Digital content developed by an animation company is a copyrighted intangible asset and not a computer software. Therefore, eligible for depreciation at the rate of 25%.

Facts of the case:

  • The assessee is an animation and special effects company using computer as camera. These animations of special effects are produced using computer software and specially prepared software for the characters, backgrounds and properties.
  • Assessee contented that these digital contents used in the production of films are eligible for higher rate of depreciation, however Assessing Officer (AO) rejected the contentions of the assessee. Aggrieved by the decision of the AO and CIT, Assessee has further filed an appeal before the tribunal.

 Contention of Assessee:

  • Assessee contended that these are customised software and was eligible for depreciation at higher rate of 60 %. The assessee claimed that animation software developed by it satisfies the definition of computer software, being a programme, recorded and stored in an information storage device and utilised in the business of the assessee.

Contention of Department:

  • AO rejected the claim of the assessee and held that the assessee was entitled for depreciation at the rate of 25 % on ‘Digital Content’ as the same was intangible asset and not computer software as defined in Income tax Rules,1962.


  • The tribunal decided the judgement in favor of the department and stated that as per the Income-tax Act, 1961, the coverage of the term ‘computer software’ is restrictive to computer program which is recorded in any disc, tape, perforated media or other information storage device.
  • In the above captioned case, the assessee had developed digital content which was held as an asset and was used in various films after being manipulated. This digital content developed by the assessee was utilized in the multimedia and entertainment industry and at best was a copyrighted intangible asset owned by the assessee which was manipulated by the assessee to be used in various films. Therefore, considering it as a computer software would be far-fetched as it was not a computer program.


  • If the language in the statute is clear and unambiguous then strict interpretation had to be done. Once the definition is given in the statute itself, then there was no need to refer to other statute and restrictive definition as given in the Act read with the Rules shall apply. Thus, the assessee was eligible for the depreciation at the rate of 25 % and not 60 %.

Case Law: Pentamedia Graphics Ltd. v. DCIT- [ITA No. 1406 & 1407/Chny/2015, AY- 2007-08 & 2009-10 (In Favor of Department)