Oriental Bank of Commerce v. ACIT
2013 SCC OnLine ITAT 2128:  ITAT 3783
In the Income Tax Appellate Tribunal Delhi Bench ‘C’: New Delhi
ITA No. 273/Del/2011, Assessment Year: 2006-07
Before C.M. Garg, J.M. and S.V. Mehrotra, A.M.
Decided on March 15, 2013
Relevancy of the case: LAN and WAN are part of a computer network.
Statutes & Provisions Involved
- The Information Technology Act, 2000 (Section 2(i),(j))
Relevant Facts of the Case
- AO noticed that in the block of assets “Computer” an addition of Rs. 9,34,62,000/- had been made on account of purchase of certain equipment’s in form of LAN, WAN and the assessee had claimed depreciation @ 60%.
- The assessee had claimed deduction @ 60% by treating LAN, WAN as an integral part of computer software.
- The AO did not accept the assessee’s contention and held that LAN, WAN are special purpose business machines, which are specifically made for banking business only and cannot function as a computer. He, therefore, allowed depreciation @ 20% only.
Prominent Arguments by the Advocates
- The assessee has charged 60% depreciation as they fall under item (5) of the depreciation schedule in the I.T. Rules, 1962 “Computer including computer software” under the major head “machinery and plant”.
- The LAN equipment is called Local Area Network equipment which is part of the computer hardware which enables a group of computers and associated computer devises to share the data through this device.
- Similarly, WAN equipment is called Wide Area Network, to put it simply, two or more LAN would form a WAN i.e., to cover a larger geographical area the computer networking is done by use of Wide Area Network equipment (WAN).
- Also, in the light of section 2(i) of The Information Technology Act, 2000 which defines the term “computers” which also includes “computer network”. The term “computer network” means the interconnection of one or more computers using satellite, microwave, terrestrial line or other communication media, and terminals or a complex consisting of two or more interconnected computers whether the interconnection is continuously maintained. From this angle also, LAN, WAN would undoubtedly form a part of a computer.
- Section 2(j)”Computer network” means the interconnection of one or more computers or computer systems or communication device through-
- The use of satellite, microwave, terrestrial line, wire, wireless or other communication media; and
- Terminals or a complex consisting of two or more interconnected computers or communication device whether or not the interconnection is continuously maintained.
Opinion of the Bench
The learned CIT(A) allowed the assessee’s appeal in view of the following decisions:
- CIT v. BSES Rajdhani Power Ltd. (Delhi High Court)
- Which held that computer accessories and peripherals such as printers, scanners, and server etc. formed an internal part of a computer system as they are useless without a computer.
- DCIT v. Datacraft India Ltd. (ITAT Special bench, Mumbai)
- It is evident that LAN and WAN both form integral parts of a computer system as a computer cannot be utilized without these devices. For assessee ‘s business purposes and therefore he is entitled to depreciation at 60%.
- Order of learned CIT(A) is confirmed.
- Appeal for this particular issue is dismissed.