Andhra HC (Pre-Telangana)
Hyderabad Industries Ltd. vs Commissioner Of Income-Tax on 6 September, 2001
Equivalent citations: [2001]252ITR401(AP)
JUDGMENT S. Ananda Reddy, J.
1. At the instance of the assessee, the Income-tax Appellate Tribunal, Hyderabad Bench-A, Hyderabad, referred the following question, said to arise out of its order in ITA No. 78 of 1985, dated September, 19, 1988, for the assessment year 1980-81, under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act").
"Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in law in holding that the asses-see is not eligible for investment allowance on data processing machine ?"
2. The brief facts leading to the above reference are that the assessee is a public limited company carrying on the business in manufacture and sale of asbestos cement products. During the previous year, relevant to the assessment year, the assessee installed new machinery costing Rs. 1,31,58,308 and claimed investment allowance at 25 per cent. of the said cost. The said machinery includes data processing machine, the cost of which is Rs. 2,65,620. The Assessing Officer while framing the assessment excluded the said item, i.e., data processing machine, on the ground that the same is an office appliance and therefore, the assessee is not entitled for investment allowance. This was contested by the assessee before the Commissioner (Appeals). The Commissioner (Appeals) allowed the claim of the assessee, placing reliance upon the judgments of the Bombay High Court in CIT v. I.B.M. World Trade Corporation CIT v. International Computers Ltd. . According to the finding of the Commissioner (Appeals) in view of the above decisions, the data processing machine would not be considered an office appliance and therefore, the assessee is entitled for investment allowance. This was contested by the Department in appeal before the Income-tax Appellate Tribunal (for short, "the Tribunal"). Though the Tribunal negatived the contention of the Department that the said data processing machine has to be considered as an office appliance in view of the decision of the Bombay High Court, but, however, it further considered the claim with reference to the items mentioned in the Eleventh Schedule to the Act and felt that the data processing machine could be considered as an item mentioned in item No. 22 of the Eleventh Schedule and therefore, it is not entitled for investment allowance, especially in the light of the Explanation under item No. 22 of the Eleventh Schedule, which had widened the scope of the items mentioned therein. Aggrieved by the said finding of the Tribunal, the assessee sought the reference.
3. Learned counsel for the assessee contended that the Tribunal has misdirected itself while considering the claim of the assessee for investment allowance. It is contended that the Tribunal, having held that the data processing machine cannot be considered as an office appliance, ought to have granted investment allowance automatically without further going into the items mentioned in the Eleventh Schedule. Learned counsel contended that as per the provisions of Section 32A of the Act, which provides for the grant of investment allowance, the plant and machinery, which are installed in an industrial undertaking, are denied the benefit of investment allowance in case such plant and machinery are used for the production of articles or things mentioned in the Eleventh Schedule to the Act. But, unfortunately, the Tribunal has equated the data processing machine as the items mentioned in item No. 22 of the Eleventh Schedule and on that premise denied the benefit of investment allowance. It is contended that when once the data processing machine was not considered as an office appliance, by reversing the finding of the Assessing Officer, the assessee is entitled for investment allowance automatically unless the said machinery was utilized for the production of an article or thing mentioned in the Eleventh Schedule. It is not the case of either the Department or the Tribunal that the data processing machine was used for the production of an article or thing specified in the Eleventh Schedule. Therefore, it was contended that the finding arrived at by the Tribunal to deny the benefit of investment allowance is on a wrong premise by equating the data processing machine as one of the items mentioned in the Eleventh Schedule to the Act.
4. Learned standing counsel on the other hand, contended that though the data processing machine could not be considered as an office appliance, as per the findings of the Commissioner (Appeals) and the Tribunal, but, however, the authorities have not considered the compliance with the other requirements in order to get the benefit of investment allowance. In the absence of any such finding, the assessee is not entitled for the benefit of investment allowance. Therefore, the denial is proper and just.
5. Before considering the rival contentions of the parties, it would be appropriate to refer to the relevant provisions of the Act.
"32A. (1) In respect of a ship or an aircraft or machinery or plant specified in Sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which the ship or aircraft was acquired or the machinery or plant was installed or, if the ship, aircraft, machinery or plant is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent. of the actual cost of the ship, aircraft, machinery or plant to the assessee :
Provided that in respect of a ship or an aircraft or machinery or plant specified in Sub-section (8B), this sub-section shall have effect as if for the words 'twenty-five per cent', the words 'twenty per cent.' had been substituted :
Provided further that ho deduction shall be allowed under this section in respect of-
(a) any machinery or plant installed in any office premises or any residential accommodation, including any accommodation in the nature of a guest-house ;
(b) any office appliances or road transport vehicles ;
(c) any ship, machinery or plant in respect of which the deduction by way of development rebate is allowable under Section 33 ; and
(d) any machinery or plant, the whole of the actual cost of which is allowed as a deduction (whether by way of depreciation or otherwise) in computing the income chargeable under the head 'Profits and gains of business or profession' of any one previous year.
Explanation.--For the purposes of this sub-section, 'actual cost' means the actual cost of the ship, aircraft, machinery or plant to the asses-see as reduced by that part of such cost which has been met out of the amount released to the assessee under Sub-section (6) of Section 32AB.
(2) The ship or aircraft or machinery or plant referred to in Sub-section (1) shall be the following, namely :-
(a) a new ship or new aircraft acquired after the 31st day of March, 1976, by an assessee engaged in the business of operation of ships or aircraft ;
(b) any new machinery or plant installed after the 31st day of March, 1976-
(i) for the purposes of business of generation or distribution of electricity or any other form of power ; or
(ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article of thing ; or
(iii) in any other industrial undertaking for the purposes 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.
Provided . . ."
6. A perusal of the above provision shows that an assessee is entitled for investment allowance in respect of the machinery or plant specified in Sub-section (2), which is owned by the assessee and is wholly used for the purpose of the business carried on by him. As per the second proviso, the assessee is not entitled for investment allowance in respect of any plant and machinery installed in any office or residential accommodation or any office appliance or a road transport vehicle. Under Sub-section (2), the requirement is that the plant and machinery should be installed after March 31, 1976, in respect of a small-scale industrial undertaking for the purpose of the business of manufacture or production of any article or thing ; while in the case of any other 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. Therefore, what is relevant for the purpose of getting the benefit of investment allowance is that the plant or machinery should have been installed after March 31, 1976, and it should be used by the industrial undertaking other than a small-scale industrial undertaking for the purpose of manufacture or production of any article or thing other than those specified in the Eleventh Schedule.
7. If we examine the case of the assessee in the light of the above provisions, though the Assessing Officer negatived the claim of the assessee for investment allowance on the ground that the machinery installed by the assessee was an office appliance, the said finding was set aside by the Commissioner (Appeals) which was confirmed by the Tribunal. When once the attraction of the second proviso is excluded, then in order to get the benefit of the investment allowance one has to consider whether the article or thing produced by the assessee using the plant or machinery would fall under any of the items specified in the Eleventh Schedule to the Act. It is not the case of the Department that the articles or things produced by using the machinery would fall under any of the enumerated items in the Eleventh Schedule. In such case the assessee is entitled for the benefit of the investment allowance. But, however, the Tribunal has misdirected itself and equated the machinery installed by the assessee as one enumerated under item No. 22 of the Eleventh Schedule. The equation of the said machinery as item No. 22 of the Eleventh Schedule is clearly illegal and unwarranted. The items enumerated in the Eleventh Schedule are only articles or things said to have been produced by the use of the plant or machinery. If such articles or things are produced by using plant or machinery, in respect of such plant or machinery, the assessee is not entitled for investment allowance. Unfortunately, the Tribunal on a wrong premise equated the machinery installed by the assessee as an item in the Eleventh Schedule and held that it is not entitled for investment allowance on that premise. The approach of the Tribunal is clearly erroneous. Therefore, we need not go into the merits of the finding of the Tribunal that the data processing machine installed by the assessee could be equated as an item mentioned under item No. 22 of the Eleventh Schedule.
8. This issue was considered by the Bombay High Court in the case of CIT v. I.B.M. World Trade Corporation . The functioning of the data processing machine was considered elaborately and the relevant portion of the said judgment is as under (headnote) :
"Data processing machines is a complicated machinery which could not be easily operated by laymen and special training for a period which may cover three months in some cases and a much longer period in others is necessary in order to equip a person with the knowledge and art of operating these machines. The installation and operation of the machines is on a scientific basis and even for the purposes of installation certain special conditions have to be provided in the form of air-conditioning or a particular temperature. The purposes for which such machines which can be described as computers are used are well known and in highly scientifically developed systems, they have their own roles to play and they cannot be equated, therefore, with office appliances which would be of a much simpler nature. They are really substitutes for human labour not in the sense of manual labour but in the sense they perform intellectual functions which would normally be performed by highly qualified engineers. One machine by itself serves no purpose, but what has to be used is a group of machines which make up a 'system'. The basic function of a computer are : (i) input; (ii) storage ; (iii) control; (iv) processing ; and (v) output. The processor has to translate the language of the programmer into the computer-code form, which is used internally by the computer. A computer system or an electronic data processing system is physically a collection of electromechanical and electronic components and devices assembled in metal cases (modules) and cabinets. These contain switching and communication components such as transistors, diodes, capacitors, resistors and integrated circuits, all combined into various types of circuitry, together with memory systems, power supplies, delay lines and various types of magnetic media such as tapes and wires for carrying and transforming data and information, as coded, into instructions and computations. In view of the varied functions which the 'system' is capable of performing, data processing machines cannot be classified as 'office appliances' and are eligible for allowance of development rebate under Section 33(1) of the Income-tax Act, 1961 (corresponding to Section 10(2)(vib) of the Indian Income-tax Act, 1922)".
9. Though the Bombay High Court has examined the issue, with reference to the provisions of section 33(1) for the grant of development rebate, the said finding holds good even with reference to the provisions of Section 32A. The said view was even reiterated by the same High Court in the case of CIT v. International Computers Ltd.. The same view was also taken by the Delhi High Court in the case of CIT v. Continental Devices India Ltd. ; the Calcutta High Court in the case of CIT v. Shaw Wallace and Co. Ltd. ; the Madhya Pradesh High Court in CIT v. Oswal Data Processors and in CIT v. Steel Tubes of India Ltd. (No. 1) and by the Kerala High Court in the case of CIT v. Computerised Accounting and Management Service Pvt. Ltd. .
10. From the above it is clear that in all the above cases different High Courts have considered the data processing machine as a plant and machinery, which is entitled for investment allowance. We do not find any justifiable ground to take a different view than what was taken in the above decisions.
11. Under the above circumstances, we answer the question in the negative, in favour of the assessee and against the Revenue.