IBAHN India Pvt. Ltd. v. CIT
In the Income Tax Appellate Tribunal at Mumbai
ITA 4932/Mum/2015
Before Mr Joginder Singh, Judicial Member
Decided on January 11, 2016

Relevancy of the case: Whether switches and routers fall within the ambit of computers or not?

Statutes and Provisions involved

• Income Tax Act, 1961 (Section 32(1))
• The Information Technology Act, 2000 (Section 2(i))

Relevant Facts of the case

• The assessee is engaged in the business as a service provider of HSIA (High-Speed Internet access), IPTV (Internet Protocol Television), VOD (Video on Demand), I-media and mobile streaming services for hotel chains including Hilton, Marriot, Hayat, Oberai, etc. to cater the needs of their clients.
• The assessee claimed depreciation of Rs. 35,57,976/- on fixed assets, shown as machinery and plant.
• These assets were installed in the hotel chain systems containing accessories, i.e., switches and routers.
• As per the assessee, without these accessories, the internet connection through a computer cannot be established to the client.
• The main argument was based on the fact that these accessories fall within the ambit of computers and therefore and they are entitled to receive depreciation at the rate of 60% instead of a mere 15%.

Opinion of the Bench

• To understand whether routers and switches fall within the ambit of computers, the definition of a computer must be taken as per Section 2(i) of the IT Act, 2000. But the assessing officer also took into consideration the preamble of both the Information Technology Act, 2000 and the Income Tax Act, 1961 and took into account that they are very distinct from one another.
• Thereby taking note of the Supreme Court Case of CIT v. Venkateswara Hatcheries (P.) Ltd., the meaning assigned to a particular word in a particular statute cannot be imported to a word used in different statutes if the objective of both the acts is not similar.
• However, the assessing officer believed that the accessories, i.e., routers and switches, do not fall within the ambit of computers. The same decision was taken by relying on the judgement passed by the Tribunal’s Special Bench in the case of DCIT v. Datacraft India Ltd., followed by the Bangalore Bench of Tribunal in the case of UAE Exchange and Financial Services Ltd v. Department of Income Tax.

 Final Decision

• Depreciation is allowed only at a rate of 15%, and therefore, the remaining claimed depreciation of ₹ 26,68,482/- was disallowed.
• The Assessing officer placed reliance on the case of Nestle India Ltd. v. DCIT where it was held that although UPS, routers, switches, etc. are connected to the computers; but they are not an integral part of a computer system and therefore, cannot be considered as computers.

Personal Opinion

The common parlance and understanding of the word computers must also be taken into consideration for tax exemption purposes as the words routers and switches have neither been defined in the Income Tax Act, 1961 nor in the Information Technology Act, 2000. The Supreme Court, in the case of Mangulu Sahu Ramahari Sahu v. State Tax Officer, held that in cases of absence of a definition, the common parlance of the word is to be adopted. Therefore, in my opinion, the court must also take the common parlance into consideration while deciding whether it falls within the ambit or not.

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