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TMI Blog2006 (7) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee is an engineering company manufacturing various materials handling equipments. The assessee installed and commissioned computer system accessories during the previous year relating to asst. yr. 1984-85. The assessee claimed depreciation @ 20 per cent as per the provisions of s. 32 as well as investment allowances under s. 32A of the IT Act. The assessee claimed depreciation and investment allowances on the ground that the computer system is a plant installed in its factory premises. The claim of the assessee was disallowed by the AO holding that the computers were used by the assessee for accounting purposes. The AO further held that if the computers are treated as a plant, then the rate of depreciation can be that of applicable to plants and machineries and not special rate provided for computer. The assessee then challenged the said assessment order by filing first appeal before the appellate Commissioner. The appellate CIT, relying upon the two decisions of the Bombay High Court in CIT vs. IBM World Trade Corpn. (1981) 130 ITR 739 (Bom) and CIT vs. International Computers Ltd. (1981) 131 ITR 1 (Bom), came to the conclusion that the computers were plants and all works ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pn., the Bombay High Court held that: "Data processing machine is a complicated machinery which could not be easily operated by lay men and special training for a period which may exceed three months in some cases and a much longer period in others is necessary in order to equip a person with the knowledge and art of operating these machines. The installation and operation of the machines is on a scientific basis and even for the purposes of installation, certain special conditions have to be provided in the form of air-conditioning or a particular temperature. The purposes for which such machines, which can be described as computers, are used are well known and, in highly scientifically developed systems, they have their own role to play and they cannot be equated, therefore, with office appliances which could be of a much simpler nature." 6. The Bombay High Court again took the same view in the case of CIT vs. IBM World Trade Corpn. (1986) 52 CTR (Bom) 64 : (1986) 161 ITR 673 (Bom) and held that data processing machines are not office appliances and are entitled to development rebate under s. 33 of the IT Act, 1961. 7. The Calcutta High Court in the case of CIT vs. Shaw Wal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the special cabin constructed within the factory premises. The computer was used for processing raw materials, data, straw data wages and salaries payments, etc and also for monitoring the details of production. In such a case, if we apply the functional test on the fact of the computer installed here, it is in the line of the manufacturing process in the cable division of the assessee. It has been contended on behalf of the Revenue that this computer was not used for manufacture but the Tribunal's finding is that the computer is used for processing raw materials, data, straw data and for monitoring the details of production. If that be so, we fail to see how it is not a part of the business of manufacture of the cable division of the assessee. The Tribunal has found that the computer has been installed in a special cabin constructed within the factory premises itself. On behalf of the Revenue, reliance was placed on a judgment of this Court in the case of CIT vs. Technico Enterprises (P) Ltd. (1994) 119 CTR (Cal) 25 : (1994) 206 ITR 36 (Cal). But, in that case, a specific finding of fact was that the computer was purchased and utilized for accounting purposes only. On the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of manufacture or production of any article but it is certainly used for the purposes of such business. The word 'business' used in s. 32A(2)(iii) is significant. The business of manufacture cannot be restricted to the actual process of manufacture. The Court, therefore, found that the ITO did not make a mistake in allowing investment allowance and additional depreciation on the computer. The order of the CIT was, therefore, reversed and that of the ITO was restored. The Court held: "With regard to the merits of the case, namely, that the assessee was entitled to investment allowance under s. 32A(1) in the sum of Rs. 39,784 and additional depreciation under s. 32(1)(iia) of the IT Act, 1961, on a computer purchased by the assessee during the previous year relevant to the assessment year, it appears to us from the order of the Tribunal that there is no dispute that the computer purchased by the assessee is not part of the manufacturing machinery. According to the learned advocate for the assessee, the computer is utilized for accounting purposes, that is to say, for maintaining the stock of raw material and the finished goods and so also for other accounts of the business of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... electronic components and devices assembled in metal cases (modules) and cabinets. These contain switching and communication components such as transistors, diodes, capacitors, resistors and integrated circuits, all combined into various types of circuitry, together with memory systems, power supplies, delay lines and various types of magnetic media such as tapes and wires for carrying and transforming data and information, as coded, into instructions and computations. In view of the varied functions which the 'system' is capable of performing, data processing machines cannot be classified as 'office appliance' and are eligible for allowance of development rebate under s. 33(1) of the IT Act, 1961 [corresponding to s. 10(2)(vib) of the Indian IT Act, 1922]." 10. In another case, the Calcutta High Court held that assessee is entitled to investment allowance in respect of generator on the ground that processing of data on behalf of its customers was processing of goods. The said judgment was challenged by the Revenue by filing appeal before the Supreme Court and the apex Court in the case of CIT vs. Peerless Consultancy Services (P) Ltd. (2000) 164 CTR (SC) 194 : (2001) 248 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such machinery or plant is also used for the purposes of business of construction, manufacture or production of any article or thing specified in the said list. In other words, sometimes, a machinery or plant installed and used mainly for the purposes of business of construction, manufacture or production of any article or thing, not specified in the list, may have been partly used for the purposes of business of manufacture or production of any article or thing specified in the said list. An investment allowance is not intended to be denied in such cases. 12. As noticed above, the assessee is an engineering company manufacturing various materials handling equipment. It had installed and commissioned a NALCO 5000 Supercomputer system with accessories during the previous year relevant to asst. yr. 1984-85. The assessee company claimed depreciation of 20 per cent on computer which is a special rate prescribed for computers. It also claimed an additional depreciation as well as investment allowance under s. 32A of the Act. These claims were made by the assessee on the ground that the computer system was part of the plant and was installed in the factory premises under suitable te ..... X X X X Extracts X X X X X X X X Extracts X X X X
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