Income Tax Appellate Tribunal - Pune
Joshi And Sahney vs Income-Tax Officer on 10 April, 1992
Equivalent citations: [1992]42ITD122(PUNE)
ORDER
T.A. Bukte, Judicial Member
1. This is an appeal by the assessee which is directed against the order of the CIT(A), Nashik dt. 30-6-1988 wherein he has upheld the disallowance of investment allowance claimed by the assessee on the Microcomputer. The assessee has taken grounds to urge that the CIT(A) erred in not allowing the investment allowance and the same should be allowed.
2. The assessee is a registered firm of professional chartered accountants. The assessment year involved is 1984-85 for which the accounting year ended on 31-3-1984. A scrutiny of the balance sheet revealed that the assessee had purchased a PS I Micro-computer in March 1984 for Rs. 2,02,591 and investment allowance of Rs. 50,648 was claimed thereon as a deduction.
3. The Assessing Officer rejected the claim for the reasons that only if it is owned and used wholly for the purpose of business and it is installed for the purpose of business of generation and distribution of electricity or in a small scale industrial undertaking for the purpose of business of manufacture or production of any article and both the conditions were not satisfied in this case. Therefore, he disallowed the amount of Rs. 50,648 claimed as investment allowance and determined the total income at Rs. 1,95,988.
4. On appeal, the CIT(A), after considering the contentions and the evidence produced by the assessee, held that the assessee is not doing any business. He pointed out that the assessee firm being of professional chartered accountants and giving advice on accounting matters, the computer has been used for various accounting works. He also could not countenance the claim that a professional firm could be a small scale industrial undertaking simultaneously. According to him, the claimant has to be registered as a factory under the Factory Act also. The certificate issued by the Directorate of Industhes to show that the assessee is a small scale industrial unit did not confer a right to become factory straightaway. He also gave a categorical finding that there was no separate undertaking as such and whatever work is done was done by the professional firm of chartered accountants. Therefore, he upheld the action of the Assessing Officer in rejecting the claim for investment allowance.
5. At the time of hearing, Shri K. A. Sathe, learned counsel for the assessee has been heard at great length. According to him, computer servicing is an independent industrial undertaking. For this purpose, he vehemently urged that the accounting period from 21st March, 1984 to 31st March, 1984 during which period the computer was set up and commenced business could as well be regarded as the previous year relevant for the assessment year 1984-85. He referred to the fact that the Directorate of the Industhes issued a certificate provisionally treating the assessee as a small scale industrial unit. He also gave complete details of the computer and stated that one full time programmer, data entry and console operator and one system analyst arc separately employed for operating the computer. The nature of services undertaking is said to be writing assignment of one of the clients in the initial year. The output would be in the form of cash book, bank book, ledger, subsidiary ledger etc. Subsequently, the computer has been given on hire charges to Acfin Computer Systems Pvt. Ltd. and hire charges of Rs. 9,000 were received for the year ending March 1985 and Rs. 24,000 for the year ending March 1986 relevant for the assessment years 1985-86 and 1986-87 respectively. In this connection, the learned counsel for the assessee referred to the judgment of the Karnataka High Court in the case of Shankar Construction Co. v. CIT [1991] 189 ITR 4631 wherein the High Court has considered the expression 'industrial undertaking' as it is not defined in the Income Tax Act. According to the Karnataka High Court, "Industry" is a term of wide import. Where there is (i) systematic activity; (ii) organised by co-operation between employer and employee; and (iii) for the production and for distribution of goods and services calculated to satisfy human wants and wishes, prima facie there is an industry. The word "undertaking" is in actual effect an activity of man which, in commercial or business parlance, means an activity engaged in with a view to earn profits. In that case, applying the aforesaid meanings, the High Court held that the assessee which was carrying on the business of constructing dams and channels was held to be an industrial undertaking entitled to investment allowance. He has also referred to the decision of the Bangalore Bench of the Tribunal in the case of Krishna Associates v. ITO [1987] 22 ITD 530, Delhi Bench in the case of Softek (P.) Ltd. v. 170 [1990] 32 ITD 540 and in the case of Data Base Industhes v. ITO [1991] 36 ITD 209. In view of the aforesaid rulings and decisions, he vehemently urged that the assessee was entitled to investment allowance.
6. The learned departmental representative, on the other hand, strongly supported the decision of the authorities. Further, it was contended that only duplication of audit and books of accounts are still retained and there was no industrial undertaking so as to be eligible for investment allowance.
7. We have duly considered the submissions of the counsels, written submissions of the assessee and the decisions cited. At the outset, it has to be observed that the decisions cited by the learned counsel for the assessee all related to firms and private limited company formed for carrying on business and used computer for different specialised services. In this case, we are concerned with the claim made by a firm of professional chartered accountants. Although the Micro-computer is said to have been installed on 21st March, 1984, a perusal of the Income-tax records shows that the components of the Micro-computer were being purchased till almost the end of the financial year ending 31st March, 1984. For example, as per invoice No. 170 dt. 29-3-1984 machinery worth Rs. 61,537 was purchased consisting of (1) Dotmatrix printer, (2) Battery back-up, (3) Single pack offline data entry machine, but the actual date of payment of octroi duty thereon is not known. In one case, it appears that the octroi duty of Rs. 870 has been paid probably on 31-3-1984. In the circumstances, it is incredible to accept the contention of the assessee that the business was commenced from 21st March, 1984. The exact nature of services rendered and supporting voucher for fee of Rs. 2,000 said to have been received for those services rendered were not brought on record. Therefore, the facts do not clearly go to establish that the business was set up and the business was commenced with effect from 21st March, 1984. Be that as it may.
8. There is no independent evidence in the form of separate books of accounts and documents to show that a separate business has been set up and the business was commenced on 21st March, 1984 and it was closed on 31st March, 1984. The net result of such business has not been separately brought on record as an independent business activity. Further, to be eligible for investment allowance, there should be business carried on and it should be an industrial undertaking. A firm of chartered accountants carrying on professional services cannot become partners of business of industrial undertaking. In the case laws cited, partnership firms carrying on business were rendering specialised computer services to customers. There could be no dispute regarding the fact that the term 'industry' is a term of wide import and presupposes systematic activity, organised by co-operation between employer and employee and for the production or distribution of goods and services calculated to satisfy human wants and wishes. Further, the word 'undertaking' is in actual effect an activity of man which, in commercial or business parlance, means an activity engaged in with a view to earn profit, vide decision of the Karnataka High Court in the case of Shankar Construction Co. (supra). In the case of CIT v. IBM. World Trade Corpn. [1981] 130 ITR 739 the Bombay High Court held that the system of computer machines perform various functions and therefore, data processing machines could not be classified as office appliances but are eligible for allowance of development rebate. However, it is relevant to consider whether the services rendered could be called business activities vis-a-vis professional services rendered by the chartered accountants. The evidence on record shows that the same nature of services have been rendered with the help of the Micro-computer. In other words, no other specialised services were rendered with the help of the Micro-computer during the period 21st Match, 1984 and 31st March, 1984 so as to constitute those services as distinct and different from the services rendered by the professional firm of chartered accountants. The Income-tax records show that various parts of the machinery were being purchased on different dates which is evidenced by the octroi duty paid on receipt of such machinery and therefore, the machinery was in the process of setting up. A single receipt of fee of Rs. 2,000 alone would not establish that the business was commenced even if the business is said to have been set up on 21 st March, 1984. Viewed from the definition of industry furnished by the Karnataka High Court in the case of Shankar Construction Co. (supra) there should be systematic activity for the production of goods and services calculated to be satisfied by human wants and wishes. Therefore, there was no systematic activity or systematic production or distribution of goods and services during the short period 21st March, 1984 to 31st March, 1984. Further the definition of "undertaking" from the commercial or business parlance means an activity engaged in with a view to earn profits. During the short period of 11 days there was a solitary receipt of Rs. 2,000 vis-a-vis the claim of investment allowance of Rs. 50,648, and it could not be held to be an undertaking for the assessment year 1984-85 under consideration. However, for the assessment years 1985-86 and 1986-87 when the Micro-computer has been leased out, the test of industry or undertaking could be said to be satisfied, because there have been systematic, organised, commercial and business activity with a view to earn profits in those years. Therefore, while there can be a case for claiming depreciation on the ground that the machinery has been installed or put to use during the period 21st March, 1984 to 31 st March, 1984, there is no case for claiming investment allowance on the ground of business of industrial undertaking. Though the learned counsel for the assessee has contended that separate employees were earmarked for operation of the computer, no evidence has been brought on record to show where and how the remuneration for the employees was shown and debited in the accounts. In the circumstances, it can be presumed that the salary of such employees would have been debited as an expenditure in the profit and loss account of the professional partnership only, because receipt of Rs. 2,000 from a single customer is also credited to the profit and loss account, thereby showing that the computer has been used as part arid parcel of the professional services rendered by the firm. Even if the claim of setting up of business and commencement of business during the period 21st March, 1984 to 31st March, 1984 were to be accepted, it is not open to reason as to why the Microcomputer has been leased out to a third party instead of it being used by the assessee. Therefore, the claim that there was separate industrial undertaking or business activity during the interregnum 21st March, 1984 to 31st March, 1984 is only concocted so as to make it a separate business activity. This leads us to consider the crucial point whether a period of 11 days, so to say, would constitute a previous year for the new business set up. In our considered view, the claim is not at all justified because there could be no previous year for 11 days and it would lead to absurdity. In the circumstances, we are satisfied that the Micro-computer was not wholly used for the purpose of business during the period 21st March, 1934 to 31st March, 1984. Further there is no evidence on record to show that the assessee had created the necessary reserve against the business income, if any, arising out of the Microcomputer. It is one of the conditions precedent for claiming investment allowance which is not satisfied at all in this case. It is open to the assessee to claim investment allowance after the amendment made by Finance Act, 1980 with effect from 1-4-1976 in Sub-section (ii) of Section 4 of 32A of the Income Tax Act, 1961 and as per requirement of law. Further, it is not known as to where the Micro-computer is installed. Though it could not be called as an office appliance, nonetheless, according to second proviso to Section 32A(1) no deduction shall be allowed under Section 32A(1), if the Micro-computer is installed in any office premises or any residential accommodation including any accommodation in the nature of a guest house. No evidence has been brought on record to show where the Micro-computer has been installed. A perusal of the depreciation schedule shows that the computer has been shown as one of the items of block of assets of the assessee firm and therefore, computer has been treated as part and parcel of the professional firm. In view of the aforesaid facts and circumstances and findings, we agree with the conclusion drawn by the CIT(A) holding that the assessee is not entitled to investment allowance. Accordingly, we uphold the order of the CIT(A) and reject the ground taken by the assessee.
9. In the result, the appeal is dismissed.