Bombay High Court
Commissioner Of Income-Tax vs Emirates Commercial Bank Ltd. (Now ... on 30 April, 2003
Equivalent citations: [2003]262ITR55(BOM)
Author: S.H. Kapadia
Bench: S.H. Kapadia, J.P. Devadhar
JUDGMENT
S.H. Kapadia J.
1. The Department has come by way of reference under Section 256(1) of the Income-tax Act, 1961, in respect of the assessment years 1983-84 and 1984-85. The questions referred to us for our opinion are as follows :
"Question I: Whether the Tribunal was right in law in allowing maintenance expenses incurred by the assessee on the flat owned by it and provided to its employees ?"
Answer : In view of our judgment in the case of Citibank N. A. v. CIT decided on March 5, 2003, vide Income-tax Reference No 5 of 1994 ([2003] 262 ITR 47 (Bom)), we answer the above question No. I in the negative, i.e., in favour of the Department and against the assessee.
"Question II : Whether the Tribunal was right in law in holding that the maintenance expenses incurred by the bank on its ownership flat did not result in the provisions of perquisites to the concerned employees and that the said expenses should not be considered for computing disallowance under Section 40A(5) of the Income-tax Act ?"
Answer : In view of our decision in the case of Citibank N. A. v. CIT [2003] 262 ITR 47 (Bom), the above question No. II is answered in the negative, i.e., in favour of the Department and against the assessee.
"Question III: Whether the Tribunal was right in allowing deduction under Section 32A in respect of the computers installed in the office premises ?"
Arguments on question No. III:
2. Mr. R. V. Desai, learned senior counsel appearing on behalf of the Department, submitted that in this case, the assessee had claimed deduction of Rs. 7.50 lakhs on account of investment allowance under Section 32A of the Income-tax Act for new computers installed in the office premises. He contended that these computers were like calculating machines and, therefore, they were in the nature of office appliances and that they did not constitute plant or machinery under Section 32A(2)(b)(iii). He contended that these computers merely aided in the proper functioning of the office and, therefore, they were in the nature of office appliances and, therefore, the assessee was not entitled to deduction under Section 32A(2)(b)(iii). He contended that in order to attract Section 32A(2)(b)(iii), there should be existence of plant or machinery in an industrial undertaking for the purposes of the business of manufacture or production of any article or thing. It was argued that the assessee was in banking business. That, it was not an industrial undertaking as it was not in the business of manufacturing articles or things. He, therefore, contended that the assessee was not entitled to the benefit of deduction under Section 32A of the Income-tax Act. In this connection, he placed reliance on the judgment of the Bombay High Court in the case of CIT v. R. Shroff Consultants Pvt. Ltd. [1999] 238 ITR 1018. He also relied upon a judgment of the Bombay High Court in the case of Insight Diagnostic and Oncological Research Institute P. Ltd. v. Deputy CIT decided on April 16, 2003, vide Income-tax Appeal No. 247 of 2001 (unreported) (since reported in [2003] 262 ITR 41).
3. On the other hand, Mr. Pardiwalla, learned counsel appearing on behalf of the assessee, submitted that the assessee is a non-resident banking company, having its head office at Abu Dhabi. He contended that the branch office of the bank is in Bombay and, during the assessment year in question, the assessee acquired mainstream computers which were utilised in banking business for preparation of accounts, analysis, balance-sheets and bank statements. That, these computers were used to process the customers' data and the output which resulted from these computers consisted of management information reports. He contended that even a bank could constitute an industrial undertaking under Section 32A(2)(b)(iii) in the sense that although it is rendering, service still, in the course of its business, it produces articles and things. \ That, inputs were processed by the computers and transformed into different outputs. That, the assessee used to receive vouchers, which were converted into balance-sheets. He contended that mainstream computers were not PCs. They were required to be kept in separate air-conditioned rooms. He, therefore, contended that as along as the assessee used these computers for production of articles and things, the assessee could be regarded as an industrial undertaking. He relied upon the judgment of the Calcutta High Court in the case of CIT v. Peerless Consultancy Services (Pvt.) Ltd. [1990] 186 ITR 609, which decision has been affirmed by the apex court vide CIT v. Peerless Consultancy and Services (P.) Ltd. [2001] 248 ITR 178. He also relied upon the judgment of the Madras High Court in the case of CIT v. Comp-Help Services (P.) Ltd. [2000] 246 ITR 722. He also relied upon the judgment of the Kerala High Court in the case of CIT v. Computerised Accounting and Management Service (P.) Ltd. [1999] 235 ITR 502. He contended that the computers were not appliances as computers constituted substitutes for human labour. That, appliances could be operated by even lay persons.
Findings on question No. III:
4. We find merit in the arguments advanced on behalf of the assessee on this point. It is, no doubt, true that the judgments cited on behalf of the assessee refer to the assessees whose business was confined to data processing for their clients. Today, we have computerised accounting in the banks. In the case of computers, which existed during the relevant assessment year and even today, the, operation of the computers in principle remains the same. That, commercial data is fed into the computers as inputs as per the requirement of various customers and the data is processed to get necessary information, computation and statements as outputs. These computers cannot be compared to calculators. Today, in matters of investments and security transactions, banks have a front office and back office. Today, under customer services, the banks render several services including providing information to customers on the basis of which the customers would make investments. All this is based on the print outs which constitute information, computations and statements. In the circumstances, we are of the view that all the three conditions of Section 32A(2)(b)(iii) are satisfied. Our view is supported by the judgment of the Madras High Court in the case of CIT v. Comp-Help Services (P.) Ltd. [2000] 246 ITR 722 as also by the judgment of the Kerala High Court in the case of CIT v. Computerised Accounting and Management Service Pvt. Ltd. [1999] 235 ITR 502. We do not find any merit in the argument of the Department that these two judgments do not apply because, in those cases, the assessee was in the business of data processing. The nature of the services rendered by the bank to its customers does involve the work of data processing. It is on the basis of this data processing that the information is provided to its customers by the bank. It is on the basis of this data processing that the balance-sheets are prepared. It is on the basis of this data processing done by the computers that the management information reports come out.
Answer : In the circumstances, we answer the above question No. III in the affirmative, i.e., in favour of the assessee and against the Department.
"Question IV : Whether the Tribunal was right in law in allowing the travelling expenses of Rs. 4,20,706 incurred on the staff members of the head office on their visit to the branch office of the assessee in India ?"
Findings on question No. IV :
5. Section 44C is applicable only in the cases of those non-residents, who carry on business in India through their branches. The said section was introduced to get over difficulties in scrutinising claims in respect of general administrative expenses incurred by the foreign head office in so far as such expenses stand related to their business or profession in India having regard to the fact that foreign companies operating through branches in India sometimes try to reduce incidence of tax in India by inflating their claims in respect of the head office expenses. In other words, Section 44C seeks to impose a ceiling/restriction on head office expenses. However, Section 44C contemplates allocation of expenses amongst various entities. That, the expenditure which is covered by Section 44C is of a common nature, which is incurred for the various branches or which is incurred for the head office and the branch. However, in this case, we are concerned with the expenditure exclusively incurred for the branch. In this case, there is a concurrent finding of fact recorded by the Commissioner (Appeals) as well as the Tribunal stating that the officers came from the head office at Abu Dhabi to Bombay to attend to the work of the Bombay branch and, in connection with that work, the expense was incurred. That, the expense was initially incurred by the head office which was recovered by the head office from the branch in India by raising a debit note. Therefore, the expense was incurred for the branch office in India. These are concurrent findings of fact. We do not wish to interfere with those findings. Hence, Section 44C has no application.
6. Before concluding it may be mentioned that no arguments were advanced by the Department on Rule 6D.
Answer : In the circumstance, we answer the above question No. IV in the affirmative, i.e., in favour of the assessee and against the Department.
7. Accordingly, the above reference is disposed of with no order as to costs.