TMI Blog2003 (2) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... ed:- 20-2-2003 - Judge(s) : S. H. KAPADIA., J. P. DEVADHAR. JUDGMENT The judgment of the court was delivered by S.H. KAPADIA J.-Being aggrieved by the decision of the Tribunal, the Department has come by way of appeal under section 260A of the Income-tax Act, 1961, in all raising seven questions. The appeal concerns the assessment year 1988-89. Facts: The assessee is engaged in the business of manufacture and sale of data processing cards, ribbons and mini micro-based systems. It also develops computer software and it also provides technical consultancy services in India and abroad. It also carries on data processing activity with data processing machines installed at its data centre. The assessee is also a dealer in computer software and computer hardware. The assessee also receives goods manufactured by other concerns and before those goods could be used, their suitability is tested by the assessee. For the sake of convenience, we prefer to answer this appeal question-wise. Question No. 1 reads as follows: Question No. 1: "1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in confirming the order of the Commissioner o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n confirming the findings of the Commissioner of Income-tax (Appeals) that capitalization of certain machineries amounted to purchase of machineries and hence the same were eligible for deduction under section 32AB of the Income-tax Act, 1961?" Section 32AB, inter alia, states that where an assessee whose total income includes income chargeable to tax under the head "Profits and gains of business", has, out of such income, utilised any amount during the previous year for the purchase of any new machinery or plant, would be entitled to deduction under section 32AB(1)(b). In this case, the audit report filed by the assessee shows that the assessee had utilised a sum of Rs. 24,23,230 inclusive of an amount of Rs. 5,49,632 being the value of the machinery assembled by the assessee and capitalised. On this basis, the assessee claimed a deduction. However, the Assessing Officer took the view that the amount of Rs. 5,49,632 represented capitalised cost of plant and machinery and, therefore, it represented internal capitalisation. According to the Assessing Officer such internal capitalisation would not attract the relief under section 32AB because, according to the Assessing Officer, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e past years if the assessee wanted relief under section 32AB. According to the Assessing Officer, under section 32AB, the expenditure should have been incurred from income which was chargeable to tax and, therefore, in this case, the assessee was not entitled to deduction under section 32AB because the assessee had capitalised the amount under the head "Plant and machinery" out of work-in-progress of earlier years. We do not find any merit in the stand adopted by the Department for two reasons. Firstly, the assessee had succeeded on this very point for the earlier years. The Department has not come by way of a reference application to this court. Therefore, the Department has accepted the view of the Tribunal for the earlier years, which view was in favour of the assessee. Secondly, as held by us, it was not necessary for the assessee to purchase the new machinery from the market in order to get the deduction under section 32AB. That the assessee was entitled to deduction under section 32AB even if the assessee had manufactured the machine itself and had transferred the same at cost to its business of manufacture. Therefore, if the assessee, by capitalising machinery manufactured ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... que writing machines, intercoms, teleprinters, etc., do not qualify for deduction. However, a bare reading of item 22 with the Explanation indicates that "computers", within the meaning of section 32AB would not fall within the ambit of item 22. In other words, "computers" stand excluded from the Eleventh Schedule. The Assessing Officer accepts this position. However, it is argued on behalf of the Assessing Officer that the above exclusion of computers came on the statute book only from April 1, 1988. The Assessing Officer took the view that computers manufactured after April 1, 1988, would certainly fall outside the Eleventh Schedule. However, the Assessing Officer found that this exclusion will not apply to computers manufactured prior to April 1, 1988. We do not find any merit in this argument. The Eleventh Schedule was on the statute right from April 1, 1978. The provision of section 80-I(2)(iii) contemplates that deduction under section 80-I shall not be available if the assessee is engaged in manufacture of an article specified in the Eleventh Schedule. The Explanation to item 22 is not a substantive provision. It has to be read with item 22. The Eleventh Schedule lists out c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not entitled to deduction under section 80-I on merits as the assessee's income from service charges, maintenance revenue and lease rent cannot be treated as income derives' from industrial undertaking within the meaning of section 80-I ?" Under section 80-I(1), special deduction is given in respect of profits and gains derived from industrial undertaking. According to the Assessing Officer, receipts by way of service and maintenance charges have been included in profits derived from manufacturing operations. That these receipts cannot form part of profits derived from industrial undertaking. Therefore, the Assessing Officer excluded receipt of service charges and maintenance charges from the eligible profits. In this case, the assessee is engaged in the business of manufacture and sale of data processing cards, ribbons and mini micro-based systems. It is also a dealer in computer software and computer hardware. This finding is also recorded by the Tribunal in its orders for the earlier years. The assessee derives income as it renders service and maintenance facility to its clients for which it charges service and maintenance charges. Therefore, there is a direct nexus between ..... X X X X Extracts X X X X X X X X Extracts X X X X
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