CIT(A) FOLLOWING THE ORDER OF HIS PREDECESSOR RESTRICTED THE DISALLOWANCE TO 0.5% OF THE INCOME. THE MATTER HAD TRAVELED TO THE TRIBUNAL AND THE TRIBUNAL ESTIMATED THE EXPENDITURE AT 1% OF SUCH INCOME. 9. THE LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT TH E ISSUE MAY BE DECIDED IN THE LIGHT OF THE DECISION OF THE TRIBUNA L FOR THE A.Y 1998-99. 10. ON THE OTHER HAND, LD.DR SUPPORTED THE ORDER OF THE AO. 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFUL LY, WE FIND THAT AN IDENTICAL ISSUE CAME UP FOR CONSIDERATION OF THE TR IBUNAL FOR THE A.Y 1998-99 AND THE SAME WAS DECIDED BY THE TRIBUNAL VI DE PARA-6 WHICH IS AS UNDER: 6. GROUND NO. 4 PERTAINS TO THE ISSUE OF DISALLOWANCE OF EXPENDITURE OF `7,79,836/- BEING 0.5% OF GROSS INTE REST EARNED ON TAX FREE BONDS AND CLAIMED AS EXEMPT UNDER SECTION 10(1 5) OF THE I.T. ACT. THE A.O. DISALLOWED 2% OF THE EXPENDITURE WHER EAS THE CIT(A) RESTRICTED IT TO 0.5%. ON THE VERY SAME ISSUE THE R EVENUE IS ALSO IN APPEAL IN GROUND NO. 3 OF THE REVENUES APPEAL. CON SIDERING THE NATURE OF THE INCOME AND THE ORDERS OF THE AUTHORIT IES WE ARE OF THE OPINION THAT DISALLOWANCE OF 1% WOULD MEET THE END OF JUSTICE. ASSESSEES GROUND ABOUT THE DISALLOWANCE OF 0.5% IS REJECTED. FOLLOWING THE ABOVE ORDER, WE HOLD THAT EXPENDITURE IN RESPECT OF INTEREST ON TAX FREE BONDS SHOULD BE ESTIMATED AT 1 % AND AO IS DIRECTED TO MAKE DISALLOWANCE OF ONLY 1%. ACCORDING LY THIS GROUND IS PARTLY ALLOWED. 12. GROUND NOS.3 & 4 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSES SEE HAS INSTALLED VSAT NET WORK AFTER OBTAINING A LICENSE FROM DEPART MENT OF TELE COMMUNICATION (DTC FOR SHORT) TO OPERATE A CLOSED U SER GROUP VSAT NET WORK FOR THE PURPOSE OF ENABLING SCREEN BASIS T RADING IN THE CAPITAL 5 MARKET THROUGH OUT THE COUNTRY. THE DTC HAS GIVEN L ICENSE AND ASSESSEE WAS TO ACT AS A MAIN HIRER OF THE NET WORK AND THE APPROVED USER AND BROKER COULD BE TERMED AS SUBSIDIARY USER OF THE NET WORK. THE ASSESSEE BEING THE MAIN HIRER WAS SUPPOSED TO F ULFILL ALL THE OBLIGATIONS AND FORMALITIES INCLUDING PAYMENT OF RE NTAL, LICENSE FEES, INSTALLATION FEES AND ALL OTHER DUES FOR ALL THE CI RCUIT EQUIPMENT AND COMPONENTS OF THIS NET WORK. THIS NET WORK WAS APPR OVED TO BE RUN AT NO PROFIT NO LOSS BASIS. THE NET WORK MAINLY CONSIS TED OF HUB EQUIPMENT WHICH IS LOCATED IN THE PREMISES OF TH E ASSESSEE AND VSAT ANTENNA AND CODING EQUIPMENT WAS LOCATED IN TH E MEMBERS PREMISES. ON THE BASIS OF THIS POSITION, AO CONCLUD ED THAT VSAT NET WORK WAS BEING USED BY THE MEMBERS FOR THE PURPOSE OF CONDUCTING THEIR BUSINESS AND, THEREFORE, THIS NET WORK WAS NO T EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. THEREF ORE, ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE CLAIM OF DEPRECIATIO N SHOULD NOT BE RESTRICTED IN VIEW OF THE PROVISIONS OF SEC.38 OF T HE ACT. THE ASSESSEE FILED DETAILED SUBMISSIONS. AFTER EXAMINATION OF TH IS EXPLANATION, AO OBSERVED THAT THE EQUIPMENT WAS BEING USED BY THE M EMBERS ALSO AND THOUGH ASSESSEE WAS RECOVERING COST INCLUDING THE D EPRECIATION COST, BUT THE SAME COULD NOT BE TERMED AS CHARGING OF REN T FROM THE MEMBERS BECAUSE ASSESSEE, IN ANY CASE, WAS NOT ALLO WED TO CHARGE ANY RATE IN TERMS OF THE LICENSE ISSUED BY THE DTC. 13. THE SECOND CONTENTION THAT ASSESSEE COULD NOT H AVE BEEN CONDUCTED ITS BUSINESS WITHOUT SUCH VSAT COMMUNICAT ION NET WORK WAS REJECTED BECAUSE AO WAS OF THE VIEW THAT SIMILA R CONTENTION CAN 6 BE RAISED BY THE MEMBER BROKER. THE AO FURTHER OBSE RVED THAT OWNERSHIP AND NECESSITY OF VSAT EQUIPMENT WAS NOT C LEARLY ESTABLISHED TO BE THAT OF THE ASSESSEE COMPANY. THE ANALOGY TO PROVISION OF ELECTRICITY METER BY THE ELECTRIC DIST RIBUTION COMPANY WAS REJECTED ON THE GROUND THAT SUCH ELECTRICITY COMPAN Y WAS PROVIDING THE METER ON RENTAL BASIS AND THE ELECTRICITY WAS SOLD THROUGH SUCH METERS. SINCE ASSESSEE WAS NOT CHARGING ANY RENTAL FROM THE BROKER AS THE ASSESSEE WAS DEBARRED FROM MAKING ANY PROFIT FROM T HIS VENTURE, THIS ACTIVITY OF OPERATION OF VSAT COMMUNICATION NET WOR K COULD NOT BE TREATED AS PART OF THE BUSINESS ACTIVITY. ON THE BA SIS OF THESE OBSERVATIONS, AO ESTIMATED THAT 40% OF SUCH NET WOR K COULD BE SAID TO HAVE BEEN USED FOR THE ASSESSEES BUSINESS BECAUSE A TRANSACTION COULD NOT BE EXECUTED WITHOUT SUCH EQUIPMENT. ACCOR DINGLY, AO DISALLOWED 60% OF THE DEPRECIATION ON THIS EQUIPMEN T. 14. BEFORE THE CIT[A] IT WAS MAINLY SUBMITTED THAT TO GIVE A FURTHER BOOST TO THE FINANCIAL REFORMS, A STUDY GROUP-CUM-E STABLISHMENT OF NEW STOCK EXCHANGE & GUIDELINES RELATING TO VALUATI ON OF NEW INSTRUMENT HEADED BY SHRI M.J.SHERWANI WAS APPOINTE D TO LOOK AT THE STOCK EXCHANGE REFORMS. IN THE BACK-DROP OF RECOMME NDATION OF THIS COMMITTEE FORMATION OF NSE WAS ANNOUNCED IN THE BUD GET FOR 1993-94 WHICH WAS EXPECTED TO BE OPERATED AS MODEL STOCK EX CHANGE. THROUGH THIS STOCK EXCHANGE, THE TRADING WAS EXPECTED TO BE SWITCHED OVER FROM FLOOR TRADING (THIS IS SOME TIMES KNOWN AS C RY OUT TRADING) TO SCREEN BASE TRADING. IN THE FLOOR TRADING THERE WAS HARDLY ANY TRANSPARENCY AND JOBBING MARGINS WERE VERY HIGH, TH AT IS WHY IT WAS 7 DECIDED TO START SCREEN BASED TRADING. ULTIMATELY, ASSESSEE COMPANY WAS FLOATED BY BANKS AND FINANCIAL INSTITUTIONS. FO R STARTING THE SCREEN BASED TRADING TELECOMMUNICATION NET WORK IN THE FOR M OF VSAT NET WORK WAS REQUIRED TO BE INSTALLED. SINCE PERMISSION FROM DOT WAS SOUGHT AND WAS GRANTED WITH SOME CONDITIONS. IT WAS FURTHER EXPLAINED THAT VSAT NET WORK WAS CONSISTED OF A HUB WHICH WAS INSTALLED IN THE PREMISES OF THE ASSESSEE AND VSAT ANTENNA AND MONIT OR WAS INSTALLED AT THE PREMISES OF THE BROKERS. THE STOCK EXCHANGE TRANSACTIONS HAD TO BE ROUTED THROUGH THE SYSTEM PROVIDED BY THE ASSESS EE COMPANY AND THE BROKERS WERE NOT AUTHORISED TO CARRY OUT THE TR ADING ON ANY VSAT SYSTEM. SINCE AS PER THE DOT CONDITIONS, ASSESSEE C OMPANY WAS REQUIRED TO OWN THE EQUIPMENT AND VSAT NET WORK IN ITS OWN NAME, THE SAME WERE ACQUIRED BY THE ASSESSEE. IT WAS EXPL AINED THAT IN THE ABSENCE OF VSAT AT THE PREMISES OF THE MEMBERS, NO TRADE COULD HAVE BEEN POSSIBLY EXECUTED. THEREFORE, SUCH VSAT NET WO RK WAS BASICALLY USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. 15. IT WAS FURTHER ARGUED THAT VSAT WAS INSTALLED A T THE REMOTE LOCATION BY THE ASSESSEE FOR THE PURPOSE OF EXCLUSI VE USE OF ITS BUSINESS AND MERELY EQUIPMENTS WERE INSTALLED AT TH E MEMBERS PREMISES WHICH SERVED AS ENABLER TO CONDUCT THE BUS INESS OF THE ASSESSEE, COULD NOT BE INTERPRETED TO CONSIDER THAT THE EQUIPMENTS WERE NOT BEING EXCLUSIVELY USED FOR THE PURPOSE OF THE BUSINESS. REFERENCE WAS ALSO MADE TO THE BOARDS LETTER NO. F .10/14/66/-IT(AI) DATED 12 TH DECEMBER, 1966, WHEREIN IT WAS PROVIDED THAT FANS AND AIR CONDITIONERS ETC. PROVIDED BY THE EMPLOYER AT THE R ESIDENCE OF 8 EMPLOYEES SHOULD BE CONSIDERED TO HAVE BEEN USED WH OLLY FOR THE PURPOSE OF EMPLOYERS BUSINESS. THEREFORE, SAME ANA LOGY WOULD APPLY TO THE VSAT WHICH WAS PROVIDED AT THE BROKERS PLACE FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE ONLY. 16. IT WAS ALSO MENTIONED THAT MERELY BECAUSE ASSES SEE COMPANY WAS NOT GENERATING ANY PROFIT ON USE OF THIS EQUIPM ENT BY THE BROKERS, WOULD NOT MEAN THAT SAME WAS NOT USED FOR THE PURPO SE OF BUSINESS AND IN THIS REGARD REFERENCE WAS MADE TO THE RESTRI CTIONS IMPOSED UNDER ESSENTIAL COMMODITIES ACT WHEREIN CERTAIN COM MODITIES WERE REQUIRED TO BE SOLD AT NOT MORE THAN PARTICULAR MAX IMUM PRICE. SUCH RESTRICTION COULD AFFECT THE PROFITABILITY OF THE B USINESS ENTERPRISE BUT INABILITY OF THE BUSINESS ENTERPRISE TO MAKE PROFIT DOES NOT MEAN THAT BUSINESS ACTIVITY CEASES TO BE ACTIVITY OF BUSINESS . RELIANCE WAS ALSO PLACED ON SOME CASE LAWS. 17. THE LD. CIT[A] AFTER EXAMINING THE SUBMISSIONS, WAS OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN HOLDING THAT VSAT EQUIPMENTS PROVIDED BY THE ASSESSEE COMPANY AT THE PREMISES OF THE DIRE CTORS WERE NOT EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE AND AS SUCH AO HAS FAILED TO CONSIDER THE OVER ALL PROSPEC TIVE IN THE MATTER. HE WAS ALSO OF THE VIEW THAT AO HAS NOT INTERPRETED THE EXPRESSION EXCLUSIVELY USED FOR THE PURPOSE OF BUSINESS OR PR OFESSION PROPERLY. HE OBSERVED THAT THIS EXPRESSION AS INTERPRETED BY THE VARIOUS HIGH COURTS WOULD MEAN THAT AN ASSET HAS NOT BEEN EXCLUS IVELY USED FOR THE PURPOSE OF BUSINESS WHEN SUCH ASSET IS USED PARTLY FOR PURPOSE OF BUSINESS AND PARTLY FOR NON BUSINESS PURPOSES. IN T HIS CASE THE 9 BUSINESS OF THE ASSESSEE COMPANY WAS TO PROVIDE SPE CIALIZED, ADVANCED, AUTOMATED AND MODERN FACILITIES FOR TRADI NG, CLEARING AND SETTLEMENT OF SECURITIES, WITH A HIGHER STANDARD OF INTEGRITY TO ENSURE TRADING IN TRANSPARENT FORM AND TO ALLOW ACCESS TO THE INVESTORS FROM AREA IN AND OUTSIDE INDIA. HE ALSO OBSERVED THAT CO NCEPT OF NOT PROFIT MOTIVATION HAS BEEN FURTHER EMPHASISED BY THE AO B ECAUSE THE SAME WAS GOVERNED BY THE LICENSE GRANTED BY THE DOT, GOV ERNMENT OF INDIA. IT WAS A CASE OF CLOSED USER GROUP AND ONLY THE MEMBERS OF STOCK EXCHANGE COULD USE THIS SYSTEM. HE OBSERVED T HAT THE ASSESSEE COULD NOT RECOVER MORE THAN THE COST IN THE OPERATI NG SYSTEM, BUT SIMPLY ALLOWING AN APPARATUS ON COST BASIS, DOES NO T MEAN THAT ASSESSEE WAS NOT EARNING PROFIT. IN FACT, THE RECOV ERY OF CAPITAL COST AND REVENUE HAD AN ELEMENT OF RECUPERATION. HE ALSO NOTED THAT MEMBERS OF DIRECTORS COULD NOT HAVE UTILISED VSAT S YSTEM FOR ANY OTHER PURPOSE THAN THE PURPOSE LAID DOWN IN THE CON TRACT I.E. TO DEAL WITH THE NSE. THE ASSESSEE COULD NOT HAVE OFFERED T HIS FACILITY TO ANY OTHER PERSON OTHER THAN THE MEMBER AND, THEREFORE, IT COULD NOT BE SAID THAT THE EQUIPMENT WAS INSTALLED IN THE PREMIS ES OF A THIRD PARTY. THE NET WORK WAS PROVIDING AS A FACILITY TO THE TRA DING MEMBERS, REGISTERED PARTICIPANTS AND OTHER INSTITUTIONS SUCH AS CUSTODIANS, CLEARING AGENTS, DEPOSITORIES, WHO WERE REQUIRED TO CONTACT DIRECTLY TO THE EXCHANGE IN EXECUTION OF TRADE CLEARING OR SETT LEMENT OF FUNDS AND ALL SECURITIES AND THE ONLY PURPOSE OF INSTALLATION OF SUCH NET WORK WAS TO ACHIEVE THE BUSINESS OBJECTIVE OF THE ASSESSEE. HE ALSO OBSERVED THAT THERE WAS NO DISPUTE THAT ASSETS WERE OWNED BY THE ASSESSEE AND 10 IF THE MEMBERS DID NOT COMPLY WITH THE VARIOUS COND ITIONS SPECIFIED IN THE AGREEMENT, THEN THE COMPANY HAD A RIGHT TO DEAC TIVATE ANY OF THE VSAT. 18. HE NOTED THAT WHATEVER RECOVERY WAS MADE FROM T HE MEMBERS, IT WAS RETAINED BY THE ASSESSEE COMPANY AND WAS DU LY REFLECTED IN THE PROFIT & LOSS ACCOUNT. IT WAS ALSO NOTED THAT THE A O HAS FAILED TO APPRECIATE THAT WHATEVER PROFITS WERE GENERATED BY THE ASSESSEE COMPANY WERE GENERATED FROM OR THROUGH THE MEMBERS OF THE STOCK EXCHANGE AND TO EARN SUCH PROFITS BY WAY OF VARIOUS MECHANISMS, ASSESSEE COMPANY WAS REQUIRED TO PROVIDE CERTAIN FA CILITY TO THE MEMBERS AND FOR PROVIDING SUCH FACILITY COST WAS AL SO RECOVERED. THE LD. CIT[A] COMPARED THE CASE OF THE ASSESSEE WITH T HAT OF THE TELECOMMUNICATION SERVICE PROVIDERS, LIKE MTNL AND OBSERVED THAT FOR PROVIDING TELEPHONIC SERVICES MTNL WOULD PROVIDE CO NNECTIVITY AS WELL AS INSTRUMENT TO BE USED BY A CUSTOMER. SINCE THE I NSTRUMENT IS USED BY A CUSTOMER AND NOT BY THE MTNL, IT CANNOT BE SAI D THAT NO DEPRECIATION COULD BE CLAIMED ON SUCH INSTRUMENT BY MTNL. IN VIEW OF THE DETAILED DISCUSSION, LD. CIT[A] HELD THAT THE A SSESSEE WOULD BE ENTITLED TO FULL DEPRECIATION FOR THE SAID EQUIPMEN T AND RESTRICTION OF THE PROVISIONS OF SEC.38(2) WERE NOT APPLICABLE. 19. BEFORE US, LD. DR CARRIED US THROUGH THE ASSESS MENT ORDER AND SUBMITTED THAT UNDISPUTEDLY VSAT EQUIPMENT PROVIDED TO THE BROKERS WAS USED BY THE BROKERS ONLY. THEREFORE, IT CANNOT BE SAID THAT ASSESSEE HAS USED THE VSAT EQUIPMENT EXCLUSIVELY FO R THE PURPOSE OF 11 ITS BUSINESS ONLY. IN SUCH CASES, RESTRICTION PROVI DED U/S.38(2) HAD TO BE APPLIED. IN THIS REGARD, HE RELIED ON THE FOLLOW ING DECISIONS: A) L.P.HOSPITALITY P. LTD. VS. ACIT 301 ITR 377 (DEL). B) CIT VS. A.L. BASIN & CO. 59 DTR 112 (PATNA) C) PUNJAB BONE MILLS VS. CIT 14 DTR 17 (P&H) 20. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE EXPLAINED IN DETAIL AS TO HOW THE NATIONAL STOCK EXCHANGE CAME I NTO EXISTENCE, MAINLY FOR THE PURPOSE OF STARTING SCREEN BASED TRA DING IN INDIA. HE ARGUED THAT FOR THE PURPOSE OF STARTING A SCREEN BA SED TRADING ASSESSEE WAS REQUIRED TO SET UP A ELECTRONIC HUB AN D THE HUB WAS INSTALLED IN THE ASSESSEES PREMISES AND THE VSAT A NTENNA HAD MONITORS WERE SET UP IN THE PREMISES OF MEMBER BROK ERS THROUGH WHICH MEMBERS COULD PLACE ORDERS FROM THE SCREEN WH ICH WERE TO BE EXECUTED ELECTRONICALLY. SINCE TELECOMMUNICATION IS STRICTLY CONTROLLED BY THE GOVERNMENT, THE SYSTEM WAS INSTALLED AFTER O BTAINING THE APPROVAL OF THE DOT AND UNDER THOSE CONDITIONS THE ASSESSEE COMPANY WAS REQUIRED TO OWN THE SYSTEM AND ASSESSEE COMPANY WOULD COLLECT ONLY USER CHARGES FROM THE MEMBERS AND THE WHOLE SY STEM WAS TO BE OPERATED ON NO PROFIT NO LOSS BASIS. WITHOUT INSTAL LING THE VSAT ANTENNA AND MONITOR AT THE PREMISES OF THE MEMBERS, THE MEMBERS COULD NOT HAVE EXECUTED ANY TRADE. THERE WAS OTHER CONDITION OF DOT BY WHICH MEMBERS WOULD NOT HAVE TAKEN THEIR OWN VSA T SYSTEM AND, THEREFORE, COMPULSORILY ASSESSEE HAD TO INSTALL SUC H SYSTEM WITH THE MEMBERS FOR WHICH EVEN USER CHARGES HAVE BEEN CHARG ED TO THE MEMBERS. MERELY BECAUSE PART OF THE EQUIPMENT WAS I NSTALLED IN THE MEMBERS PREMISES, IT CANNOT BE SAID THAT THE SAME H AS NOT BEEN USED 12 FOR THE EXCLUSIVE BUSINESS OF THE ASSESSEE. SUCH SY STEM COULD NOT HAVE BEEN USED FOR ANY OTHER PURPOSE BY THE MEMBERS EXCE PT FOR EXECUTION OF THE TRADE THROUGH THE EXCHANGE OF THE ASSESSEE. THEREFORE, THE WHOLE SYSTEM HAS BEEN INSTALLED FOR THE PURPOSE OF THE BUSINESS. HE FURTHER ARGUED THAT COMMERCIAL TRANSACTIONS ARE ALW AYS ENTERED INTO IN SUCH A WAY THAT IT BENEFITS MUTUALLY BOTH THE PARTI ES AND IF THE OTHER PARTY IS ALSO BENEFITED IT CANNOT BE AN ISSUE AND I N THIS REGARD HE RELIED ON THE OBSERVATIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF EASTERN INVESTMENT LTD. VS. CIT [20 ITR 1]. HE CONT ENDED THAT WHAT IS REQUIRED TO BE SEEN HEREIN IS COMMERCIAL EXPEDIENCY , IN THE SENSE THAT WITHOUT INSTALLING THE VS. ANTENNA AND MONITOR AT T HE MEMBERS PREMISES ASSESSEE COULD NOT HAVE GENERATED ANY BUSI NESS IN THIS REGARD HE RELIED ON THE OBSERVATIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. CHANDULAL KESHAVLAL & CO. [38 I TR 601]. 21. HE FURTHER ARGUED THAT IT HAS BEEN OBSERVED BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF WATERFALL ESTATES LTD. VS. CIT [131 ITR 223] THAT SEC.38 HAS TO BE UNDERSTOOD AS A WHOL E AND SUB-SEC.(1) COULD NOT BE DIVORCED FROM SUB-SEC.(2). IT HAS BEEN OBSERVED THAT SUB- SEC.(1) DEALT WITH CASES WHERE THE EXPENDITURE WAS PARTLY PERSONAL AND PARTLY FOR THE PURPOSE OF THE BUSINESS. SIMILARLY, SUB-SEC.(2) OF SEC.38 WOULD APPLY TO CASES WHERE PART OF THE EXPENDITURE WAS WITH REFERENCE TO NON BUSINESS ACTIVITY. IN THE CASE BEFORE US SIN CE IT IS NOT ALLEGED THAT PART USED BY THE MEMBER BROKER WAS FOR NON BUS INESS PURPOSE, THEREFORE, SUB-SEC.(2) COULD NOT BE APPLIED. SIMILA RLY, AGAIN HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. INDIAN EXP RESS (MADURAI) PVT. 13 LTD. [255 ITR 69] OBSERVED THAT SUB SECTIONS 30,31 AND 32 HAVE UNIFORMLY USED EXPRESSION USED FOR THE PURPOSE OF THE BUSINESS OR PROFESSION AND, THEREFORE SUB-SEC.(2) WOULD ALSO M EAN THAT BENEFIT COULD BE DENIED IF THE ASSETS WERE USED FOR NON BUS INESS PURPOSES. LASTLY, HE REFERRED TO THE DECISION IN THE CASE OF CIT VS. GOYAL GASES PVT. LTD. [188 ITR 216] WHEREIN THE ASSESSEE WAS CA RRYING ON THE BUSINESS OF DISTRIBUTING GAS IN THE CYLINDERS TO TH E CUSTOMERS WHEREIN DEPRECIATION WAS HELD TO BE ALLOWABLE TO THE ASSESS EE ON SUCH GAS CYLINDERS. HE VEHEMENTLY ARGUED THAT IF A GAS CYLIN DER WHICH WAS USED BY THE CUSTOMER AND DEPRECIATION WAS STILL HELD TO BE ALLOWABLE BECAUSE THE SAME WERE HELD TO BE USED FOR BUSINESS PURPOSES, THEN SAME ANALOGY WOULD APPLY TO THE USAGE OF VSAT ANTEN NA AND MONITOR WHICH IS THOUGH USED BY THE BROKERS, BUT WAS FOR TH E PURPOSE OF THE BUSINESS OF THE ASSESSEE. 22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT WITH A VIEW TO GIVE BOOST TO THE FINANCIAL REFORMS GOVERNMENT OF INDIA DECIDED TO ENSURE IMPROVEMENT IN TRADING PRACTICES FOR TRANSPARENCY AND SPEEDY SETTLEMENT A NATIONAL STOCK EXCHANGE WAS SUPPOSED TO BE ESTABLISHED IN THE BUDGET FOR F.Y 1993-94. ULTIMATE LY, ASSESSEE COMPANY WAS INCORPORATED BY NATIONALIZED BANKS TO S TART SCREEN BASED TRADING TO REPLACE THE EXISTING FLOOR BASED TRADING IN STOCKS AND SHARES. FOR THIS SCREEN BASED TRADING THE ASSESSEE COMPANY WAS REQUIRED TO INSTALL VSAT NET WORK WHICH CONSISTED OF A HUB AND VSAT ANTENNA AND MONITOR. THE HUB WAS INSTALLED IN THE PREMISES OF T HE ASSESSEE COMPANY, WHEREAS VSAT ANTENNA AND MONITOR WERE INST ALLED IN THE 14 PREMISES OF MEMBER BROKERS. THE WHOLE ELECTRONIC SY STEM WAS INSTALLED WITH A PRIOR PERMISSION OF DOT UNDER WHIC H THE WHOLE SYSTEM WAS REQUIRED TO BE OWNED BY THE ASSESSEE AND WAS TO BE OPERATED ON NO PROFIT NO LOSS BASIS BECAUSE CERTAIN CONCESSIONS WERE GIVEN IN RESPECT OF CUSTOMS DUTY. THERE WAS A FURTHER CONDIT ION THAT ALL TRANSACTIONS WERE TO BE CARRIED OUT THROUGH THIS SY STEM ONLY AND BROKERS COULD NOT TRADE TRANSACTIONS ON THE SYSTEM OWNED BY THEM WHICH MEANS THAT THE WHOLE SYSTEM WAS TO BE OWNED B Y THE ASSESSEE AND EVEN THE PART OF THE SYSTEM WHICH WAS ALSO TO B E OWNED BY THE ASSESSEE COMPANY FOR THE USAGE OF THIS SYSTEM BY TH E MEMBERS, ASSESSEE HAD CHARGED ONLY USAGE CHARGES AS PER THE COST. NO DOUBT, PART OF THE SYSTEM HAD BEEN USED BY THE BROKERS ALS O BUT THE QUESTION IS WHETHER THE BUSINESS OF THE ASSESSEE WAS POSSIBL E WITHOUT THE INSTALLATION OF VSAT ANTENNA AND MONITOR IN THE PRE MISES OF MEMBERS. IN THE ABSENCE OF INSTALLATION OF VSAT ANTENNA AND MONITOR IN THE PREMISES OF THE MEMBERS, MEMBER BROKERS COULD NOT H AVE EXECUTED VARIOUS TRANSACTIONS IN THE STOCK EXCHANGE. THEREFO RE, NATURALLY THE SYSTEM WAS MEANT FOR THE BUSINESS OF THE ASSESSEE. IN ANY CASE, THE ASSESSEE HAS ALREADY CHARGED USAGE CHARGES AND, MER ELY BECAUSE ASSESSEE HAS NOT CHARGED RENT FROM THE MEMBERS, WIL L NOT MAKE THE SYSTEM NOT FOR THE PURPOSE OF ASSESSEES BUSINESS. FURTHER, THE MEMBER BROKERS COULD NOT HAVE POSSIBLY USED THE SYS TEM FOR ANY OTHER PURPOSE THAN TO EXECUTE THE SHARE TRANSACTIONS WITH THE ASSESSEE. EVEN IF ASSUMING THAT BROKERS ALSO GOT SOME BENEFIT OUT OF THIS SYSTEM, 15 IT CANNOT BE SAID THAT SAME HAS NOT BEEN USED FOR T HE PURPOSE OF BUSINESS OF THE ASSESSEE. 23. THE HON'BLE SUPREME COURT IN THE CASE OF IN THE CASE OF EASTERN INVESTMENT LTD. VS. CIT [SUPRA] HAD OBSERVED AT PAG E-5 AS UNDER: THE NEXT POINT ON WHICH SOME STRESS WAS PLACED WAS THAT THERE WAS COMPLETE IDENTITY OF PERSON BETWEEN THE PERSON WHOS E SHARES WERE SOLD AND THE PERSON WHO TOOK THE DEBENTURES AND THAT THE TRANSACTION RESULTED IN CONSIDERABLE BENEFIT TO HIM. IN THE ABS ENCE OF A SUGGESTION OF FRAUD THIS IS NOT RELEVANT AT ALL FOR GIVING EFF ECT TO THE PROVISIONS OF SECTION 12(2) OF THE INCOME-TAX ACT. MOST COMMERCIA L TRANSACTIONS ARE ENTERED INTO FOR THE MUTUAL BENEFIT OF BOTH SIDES, OR AT ANY RATE EACH SIDE HOPES TO GAIN SOMETHING FOR ITSELF. THE TEST F OR PRESENT PURPOSES IS NOT WHETHER THE OTHER PARTY BENEFITED, NOR INDEED W HETHER THIS WAS A PRUDENT TRANSACTION WHICH RESULTED IN ULTIMATE GAIN TO THE APPELLANT, BUT WHETHER IT WAS PROPERLY ENTERED INTO AS A PART OF T HE APPELLANT'S LEGITIMATE COMMERCIAL UNDERTAKINGS IN ORDER INDIREC TLY TO FACILITATE THE CARRYING ON OF ITS BUSINESS. THUS, FROM THE ABOVE, IT IS CLEAR THAT GENERALLY CO MMERCIAL TRANSACTIONS ARE ENTERED INTO FOR THE MUTUAL BENEFITS AND EVEN S OME BENEFIT ACCRUED TO THE OTHER PARTY, IT CANNOT BE SAID THAT THE SAME WAS NOT FOR CARRYING ON THE BUSINESS OF THE ASSESSEE. AGAIN THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. CHANDULAL KESHAVLAL & CO. [SUPRA] AT PAGE- 610 HAS HELD AS UNDER: ANOTHER FACT THAT EMERGES FROM THESE CASES IS THAT IF THE EXPENSE IS INCURRED FOR FOSTERING THE BUSINESS OF ANOTHER ONLY OR WAS MADE BY WAY OF DISTRIBUTION OF PROFITS OR WAS WHOLLY GRATUITOUS OR FOR SOME IMPROPER OR OBLIQUE PURPOSE OUTSIDE THE COURSE OF BUSINESS T HEN THE EXPENSE IS NOT DEDUCTIBLE. IN DECIDING WHETHER A PAYMENT OF MO NEY IS A DEDUCTIBLE EXPENDITURE ONE HAS TO TAKE INTO CONSIDE RATION QUESTIONS OF COMMERCIAL EXPEDIENCY AND THE PRINCIPLES OF ORDINAR Y COMMERCIAL TRADING. IF THE PAYMENT OR EXPENDITURE IS INCURRED FOR THE PURPOSE OF THE TRADE OF THE ASSESSEE IT DOES NOT MATTER THAT THE P AYMENT MAY INURE TO THE BENEFIT OF A THIRD PARTY (USHER'S WILTSHIRE BRE WERY LTD. VS. BRUCE) ANOTHER TEST IS WHETHER THE TRANSACTION IS PROPERLY ENTERED INTO AS A PART OF THE ASSESSEE'S LEGITIMATE COMMERCIAL UNDERTAKING IN ORDER TO FACILITATE THE CARRYING ON OF ITS BUSINESS; AND IT IS IMMATERIAL THAT A THIRD PARTY ALSO BENEFITS THEREBY : EASTERN INVESTMENTS L TD. VS. CIT (SUPRA). BUT IN EVERY CASE IT IS A QUESTION OF FACT WHETHER THE EXPENDITURE WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF TRADE OR BUSINESS OF THE ASSESSEE. 16 FROM THE ABOVE IT IS CLEAR THAT IT IS THE COMMERCIA L EXPEDIENCY WHICH HAS TO BE SEEN WHILE DECIDING THE ALLOWABILITY OF E XPENDITURE. IN THE CASE BEFORE US, WITHOUT INSTALLATION OF THIS SYSTEM , IT WAS NOT EXPEDIENT TO CARRY ON THE BUSINESS OF THE ASSESSEE. 24. IN ANY CASE, LD. COUNSEL OF THE ASSESSEE HAD RI GHTLY RELIED ON THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. GOYAL GASES PVT. LTD. [SUPRA]. IN THIS CASE ASSESSE E WAS CARRYING ON THE BUSINESS OF FILLING GAS BOUGHT BY IT IN THE CYL INDERS AND SUPPLYING THE SAME TO THE CUSTOMERS. THOUGH CYLINDERS ARE DIR ECTLY USED BY THE CUSTOMERS, BUT THE ASSESSEE COULD NOT HAVE CARRIED OUT ITS BUSINESS WITHOUT GIVING SUCH CYLINDERS TO THE CUSTOMERS. THE REFORE, IT WAS HELD THAT ASSESSEE WAS ENTITLED TO DEDUCTION OF REPAIRS AS WELL AS DEPRECIATION ON SUCH CYLINDERS. IN THE CASE BEFORE US, THE ANALOGY OF GAS CYLINDERS IS FULLY APPLICABLE TO THE VSAT ANTEN NA AND MONITOR INSTALLED IN THE PREMISES OF THE BROKER MEMBERS BEC AUSE WITHOUT IT ASSESSEE COULD NOT HAVE CARRIED ON ITS BUSINESS. AG AIN IN THE CASE OF CIT VSAT. INDIAN EXPRESS (MADURAI) PVT. LTD. [SUPRA ], WHEREIN THE ASSESSEE COMPANY HAD PURCHASED A TELE TYPESETTER WH ICH WAS LOCATED IN THE PREMISES OF ASSESSEES SISTER CONCERN AT BOM BAY BUT WAS USED FOR THE PURPOSE OF ASSESSEES BUSINESS. THE DEPRECI ATION WAS RESTRICTED U/S.38(2). BEFORE DECIDING THIS ISSUE, THE HON'BLE MADRAS HIGH COURT QUOTED THE OBSERVATIONS OF HON'BLE SUPREME COURT IN THE CASE OF CIT VS. CHANDULAL KESHAVLAL & CO. [SUPRA] AS UNDER: THE SUPREME COURT IN THE CASE OF CIT VS. CHANDULAL KESHAVLAL & CO. (1960) 38 ITR 601 (SC) : 16R.507, HELD THAT IF THE PAYMENT OR 17 EXPENDITURE IS INCURRED FOR THE PURPOSE OF THE TRAD E OF THE ASSESSEE IT DOES NOT MATTER THAT THE PAYMENT MAY INURE TO THE B ENEFIT OF A THIRD PARTY. THE COURT ALSO HELD THAT IF THE EXPENDITURE IS INCURRED FOR FOSTERING THE BUSINESS OF ANOTHER ONLY, OR WAS MADE WAY OF DISTRIBUTION OF PROFITS, OR WAS WHOLLY GRATUITOUS, OR FOR SOME I MPROPER OR OBLIQUE PURPOSE OUTSIDE THE COURSE OF BUSINESS, THEN THE EX PENSE IS NOT DEDUCTIBLE. THE COURT FURTHER HELD THAT ANOTHER TES T IS WHETHER THE TRANSACTION IS PROPERLY ENTERED INTO AS A PART OF T HE ASSESSEES LEGITIMATE COMMERCIAL UNDERTAKING IN ORDER TO FACIL ITATE THE CARRYING ON OF ITS BUSINESS; AND IT IS IMMATERIAL THAT A THIRD PARTY ALSO BENEFITS THEREBY. BUT IN EVERY CASE IT IS A QUESTION OF FACT WHETHER THE EXPENDITURE WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE TRADE OR BUSINESS OF THE ASSESSEE. IN THE ABOVE BACKGROUND, IT WAS ULTIMATELY HELD THA T THE MACHINE WAS USED EXCLUSIVELY FOR THE BUSINESS AND PROFESSION OF THE ASSESSEE. 25. AS FAR AS THE DECISION RELIED ON BY THE LD. DR IN THE CASE OF L.P. HOSPITALITY (P) LTD. [SUPRA] IS CONCERNED, IN THAT CASE THE ASSESSEE COMPANY DURING THE ASSESSMENT YEAR HAD ENTERED INTO AN AGREEMENT WITH MOETS KABABS BY VIRTUE OF WHICH IT TRANSFERRE D 85% OF ITS DAILY RESTAURANT AND BAR SALES TO MOETS KABABS IN LIEU O F MATERIAL AND LABOUR SUPPLIED BY IT. THE AO IN THIS CASE OBSERVED THAT A SSESSEE DID NOT RUN THE BUSINESS OF BAR AND RESTAURANT DURING THE YEAR AS IT HAD NOT PURCHASED ANY RAW MATERIAL OR EMPLOYED ANY MAN POWE R AND IT WAS MOETS WHO DID EVERYTHING AND EVEN THE BAR LICENSE FEE HAS NOT BEEN PAID BY THE ASSESSEE. ON THESE FACTS, DISALLOWANCE OF DEPRECIATION U/S.39(2) WAS UPHELD BY THE HON'BLE HIGH COURT BECA USE FIXED ASSETS WERE NOT EXCLUSIVELY USED FOR THE PURPOSE OF ASSESS EES OWN BUSINESS; WHEREAS, IN THE CASE BEFORE US, VSAT ANTENNA AND MO NITOR HAVE BEEN USED FOR THE PURPOSE OF ASSESSEES BUSINESS. 26. SIMILARLY, IN THE CASE OF PUNJAB BONE MILLS VS. CIT [SUPRA], DISALLOWANCE OF DEPRECIATION U/S.38(2) WAS HELD TO BE VALID BECAUSE A 18 BOILER INSTALLED BY THE ASSESSEE WAS PARTLY USED BY THE SISTER CONCERN OF THE ASSESSEE FOR THEIR BENEFIT AND EVEN EXPENSES WE RE SHARED BY THE ASSESSEE WITH THE SISTER CONCERN. IN THE CASE BEFOR E US, THE EQUIPMENTS INSTALLED WITH THE MEMBERS HAVE BEEN EXC LUSIVELY USED FOR THE PURPOSE OF ASSESSEES BUSINESS. SIMILARLY, IN T HE CASE OF CIT VS. K.L.BASIN & CO. [SUPRA], DISALLOWANCE OF DEPRECIATI ON U/S.38(2) IN RESPECT OF CAR AT 1/4 TH WAS HELD TO BE NOT ALLOWABLE BECAUSE SUCH CAR WAS PARTLY USED FOR THE PERSONAL BENEFIT OF THE PAR TNER. IN THE CASE BEFORE US, THERE IS NO ALLEGATION THAT EQUIPMENTS I NSTALLED WITH THE MEMBERS HAVE BEEN USED FOR PERSONAL BENEFITS OF SUC H MEMBERS. IN VIEW OF THE ABOVE DISCUSSION, WE FIND NOTHING WRONG WITH THE ORDER OF THE LD. CIT[A] AND CONFIRM THE SAME. 27. IN ADDITION TO THE ABOVE, THE REVENUE HAS RAISE D THE FOLLOWING ADDITIONAL GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT[A] ERRED IN DIRECTING THE AO TO GRANT DEPRECIAT ION @ 60% ON COMPUTER SOFTWARE AS AGAINST 25% GRANTED BY THE AO IGNORING THE FACT THAT THERE IS NO PROVISION IN THE ACT TO PROVIDE DE PRECIATION @ 60% TO THE COMPUTER SOFTWARE FOR THE A.Y 2001-02. 28. AFTER HEARING BOTH THE PARTIES, WE FIND THAT AS SESSEE HAS CLAIMED DEPRECIATION ON SOFTWARE @ 60%. THE AO HELD THAT SUCH COMPUTER SOFTWARE WAS IN THE NATURE OF AN INTANGIBL E ASSET AND, THEREFORE, AS PER THE PROVISO TO SEC.32, DEPRECIATI ON ON INTANGIBLE ASSET WAS ONLY 25% AND, ACCORDINGLY, ALLOWED DEPRECIATION @ 25%. HOWEVER, LD. CIT[A] ALLOWED THE DEPRECIATION AT 60% . 29. BEFORE US, LD. DR WHILE SUPPORTING THE ORDER OF THE AO SUBMITTED THAT BEFORE INTRODUCING SPECIAL RATE OF D EPRECIATION AT 60% 19 FROM A.Y 2003,04 THE SOFTWARE COULD BE CONSTRUED ON LY AS AN INTANGIBLE ASSET AND, THEREFORE, DEPRECIATION HAD B EEN RIGHTLY ALLOWED BY THE AO AT 25%. 30. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT HE WOULD HAVE NO OBJECTION IF REVENUES GROUND IS A LLOWED BECAUSE BY THIS TIME MAJORITY OF COMPUTER SOFTWARE ACQUIRED BY THE ASSESSEE IN THAT YEAR WOULD GET AMORTAISED EVEN @ 25%. 31. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFUL LY, WE AGREE WITH THE SUBMISSIONS OF THE LD. DR. FURTHER IN VIEW OF T HE CONCESSION OF THE LD. COUNSEL OF THE ASSESSEE, WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND DIRECT THE AO TO ALLOW DEPRECIATION ON COMPUTER SOFTWARE @25%. 32. IN THE RESULT, REVENUES APPEAL IN I.T.A.NO.939 0/M/04 FOR A.Y 201-02 IS PARTLY ALLOWED. 33. I.T.A.NO.9419/MUM/19 A.Y 2001-02 [ASSESSEES APPEAL] : IN THIS APPEAL ASSESSEE HAS RAISED VARIOUS GROUNDS OF APPEAL, BUT AT THE TIME OF HEARING LD. COUNSEL OF THE ASSESSEE SUBMITT ED THAT ISSUES HAVE BEEN SUMMARIZED IN THE CHART FURNISHED DURING THE H EARING AND APPEAL MAY BE ADJUDICATED ACCORDINGLY. 34. THE FIRST ISSUE IS REGARDING DISALLOWANCE OF LE ASE PREMIUM PAID TO BOMBAY METROPOLITAN REGIONAL DEVELOPMENT AUTHORI TY [BMRDA] AMOUNTING TO ` `` ` .1,17,15,935/-. 35. AFTER HEARING BOTH THE PARTIES, WE FIND THAT TH E CLAIM FOR PROPORTIONATE AMORTIZATION OF LEASE PREMIUM PAID TO BMRDA WAS DISALLOWED FOLLOWING THE ORDERS OF EARLIER YEARS AN D WAS CONFIRMED BY THE LD. CIT[A] ACCORDINGLY. 20 36. THE LD. COUNSEL OF THE ASSESSEE FAIRLY CONCEDED THAT THIS ISSUE WAS DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF T HE REVENUE BY THE TRIBUNAL VIDE ORDER DATED 22 ND DECEMBER, 2008 IN I.T.A.NO.1955/M/99 & ORS. FOR THE EARLIER YEARS. ON THE OTHER HAND, LD . DR SUPPORTED THE ORDER OF THE CIT[A]. 37. AFTER CONSIDERING THE RIVAL SUBMISSIONS CAREFUL LY, WE FIND THAT IN THE EARLIER YEAR IN THE ASSESSEES OWN CASE, THE IS SUE WAS DECIDED AGAINST THE ASSESSEE BY FOLLOWING THE DECISION OF T HE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF JCIT VS. MUKUND LTD. [1 3 SOT 558] (MUM) (S.B) VIDE PARAS 13 & 14 WHICH ARE AS UNDER: 13. WE FIND UNDER IDENTICAL FACTS THE SPECIAL BENC H OF THE TRIBUNAL IN THE CASE OF MUKUND LTD., [SUPRA], AFTER CONSIDER ING VARIOUS DECISIONS INCLUDING THE DECISION OF THE HON'BLE BOMBAY HIGH C OURT IN THE CASE OF CIT VSAT. KHIMLINE PUMPS LTD. [SUPRA] AND THE VA RIOUS OTHER DECISIONS CITED BY BOTH THE SIDES HAS HELD IN THAT CASE THAT THE CONSIDERATION OF ` `` ` .2.04 CRORES PAID BY THE ASSESSEE FOR OBTAINING LEASEHOLD LAND FROM MAHARASHTRA INDUSTRIAL DEVELOPM ENT CORPORATION IN ITS FAVOUR FOR A PERIOD OF 99 YEARS WAS CAPITAL IN NATURE AND ACCORDINGLY, IT WAS HELD THAT THE SAME WAS NOT ALLO WABLE AS DEDUCTION. WE FIND THE TRIBUNAL AT PARA 26 OF THE ORDER HAS OB SERVED AS UNDER: 26. WE FIND THAT THE FACTS OF THE CASE BEFORE US A RE SIMILAR TO THE FACTS OF THE CASE IN THE CASE OF KHIMLINE PUMPS LTD. (SUPRA). WE ARE NOT IMPRESSED BY THE ARGUMENT OF TH E LEARNED COUNSEL FOR THE ASSESSEE THAT THE RATIO OF DECISION OF HONBLE BOMBAY HIGH COURT IN KHIMLINE PUMPS LTD. CASE (SUPR A) IS DISTINGUISHABLE SINCE IN KHIMLINE PUMPS LTD. CASE ( SUPRA) THE ASSESSEE WAS NOT THE ORIGINAL LESSEE. THIS DISTINCT ION POINTED OUT BY THE LEARNED COUNSEL FOR THE ASSESSEE IS NOT SUSTAINABLE FOR THE REASON THAT THE DECISION OF THE HONBLE HIGH CO URT IS NOT BASED ON THE FACT THAT THE ASSESSEE WAS NOT THE ORI GINAL LESSEE OF THE PREMISES. ALL OTHER FACTS OF THE CASE OF THE AS SESSEE BEFORE US ARE SIMILAR TO THE FACTS OF THE CASE OF KHIMLINE PUMPS LTD. (SUPRA). THE RATIO OF THE DECISION OF HONBLE JURIS DICTIONAL HIGH COURT IN THE CASE OF KHIMLINE PUMPS LTD. (SUPRA) IS CLEARLY APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE . IN THIS CASE OF THE ASSESSEE ALL THE ESSENTIAL INGREDIENTS OF TREAT ING THE AMOUNT OF RS. 2.04 CRORES PAID BY THE ASSESSEE FOR ACQUISI TION OF LEASEHOLD RIGHTS FOR 99 YEARS IN THE LAND AS CAPITA L IN NATURE ARE PRESENT. THE BENEFIT CONFERRED ON THE ASSESSEE OF L EASE RIGHTS IS FOR 99 YEARS AGAINST THE LUMP SUM PAYMENT OF RS. 2. 04 CRORES IS 21 OF ENDURING NATURE. THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT THE SUM OF RS. 2.04 CRORES HAD BEEN PAID BY WA Y OF ADVANCE RENT NOR WAS THERE ANY PROVISION FOR ITS AD JUSTMENT TOWARDS RENT OR FOR ITS REPAYMENT TO THE ASSESSEE. WE FIND THAT IN CASE, THE ASSESSEE TERMINATES THE LEASE AGREEMEN T AND HANDOVERS THE VACANT POSITION OF THE LAND TO MIDC ( LESSOR) PRIOR TO THE EXPIRY OF LEASE PERIOD OF 99 YEARS, IT SHALL NOT BE ENTITLED TO ANY REFUND OUT OF THE AMOUNT OF RS. 2.0 4 CRORES PAID BY THE ASSESSEE. THERE IS ALSO NO MATERIAL ON RECOR D TO SHOW THAT THE ASSESSEE HAS MADE THE ADVANCE PAYMENT OF R ENT FOR FUTURE YEARS TO SECURE ANY REDUCTION IN THE RENT PA YABLE FOR THE FUTURE YEARS OR FOR ANY OTHER BUSINESS CONSIDERATIO N. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTA NCES OF THE CASE AND THE TERMS OF THE AGREEMENT DT. 5TH MARCH, 1992 ENTERED INTO BETWEEN THE ASSESSEE COMPANY AND MIDC AS A WHOLE, WE HOLD THAT THE CONSIDERATION OF RS. 2.04 C RORES PAID BY THE ASSESSEE COMPANY FOR OBTAINING THE LEASEHOLD RI GHTS FROM MIDC IN FAVOUR OF THE ASSESSEE FOR A PERIOD OF 99 Y EARS IS CAPITAL IN NATURE AND THEREFORE, NOT ALLOWABLE AS D EDUCTION TO THE ASSESSEE. THE DECISION OF THE HONBLE SUPREME C OURT IN THE CASES OF PANBARI TEA CO. LTD. 57 ITR 422 (SC), DURG A DAS KHANNA 72 ITR 796 (SC), ADITYA MINERALS (P) LTD. VS .CIT 239 ITR 817 (S.C) AND HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF KHIMLINE PUMPS LTD. 258 ITR 459 (BOM) WOULD SQUARELY APPLY TO THE FACTS OF THE CASE OF THE ASSE SSEE, AND BEING BINDING IN NATURE, WE DECIDE THE ISSUE IN GROUND OF APPEAL NO. 10 OF THE REVENUE IN FAVOUR OF THE REVENUE AND THE GROUND OF APPEAL NO. 10 OF THE REVENUE IS ALLOWED AND THE ISS UE REFERRED TO THE SPECIAL BENCH BY THE PRESIDENT, TRIBUNAL IS ANSWERED IN THE NEGATIVE AND IN FAVOUR OF THE REVENUE. 14. FURTHER, WE ALSO DO NOT FIND ANY MERIT IN THE C HART FILED BY THE ASSESSEE TO JUSTIFY THE SAVINGS ON ACCOUNT O F LOWER RENT PAID PER SQ.FT. AS AGAINST THE HIGHER RENT, SINCE T HIS, IN OUR OPINION IS ONLY A SELF SERVING DOCUMENT WITHOUT ANY AUTHENTICITY. SINCE THE FACTS OF THE PRESENT CASE A RE IDENTICAL TO THAT OF THE CASE )MUKUND LTD. [SUPRA]) DECIDED BY T HE SPECIAL BENCH OF THE TRIBUNAL, WHICH IN TURN HAS FOLLOWED T HE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CAS E OF KHEMLINE PUMPS LTD. [SUPRA], THEREFORE, RESPECTFULL Y FOLLOWING THE SAME, WE HOLD THAT THE CIT[A] WAS JUSTIFIED IN UPHOLDING THE AOS ACTION IN TREATING THE PAYMENT OF LEASE PR EMIUM AMOUNTING TO ` `` ` .7,75,736/- AS CAPITAL IN NATURE. THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS ACCORDINGLY DISMISSED. FOLLOWING THE ABOVE, WE DECIDE THIS ISSUE AGAINST T HE ASSESSEE. 38. THE SECOND ISSUE IS REGARDING DISALLOWANCE OF P RIOR PERIOD EXPENSES. AFTER HEARING BOTH THE PARTIES, WE FIND T HAT DURING THE 22 ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS DEBITED A SUM OF RS.1,00,000/- TO PRIOR PERIOD EXPENSES WHICH WAS ON ACCOUNT OF PAYMENT TO INVEST INDIA ECONOMIC FOUNDATION FOR THE SPONSORSHIP OF THE 4 TH ANNUAL STOCK EXCHANGE SUMMIT HELD FROM 26-5-1999 T O 25-9- 1999. ON ENQUIRY, IT WAS EXPLAINED THAT THE SAME WA S ERRONEOUSLY COULD NOT BE DEBITED TO THE EXPENSES ACCOUNT IN THE PREVIOUS YEAR. SINCE ASSESSEE WAS FOLLOWING MERCANTILE METHOD OF A CCOUNTING, SAME WAS DISALLOWED BY THE AO. 39. BEFORE THE CIT(A) IT WAS MAINLY SUBMITTED THAT IT IS NOT ALWAYS POSSIBLE FOR A BUSINESSMAN TO ESTIMATE AND PROVIDE FOR ALL EXPENSES WITH AN ARITHMETICAL ACCURACY AND SINCE ACTUAL EXPE NSES HAS BEEN INCURRED, IT OUGHT TO HAVE BEEN ALLOWED. THE LD. CI T(A) FOUND THAT THE LIABILITY HAD ARISEN IN THE LAST YEAR AND IT WAS RECOGNIZED IN THE LAST YEAR AND PAYMENT WAS ALSO MADE IN THE LAST YEAR. TH EREFORE, THERE IS NO REASON EXCEPT NEGLIGENCE FOR NOT CLAIMING THE SA ME IN THE PRECEDING YEAR AND, THEREFORE, DISALLOWANCE WAS CON FIRMED. 40. BEFORE US, LA. COUNSEL OF THE ASSESSEE REITERAT ED THE SUBMISSIONS MADE BEFORE THE CIT(A). ON THE OTHER HA ND, LD. DR STRONGLY SUPPORTED THE ORDER OF THE CIT(A). 41. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE EXPENDITURE PERTAINED TO THE LAST YEAR AND EVEN PAY MENT WAS MADE LAST YEAR. THERE IS NO MATERIAL BEFORE US TO SHOW T HAT THERE WAS ANY DISPUTE OR LIABILITY CRYSTALLIZING IN THIS YEAR. SI NCE THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING AND E VERY YEAR IS AN 23 INDEPENDENT YEAR FOR ASSESSMENT, ACCORDINGLY, WE CO NFIRM THE DISALLOWANCE. 42. THE THIRD ISSUE IS INTEREST ON DELAYED PAYMENT OF TDS DISALLOWANCE AND THE SAME WAS NOT PRESSED BEFORE US . THEREFORE, SAME IS DISMISSED AS NOT PRESSED. 43. THE FOURTH ISSUE IS REGARDING DISALLOWANCE OF E XPENSES IN RELATION TO EXEMPT INCOME U/S.10(15). AFTER HEARING BOTH THE PARTIES, WE FIND THAT THIS ISSUE CAME UP FOR CONSIDERATION I N GROUND NO.2 OF THE REVENUES APPEAL IN I.T.A.NO.9390/MUM/04 AND WHILE ADJUDICATING THE REVENUES APPEAL, WE HAD ESTIMATED THE EXPENDITURE AT 1% BY FOLLOWING THE TRIBUNALS ORDER VIDE PARA-11 AND FOL LOWING THAT, WE ESTIMATE THE EXPENDITURE AT 1%. SINCE THE LD. CIT(A ) HAS ESTIMATED THE EXPENDITURE AT 0.05%, THEREFORE, ASSESSEES GROUND IS REJECTED. 44. THE LAST ISSUE IS REGARDING DISALLOWANCE OF DEP RECIATION TO 60% OF THE CLAIM ON COMPUTER SYSTEM BECAUSE, ACCORDING TO THE AO, THE SYSTEM WAS PUT TO USE FOR LESS THAN 180 DAYS. AFTER HEARING BOTH THE PARTIES, WE FIND THAT ASSESSEE HAD ACQUIRED A COMPU TER SYSTEM FROM CMS LTD. WHICH HAD BEEN CAPITALIZED DURING THE YEAR AND DEPRECIATION WAS CLAIMED @ 50% AS THE DATE OF INSTALLATION WAS C LAIMED TO BE 30-9- 2000 BY THE ASSESSEE. ON ENQUIRY COPY OF INSTALLATI ON WAS FILED BY THE ASSESSEE , ACCORDING TO WHICH, ACCEPTANCE REPORT WA S DATED 16-1-2001 AND DATE OF ACCEPTANCE WAS MENTIONED AS 31-12-2000. IT WAS ALSO MENTIONED IN THIS REPORT THAT ALL COMPONENTS INSTAL LED ON 30-9-2000 ARE UNDER OBSERVATION TILL 31-12-2000. ACCORDING TO THE AO IT BECAME CLEAR FROM THE REPORT THAT THE SYSTEM WAS NOT INSTALLED C OMPLETELY AS ON 30- 24 9-2000, WHICH IN TURN, MEANS THAT THE SYSTEM WAS US ED FOR LESS THAN 180 DAYS AND ACCORDINGLY 50% CLAIM OF DEPRECIATION WAS ALLOWED. 45. ON APPEAL, THE ACTION OF THE AO WAS CONFIRMED B Y THE LD. CIT(A). 46. BEFORE US, LA. COUNSEL OF THE ASSESSEE SUBMITTE D THAT ORDER FOR SYSTEM WAS PLACED ON 30-3-2000 WITH CMS COMPUTERS L TD. MOST OF THE ITEMS WERE RECEIVED BY MAY, 2000 AND IN THIS REGARD HE REFERRED TO THE VARIOUS DELIVERY CHALLANS, COPIES OF WHICH ARE PLAC ES AT PAGES 74 TO 79 OF THE PAPER BOOK, WHICH PERTAINED TO THE MONTH OF MAY, 2000. AS PER THE SYSTEM AND PROCEDURE FOLLOWED BY THE ASSESSEE, SUCH SYSTEMS ARE INSTALLED AND PUT UNDER ACCEPTANCE TEST BEFORE THEY ARE FINALLY ACCEPTED. DURING INSTALLATION OF THIS SYSTEM SOME T ECHNICAL PROBLEMS HAD ARISEN WHICH WERE TAKEN UP BY CMS COMPUTERS LTD AND ULTIMATELY THE SYSTEM WAS INSTALLED IN DECEMBER, 2000. HE PART ICULARLY INVITED OUR ATTENTION TO THE LETTER OF CMS COMPUTERS LTD. COPY OF WHICH IS AVAILABLE AT PAGES 81 & 82 OF THE PAPER BOOK, WHERE CMS COMPU TERS LTD HAVE ACCEPTED THE PROBLEMS AT THEIR END AND HAD OFFERED ADDITIONAL SIX MONTHS OF WARRANTY ON HARDWARE ASSETS AS WELL AS SO FTWARE COMPONENTS AND ULTIMATELY RECKONED 1 ST OCTOBER, 2000 AS CUT OFF DATE FOR ALL WARRANTY RELATED DELIVERY. HE EMPHASIZED TH AT THIS CLEARLY SHOWS THAT THIS SYSTEM EVEN IF CONSIDERED NOT STARTED WAS DEFINITELY RUNNING ON TRIAL BASIS AND EVEN THAT HAS TO BE CONSIDERED A S USER AND IN THIS REGARD HE RELIED ON THE DECISION OF THE HON'BLE CAL CUTTA HIGH COURT IN THE CASE OF CIT VS. UNION CARBIDE INDIA LTD. [254 I TR 488]. 25 47. ON THE OTHER HAND, LD. DR CARRIED US THROUGH TH E ASSESSMENT ORDER AND SUBMITTED THAT AO HAS GIVEN A CLEAR FINDI NG THAT AS INSTALLATION REPORT CLEARLY MENTIONED THE DATE OF A CCEPTANCE AS 31-12- 2000, THEREFORE, THE SYSTEM CAN BE SAID TO HAVE BEE N INSTALLED ONLY FROM THAT DATE, WHICH IN TURN MEANS, THAT THE SAME WAS USED FOR LESS THAN 180 DAYS AND, THEREFORE, DISALLOWANCE OF 50% D EPRECIATION WAS JUSTIFIED. 48. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT VARIOUS DELIVERY CHALLANS ISSUED BY CMS COMPUTERS L TD ARE DATED 6-5- 2000 TO 20-5-2000. THUS, IT IS CLEAR THAT VARIOUS C OMPONENTS OF COMPUTERS WERE DELIVERED IN THE MONTH OF MAY, 2000. IT SEEMS THERE WERE CERTAIN TECHNICAL PROBLEMS. THE LETTER WRITTEN BY CMS COMPUTERS LTD ON SEPTEMBER 2, 2000 IS RELEVANT AND THE RELEVA NT PARAS 1 & 4 OF THE SAME READ AS UNDER: 1. SQL BT IMPLEMENTATION ON DIGITAL PLATFORM COULD NOT BE DONE DUE TO WITHDRAWAL OF SUPPORT FROM VERITAS FOR THE A BOVE PLATFORM. WE ARE EXTREMELY SORRY FOR THE INCONVENIENCE CAUSED. H OWEVER WE WOULD LIKE TO CONFIRM THAT YOU WILL BE ABLE TO BACKUP ORA CLE ONLINE USING RMAN AGENTS ON VERITIES AS AND WHEN YOU MIGRATE TO ORACLE 8 X. THIS HAS BEEN TESTED AND DEMONSTRATED TO YOU. THIS LIMIT ATION CURRENTLY HAS BEEN OVERCOME BY A WORK AROUND AND YOU WILL CONTINU E USING SQL BT MANUALLY AS USUAL USING SCRIPTS GIVEN BY US. THIS MIGHT WARRANT ADDITIONAL RESOURCES AND THE SAM E WILL BE ADDED BY CMS AT NO EXTRA COST TO YOU TILL YOU MIGRATE TO ORA CLE 8.X AND THE ONLINE BACKUPS ARE POSSIBLE AS REQUIRED BY NSE WITH RMAN. DURING THIS PERIOD THE ABOVE MENTIONED ADDITIONAL RESOURCE S WOULD REMAIN PROPERTY OF CMS AND ALL EXPENSES TOWARDS AMC, INSUR ANCE [IF ANY] ETC WOULD BE TAKEN CARE BY CMS. UPON MIGRATION TO ORACL E 8.X AND SUCCESSFUL DEMONSTRATION WITH RMAN THEREAFTER, THE ABOVE REFERRED RESOURCES WOULD BE TAKEN BACK WITH NSES CONCURRENC E. HOWEVER, NSE WOULD HAVE AN OPTION TO BUY THESE RESOURCES AT NEGOTIATED PRICES AT APPROPRIATE TIME. 4. AS TOKEN OF ATONEMENT WE WILL OFFER YOU ADDITIO NAL SIX MONTHS SUPPORT OF HARDWARE AS WELL AS SOFTWARE COMPONENTS. WE WILL RESOLVE 26 THE ISSUE BY END SEPT. 2000 FOR ENABLING COMMENCEME NT OF WARRANTY PERIOD AS STATED ABOVE. PARA-1 CLEARLY SHOWS THAT THERE WERE CERTAIN TECHNI CAL PROBLEMS ON THE PART OF CMS COMPUTERS LTD. AND THEY HAD CLEARLY ACC EPTED THEIR MISTAKE AND THAT IS WHY HAD OFFERED ADDITIONAL SIX MONTHS SUPPORT ON HARDWARE AS WELL AS SOFTWARE COMPONENTS. EVEN FINAL LY THE DATE OF WARRANTY HAS BEEN TAKEN FROM OCTOBER 1, 2000. THIS CLEARLY SHOWS THAT THE SYSTEM WAS UNDER INSTALLATION FOR THE PERIOD BE FORE SEPTEMBER, 2000. THE HON'BLE CALCUTTA HIGH COURT IN THE CASE O F CIT VS. UNION CARBIDE INDIA LTD. [SUPRA] HAS OBSERVED AS UNDER: UNDER S. 32 OF THE INCOME-TAX ACT, 1961, IT IS NEC ESSARY THAT THE MACHINERY IS OWNED WHOLLY OR PARTLY BY THE ASSESSEE AND 'USED FOR THE PURPOSE OF THE BUSINESS' IT IS THE INTERPRETATION O F THE WORD 'USE' IN THIS PHRASE WHICH WOULD BE PARTLY DETERMINATIVE OF THIS REFERENCE. ONCE OWNERSHIP BY THE ASSESSEE AND THE LAPSE OF THE WHOL E PREVIOUS YEAR ARE ESTABLISHED, A FULL YEAR OF SHELF-LIFE OF THE MACHI NERY IN QUESTION HAS INEXORABLY LAPSED. IF IT IS FOUND THAT DURING THAT YEAR THE MACHINERY CANNOT BE SAID TO HAVE BEEN USED FOR THE PURPOSE OF THE ASSESSEES BUSINESS, THEN DEPRECIATION CANNOT BE ALLOWED BUT O NCE IT IS SHOWN THAT THE ASSESSEE HAS PUT THE MACHINERY TO USE, FOR THE PURPOSE OF THE ASSESSEES BUSINESS, THEN FURTHER INQUIRY ABOUT THE DEGREE OR TYPE OF USE IS NOT PERMITTED TO BE SCRUTINISED BY THE LANGUAGE OF THE SECTION. IT MIGHT BE THAT THE ASSESSEES USE IS TO KEEP IT AS A STAND-BY FOR THE WHOLE YEAR; IT MIGHT AGAIN BE THAT THE ASSESSEE HAS TO US E IT FOR A TRIAL PRODUCTION OR IN SOME OTHER PURPOSE FOR THE ASSESSE E S BUSINESS, WHICH IS NOT IMMEDIATELY PRODUCTIVE OF COMMERCIAL P ROFIT; THESE WOULD AGAIN NOT GO AGAINST THE ASSESSEE. ONCE THE ASSESSE E CAN ESTABLISH BONA FIDE USE OF THE MACHINERY FOR THE PURPOSES OF THE A SSESSEE S BUSINESS, THEN AND IN THAT EVENT, THE ASSESSEE ESTABLISHES TH E ASSESSEES RIGHT TO CLAIM DEPRECIATION. FROM THE ABOVE, IT IS CLEAR THAT EVEN USAGE FOR TRI AL PERIOD WOULD CONSTITUTE USER. IN THE CASE BEFORE US, VARIOUS COM PONENTS WERE DELIVERED IN THE MONTH OF MAY, 2000. THUS, ASSESSEE ACQUIRED OWNERSHIP OF THE EQUIPMENT IN MAY, 2000. LATER ON I T WAS IN THE PROCESS OF INSTALLATION AND VARIOUS TRIALS HAD BEEN CARRIED OUT AND 27 BECAUSE OF TECHNICAL PROBLEMS SAME WAS RECKONED TO BE INSTALLED LATER. PARA 4 OF THE CMS COMPUTERS LTDS LETTER SHOWS THAT EVEN AFTER EXTENDING THE WARRANTY, SAME WAS RECKONED FROM 1-10 -2000 WHICH MEANS THAT THE SYSTEM WAS EITHER UNDER CONTROL OR I N ANY CASE FULLY INSTALLED BEFORE THAT DATE. THEREFORE, IN OUR VIEW, THE SYSTEM STOOD INSTALLED AND WAS BEING USED FOR THE TRIAL PERIOD W HICH WOULD ALSO CONSTITUTE USER FOR THE PURPOSE OF DEPRECIATION U /S.32 IN TERMS OF THE DECISION OF THE HON'BLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. UNION CARBIDE INDIA LTD. [SUPRA]. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO GRANT FULL DEPRECIATION ON THE COMPUTER SYSTEM. 49. IN THE RESULT, ASSESSEES APPEAL IN I.T.A.NO.94 19/M/04 IS PARTLY ALLOWED. 50. I.T.A.NOS.7492 & 7493/MUM/05 [REVENUES APPEALS ] : IN BOTH THESE APPEALS THE ONLY ISSUE RAISED BY THE REVENUE S IS REGARDING ALLOWANCE OF FULL DEPRECIATION IGNORING THE RESTRIC TIONS PROVIDED U/S.38(2) BY THE LD. CIT(A). 51. THIS ISSUE HAS BEEN ADJUDICATED BY US WHILE ADJ UDICATING THE REVENUES APPEAL FOR A.Y 2001-02 IN I.T.A.NO.9390/M UM/04 ABOVE VIDE PARAS 21-25 AND FOLLOWING THAT ORDER, WE DECID E THIS ISSUE AGAINST THE REVENUE. 52. IN THE RESULT, BOTH THESE APPEALS ARE DISMISSED . 53. C.O.NOS.200 & 2001/MUM/06 : THROUGH THESE CROSS OBJECTIONS ASSESSEE HAS RAISED VARIOUS GROUNDS CHALLENGING THE REOPENING OF THE ASSESSMENT. 28 54. BEFORE US, , LD. COUNSEL OF THE ASSESSEE SUBMIT TED THAT AS FAR AS A.Y 1997-98 IS CONCERNED, THE SANCTION FOR ISSUING NOTICE U/S.151(1) WAS NOT OBTAINED BY THE AO AND IN THIS REGARD HE RE FERRED TO THE COPY OF NOTICE PLACED AT PAGE 20 OF THE PAPER BOOK, WHIC H HAS LEFT THE COLUMN REGARDING SANCTION OF APPROVAL OF COMMISSION ER BLANK. BECAUSE OF THIS, WE HAD DIRECTED THE REVENUE TO VERIFY THE RECORDS AND CLARIFY THE MATTER AND THE MATTER WAS POSTED FOR HEARING FO R THE NEXT DATE I.E. 13-5-11. THE REVENUE HAS FILED A COPY OF THE FORM F OR RECORDING REASONS BELOW WHICH THE COMMISSIONER HAS CLEARLY AC CORDED THE APPROVAL. FURTHER, A COPY OF LETTER DATED 1-3-2004 ADDRESSED BY THE ACIT, CIRCLE-7(1) TO THE CIT SHOWING THE GRANT OF APPROVAL FOR REOPENING HAS ALSO BEEN FILED. IN VIEW OF THIS, THI S OBJECTION IS REJECTED. 55. THE , LA. COUNSEL OF THE ASSESSEE HAS FURTHER S UBMITTED THAT ORIGINAL ASSESSMENT WAS COMPLETED ON 20-8-2000 FOR A.Y 1997-98 AND ON 18-12-2000 FOR A.Y 1998-99 AND NOTICE U/S.148 HA S BEEN SERVED ON 8-4-2004 I.E. BEYOND FOUR YEARS. SUCH NOTICE CANNOT BE ISSUED UNLESS AND UNTIL THERE IS A FAILURE TO DISCLOSE FULLY AND TRULY THE MATERIAL FACTS. THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE THE FACTS FULLY AND TRULY AND, THEREFORE, REOPENING WAS BAD IN LAW. 56. ON THE OTHER HAND, LD. DR SUPPORTED THE RE-ASSE SSMENT ORDERS. 57. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THERE IS NO FAILURE ON THE PART OF THE ASSESSEE TO DISCLOSE FUL LY AND TRULY ALL MATERIAL FACTS FOR THE PURPOSE OF ASSESSMENT AND, THEREFORE, SUCH ASSESSMENTS COULD NOT HAVE BEEN REOPENED IN VIEW OF THE PROVISO TO SEC.147. ACCORDINGLY, WE ARE OF THE VIEW, THAT THE ASSESSMEN TS HAVE BEEN 29 REOPENED VALIDLY AND, ACCORDINGLY, ANNULLED THE ACT ION OF THE AO OF REOPENING THE ASSESSMENTS. 58. IN THE RESULT, CROSS OBJECTIONS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 7 TH MAY,2011. SD/- SD/- (R.V.EASWAR) (T.R.SOOD) PRESIDENT ACCOUNTANT MEMBER MUMBAI:27 TH MAY,2011. P/-*