Film Projector could not be treated as computer for charging depreciation : ITAT

ORDER

1. This appeal by the assessee is directed against the order by the Commissioner of Income Tax (Appeals) dated 05.05.2017 and pertains to the assessment year 2013-14.

2. The grounds of appeal read as under:

1. On the facts & circumstances of the case as well as in Law, the Learned CIT (A) has erred in confirming the action of the Learned Assessing Officer in disallowing the claim of Depreciation amounting to Rs. 91,87,713/- on the alleged plea that the Film Projector is to be depreciated @ 15% instead of 60%, without appreciating the facts and circumstances of the case.

3. Brief facts of the case are as under:

The assessee is engaged in the business of providing film projection services to the Theatres and receives service charges for the same. During the year assessee has shown such service charges of Rs. 98.64 lakh and interest income on FD of Rs. 18.68 lakhs. Because of claim of huge depreciation, loss has been shown. According to the Assessing Officer, the assessee has claimed depreciation on film projector claiming it as “computer” which is not correct. The Assessing Officer opined that the contention that projector is a “computer” is not acceptable. The purchase invoice reveals the fact that projector is installed at cinema theatre at Maxis mall, The “computer” is altogether different than “projector”. According to the Assessing Officer, it is also pertinent to note that the assessee himself vide his Audit report (Form 3CD), Part-B, Annexure-A (Particulars of depreciation allowable as the Income-Tax Act) has classified the projector equipment as “Plant & Machinery” and not as “computer”. That in the Schedule of Financial Accounts accompanying the Financial Statements though there is a separate category of “Computer and Software” the assessee has shown the same separately as Digital Projector. That therefore, by the assessee’s own admission also the projector equipment is not classified under the head Computer. Furthermore, the accounts are subject to Audit both under Companies Act, 1956 and Income-Tax Act, 1961. That even as per the auditors, as evident from the presentation of the Fixed Assets Schedule the same are indicated to be classified as Plant & Machinery and not Computers, which cannot be ignored. Hence, Assessing Officer held that the claim of the assessee that Projector is not Plant & Machinery but a Computer and claim of depreciation @ 60%, is not acceptable. The Assessing Officer finally held that the depreciation as per Income-Tax Rules works out to be @15% on 2,05,44,188/- comes to Rs. 30,62,570/- and after considering the period of use i.e.(Rs. 2,02,90,088/- for more than 180 days and Rs. 2,54,100/- for less than 180 days). The Assessing Officer has disallowed excess claim of depreciation of Rs. 91,87,713/-.

4. Against the above order, the assessee appealed before the ld. Commissioner of Income Tax (Appeals).

5. Before the ld. Commissioner of Income Tax (Appeals), the assessee inter alia submitted that the business of the assessee is to provide film projection services to the theatres. This digital projector is run with server which is part and parcel of the “computer”. The function of the server is to process the information given to it, and the function of the digital projector to display the required information. Thus, it is just like a normal computer. However, the ld. Commissioner of Income Tax (Appeals) was not satisfied. He upheld the action of the assessing officer by observing as under:

3.3 I have considered the finding of the AO rival submission of the appellant, and have analysed the character of the film projector. It is very important to clarify that “Film projector” cannot be understood as “computer”. The “computer” is a programmed electronic device designed to accept data for prescribed mathematical and logical Operations at high speed and display the results of such operations. The Ld. AO has rightly observed that character of “computer” is altogether different than digital computer of film. This projector is a device for projecting a beam of light, Such projector is an optical instrument for projecting an image upon a surface. Further there is a definition of projector which is a machine for projecting motion pictures on a screen. Obviously, the film projector may be digital one, is a device that projects a beam of light on to a screen for viewing a picture already programmed, fed and input. Thus, projector cannot be equated with “computer” u/sec 32 of the IT Act assets entitled for depreciation has been categorised and under Income Tax Rule block of assets has been set indicating allowable rate of depreciation. The plant and machinery is entitled for depreciation at the rate of 15% whereas “computer” including software is entitled for depreciation at the rate of 60%. The contention of the Ld. A/R that digital computer of the film is nothing but the output devices of “computer” is misplaced because digital projector cannot be presumed as “computer” as this is the only output of the devise. The concept of “computer” cannot be expended on the basis of logic disrespecting the concept of machinery. Even aeroplane is run or plied on with the help of computerised devices. That does not mean that aeroplane can be treated as “computer”. Therefore, because of the fact of the case, various case laws relied upon by the Ld. A/R are not applicable. In the case of DCIT Mumbai v. Data Craft India Ltd.(2010) 40 SOT 295 (Mum.) (SB) ITAT), the issue was related to router and switches which were part and parcel of le “computer” hardware and other functions were found to be integrated one. In the case of CIT v. Bses Yamuna Powers Ltd. ITA 1267 of 2010 (Delhi High Court, depreciation was allowed at the rate of 60% on “computer” accessories and peripherals such as printers, scanners and server as these were integral part of the computer system responsible for completing the required working. Here is not the case like that. This film projector is independent, self content and having different character as it works as machines for projecting a beam of light or projecting images or motion pictures already produced and input. Therefore, such digital projector is a machine and for theatre it is a part and parcel of the plant and machine.

3.4 In the case of Nestle India Ltd. v. DCIT111 TTJ 498 (ITAT Delhi) it has been held that UPS is not an integral part of computer, hence not entitled for higher rate of depreciation. Similarly, though ATM is run on the basis of computer devise, is not entitled for higher depreciation applicable to the computer. This propositions is there in the case of HDFC Bank Ltd. v. ACIT 2011 TIOL – 101 (ITAT Mumbai). Similarly, machines for designing and printing using computer technology had not been regarded as computers, vide: ST. Reddiar & Sons v. DCIT129 ITD 475 (ITAT Cochin). Thus, in the light of the above discussion, and judicial propositions, the finding of the AO that such film projector is not at all “computer” or a “computer software or peripheral of computer, is approved, and it is held that film projector is a plant and machinery, hence it is entitled for depreciation at the rate of 15%, and not at the rate of 60%. Therefore, the excess claim of depreciation of Rs. 91,87,713/-disallowed by the AO is sustained.

6. Against the above order, the assessee is in appeal before the ITAT.

7. I have heard both the counsel and perused the records. The ld. Counsel of the assessee reiterated the submissions made before the authorities below. He insisted that the project is a computer and it should be granted deprecation is applicable to computers. In this regard, the ld. Counsel of the assessee placed reliance upon the decision of ITAT Mumbai Special Bench in the case of Dy. CIT v. Datacraft India Ltd.[2010] 40 SOT 295 and the ITAT Bangalaore Bench decision in the case of Dy. CIT v. UAE Exchange & Financial Services Ltd.[2016] 69 taxmann.com 84.

8. Per Contra, the learned departmental representative relied upon the orders of the authorities below.

9. Upon careful consideration, I note that section 32 of the Act which granted depreciation allowance does not define the word ‘computer’. However, the ITAT Special Bench in the case of Datacraft India Ltd. (supra) had the occasion to consider the meaning of word ‘computer’. After elaborately considering the Special Bench has expounded as under:

25. Thus in order to determine whether a particular machine can be classified as a computer or not, the predominant function, usage and common parlance understanding, would have to be taken into account. To analyse further, let us take the case of a Television, the principal task of which is to deliver visuals accompanied with audio. The signals are received through the relevant networks such as Dish TV, Tata Sky etc. But TV does not become computer for the reason that its principal function cannot be done only with the aid of ‘computer functions’ notwithstanding the fact that in the entire process of networking or receiving the output from different channels and making it available to the viewers, some sort of computer functions are necessarily involved. Similarly take the case of mobile phone. Its principal task is to receive and send calls. It is not a stand-alone apparatus which can operate without the relevant network, such as Airtel, BSNL, Reliance. It, therefore, follows that any machine or equipment cannot be described as computer, if its principal output or function is the result of some sort of ‘computer functions’ in conjunction with some non-computer functions. In order to be called as computer, it is sine qua non that the principal output/object/function of such machine should be achievable only through ‘computer functions’.

10. From the above exposition it is evident that just because some sort of computer functions are necessarily involved, mechanical system cannot be said to be computer unless its principal function cannot be done without the aid of computer function. In other words, any machine or equipment cannot be described as computer if its principal output or function is the result of some sort of ‘computer functions’ in conjunction with some non-computer functions. It was held that in order to be called as computer, it is sine qua non that the principal output/object/function of such machine could be achieved only through ‘computer functions’.

11. Now we examine the present case on the touch stone of the definition. In the present case, the concerned machine is a film projector. This is an optical instrument for projecting an image upon a surface. It is a device that projects a beam of light on to a screen for viewing a picture already programmed, fed and input. Though some elements of computer function are necessarily involved, the projector cannot be said to be a machine whose principal output/object/function is achieved only through computer function. Hence, I am of the considered opinion that the film projector in this case cannot be said to be computer entitled for higher rate of depreciation of 60% applicable for computation. The decisions referred by the ld. Counsel of the assessee were with respect to printer, scanner and router which are altogether different items. In fact, the exposition from Special bench, Mumbai decision in the case of Datacraft India Ltd. (supra) had defined the term ‘computer’ which has clinched the issue in favour of the Revenue. Accordingly, I do not find any infirmity in the order of the authorities below. Hence, I affirm the same.

12. In the result, this appeal filed by the assessee stands dismissed.