INTRODUCTION

As we all are well acquainted with the wide usage of mobile. It brings a revolution in industry. Mobile is emerging not only as an advance technology communicating device and entertaining source but also playing a vital role in the era of industrial revolution. Nowadays usage of mobile increasing rapidly, does not matter about which industry we are talking, either educational field, entertainment source, or enhancing our business by providing an excellent source of networking. It is also using in various business as an essential tool. In some sectors like communication and marketing. Government and Income Tax Department allows us to reduced business expenditure from gross earning. And charges tax on net income only. Only those expenditure which incurred on Business termed as Business Expenditure. Even Income tax defined the term Business Expenditure also.

Business are allowed to claim depreciation on fixed assets used for business purpose only, at a specific rate as provided by Income Tax Department, Now the question arise Does Mobile Comes Under the Category of Fixed Assets, and If Yes Then at What Rate??

So, let’s continue our discuss on this and know the view of our Income tax department and various authorities, on this issue.

Here are some Case Laws under which some issues related to Mobile like its Location, Classification & rate of depreciation etc are discuss:

1. LOCATION OF MOBILE PHONE:

M/s Rangbahar Vs. Commissioner of Income Tax – Mumbai- ITAT (ITA No. 2240/Mum/2009)

In this case, M/s Rangbahar an assessee, has challenged the validity of the proceedings initiated by the Commissioner of Income tax under section 263 in setting aside the order of the assessing officer under section 143(3).

In this case CIT (Commissioner of Income tax), disallowed depreciation on mobiles, as the assessee has not provided “the place of installation” of Mobile Phones. Vide para 18 of the Revision Order of the CIT was of the opinion that the assessee has not provided “the place of installation of assets”, which in this case was of mobile phone was not given and therefore the claim of depreciation was not allowable. Mobile in itself means “able to move or be moved freely or easily.” As per Cambridge Dictionary Mobile means, “moving or walking around freely.” The World Book Encyclopaedia also says, “The Cellular (Mobile) Telephone is a movable telephone unit.” But, what to say about Income Tax Department who rejected Depreciation claim on Mobile Phones as place of Installation was not given.

Aggrieved with the Revisionary Order, Assessee approached Mumbai-IAT which settled the case in favour of assessee. ITAT ruled, “By very nature of mobile phone, this cannot be fixed to a particular place.” ITAT allowed depreciation without Place of Installation.

2. CLASSIFICATION ISSUE OF MOBILE PHONES

M/s Kohinoor India private Ltd. Vs. Assistant Commissioner of Income Tax -Amrtisar ITAT (ITA No. 234 & 316/Asr/2017), In this case, Assessee claim depreciation on “IPAD” at the rate of 60% by treating is as computer. Department rejected the claim and allowed depreciation on “IPAD” considering them Plant & Machinery at 15%. Aggrieved with this Assessee approached CIT (Commissioner of Income tax) – Appeals but CIT-A also restricted the depreciation on Apple Ipad at general rate of 15% (further restricted to 7.5% on the basis of date of purchase).

Assessee approached Amrtisar – ITA against the order of CIT-A. Assessee argued that CIT-A has erred in upholding the action of the Assessing Officer in restricting the deprecation on apple I Pad at general rate of 15% (further restricted to 7.5% on the basis of date of purchase). Depreciation on apple I Pad was rightly claimed by treating it as computer.

The facts of the case are that the assessee had purchased an apple iPad during the year. iPad is basically a small/ tablet computer and depreciation applicable to a computer is to be allowed for an iPad/tablet.

In the present case ITAT was to adjudicate whether the iPad falls in the definition of computer or mobile phone. If iPad Falls in The Definition of Computer, then High Rate of Depreciation is allowable. However, if it falls within the definition of Mobile Phone then lower rate of depreciation is allowable.

But the problem arises that the term computer has not been defined in the Income Tax Act. As per the General Clauses Act, 1897, if a particular word is not defined in the Central statute then meaning given to such expression under General Clauses Act,

It would therefore be relevant to consider the definition contained in the Information Technology Act 2000 The term computer has been defined in section 2(1)(1) and its definition is given below:

Computer means any electronic, magnetic, optical or other high speed data processing device or system which performs logical, arithmetic, and memory function by manipulation of electronic, magnetic or optical impulses, an includes all input, output processing, storage, computer software, or communication facilities which are connected or related to the computer in a computer system of computer network.”

Oxford dictionary defines computer as:

“An electronic device which is capable of receiving information (data) in a particular form and of performing a sequence of operations in accordance with a predetermined but variable set of procedural instructions (program) to produce a result in the form of information or signals.”

The definition of computer under the Information Technology Act as well as its meaning in common parlance is relevant to decide the issue at hand. An apple iPad is an electronic device which performs data processing through manipulation of electronic impulses and thus qualifies as being a computer. Even if a tablet computer has a feature to make telephone/ data calls, it cannot be treated as a phone just as a desktop/laptop has the facility to make a data call through skype and various similar software applications cannot be treated as a phone. “The assessing officer was thus not justified in treating the iPad as a general machine and should have allowed depreciation on the same by treating it as a computer

REASONING GIVEN BY THE ASSESSING OFFICER FOR NOT TREATING IPAD AS A COMPUTER

In this case reasoning given by the Assessing Officer for not treating iPad as a computer are as follows:

a) Apple has two other variants – one is “I phone” and the other is “Mac Book” and comparison of the technical specifications would reveal that iPad has. more similarity with iPhone in that both of them share the same operating system i.e. “IOS” whereas Mac Book uses “OS-X”.

b) Both iPad and iPhone contain an inbuilt 2G/3G/4G connectivity and GPS primarily an inherent feature of mobile phone whereas Mac Book does not contain the same.

c) Sim card and mobile network comes under both iPad and iPhone and not Mac Book.

d) iPad does not have a USB port and this was one of the reasons for rejecting that iPad was a tablet computer. The specification sheet filed at page no. 43 shows that iPad purchased has USB 2.00 port which is a common port for data transfer as well as charging of iPad.

e) iPad does not have a CD Drive and therefore CD’s cannot be run on the iPad nor they can be used to transfer data or documents.

f) iPad is not compatible with Windows which is the single most popular operating system used by business all over the world and documents like word, excel sheets, power point presentations which are used and exchanged between business are on the windows platform and these cannot be used there is no question of considering iPad as a computer.

After making the above comparison, between the various products of Apple. A.O. concluded that iPad had more similarity with iPhone and thus was a phone and not a computer. With regard to the above observation, we are to submit

Counter Argument given by the Assessee are as follows:

a) Comparing various products of the same supplier is not the way to determine the exact nature of the electronic device in question. The Id. Assessing officer erred in taking apple products as a benchmark. The exact functions which can be performed by iPad have not been considered at all.

b) Having 2G/3G/4G connectivity and GPS does not define a device as a phone Even security devices have above features to transmit data / warning but these are not classified as a phone.

c) Sim card and mobile network are also not a determinative test of a computer As-submitted above even security devices have above features but these are not classified as a phone. Sim card is available in the iPad for transmission of data only. The model of iPad purchased did not have any calling as a cellular phone. It can only make a phone call using Wifi or using VoIP (voice over internet protocol) which any desktop computer and other devices can also make.

REASONING GIVEN BY THE ASSESSEE FOR TREATING IPAD AS A COMPUTER

(i) Availability of ‘USB port is not necessary for describing a device as a computer, Computers existed even before USB port. It is only a means of transferring data which can be done through wired (charging port of iPad) as well as wireless communication such as Wi-Fi, 2G/3G/4G, Bluetooth etc. What is pertinent to mention is that an apple iPad as USB port which is used for transfer of data as well as charging of iPad.

(ii) Availability of CD drive port is not necessary for describing a device as a computer. Computers existed even before CD drive was invented. Computers initially worked with punch cards and magnetic storage. CD is only a means of copying data for safe keeping or for copying on to other devices. The data in iPad is stored in solid state storage. also, iCloud is used for storing documents which can be accessed from any other device which is synced. Wifi is used for transferring data from iPad along with USA port. CD is only a means of transferring data which can be done through wired as well as wireless communication such as USB, Wifi, 2G/3G/4G, Bluetooth etc.

(iii) Windows is only one of the operating systems used by computers. Computers existed before windows operating system was available. The earlier operating system “DOS” is remembered by many who used computers in 1980’s and 1990’s. Even today, the other operating systems are available such as MacOS, Linux, Android, Chrome etc. Also, programs like word, excel and power point are available on iPad through from other software providers. The assessing officer has presumed that there is no software supplier other than Microsoft. The specifications of iPad as given at page no. 7 show that it is capable of messaging, email. push mail etc. Word processor, excel sheet and power point are also available on iPad under the name of numbers (Equivalent to excel), pages (equivalent to word) and keynote (equivalent to power point).

ITAT-Amritsar ruled in favour of Revenue and held that, “iPad is not a computer, hence depreciation at lower rate is applicable.” – Para 5.7 of the order

3. DEPRECIATION ISSUE OF MOBILE PHONES

Issue of Deprecation on Mobile Phones has been tested in various courts and summary of the same is as follows:

Niho Construction Ltd vs Dy. CIT, Delhi – ITAT (ITA No.3063/Del./2011), Assessee claimed 100% Depreciation on Mobile Phones, each of which cost less than Rs. 5,000/-. But Assessing Officer (AO) restricted the depreciation to 15%, treating them general plant & Machinery. Assessee approached ITAT and AO argued that List of items on which 100% depreciation is allowed is specifically provide in Income Tax Act and Mobile Phones are not mentioned in it ITAT accepted the argument and restricted Depreciation to 15%.

Federal Bank Ltd. vs Asstt. Commissioner of Income Tax – Kerala High Court (IT APPEAL NO. 524 OF 2009). The assessee claimed higher depreciation at 60 per cent on EPABX and mobile phones claiming them to be computer. High Court ruled in the favour of Revenue and held that EPABX and mobile phones are not computers and, hence, higher depreciation at rate of 60% is not allowable on such equipment’s.

4. DEPRECIATION ON OTHER ITEMS

There are various other cases where Assesses have tried to charge depreciation on other items considering them as Computers and some were successful other’s were not. Some cases as follows:

UID KIT

Income-tax Officer, Ward-1(2), Kota vs Vaidangi Techno Management Consultants (P.) Ltd – Jaipur-ITAT (IT APPEAL NO. 1078 (JP.) OF 2016) this case was for levy of penalty where assessee, under a bona fide belief that UID kit being a part of computer claimed depreciation at 60%. Tribunal held that disallowance of claim would not result in levy of penalty under section 271(1)(c).

ATM MACHINE

Commissioner of Income-tax-III, Bangalore vs NCR Corporation (P.) Ltd. – High Court Karnataka (IT APPEAL NO. 242 OF 2011) – Question in this case was whether ATM can be regarded as a computer and thus it is eligible for higher rate of depreciation, i.e., at rate of 60%.? High Court held that ATM can be regarded as a computer and, thus, it is eligible for higher rate of depreciation. Para 8 of the judgement is reproduced here:

It is pertinent to note that provisions of the Karnataka Sales Tax Act, 1957 and provisions of Income-tax Act, 1961 are not pari materia provisions. The classification of goods has been provided only for the purposes of sales tax whereas, the provisions of the income tax levy tax on income. It is pertinent to mention here that Appendix 1 to Income-tax Rules, the computer has been treated as plant and machinery. Therefore, the decision relied upon by the revenue in Diebold Systems (P.) Ltd. supra has no application to the fact situation of the case. The tribunal by placing reliance on the decision of Bombay High Court in Dy. CIT v. Datacraft India Ltd. [2010] 40 SOT 295 (SB) has held that so long as functions of the computers are performed with other functions and other functions are dependant on the functions of the computer, ATMs are to be treated as computers and are entitled to higher rate of depreciation. It has further been held that computer is integral part of ATM machine and on the basis of information processed by the computer in ATM machine only, the mechanical function of the dispensation of cash or deposit of cash is done. Therefore, it was held that ATMs are computers and are entitled to higher rate of depreciation. The aforesaid finding of fact has been recorded on correct analysis of the material available on record and by placing reliance on decision of the Bombay High Court.

5. CONCLUSION

We are living in a mobile age and our identification is mobile identities. In the race for mobility, the focus certainly is not on the backyard of the mobile ecosystem that has far many issues of concern to address. Mobiles are more than just a communication tool. The average lifespan of a mobile phone is considered around 22 months. A smartphone you get today becomes obsolete when the same company releases another from the same series with better specifications tomorrow. When nowadays mobile replacing computer rapidly. And has lower use full life as computer in comparison to another electronic devise.

But if ATM machine can be considered as a computer then why mobile phones and iPad? Considering change in technology, Mobile Phones should be considered as part of Computer and higher rate of Depreciation should be available to them. be considered as computer and unable to claim higher depreciation (here 60%) as computer. If Department consider that 60% rate is too high then they should create a sub-category within Computer and provide higher rate for depreciation but less than 60% say a rate of 40-45% would be better. When Government can provided higher depreciation rate for vehicles to boost demand of Auto Sector than this demand for higher depreciation for mobile phones is just & equitable.

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Abhishek Raja Ram - Popularly known as "Revolutionary Raja" is FCA, DISA, Certificate Courses on – Valuation, Indirect Taxes , GST etc, M. Com (F&T) Mr. Abhishek Raja “Ram” is a Fellow member of ICAI, qualified in 2006, and holds Master’s-Degree in Commerce. He has more than a 15 ye View Full Profile

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2 Comments

  1. Sujit Kumar Das says:

    Dear Sir, very rightly said. A very new thing / expenses has come into the picture. But we live in India which is the heaven of advocates. You have provided the case laws of 2011 2016,2017 still the authority is silent over the matter. Every one knows that a life span of the mobile phones, still few Ld. officers are there those who go by the bookish law and not at all practical and create litigation. Our ministry must take care of such matter immediately. Thank you sir for the article, sorry a very nice article.

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