1998 (2) TMI 86 - HC - Income Tax

Summary

Issues Involved: Determination of whether the assessee qualifies as an 'industrial undertaking' for claiming deductions under sections 32A and 80J of the Income-tax Act, 1961. Interpretation of the term 'manufacture or production of an article or thing' in relation to the activities of the assessee company.

Summary:

The Income-tax Appellate Tribunal referred questions under section 256(1) of the Income-tax Act, 1961 regarding the status of the assessee as an 'industrial undertaking' and the eligibility for deductions under sections 32A and 80J of the Act. The Assessing Officer initially denied deductions, considering the services provided by the assessee as akin to an accountant's services without any finished product. The Commissioner of Income-tax (Appeals) later allowed the deductions based on precedents. The Revenue appealed to the Income-tax Appellate Tribunal, where it was argued that the assessee's activities did not qualify for investment allowance under section 32A due to the exclusionary clause.

The crucial issue was whether the assessee qualified as an industrial undertaking and whether the article or thing produced fell under the exclusionary clause of section 32A. Relying on precedents, it was established that the computations and statements produced by the assessee after processing data constituted production of mechanically prepared information, making the assessee an industrial undertaking. The nature of the activity was deemed similar to a case where data processing machines were held not to be office appliances, thus entitled to development rebate.

The key consideration was whether the assessee was engaged in the manufacture of items excluded under section 32A, not whether the computer itself was an office appliance. The assessee's production of information through data processing for customers did not fall under the exclusionary clause related to office machines and apparatus used for data processing. The Assessing Officer's error lay in equating the assessee's activity with the manufacture of office machines and apparatus, which was not the case. Consequently, both questions referred under section 256(1) were answered in favor of the assessee and against the Revenue.