ATMs are Computers, Entitled to a Higher Rate of Depreciation: Karnataka HC [Read Judgment]

The High Court of Karnataka held that a computer is an integral part of an ATM machine and on the basis of information processed by the computer in an ATM machine only, the mechanical function of the dispensation of cash or deposit of cash is done. So, ATMs are computers and are entitled to a higher rate of depreciation.

The assessee, M/s NCR Corporation Pvt. Ltd. is engaged in the business of manufacture of automated teller machines (ATMs) and distribution of NCR book products and commissions in India.

The assessee filed the return of income declaring taxable income. The return was processed under Section 143(1) and was selected for scrutiny and notice under Section 143(2) of the Income Tax Act, 1961 was issued. The assessee had taken premises on lease for a period of three years. The assessee claimed expenditure on account of leasehold improvements as revenue expenditure in the computation of income.

The assessing officer by an order held that leasehold improvements expenditure was incurred to bring into existence an asset or an advantage for the enduring benefit of business, his property is computable as capital expenditure.

Accordingly, the leasehold improvement for an amount was disallowed and added back and depreciation towards furniture and fitting at the rate of 15% was allowed. The assessing officer further held that the assessee has changed the revenue recognition method and therefore it is not possible to ascertain true and correct profit of the assessee for the accounting year in question. It was further held that ATMs cannot be termed as computers and therefore are eligible for depreciation to the extent of 25%.

The Income Tax Appellate Tribunal by an order dated 28.02.2011 inter alia held that the expenditure incurred by the assessee for leasehold improvements has to be treated as revenue expenditure under Section 37 of the Act. It was further held that ATMs are computers and therefore, the assessee is eligible for depreciation of 60%.

The issue raised before the High Court was whether the tribunal is correct on facts and in law in holding that ATMs and encoders are computers eligible for 60% depreciation even when they do not provide processing activity and do not contain all features of computers and such cannot be called computers.

The two-judge bench of Justice Alok Aradhe and Justice M. Nagaprasanna held that a computer is an integral part of an ATM machine and on the basis of information processed by the computer in an ATM machine only, the mechanical function of the dispensation of cash or deposit of cash is done. So, ATMs are computers and are entitled to a higher rate of depreciation.

“In every case of substitution of one method by another method, it has been held that the burden is on the department to prove that the method in vogue is not correct and distorts the profit of a particular year. From a perusal of the order passed by the assessing officer as well Commissioner of Income Tax (Appeals), it is evident that revenue has failed to discharge the aforesaid burden. Therefore, the tribunal has rightly held that the assessee is entitled to change the method of accounting,” the bench added.