Itxa/4782/2010 Of The Commissioner Of Income Tax Ltu Mumbai v. Asian Paints India Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.4782 OF 2010 The Commissioner of Income Tax (LTU) ..Appellant. V/s. M/s. Asian Paints (India) Ltd. ..Respondent. Mr. Suresh Kumar for the appellant. Mr. P.J. Pardiwala, senior Advocate with Subhash Shetty for the respondent. CORAM : J.P. DEVADHAR AND M.S. SANKLECHA, JJ. DATED : 14TH JANUARY, 2013 P.C. :- 1.In this appeal filed by the revenue relating to assessment year 2000-01, the revenue has proposed the following question of law for our consideration:- “ Whether on the fact and circumstances of the case and in law, the Tribunal was correct in law in not upholding the order of assessing officer that the expenses of Rs.2,01,73,861/- for purchasing new systes which were Y2K compliant should be disallowed as the same do not comply with the conditions of Section 36 (1)(xi) ? ” 2.The assessee in AY 2000-01 had claimed expenditure of Rs.2.01 crores as being expenditure incurred on making its computer system Y2K compliant. The aforesaid expenditure was claimed as deduction under Section 36(1)(xi) of the Income Tax Act, 1961 ('the Act'). The assessing officer by an order dated 31[st] March, 2003 disallowed the entire deduction of Rs.2.01 crores under Section 36(1)(xi) of the Act on the ground that the expenditure was eligible for deduction only if the same was in respect of an existing system and not for purchase of new system. The assessing officer concluded that this expenditure was for purchase of a new system and the expenses were not for ungrading the existing system of computers. 3.In first appeal, the CIT(A) by his order dated 26[th ]December, 2006 while allowing the assessee's appeal held that the Computer system of the assessee was in existence prior to the assessment year under consideration. Thus, the expenditure incurred was for purchase of certain Y2K motherboards which were to be installed / replaced as a part of the entire computer system so as to enable the entire system tobe Y2K compliant. The CIT(A) also held that the certificates from vendors were filed pointing out that the system was not Y2K compliant and needed replacement for which form 3BA is required under the Income Tax Rules were also filed and details both of the revenue expenditure and capital expenditure were disclosed while claiming deduction under Section 36(1)(xi) of the Act. The CIT(A) held that the replacement of the non Y2K compliant computer hadrware took place and even when the same is capital expenditure yet for the purposes of Section 36(1)(xi) deduction would be available. 4.Being aggrieved, the revenue filed an appeal to the Tribunal. The Tribunal by its order dated 9[th] January, 2009 upheld the order of the CIT(A) dated 26[th] December, 2003. 5.We note the finding of CIT(A) and the Tribunal that the computer system of the assessee was already in place prior to the assessment year under consideration. The fact that various items of hardware were purchased would enable the system of computers as a whole to be Y2K compliant. Some of the computers which were part of the integrated system of computers were not Y2K compliant and thus, the respondent-assessee were required to purchase mother boards for such computers so as to make the entire system Y2K compliant. Further the definition of the computer system as provided under Section 36(1)(xi) of the said Act states that the computer system ”means device or “collection of device…. Therefore, more than one computer together in the respondent-assessee's case constitutes 5.We note the finding of CIT(A) and the Tribunal that the computer system of the assessee was already in place prior to the assessment year under consideration. The fact that various items of hardware were purchased would enable the system of computers as a whole to be Y2K compliant. Some of the computers which were part of the integrated system of computers were not Y2K compliant and thus, the respondent-assessee were required to purchase mother boards for such computers so as to make the entire system Y2K compliant. Further the definition of the computer system as provided under Section 36(1)(xi) of the said Act states that the computer system ”means device or “collection of device…. Therefore, more than one computer together in the respondent-assessee's case constitutes system and replacement of some article / computer which are not Y2K compliant is certainly an expenditure incurred on making the existing computer system Y2K compliant. Further, we note that the aforesaid finding is essentially a finding of fact arrived at by the two authorities under the Act. The revenue has not been able to show that the same is perverse. In view of the above, we see no reason to entertain the proposed question of law. Accordingly, the appeal is dismissed with no order as to costs. (M.S. SANKLECHA, J.) (J.P. DEVADHAR, J.)