TMI Blog2005 (1) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the following question of law for the opinion of this court under section 256(1) of the Income-tax Act, 1961 (the Act), at the instance of the Commissioner of Income-tax, Baroda, for the assessment year 1983-84: "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee-company which provided computer services to other concerns was an industrial undertaking engaged in the business of manufacture or production and thus eligible for investment allowance under section 32A on the cost of computer?" The assessee-company was engaged in the business of providing computer services to various concerns and received income by way of service charges for such activity. During the year under consideration the assessee-company purchased computer and claimed investment allowance on the same under section 32A of the Act. The Income-tax Officer disallowed the claim after recording a finding that the computer was an office appliance and the assessee could not be said to have been engaged in the business of manufacture or production of any article or thing. The assessee carried the matter in appeal before the Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputers. The court held that the assessee could not claim itself to be an industrial undertaking. It was held that only because the assessee was using computers in its consultancy business it cannot be regarded as an industrial undertaking. The court observed that no article or thing is manufactured or produced by the company and the preparation of statements on the basis of the data processed by the assessee cannot amount to manufacture or production of any article or thing. The court relied upon the decision of the Supreme Court in the case of CIT v. N. C. Budharaja and Co. [1993] 204 ITR 412 and in the facts of the said case it was difficult to say that the assessee, which was a consultancy firm was engaged in the manufacture of articles or things. The court held that the statements, etc., prepared by the assessee with the help of the computer containing the result of data processing cannot be regarded as articles or things within the meaning of these words used in section 32A of the Act. It was held that the assessee was not an industrial undertaking engaged in the business of manufacture or production of any article or thing and was therefore not entitled to investment allowan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation and development rebate under section 32 and section 33 of the Income-tax Act, 1961. This High Court referred to the decision of this court in CIT v. Elecon Engineering Co. Ltd. [1974] 96 ITR 672, 678 wherein the court had considered at length as to what would be the essential characteristics of an article or object so as to fall within the meaning of the term "plant and machinery". The court observed as follows: "On reviewing these authorities, a broad consensus emerges from which the essential characteristics of plant can be clearly gleaned. The word 'Plant', in its ordinary meaning, is a word of wide import and in the context of section 32 it must be broadly construed. It includes any article or object fixed or movable, live or dead, used by a businessman for carrying on his business. It is not necessarily confined to an apparatus which is used for mechanical operations or processes or is employed in mechanical or industrial business. It would not, however, cover the stock-in-trade, that is, goods bought or made for sale by a businessman. It would also not include an article which is merely a part of the premises in which the business is carried on as distinguished from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee are plant entitled to depreciation and development rebate. In the case of CIT v. Oswal Data Processors [1997] 223 ITR 735 (MP), the assessee claimed investment allowance on computers and deduction under section 80J of the Act, on the basis that it was carrying on the business of data processing with the help of computers. The Madhya Pradesh High Court referred to the decision of the Government of India communicated to the Director, Small Industries Service Institute, Ministry of Industry, Government of India, Indore, which reads as follows: "'In view of the sophisticated and specialised type of operations involved in the software servicing and data processing, it has been decided to recognise this as an industrial activity. As such small-scale units engaged in this activity are eligible for facilities and concessions available to the small-scale industries under the Small Industries Development Programme. Units engaged in software servicing and data processing can, therefore, be registered as a small-scale industry provided they fulfil the necessary conditions of investment on machinery and equipment, etc.'" The court agreed with the view taken by the Gujarat High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was entitled to investment allowance under section 32A and deduction under section 80J of the Act. In the case of CIT v. Cochin Refineries Ltd. [2000] 241 ITR 1 (Ker) one of the questions before the Kerala High Court was as to whether the assessee was entitled to investment allowance on the computer installed. The court followed its earlier decision in the case of CIT v. Computerised Accounting and Management Service Pvt. Ltd. [1999] 235 ITR 502 (Ker). In the case of CIT v. Emirates Commercial Bank Ltd. [2003] 262 ITR 55 20 (Bom) on behalf of the Revenue, reliance was placed on two decisions of the Bombay High Court, viz., CIT v. R. Shroff Consultants P. Ltd. [1999] 238 ITR 1018 and Insight Diagnostic and Oncological Research Institute P. Ltd. v. Deputy CIT [2003] 262 ITR 41. On behalf of the assessee reliance was placed upon the decision of the Calcutta High Court in the case of CIT v. Peerless Consultancy Services Pvt. Ltd. [1990] 186 ITR 609, which was affirmed by the apex court in the case of CIT v. Peerless Consultancy and Services (P.) Ltd. [2001] 248 ITR 178. Reliance was also placed upon the judgment of the Madras High Court in the case of CIT v. Comp-Help Services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to various decisions of the apex court pertaining to the interpretation of the expression manufacture as well as the decision of the Bombay High Court in the case of CIT v. I.B.M. World Trade Corporation [1981] 130 ITR 739 and the decision of the Calcutta High Court in the case of CIT v. Shaw Wallace and Co. Ltd. [1993] 201 ITR 17, and held that the assessee was entitled to investment allowance on data processing machines. Upon a perusal of the above referred decisions, it appears that the decision of the Karnataka High Court in the case of CIT v. Datacons (P.) Ltd. [1985] 155 ITR 66 is the lead judgment on the issue, which was followed by the Calcutta High Court in the case of CIT v. Peerless Consultancy Services Pvt. Ltd. [1990] 186 ITR 609. In CIT v. Shaw Wallace and Co. Ltd. [1993] 201 ITR 17 the Calcutta High Court followed the decision rendered in the case of CIT v. Peerless Consultancy Services (P.) Ltd. [1990] 186 ITR 609 (Cal). Against the decision of the Calcutta High Court in the case of CIT v. Peerless Consultancy Services (P.) Ltd. [1990] 186 ITR 609, the Revenue had carried the matter in appeal before the hon'ble Supreme Court. The Supreme Court ([2001] 248 ITR 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) of the Finance Act, and therefore, the assessee was entitled to get investment allowance in respect of the generator installed by it. In the case of CIT v. Shaw Wallace and Co. Ltd. [1993] 201 ITR 17, the Calcutta High Court referred to the decisions in the case of Addl. CIT v. A. Mukherjee and Co. (P.) Ltd. [1978] 113 ITR 718 (Cal); CIT v. Ajay Printery P. Ltd. [1965] 58 ITR 811 (Guj); CIT v. Tiecicon P. Ltd. [1987] 168 ITR 744 (SC); CLT v. International Computers Ltd. [1981] 131 ITR 1 (Bom); CIT v. I.B.M. World Trade Corporation [1981] 130 ITR 739 (Bom); CIT v. IBM World Trade Corporation [1986] 161 ITR 673 (Bom), as well as the case of CIT v. Peerless Consultancy Services Pvt. Ltd. [1990] 186 ITR 609 (Cal): The court observed that: "Investment allowance is admissible in respect of machinery or plant installed in any industrial undertaking for the purpose of business of construction, manufacture or production of any article or thing not being an article or thing specified in the list in the Eleventh Schedule. There is no dispute that 'data-processing' or 'computer' is not mentioned in the Eleventh Schedule. If, as held by the Division Bench in Peerless Consultancy Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al products which emerge in the course of manufacture of goods. The court held that the word "production" in section 32A(2) therefore comprehends processing activity and the word "article" in that provision includes movables. The data processing computers involve processing and therefore is capable of being regarded as part of the process of production. The balance-sheets, sales analysis, statements, etc., obtained as a result of processing are movables and are different from the data that was initially fed into the computer though based upon the data so fed in. The use to which the end-product is put is different from the one to which the raw data is put at the time it is fed into a computer. The end-products obtained as a result of data processing such as balance-sheets, etc., are therefore capable of being regarded as new articles. The court observed that the term "industry" as used in section 32A refers to industries which are engaged in the manufacture or production of goods or articles or things. The court held that the balance-sheets and other documents obtained as a result of the operation of the data processing system being articles which are obtained by processing, amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an industrial company engaged in the production of articles. In the case of CIT v. Emirates Commercial Bank Ltd. [2003] 262 ITR 55 (Bom), the decisions in both the aforesaid cases, i.e., CIT v. R. Shroff Consultants P. Ltd. [1999] 238 ITR 1018 (Bom) as well as CIT v. Comp-Help Services P. Ltd. [2000] 246 ITR 722 (Mad) were cited. However, the Bombay High Court followed the decision of the Madras High Court in the case of CIT v. Comp-Help Services P. Ltd. [2000] 246 ITR 722 and held that the assessee-bank was entitled to deduction under section 32A of the Act in respect of the computers installed in the office premises. The analysis of the entire case law makes it clear that the test for determination as to whether machinery/apparatus can be termed as a plant or not would primarily depend upon the function to which the said machinery/apparatus is put, regardless of the location where the machinery/ apparatus is situated. This is over and above the test of the end-product being an entirely different commercial commodity vis-a-vis the input. Therefore, in the case of computer system or data processing system, the inputs which are fed in are entirely different, in a different form wi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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