Classification of assets for claiming depreciation

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mark.

article

165 Points Joined January 2009

A client of the firm i work for received a notice from the IT Dept. Stating that UPS's and modems are to be shown as plant and machinery and not as computers.

I would like to clarify the following.

If we capitalize accessories like A/C, stereo/CD player, Seat covers, Car Batteries etc when we purchase a vehicle. why cant we capitalize a UPS when we purchase a computer.

Besides: A Battery to a car = A UPS to a computer

Modems to be classified as computers
Ref:
ITAT MUMBAI BENCHES ‘D’ SPECIAL BENCH : MUMBAI
DCIT

v.

Datacraft India Ltd.

ITA Nos. 7462 & 754/Mum/2007
July 9, 2010

Clarification: As far as the location whether inside or outside the computer, a modem / printer which is located outside the computer is classified as a computer.
Now for the compatibility with a Car,
A battery is provided for the comfort of the driver to start the vehicle without having to pulley start (thats how cars were started 50 years ago) or push start a vehicle. Similarly a UPS is provided for the comfort of a computer user so that when there are fluctuations in current, important information is not lost and can be saved.

Now the income tax act has not defined vehicles nor computers
referring to the motor vehicles act. a vehicle does not include a battery, music system, air condition etc, yet the income tax department allows us to capitalize all accessories when purchasing a vehicle, now going by the information technology act, a computer too does not include a UPS but it is essential to work with a computer.
What am not understanding is the discrimination in capitalizing assets?

Replies (3)

sanjoy saha

student

126 Points Joined December 2009

Hello Mark,

Reasons for applying to UPS general rate for P/M.

1. UPS is an electrical device and not an electronic device.

2. UPS cannot transform data into useful information which computers do.

3.A computer can be operated without UPS .

4. As per Rule 5(1) computer is in the Group of P/M but in a separate Block. So there is no discrimination ,the anomaly is in the rates only.

Regards ,

Sanjoy

mark.

article

165 Points Joined January 2009

Hi Sanjoy,

I totally agree with what your saying that a computer is in the Group of P/M but in a separate Block.

All am trying to get is the 60% depreciation.

A laptop too can work without a battery, but we classify the laptop including the battery too as a computer and get depreciation @ 60%

now what am saying is when we buy a computer with UPS why not capitalize it the same way we would have, had it been a laptop

..mark

Rahul Ahuja

Student CA Final

36 Points Joined October 2012

A laptop's battery is an integral part of a laptop, i.e. even though a laptop can work without a battery but the battery together with the laptop forms part of a package. The battery is designed specifically for the use in a laptop. Same is the case with the accessories of a car, they are specially designed for being used in a car. But in case of a UPS, it is just an electrical apparatus that provides back up of power. It is meant to be used with such electronic devices that require power and it does not form part of the package of a computer since it is not integral to a computer.