Madras High Court
Assistant Commissioner Of Income Tax vs Nircon Engg. Consultants (Madras) (P) ... on 19 November, 2000
Equivalent citations: (2001)70TTJ(MAD)351
ORDER
T.A. Bukte, J.M.:
The revenue has filed all these appeals against the order under section 143(3) and the orders under section 143(3) read with section 148 of the Income Tax Act, for the assessment years 1990-91, 1989-90 and 1991-92. The ground involved in all these appeals is common and therefore, the appeals are consolidated and are disposed of by this common order.
2. The identical ground involved in all these appeals relates to the investment allowance in respect of any new machinery or plant installed for the purpose of business of manufacture or production of any article or thing.
3. The learned Departmental Representative submitted that the assessee's activity is not manufacturing any new thing or article. He has pointed out the provisions of section 32A(2)(b) read with Explanation II and submitted that as per the provisions of section 32A, a new article or thing must come into existence with different qualities other than raw materials used in manufacturing and having different qualities other than a article or thing which was in existence. He has relied on the decisions of the Supreme Court in the cases of CIT v. N. C. Budharaja & Co. & Anr. (1993) 204 ITR 412 (SC) and CIT v. Shaan Finance (P) Ltd. (1998) 231 ITR 308 (SC). According to him, these judgments of the Supreme Court do not support the assessee's claim of allowing investment allowance. He further submitted that view held by the Commissioner (Appeals) and allowing the investment allowance is not correct. He took us through the order of the Commissioner (Appeals) and submitted that he was wrong in reversing the order of the assessing officer who disallowed the investment allowance.
4. The learned representative for the assessee relied on the decision of the Calcutta High Court in the case of CIT v. Air Survey Co. of India (P) Ltd. (1998) 232 ITR 707 (Cal) wherein the High Court held that the assessee is entitled to investment allowance on sophisticated equipment and their use. He also relied on the order of the Commissioner (Appeals) for the assessment year 1989-90 and 1991-92 wherein a different view has been taken. He has tried to establish that the business carried on by the assessee is a manufacturing activity and created new articles or thing and, therefore, investment allowance has to be allowed. The assessee's business consists of rendering consultancy and servicing work of environment impact assessment and environment management master plan for various mining and other projects as discussed by the Commissioner (Appeals) in para 16 of his order. The plant and machinery on which the investment allowance is claimed, have actually been used for analysing the water, air, soil samples for ascertaining the level of impurities, pollution in air and in other elements. Mr. Doraisamy argued that in the modern age and in a developing activity of information technology, analysing the water, air, soil samples for ascertaining the level of impurities, pollution in air and in other elements though prepare a report only but amounts to manufacturing a new article or thing and hence the investment allowance has to be allowed. He relied on Central Board of Direct Taxes Notification dated 27-9-2000, wherein Central Board of Direct Taxes notified several sectors which fall within the ambit of 'IT-enabled services' and would enjoy tax cover under provisions of section 10A and 10B of the Income Tax Act. In these sections the word 'manufacturing' is used. These sectors include back office operations, call centres, content development/animation, data processing, engineering and design, geographic information systems services, human resources services, insurance claim processing legal database, medical transcription, payroll, remote maintenance, revenue accounting, support centres and website services. The Central Board of Direct Taxes has clarified that though the Budget had expanded the definition of computer software to include 'IT-enabled services', there had been demand from industry to spell out the services which fell under this definition. The Central Board of Direct Taxes has notified these sectors, even while stating that it is not possible to provide a comprehensive list for a sector which is still evolving.
4.1. He has also furnished the details that the assessee-company was engaged by the Government of India, department of mining operations, for preparation of reports on : (i) environmental impact assessment (EIA); (ii) environment management master plant (EMP), and (iii) environment data assessment. He has also relied on several decisions of various High Courts in support of his contention and written submission filed on 26-9-2000. He further relied on the judgment of the Karnataka High Court in the case of CIT v. General Research and Development Corporation (1992) 194 ITR 120 (Karn) and the Supreme Court in AIR 1978 SC 548 in support of the contention that consultancy services rendered by the assessee is akin to industrial activity as decided by the Commissioner (Appeals) by order dated 20-2-1995, for the assessment year 1990-91 at pages 10 and 11. He has relied on the decision of the M.P. High Court in CIT v. Oswal Data Processors (1997) 223 ITR 735 (MP) at page 737 wherein it has held that "in view of the sophisticated and specialised type of operations involved in software servicing and data processing, it has been decided to recognise this, as an industrial activity." According to him, data processing with the help of computers as in the assessee's case is an industrial undertaking and that computer machines do not constitute office appliances, and are entitled to investment allowance. He also relied on the judgment of the M.P. in CIT v. Steel Tubes of India Ltd. No. (1) (1997) 228 ITR 38 (MP) and Calcutta in CIT v. Shaw Wallace & Co. Ltd. (1993) 201 ITR 17 (Cal). The said High Courts have held that a computer which is used for date processing can be treated as a device, which converts raw data to results which are distinct from the input and, therefore, can be treated as "plant" used for manufacture. The decision of the Kerala High Court in CIT v. Computerised Accounting & Management (1999) 235 ITR 502 (Ker) was also cited. In that case, the assessee-company engaged in producing the information required by the customers through data processing, can be regarded as a manufacturing activity. The assessee can be said to be engaged in the 'production' of mechanically prepared information for supply to its customers after processing the data furnished by them in raw form which is fed to the computer as an input. He also relied on the judgment of the Calcutta High Court (1998) 232 ITR 707 (Cal) (supra) and Gauhati in CIT v. M.L. Agarwalla (1999) 238 ITR 603 (Gau). In those cases, the assessees were deriving income from surveying, mapping and serial photography for certain departments ultimately resulting in photographs, amounted to manufacture or production of articles and the assessee was held to be entitled to investment allowance. He also relied on the decision of the Supreme Court (1999) 97 CC (SC) which is filed at page 7 of the paper book. The Supreme Court while dealing with the issue of 'notice in writing' under section 138 of the Negotiable Instruments Act, 1881-inserted in the said Act, by the Amendment Act of 1988 with effect from 1-4-1989, by observing that "The legislature must be presumed to have been aware of the modern devices and equipment already in vogue and also in store for future. Technological advancements like facsimile, internet, e-mail, etc. were on swift progress, even before the Bill for the Amendment Act introducing section 138 was discussed by Parliament. Therefore, the notice transmitted by "fax", would be sufficient compliance with the legal requirement."
5. We have heard the learned Departmental Representative, Sri G.S.D. Babu and the learned representative for the assessee, Sri T. Doraisamy. Their arguments are taken into consideration. We have perused the relevant facts from the paper books and particularly, the unit which manufactures or produces any articles or things. The term "manufacture" will include any processing or assembling or recording of programmes on disc, tape, perforated media or other information storage device as given at page 5 of the paper book, Annexure II, we have also perused the Commissioner (Appeals) order in this respect.
6. After examining the activity carried on by the assessee regarding consultancy services, and considering the arguments advanced on behalf of the parties and case laws narrated above, we are compelled to accept the assessee's contention that the assessee is entitled to investment allowance. The cumulative effect of the facts, arguments and case laws lead us to a conclusion that the assessee is entitled to investment allowance on the consultancy services which used for analysing the water, air, soil samples for ascertaining the level of impurities, pollution in air and in other elements.
Therefore, we are inclined to agree with the Commissioner (Appeals). In this view of the matter, the revenue has to fail.
7. In the result, the revenue fails and the appeals are dismissed.