Income Tax Appellate Tribunal - Chennai
Pentamedia Graphics Ltd., Chennai vs Department Of Income Tax
IN THE INCOME-TAX APPELLATE TRIBUNAL
CHENNAI 'A' BENCH, CHENNAI.
Before Shri.U.B.S. Bedi, J.M. & Shri. N.S. Saini, A.M.
I.T.A. No. 144/Mds/2011
Assessment Year: 2007-08
The Assistant Commissioner of M/s. Pentamedia Graphics Ltd.,
Income Tax, Vs. No.1, First Main Road, United India
Company Circle V(2), Colony, Chennai 600 024.
Chennai - 34.
[PAN:AAACP1647B]
(Appellant) (Respondent)
Revenue by : Shri Shaji P. Jacob, Sr. DR
Assessee by : M/s. G. Vadhini & J. Sree Vidya
ORDER
PER U.B.S. Bedi, J.M.
This appeal of the Revenue is directed against the order passed by the ld. CIT(A) V, Chennai dated 20.10.2010 relevant to the assessment year 2007-08, whereby the Department has challenged the action of the ld. CIT(A) in allowing the assessee's appeal claiming allowance of depreciation by adopting the rate of 60% in respect of digital content, when claim was made in respect of rights acquired to broadcast digital movies and as per new Appendix I to the IT Rules, 60% depreciation is available in respect of computers including computer software. Computer software is defined in note 7 to the appendix as a computer program recorded on any disc, tape, perforated media or other information storage device, whereas a digital movie is not a computer program though it may be recorded in a media defined in the notes mentioned.
2 I.T.A. No.1No.144/Mds/11
/Mds/11
2. Facts indicate that the assessee filed return of income at NIL after claiming deduction of `.2,49,45,920/- under section 10B of the Income Tax Act and set off of brought forward loss of `.48,89,413/- for the assessment year under consideration. The Assessing Officer, after scrutiny of the return disallowed the claim of deduction of `.2,49,45,920/- under section 10B, set off of brought forward loss, disallowance under section 40(a)(ia) for non-deduction of TDS on contract payment and disallowance of depreciation of `.29,59,934/- by adopting rate of 25% in respect of intangible assets as against 60% claimed by the assessee by determining the taxable income at `.1,16,16,082/-. But the Assessing Officer is stated to have not disclosed any reason for the aforesaid disallowance except for 40(a)(ia). Subsequently, the assessment order was rectified under section 154 dated 16.04.2010 and taxable income was determined at `.3,29,34,860/-. It is also noted that the Assessing Officer is stated to have not considered the deduction of `.42,62,400/- to be allowed under section 35DDA of the Act in pursuance of reassessment order dated 08.12.2006 for the assessment year 2004-05 and `.4,14,24,000/- for the assessment year 2003-04 vide reassessment order dated 31.12.2008.
3. The assessee filed appeal and challenged the action of the Assessing Officer for not allowing deduction under section 10B, but during the course of appeal proceedings, stated that since tax holiday period has expired by the assessment year 2006-07, so no such deduction is available hence this ground was withdrawn by the assessee and dismissed by the first appellate authority. 3 I.T.A. No.1 No.144/Mds/11
/Mds/11 3.1 As regards ground No.2, which pertains to restriction of claim of depreciation at 60% in respect of digital content acquired by the assessee for broadcasting feature films and allowing 25% depreciation, the assessee in appeal, contended that such part disallowance made by the Assessing Officer is neither proper nor justified because the assessee is entitled to depreciation at the rate of 60% because the above item is covered by item III(5) [i.e. computers including computer software] of article A (tangible assets) of Appendix I to Income Tax Rules, depreciation rate of 60% is given against such item and in the notes under Appendix l to r, the digital components covers in its definition as computer software received by it for its business activity for broadcast digital movies. Therefore, the assessee has debited the cost of such computer software received by it for its business activity of broadcasting as a tangible fixed asset and claimed depreciation at 60% as per IT Rules. Hence, the Assessing Officer may be required to direct to treat the right acquired in the form digital contents as a tangible fixed asset and allow depreciation at 60% as applicable to computer software. Reference was also given to relevant clauses of Accounting Standard (AS) 26 on the subject of intangible asset are noteworthy and could not refers to such clauses, it was submitted that an asset may incorporate both tangible and intangible elements and it is the predominant element that decides the character of the asset to be tangible or intangible. Moreover, an intangible asset may be contained in a physical substance too. If that physical substance is significant without which the activity cannot be carried on to reap future benefits, then it loses its character of intangible asset and becomes tangible. It was thus, submitted before the first appellate 4 I.T.A. No.1 No.144/Mds/11 /Mds/11 authority that the depreciation as per IT Act has been worked out to be `.2,18,30,403/- as per tax audit report. However, depreciation of `.2,01,98,665/- only has been claimed mistakenly in the computation of total income filed with the return. Hence, additional allowance of `.16,31,738/- also to be allowed due to this mistake apparent on record. It was, thus requested to direct the Assessing Officer to allow the same.
4. The ld. CIT(A), while considering and accepting the plea of the assessee has concluded to allow the grounds as raised in the appeal as well as additional claim made during the arguments as per para 8.2, which reads as under:
"8.2 I find that depreciation @ 60% for digital contents has been allowed by the Assessing Officer as per giving effect of ITAT order by Assessing Officer dated 3.7.2008 for the assessment year 2002-03. Facts of the case in the year under consideration have not changed. The depreciation @ 60% has been allowed all these years. The Assessing Officer has misdirected himself in reagitating a settled issue.
Therefore I am of the opinion that digital contents classified as fixed assets by the statutory auditors in the annual statement of accounts, is an asset having both tangible and intangible elements, but virtually the tangible element is most predominant in the form digital video tape, without which possession mere right for broadcasting is of no use. Therefore this digital contents is a tool or plant or machinery which is a tangible asset and is in the form of computer software. Therefore, the assessee's claim for depreciation at 60% as per IT Rules is fully justified.
Further, the Mumbai Special Bench of the ITAT in its order dated 9.7.2010 in DCIT (V) Data Craft India Ltd. (2010) TIOL 473 ITAT - MUM(SB) has held that even routs and switches are part of computer hardware eligible for depreciation @ 60%. Hence the appeal on this ground is allowed."
5. Aggrieved by this order of the ld. CIT(A), the Department has come up in appeal and while relying upon the order of the Assessing Officer, it was pleaded for setting aside the order of the ld. CIT(A) and restoring that of the Assessing Officer, 5 I.T.A. No.1 No.144/Mds/11 /Mds/11 because the item on which 60% depreciation has been claimed, it is not entitled to claim such higher depreciation for the reason that the digital component is not a computer nor computer software, so, the rate of depreciation at 25% as restricted by the Assessing Officer is applicable rate of depreciation on such item and to support the plea, the ld. DR has relied upon Cochin Bench decision in which screen printing is held to be not computer or computer software and in the case reported in 129 ITD 475, the ld. DR further submitted that similarly, the ATM machines are held to be not computer or computer software in the case of HDFC Bank Ltd. (formerly) Lord Krishna Bank Ltd., Centurion Bank of Punjab Ltd.) 2011- TIOL-101-ITAT-MUM order dated 07.01.2010 and it was pleaded for reversal of the order of the ld. CIT(A) and restoring that of the Assessing Officer.
6. The ld. Counsel for the assessee submitted that digital contents is a software entered in the relevant schedule refers to computer including computer software and the Hon'ble Supreme Court in the case of the assessee though under central excise matter, information technology software and document of title conveying the right to use information technology software, vide order dated 09.05.2006, has held that the goods under import are admittedly data recorded on tapes and under the existing notification No. 20/99 any kind of data in a machine readable form and capable of being manipulated by means of an automatic data processing machine would be covered by the term "information technology software and for the detailed reason given in the said judgement, the Hon'ble Supreme Court in assessee's own case reported in 2006-TIOL-44-SC-CUS has concluded to decide the issue in favour of the assessee. So far as Tribunal's 6 I.T.A. No.1 No.144/Mds/11 /Mds/11 decisions cited by the ld. DR are concerned, those are not relevant at all, therefore not applicable. It was thus pleaded for confirmation of the impugned order.
7. The ld. DR, in order to counter the submissions of the ld. Counsel for the assessee has pleaded that the citation of the Hon'ble Supreme Court given by the ld. Counsel for the assessee actually relates to interpretation of motion capture animation file imported by the assessee could be classified under the heading "85.24" to claim exemption of payment of custom duty under Notification No.20/99- Cus, whereas, in the case of the assessee, entry for depreciation purpose of computer and computer software, so there is vast difference between these two situations and interpretation placed by the Hon'ble Apex Court in respect of different entry/item cannot be imported here for the purpose of Income Tax Act/Rules. Therefore, the order of the ld. CIT(A) should be reversed and that of the Assessing Officer should be upheld and in alternative it was pleaded that the orders of authorities below can be set aside and matter can be remitted back on the file of the Assessing Officer for reconsideration after giving due opportunity to the assessee.
8. We have heard both the sides, considered the material on record as well as precedent relied upon by both the sides. The Assessing Officer has, in the assessment order has simply disallowed the excessive depreciation to the tune of `.29,59,934/-, but there is no discussion or consideration of relevant provisions in the order of the Assessing Officer. Whereas, the ld. CIT(A) has discussed and passed elaborate order without associating the Assessing Officer with such proceedings or seeking remand report while considering the decision of the 7 I.T.A. No.1 No.144/Mds/11 /Mds/11 Hon'ble Supreme Court's decision without giving appropriate basis and reasoning in order to bring the case of the assessee to be covered by such decision. Therefore, in the interest of justice and to have a fair play in the matter, we find it just and appropriate to set aside the orders of authorities below in this regard and restore the matter back on the file of the Assessing Officer with the direction to redecide the issue afresh after obtaining necessary further details from the assessee and considering relevant provisions, case law, etc. by passing a speaking order in relation to depreciation claimed on digital content imported by the assessee after giving due opportunity to the assessee. We hold and direct accordingly.
9. In the result, the appeal of the Department is allowed for statistical purpose.
Order pronounced on 09.09.2011
Sd/- Sd/-
(N.S. SAINI) (U.B.S. BEDI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Chennai, Dated, the 09.09.2011
Vm/-
To: The assessee//A.O./CIT(A)/CIT/D.R.