Pentamedia Graphics Ltd. v. Deputy Commissioner of Income Tax
In the Income Tax Appellate Tribunal
ITA 1406-1407/Chny/2015
Before Mr Ramit Kochar, Accountant Member and Mr Duvvuru R.L Reddy, Judicial Member
Decided on May 8, 2020

Relevancy of the case: Whether a software developed by an assessee is an intangible asset for the purpose of depreciation rate?

Statutes and Provisions Involved

• The Income Tax Act,1961 (Section 10B, 14A, 143(3), 234B, 234D, 254)
• The Copyright Act,1957 (Section 14(b))

Relevant Facts of the Case

• The appellant is an animation and special effects company. They used specially prepared software developed by them available on the hard disk/drive of the computer.
• During the assessment, the AO granted a depreciation of 25% as it is for intangible assets. However, the appellant claimed 60% depreciation.
• The Income Tax Commissioner erred in distinguishing between canned software and customised software. However, this is irrelevant to the issue of depreciation. Further, the Commissioner also confused himself between tangible and intangible goods while granting depreciation.

Prominent Arguments by the Advocates

• The appellant’s counsel argued that their animation software qualifies as computer software, based on Explanation 2 of Section 10B of the Income Tax Act, 1961. Further, he submitted that Note 7 in Appendix I of the Income Tax Rules clarifies that software is eligible for a depreciation rate of 60%. As a result, there is no scope or justification for clearly confusing tangible and intangible assets.

Opinion of the Bench

• Equating the appellant’s software with a computer program is far-fetched. It is the assessee’s intangible asset, utilised in multimedia and entertainment.

Final Decision

• The bench dismissed the appeal and affirmed the depreciation rate of 25%.

Anjini Pandey, an undergraduate student at Dr. Ram Manohar Lohiya National Law University, prepared this case summary during her internship with The Cyber Blog India in May/June 2022.