Epabx Depreciation Rate
Princesex Voskamp
This article is regarding the rate of depreciation on computer peripherals and accessories. Several judicial pronouncements are discussed regarding the entitlement of higher rate of depreciation on computer accessories and peripherals.
The rate of depreciation on computers and computer software is 40%. That means while calculating taxable business income, assessee can claim deduction of depreciation@ 40% on computers and computer software.
In this case law, the Special Bench proposed a test in respect of whether a particular equipment can be regarded as computer or not for the purpose of claiming depreciation @40%. The test is as follows:
Further in CIT v. BSES Yamuna Powers Ltd. (2013) 358 ITR 47 (Delhi HC), the High Court observed that computer accessories and peripherals such as printers, scanners, NT server, UPS etc. form an integral part of the computer system and they cannot be used without the computer. It was held that these peripherals would be eligible for depreciation at higher rate of 40% i.e. the rate applicable to computers.
The Bench clarified that a router means a special device that routes data from one computer to another or from one network to another. The function of router is to receive data from one computer and make it available to another computer for viewing or further processing. The essential function of the router in a commercial organization is to facilitate the flow of data from one computer to another for its processing or storage. Switches are shorter version of routers, which perform similar functions as that of routers but within a limited sphere.
Therefore, the Special Bench answered the question in affirmative by holding that the router and switches are to be included in the block of Computer if such router and switches are used along with a computer and their functions are integrated with a computer. In such case, the router and switches are entitled to higher rate of depreciation @40%.
The MRBs provide port capabilities as to support a variety of functions like voice play/record, tone detection/generation, echo cancellation and voice compression, as well as trunking, fax, conferencing and VOIP functions in a single PCI, compact PCI or PCI Express Slot. The MRBs can be used only in computer servers and do not have any alternate use. The MRBs form part of the computer servers, similar to modems and help in interpreting calls and conversion of calls from digital form to voice and vice-versa.
In Commissioner of Income Tax-III, Bangalore v. NCR Corporation (P.) Ltd. [2020] 117 taxmann.com 252 (Karnataka), the High Court of Karnataka 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 @40%. It has been further 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.
In Principal Commissioner of Income Tax v. GVK Jaipur Expressway Ltd. [2018] 100 taxmann.com 96 (SC), the Supreme Court of India held that optical fibres used exclusively for computer configuration were part of computer system and thus eligible for higher rate of depreciation @40%.
EPABX is an abbreviation that stands for Electronic Private Automatic Branch Exchange. It is an office equipment of immense use for telephonic connectivity with extensions of a single phone line. Multi-line connections can be made through a single telephonic connection. Large organizations use EPABX for faster communication among employees. The system can also be useful for external communication with clients.
In Federal Bank Ltd. v. Assistant Commissioner of Income Tax [2012] 20 taxmann.com 707 (Kerala), the High Court of Kerala held that EPABX and mobile phones are in the nature of communication equipment. They cannot be treated as computers. Accordingly, EPABX and mobile phones are not entitled to higher rate of depreciation @40%.
iPad is a high-speed data processing device. It is capable of processing, assimilating and collating information. It can be used as a means of communication for audio and video calls, email, whats up, facebook, youtube. It can also be used for storage of data, accounting, automation, surveillance, gaming etc.
In Kohinoor Indian (P.) Ltd. v. Assistant Commissioner of Income Tax, Circle-1, Jalandhar [2021] 129 taxmann.com 396 (Amritsar-Trib.), the Tribunal held that the predominant purpose of iPad is a communication and not a computing device, as its main feature are email, whats app, facetime calls, calls, music, films etc. Though iPad may discharge some of the functions of computers, but iPad is not a substitution of computer/laptop which has various utilities/functions, though some functions may be common with iPad. In common parlance also, iPad is considered as communicating device with some additional features of computer and Apple store do not sell iPad as computer device rather it is selling it as communicating/entertainment device.
The depreciation rate is the percentage by which an asset drops in its value throughout its total useful life. The Income Tax Act 1961 covers depreciation rates under Section 32. As computers and laptops are tangible assets, it is presumed that they will depreciate in value with every passing year.
One critical component for corporate organisations is identifying which equipment qualifies as a computer in order to take advantage of a 40% depreciation rate. This enables them to deduct 40% of the cost of computers and software from their taxable business revenue.
Computer and laptop depreciation rate as per Income Tax Act is based on the useful life and residual value of the assets. The rate applicable in this case applies to assets purchased after or on 1st April 2014, with a residual value considered 5%.
In general, the Income Tax Act follows a block system where different categories of assets fall into specific blocks, each with its prescribed depreciation rates. Computer and Laptop depreciation rate as per Income Tax Act falls under the asset class of Plant and Machinery.
The depreciation rate on printers falls under the category of computer peripherals, where you can claim a deduction of 40%. Residual value and useful life of the printer are the factors that determine this rate.
As per the Income Tax Act, printers fall under the asset class of Plant and Machinery, where the applicable rate is 40%. During the fiscal year 2017-18, the depreciation rate changed, resulting in a maximum applicable rate of 40% on any asset. To be qualified for this depreciation rate, eligibility for all of the provisions in Rule 5(2) must be met.
Depreciation is typically claimed on the original cost of the asset when it was new. Used assets may have a lower depreciation value based on their current market value. Check local tax regulations to determine how depreciation is calculated for used computer accessories.
Depreciation is often calculated using methods such as straight-line depreciation or declining balance depreciation. Straight-line depreciation involves spreading the cost of the asset evenly over its useful life, while declining balance depreciation allows for higher depreciation in the early years, tapering off over time.
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What is correct rate of depreciation for office appliances (Like Air conditioners, Voltage Stabilizers, EPABX, Telephone Instruments, Water cooler, air Cooler etc) - 15 (ie general rate for plant Machiner) or 10 (ie rate for furniture fittings). Please provide case law if available.
The word "furniture" means movable items like chair, table,desk etc and not something fixed or removed save causing injury.The later is fixture.Plant is wide enough to cover anything with the aid of which you carry on your trade.Under the IT Act furfittings includes electrical fittings.
Part A Of depreciation schedule at item No.II STATES furniture and fittings including electrical fittings.Electrical fitting include electric wiring,switches, sockets, other fittings and fans.I am of the firm opinion that items mentioned by you by no means can be termed as machinery and fittingly they can be called as fittings.Better claim 10. you are not going to loose any thing. only there is differment of depreciation period.
owned, wholly or partly, by the assessee and used for the purposes of the business or profession, depreciation shall be allowed on the Written Down Value (WDV) of the BLOCK OF ASSETS at the prescribed percentage.
Now, it is seen that Goodwill, in general, is not a depreciable asset and in fact depending upon how the business runs; goodwill may see appreciation or in the alternative no depreciation to its value. Therefore, there may not be a justification or very little justification for depreciation on goodwill.
Accordingly, the Finance Act, 2021 has provided that Goodwill of a business or profession will not be considered as a depreciable asset and no depreciation will be provided on Goodwill of business or profession in any situation. Instead, capital gains shall arise on transfer of the Goodwill of business or profession.
Apex Court held in case of Mysore Minerals Ltd. v. CIT (1999) 239 ITR 775 (SC) that Sec. 32 is a beneficial section. Depreciation is allowable if possession has been acquired by the assessee and used for the purpose of his business or profession, even though assets were not transferred in the name of the assessee, i.e. for claiming depreciation registered ownership is not compulsory.
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