Royal Bank of Scotland v. DCIT

Srushti IyerCase Summary

Royal Bank of Scotland v. DCIT
In the Income Tax Appellate Tribunal, “C” Bench, Kolkata
I.T.A. No 1738/Kol/2009, 1926/Kol/2010 & 519/Kol/2011
Before Mr Mahavir Singh, Judicial Member and Mr M. Balaganesh, Administrative Member
Decided on April 13, 2016

Relevancy of the case: Whether an ATM falls under the definition of a computer?

Statutes & Provisions Involved

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

Relevant Facts of the Case

  1. The assessee bank is incorporated in the Netherlands and is engaged in banking operations across the globe through various branches worldwide, including India.
  2. In India, the assessee (branches/permanent establishment) is registered as a Scheduled Bank in terms of Schedule II of the Reserve Bank of India Act, 1934.
  3. Article 7 of the Double Taxation Avoidance Agreement (DTAA) provides for taxation in India of a foreign enterprise in respect of profits attributable to its Permanent Establishment (PE) in India.
  4. The assessee is having a PE in India, and it is liable to tax in respect of income attributed to the PE.
  5. The assessee charged tax at 36.5925% on its profits on the ground that in view of Article 24 of DTAA with the Netherlands, the tax rate applicable to it is the rate applicable to domestic companies i.e. at 36.5925%.
  6. However, the Learned AO held that assessee being a non-resident foreign company, the applicable tax rate as per the relevant Finance Act would be 40% plus surcharge. This action was upheld by the Learned CIT(A) in the first appeal.

Opinion of the Bench

  • It was submitted to the bench that inside every ATM, there is a computer which is not very different from any other personal computer. But the basic function of connecting a person to the bank’s ATM network and accessing his account information are done by the ATM and the software used in the ATM is also the same software which is used in a computer.
  • The bench considered the case of DCIT v. Datacraft India Ltd (2010) 40 SOT 295 wherein the Mumbai Tribunal’s Special Bench dealt with a similar issue. This case discussed the definition of a computer given in the Information Technology Act, 2000 and held that routers and switches are to be considered as a part of a computer system. The Special Bench further allowed a depreciation rate of 60% on computers.
  • Accordingly, ATM machine can be considered as a computer as it performs logical, arithmetic and memory functions by manipulations of electronic magnetic or optical impulses giving debit or credit cash and thereafter dispenses the case and gives a printed receipt.

Final Decision

  • The learned AO is directed to allow a depreciation rate of 60% of ATMs.

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