2006 (3) TMI 233 - AT - Income Tax

Summary

Issues Involved:

1. Deduction under section 80-IA of the Income-tax Act.
2. Classification of the assessee's activities as industrial undertaking or manufacturing.

Issue-Wise Detailed Analysis:

1. Deduction under section 80-IA of the Income-tax Act:

The assessee, a private limited company engaged in market research and consultancy, filed a return for the assessment year 1998-99, claiming deductions under sections 80-O and 80-IA of the Income-tax Act, 1961. The Assessing Officer denied these deductions, and the CIT(A) concurred with the denial of the deduction under section 80-IA. The assessee appealed against this decision.

The learned counsel for the assessee argued that the company's activities, which include various types of research and data processing using sophisticated software, should be considered as industrial activities. The company uses specialized software such as Quantum, Quanvert, and SPSS, and the process involves significant data processing and analysis. The counsel contended that these activities amount to the manufacture or production of articles or things, thereby qualifying for the deduction under section 80-IA.

2. Classification of the assessee's activities as industrial undertaking or manufacturing:

The learned departmental representative argued that the data collected by the assessee does not undergo any physical or chemical change, and thus, the assessee is not manufacturing any article or thing. The representative relied on the judgments of the Hon'ble Supreme Court in Sterling Foods v. State of Karnataka and the Hon'ble Bombay High Court in CIT v. Ravi Ratna Exporters, which held that processing activities that do not result in a new product do not qualify as manufacturing.

The tribunal, after considering the arguments, found the issue in favor of the assessee. It referred to the decision of the Hon'ble Gujarat High Court in Professional Information Systems & Management, which held that data processing through the use of computers amounts to the business of manufacture or production of articles or things. The tribunal noted that the assessee's activities involve significant processing and analysis using proprietary software, which results in a distinct and different end product from the raw data input.

The tribunal also referred to other judgments, including Ajay Printery (P.) Ltd., Computerised Accounting & Management Service (P.) Ltd., and Shaw Wallace & Co. Ltd., which supported the view that activities involving significant data processing and analysis qualify as manufacturing or production.

Conclusion:

Respectfully following the judgments referred to, the tribunal upheld the contention of the assessee and directed the revenue to grant the deduction under section 80-IA of the Income-tax Act, 1961. The appeal of the assessee was allowed.