Income Tax Appellate Tribunal - Delhi
Crabtree India Limited, Delhi vs Assessee on 8 September, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH "B" NEW DELHI)
BEFORE SHRI RAJPAL YADAV AND SHRI R.C. SHARMA
I.T.A. Nos. 3638 3639/Del/2008
Assessment Years: 2003-04 & 2004-05
M/s. Crabtree India Ltd., Vs. Assistant Commissioner of IT,
1/7, Ram Kishore Road, Circle 3(1),
Civil Lines, Delhi-1100 54 New Delhi.
(Appellant) (Respondent)
Appellant by: Shri VP Bansal, CA
Respondent by: Shri Manish Gupta, DR
ORDER
PER RAJPAL YADAV: JUDICIAL MEMBER The present two appeals are directed at the instance of the assessee against the orders of learned CIT(Appeals) dated 08.09.2008 and 05.09.20088 passed for assessment years 2003-04 and 2004-05.
2. In assessment year 2003-04, the solitary grievance of the assessee is that Learned CIT(Appeals) has erred in confirming the addition of Rs.4,38,957.
3. The brief facts of the case are that the assessee company at the relevant time was engaged in the business of trading of electric switch wires etc. It has filed its return of income on 3rd November, 2003 declaring an 2 income of Rs.1,55,58,980. Learned Assessing Officer had issued notice under sec. 143(2) which duly served upon the assessee and in response to the notice, tax consultant of the assessee appeared before the Assessing Officer. On scrutiny of the accounts, Assessing Officer found that assessee had debited a sum of Rs.8,77,915 towards expenses incurred on exhibition, seminars and conferences held in Hannover, Dubai. He found that total expenses on this exhibition/conference was incurred at Rs.17,55,831. 50% of the above expenses was borne by the assessee and the 50% was by the other group concern. Assessing Officer asked the assessee why expenses incurred on the seminar and conference held at Dubai be not disallowed. It was contended by the assessee that expenditure incurred at Hannover/Dubai for holding exhibition, seminar and conferences were borne by the assessee and Havells India Ltd. equally. The conferences were held jointly by the assessee and Havells India Ltd. The "CRABTREE" brand is an international brand and was purchased by Havells Industries Ltd. from Crabtree Ltd. UK. The participation in the conferences were for the purpose to advertise and explore market. Assessing Officer has disallowed 50% of the expenses borne by the assessee i.e. 50% of Rs.8,77,915 which comes to Rs.4,38,957 on the ground that seminars, exhibitions were held in the foreign countries, namely, 3 Hannover/Dubai etc. The assessee company neither in the past nor in the current year had made any export sales. Therefore, in the opinion of the Assessing Officer, it was not supposed to incur such expenses.
4. Appeal to the learned CIT(Appeals) did not bring any relief to the assessee.
5. The learned counsel for the assessee submitted that expenses incurred by the assessee were for the purpose of the business needs and expediency. Assessing Officer did not find out any fault with regard to the genuineness of incurrence of the expenses. The only grievance of the Assessing Officer is that corresponding income has not resulted to the assessee from the incurrence of such expenses, therefore, 50% are not allowable. On the strength of Hon'ble Supreme Court's decision in the case of CIT vs. Indian Bank reported in 56 ITR 77. He submitted that if expenditure is incurred wholly and exclusively for the purpose of the business then its allowance and disallowance would not be dependent upon the resultant income. It is not necessary that by spending money income should be generated. If that be so, then no concern would have suffered any loss For buttressing his proposition, he relied upon the judgment of the Hon'ble Delhi High Court in the case of CIT vs. Delhi Cloth & General Mills 115 ITR 659. He also 4 contended that Assessing Officer has not assigned any reason why 50% is to be disallowed and 50% is to be allowed to the assessee. Learned DR on the other hand relied upon the orders of the Assessing Officer.
6. We have duly considered the rival contentions and gone through the record carefully. Section 37 of the Income-tax Act, 1961 provides for deduction of all expenditure wholly and exclusively laid out or expended for the purpose of the business. Thus, in order to claim allowance of expenses under this section, the assessee should satisfy that expenditure are not governed by the provisions of sections 30 to 36, expenditures have been laid out wholly and exclusively for the purpose of the business. The expenditure must not be personal in nature and the expenditure must not be capital in nature. In the present case, the only reason assigned by the Assessing Officer for disallowing the claim of the assessee is that it had not made any export sales either in the past or in the current year. In our opinion, this cannot be a valid reason for making the disallowance. Assessing Officer has not doubted the genuineness of expenses and the business expediency for incurring such expenses. The turnover of the assessee had increased many folds because of these conferences and advertisements from assessment years 2002-03 to 2005-06. The disallowance can be made if it was found that expenses were 5 not wholly and exclusively for the purpose of business. But no such circumstances have been pointed out by the Assessing Officer. Therefore, we allow the appeal of the assessee and delete the disallowance.
7. In assessment year 2004-05, the solitary grievance of the assessee is that Learned CIT(Appeals) has erred in allowing depreciation at the rate of 25% on video conferencing equipment as against 60% claimed by the assessee on the ground that video conferencing equipments are not computers. The brief facts of the case are that the during the course of assessment proceedings, Assessing Officer found that assessee has made addition to the EDP installation to the extent of Rs.59,26,975. It claimed depreciation @ 60%. On perusal of the details of addition made by the assessee, it was found by the Assessing Officer that assessee has claimed depreciation @ 60% on the video conferencing equipments, speakers, TV sets etc. along with the computers and computer accessories including computers peripherals like printers. It was contended by the assessee that EDP installation were in the nature of data processing and other related activities. Assessing Officer did not accept the contention of the assessee on the ground that computer is one of the equipments in the video conferencing and depreciation cannot be claimed on the entire video conferencing 6 equipments which include TV sets, web-camera etc. He further observed that if the claim of the assessee company is accepted then all the big input and output devices processing units, storage unit like MRI scanning machines, coordinate measuring machine used in the industries for welding etc. will be entitled to 60% depreciation. Assessing Officer in this way disallowed the claim of the assessee and granted the depreciation @ 25%.
8. Appeal to the learned CIT(Appeals) did not bring any relief to the assessee.
9. The learned counsel for the assessee at the time of hearing placed on record a note exhibiting the functioning of video conferencing machine. He submitted that the computer is not defined in the Income-tax Act, 1961. The definition available in sec. 2(1)(t) of the Information Technology Act,2000 is relevant for understanding the meaning of computer. He placed this definition in his note. The note as well as the definition reads as under:
"A Videoconference (or videoteleconference) is a set of interactive telecommunication technologies which allow two or-more locations to interact via two way video and audio transmission simultaneously. Videoconferencing uses telecommunications of audio and video to bring people at different sites together for a meeting. Besides the audio and visual transmission of meeting activities, videoconferencing can be used to share documents, computer displayed information and whiteboards.7
The core technology used in a videoconference system is digital compression of audio and video streams in real time. The resulting digital stream of 1 s and Os is subdivided into labeled packets, which are then transmitted "through a digital network of some kind (usually ISDN or IP). The use of audio modems in transmission line allow for the use of POTS, or the plain telephone system, in some low speed applications, such as videotelephony, because they convert the digital pulses to/ from analog waves in the audio spectrum range.
A video conference system is a computer device, that accepts information (in the form of digitalalized data) by way of Video input (webcam or video camera) and audio input (microphones) and process the data and transfer through analog or digital telephone network or LAN and gives the output .data by way of Video output (monitor, television or projector) and audio output (loudspeakers associated with display device or telephone).
A computer is a programmable machine. The two principal characteristics of a computer are:
1. It respond to a specific set of instructions in a well defined manner.
2. It can execute a prerecorded list of instructions Modem computers are electronic and digital. The Actual machinery (Hardware) includes webcam, speakers in addition to input device, output device and central processing unit. Every computer is also requires a bus that transmits data from one part of the compl.}ter to another.
The video conference system is nothing but a computer device for data capturing and transfer for communication purpose.
The Video conference system is useful in the following fields: 8
i) In the medical field: The patients may contact nurses and physicians in emergency or routine situations. Physicians and other paramedical professionals can discuss cases across large distance. Videoconferencing system can be used to transmit the data about a patients.
ii) Distance Education: Through video conference equipments, students can visit another part of world to speak with others to learn.
iii) Business Impact: To enhance customer and supplier base, knowledge sharing and technical updation
iv) Impact on Law: Videoconferencing has allowed testimony to be used for individuals who are not able to attend the physical legal settings. In India, in most recent case KASAB was presented before the court through Video conference system.
v) Media relations: Video press conference at national and international level.
The video conference system has been installed for our official use in all our branches and factories for the purpose of communication. We are manufacturing and trading highly technical Electrical items and Bath fittings as per national and international quality standards. These items are mostly used by the electrical consultants and Architects at very sensitive areas. Our products are regularly having improving and changing nature. The new features have to be communicated to our market staff and customers to exchange the technical knowledge. Over the system, installed in our factories and offices, we share technical drawings, technical views and designs with our technicians, Engineers, consultants, architects and customers. Videoconferencing can enable individuals in far away places to have meetings and can save time and money that used to be spent in traveling. Videoconference system is being a online networking web 9 sites, in order to help businesses form profitable relationship quickly and efficiently without leaving their place of work. Video conferencing is also used to enhance the customer and supplier relationship.
The assessee company has invested in video conferencing systems and television sets (used as display monitors) at the assessee's various locations and charged depreciation under the head Computers at the rate of 60%.
Definition of Computer as per section 2(1)(t) of the Information Technology Act, 2000.
Definition A 'computer' is defined as under :-
The expression "computer" has not been defined in the Act. However, it has been defined by section 2(1)(t) of the Information Technology Act, 2000. As per the said Act, "computer" means any electronic, magnet, optical or other high speed data processing device or system which performs logical, arithmetic and memory functions by manipulation of electronics or magnetic or optical impulses and includes all input - output processing, storage, computer software or communication facilities which are connected or related to the computer in a computer system or computer network".
10. On the strength of above explanation, he submitted that video conferencing machine is to be equated with computers and depreciation @ 60% be allowed to the assessee. Learned DR on the other hand submitted that speaker, TV, camera etc. attached with a computer if carrying out video 10 conferencing cannot be construed as integral part of the computer enabling the assessee to claim depreciation @ 60%. The computer is one component in this whole product. On the basis of one component, the total machinery could not be construed as computer. On the strength of ITAT's order in the case of Climate Systems India Ltd. rendered in ITA Nos. 1698 & 1684/D/09, he contended that it has to be ascertained whether each item can function independently. If that be so then rate of depreciation available for each item would be applied to such item. The camera, TV etc. can function independently and, therefore, these are to be identified for excluding their values from grant of depreciation @ 60%. The ITAT in the case of Climate Systems India Ltd. has set aside the issue to the Assessing Officer for verifying the status of each individual items and how they are inter- connected or dependable upon computer for their functioning.
11. We have duly considered the rival contentions and gone through the record carefully. The note exhibiting the functioning of a video conferencing equipment place before us was not placed before the Assessing Officer. According to this material, a video conference system is a computer device, that accept information in the form of digital data by way of video input i.e. with the help of web-cam or video camera and audio input with the help of 11 microphone. The system thereafter processed the data and transfer through analogue or digital telephone net work or lan and digital gives the output data by way of audio video output. It is a technical device whose function are similar to the computer because basically computer also respond to a specific set of instructions in a well defined manner. It used to execute a pre- recorded list of instructions. The ITAT in the case of ITO vs. Simran Majumdar, Calcutta reported in 98 ITD page 119 has considered a somewhat similar issue wherein depreciation @ 60% was claimed on printer and scanner. The ITAT has considered the definition of computer system provided in Explanation (A) to sub-section (xi) of Sec.36(1) of the Income- tax Act, 1961. The ITAT thereafter considered the expression "computer" construed by the Institute of Chartered Accountants of India in its study material relating to information technology paper. Thereafter, the ITAT considered the judgment of the Hon'ble Supreme Court in the case of CIT vs. Karnataka Power Corporation 247 ITR 268 wherein the issue before the Hon'ble Supreme Court was whether a building can be treated as a "plant". Hon'ble Supreme Court has held that if the building has been planed and constructed in a way which serves an assessee's special technical requirement then such building will equated to be treated as "plant". On the 12 basis of this decision, the ITAT has considered printer and scanner as integral part of the computer and allowed depreciation @ 60%. Taking into consideration this decision of the ITAT and the material placed before us by the assessee, we deem it appropriate to set aside this issue to the file of the Assessing Officer for readjudication. Assessing Officer shall consider each item in detail and find out which can be equated and construed as computer for the purpose of granting depreciation @ 60%. Assessing Officer shall provide due opportunity of hearing to the assessee and decide the issue in accordance with law. The appeal of the assessee is allowed for statistical purposes.
7. In the net result, the appeal filed by the assessee for the assessment year 2003-04 is allowed and the appeal for the assessment year 2004-05 is allowed for statistical purposes.
Decision pronounced in the open court on 25.02.2010
( R.C. SHARMA ) ( RAJPAL YADAV )
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 25/02/2010
Mohan Lal
13
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR:ITAT
ASSISTANT REGISTRAR