Income-tax Act, 1961 — S. 32 — Router and switches when used along with a computer and when their functions are integrated with a ‘computer’ would be included in the block of ‘computer’ entitled to depreciation at the rate of 60%.

The assessee-company was
engaged in data communication, design, development, purchase and sale of
networking products, etc. The assessee claimed depreciation amounting to
Rs.3,27,67,150 at the rate of 60% under the head ‘Computers’. The assessee had
included routers and switches in the block of computers. The Assessing Officer
(AO) held that routers and switches were entitled to depreciation at the general
rate of 25% as applicable to plant and not as claimed by the assessee at 60%.

Aggrieved, the assessee
preferred an appeal to the CIT(A) who held that the routers and switches fall
under the block of ‘computers’. He allowed the assessee’s appeal.

Aggrieved the Revenue
preferred an appeal to the Tribunal. The President referred the following
question to the Special Bench (SB) for its consideration :

“Whether routers and
switches can be classified as computer entitled to depreciation at 60% or have
to be classified as general plant and machine entitled to depreciation only at
25%.”

The SB noted that the term
‘computers’ is not defined in the Act. Even the General Clauses Act does not
define the term ‘computers’. The term ‘computer systems’ has been defined in S.
36(1)(xi) but considering the fact that the object of S. 36(1)(xi) is quite
distinct from that of S. 32 the SB was of the opinion that the definition of the
term ‘computer system’ given in the Explanation to S. 36(1)(xi) cannot be
applied as such (for giving meaning to ‘computer’) in the context of S. 32.
Considering the scheme of the Information Technology Act, 2000 and also the
objects of the said Act, the SB noted that the rationale behind the Information
Technology Act, 2000 is quite distinct from that of the Income-tax Act and since
both these acts are not pari materia the definition of ‘computer’ as given in
the Information Technology Act, 2000 cannot be applied in the context of S. 32
of the Act. Considering the general parlance meaning of the term ‘computer’ and
also that of ‘routers’ and ‘switches’ the SB held that router and switches can
be classified as computer hardware when they are used along with a computer and
when their functions are integrated with a ‘computer’. It held that when a
device is used as part of the computer in its functions, then it would be termed
as a computer to be included in the block of ‘computer’ entitled to depreciation
at the rate of 60%.

The appeal filed by the
Revenue was dismissed.