Income Tax I : Where assessee engaged in business of manufacturing ATMs and distribution of NCR books products, took a premises on lease for a period of three years and incurred expenditure on improvement of said premises such as improvement of interiors and electrical works, ceiling work for networking of computers in connection with set up of office etc., expenditure so incurred was to be allowed as revenue expenditure Income Tax II: ATM can be regarded as a computer and thus it is eligible for higher rate of depreciation Income Tax III: Where assessee changed revenue recognition method during relevant assessment year, in view of fact that departmental authorities failed to prove that changed method was not correct and it distorted profits of relevant year, impugned order passed by Assessing Officer rejecting new method of accounting was not sustainable

  • Vide Decisions of High court of Karnataka in Commissioner of income tax Vs. NCR Corporation (p.) limited.

Facts of the case:

  1. Assessee is engaged in the business of manufacture of automated teller machines (ATMs) and distribution of NCR book products and commissions in India.
  2. The assessee filed the return of income on 1-12-2003 declaring taxable income of Rs. 4,66,32,670/-. The return was processed under section 143(1) and was selected for scrutiny and notice under section 143(2) of the Act was issued..
  3. The assessee had taken premises on lease for a period of three years. The assessee claimed expenditure of Rs. 89,23,817/- on account of leasehold improvements as revenue expenditure in the computation of income.
  4. The assessing officer by an order dated 31-3-2006 inter alia held that leasehold improvements expenditure is incurred towards purchase of workstations, improvement of interiors and electrical works, fee paid to the architect, cabling work for networking of computers in connection with setting up of office. Thus, the expenditure was incurred to bring into existence an asset or an advantage for enduring benefit of business, his property is computable as capital expenditure.
  5. Accordingly, the leasehold improvement for an amount of Rs. 89,23,817/- was disallowed and added back and depreciation towards furniture and fitting at the rate of 15% was allowed.
  6. 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.
  7. It was further held that ATMs cannot be termed as computers and therefore are eligible for depreciation to the extent of 25%.
  8. The assessee assailed the order passed by the Commissioner of Income-tax (Appeals) before the Income-tax Appellate Tribunal.
  9. The Income-tax Appellate Tribunal by an order dated 28-2-2011 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.
  10. It was further held that ATMs are computers and therefore, assessee is eligible to depreciation of 60%.
  11. It was further held that even though the assessee had changed the method of revenue recognition, however, he is entitled to change the method of accounting as the same has no impact on the revenue.
  12. Accordingly, the appeal preferred by the assessee was partly allowed. Being aggrieved, the revenue is in appeal before High Court of Karnataka.

Judgement:

The Honorable High Court of Karnataka held the case as follows:

  1. The expenditure incurred on improvement of said premises was to be allowed as revenue expenditure.
  2. ATM can be regarded as a computer and thus it is eligible for higher rate of depreciation.

Not sustaining the impugned order passed by Assessing Officer rejecting new method of accounting.

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