2001 (7) TMI 12 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the assessee is entitled to investment allowance under section 32A on data processing machine for the assessment years 1981-82 and 1982-83? - we have no hesitation to hold that the Tribunal was justified in allowing investment allowance on the opposite party s data processing machines.

Summary

Issues:
1. Admissibility of investment allowance on data processing machine under section 32A of the Income-tax Act, 1961 for assessment years 1981-82 and 1982-83.

Analysis:
The case involved a dispute regarding the admissibility of investment allowance on data processing machines under section 32A of the Income-tax Act, 1961 for the assessment years 1981-82 and 1982-83. The Commissioner of Income-tax had set aside the assessments for these years, claiming that investment allowance was not admissible on data processing machines as the assessee did not manufacture any article or thing. The Tribunal partially allowed the appeals filed by the opposite party for both years, directing the Income-tax Officer to compute the investment allowance after providing an opportunity to the assessee. The Commissioner contended that investment allowance was not admissible on machinery installed in office premises for data processing, as per section 32A(2)(iii) and Item No. 22 of the Eleventh Schedule. The Tribunal, however, framed the question differently for consideration.

The Tribunal's decision was based on the interpretation of section 32A of the Act, which allows investment allowance on machinery owned by the assessee and wholly used for business purposes. The Bombay High Court's judgment in CIT v. IBM World Trade Corporation was cited to support the eligibility of data processing machines for investment allowance. The term "manufacture" in the context of section 32A(2)(b)(ii) was scrutinized, with reference to the commercial sense of the word as interpreted by the Supreme Court. The Tribunal concluded that data processing machines were eligible for investment allowance, as they were not merely office appliances but integral to the manufacturing process.

Various legal precedents were cited to define "manufacture" in a tax statute context, emphasizing that a new substance or article must emerge with a distinct name, character, or use. The Tribunal's decision was supported by cases such as Aditya Mills Ltd. v. Union of India and Narne Tulaman Manufacturers Pvt. Ltd. v. Collector of Central Excise, highlighting the transformative aspect of manufacturing. The Calcutta High Court's ruling in CIT v. Shaw Wallace and Co. Ltd. further reinforced the industrial nature of businesses utilizing computer systems for data processing, underscoring the distinction between raw data and processed results.

Ultimately, the High Court upheld the Tribunal's decision, affirming the eligibility of the opposite party's data processing machines for investment allowance under section 32A. The judgment emphasized the industrial significance of data processing activities conducted by the small scale industrial unit, leading to the manufacturing of financial statements and other crucial documents. The reference question was answered in favor of the assessee, with both judges concurring on the decision.

This detailed analysis showcases the intricate legal considerations, statutory interpretations, and precedent-based reasoning that culminated in the High Court's judgment affirming the admissibility of investment allowance on data processing machines for the specified assessment years.