2006 (8) TMI 677 - HC - Income Tax

Summary

Issues:
1. Allowability of investment allowance and additional depreciation on computers.
2. Entitlement to deduction under Section 32A for data processing and printout.
3. Classification of computer machinery as plant and machinery for additional depreciation.

Analysis:
Issue 1:
The Tribunal made a reference on the allowability of investment allowance and additional depreciation on computers. The assessee, engaged in data processing system designing and software development, imported machinery from the USA. The CIT invoked Section 263, contesting the deductions allowed by the AO. The CIT held that since computers were in office premises, additional depreciation was not admissible. However, the Tribunal, citing precedent, held that data processing and printout by the assessee qualified for deduction under Section 32A. The Tribunal also deemed the computer machinery as plant and machinery, justifying additional depreciation. The High Court, relying on precedent, upheld that computers and data processing machines are plant and machinery, making investment allowance available.

Issue 2:
The CIT argued that even if computers and data processing machines were plant and machinery, their location in the office premises rendered additional depreciation inapplicable. The contention focused on the term "office premises," which was not defined in the IT Act. The High Court clarified that the character of "office" depends on activities conducted. In this case, as the office premises were used for industrial purposes like data processing, they did not fall under the restriction of "office premises." The Court rejected the narrow interpretation of "office premises," ruling in favor of the assessee's entitlement to additional depreciation.

Issue 3:
The High Court's judgment addressed the interpretation of "office premises" concerning the eligibility for additional depreciation. It emphasized that the office premises, when used for industrial activities like data processing, should not be limited by a narrow definition of "office premises." As the office was utilized for data processing, it qualified as industrial premises, allowing for the entitlement to additional depreciation. Consequently, the Court answered all questions against the Revenue's interest, affirming the Tribunal's decision. The reference was disposed of without costs.