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Issues involved: Interpretation of section 32A for industrial company engaged in data processing.
Summary: The High Court of Madras considered the question of law regarding the eligibility of an assessee, engaged in data processing, for investment allowance under section 32A of the Income-tax Act for the assessment year 1985-86. The Revenue disputed the claim, arguing that computers used for data processing do not involve production of articles or things. The Income-tax Officer disallowed the claim, which was upheld by the Commissioner but later overturned by the Tribunal, leading to this reference. The Court analyzed the concept of "production" in the context of data processing with computers. Referring to the Supreme Court's decision in CIT v. N. C. Budharaja and Co., it was established that "production" encompasses a wider scope than "manufacture." The Court emphasized that data processing activities, resulting in the creation of balance-sheets and financial accounts, constitute production as they involve bringing into existence new goods through processing. Furthermore, the Court examined the term "industry" in section 32A, highlighting that it refers to companies engaged in the manufacture or production of goods or articles. Considering the end-products of data processing as articles obtained through processing, the Court concluded that a data processing company qualifies as an industrial company engaged in production. Drawing on precedents such as CIT v. I. B. M. World Trade Corporation and CIT v. Datacons (P.) Ltd., which recognized the eligibility of data processing companies for tax benefits, the Court affirmed that data processing activities fall within the realm of production and entitle the assessee to the benefits under section 32A. Therefore, the Court ruled in favor of the assessee, holding that the Tribunal was correct in granting the benefit of section 32A, despite the specific prohibition against deduction for plant and machinery installed in office premises, as the data processing activities constituted production of articles.
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