COMMISSIONER OF INCOME TAX vs. PROFESSIONAL INFORMATION SYSTEMS & MANAGEMENT

ITR/304/1992HC GujaratGJHC24015644199219 January 2005Author: HONOURABLE MR. JUSTICE D.A.MEHTA,HONOURABLE MS. JUSTICE HARSHA DEVANI14 pages
AI SummaryAllowed

What were the facts?

The assessee, a company providing computer services, purchased a computer and claimed investment allowance under Section 32A for Assessment Year 1983-84. The Income Tax Officer disallowed the claim, viewing the computer as an office appliance and the assessee's activity as not manufacturing or production. The Commissioner of Income Tax (Appeals) reversed this, considering the assessee an industrial unit engaged in manufacturing 'data systems' and eligible for the allowance, citing its SSI registration and High Court decisions. The Income Tax Appellate Tribunal upheld the CIT(A)'s order, relying on similar precedents. The Commissioner of Income Tax then referred a question of law to the High Court.

What did the High Court hold?

The High Court held that the assessee company was eligible for investment allowance under Section 32A on the cost of the computer. The Court reasoned that the test for determining if machinery is a 'plant' depends on its function, not just its location. In the case of computer systems, the input data is transformed into a different form, and the output (e.g., balance sheets, statements) constitutes new articles or things, amounting to production. The Court noted that the issue was no longer res integra, citing the Supreme Court's affirmation of the Calcutta High Court's decision in CIT v. Peerless Consultancy Services (Pvt.) Ltd. (2001) 248 ITR 178, which held that data processing is processing of goods. The Bombay High Court's decision in CIT v. R. Shroff Consultants P. Ltd. was distinguished, and the Court followed the Madras High Court's decision in CIT v. Comp-Help Service P. Ltd. and the Bombay High Court's later decision in CIT v. Emirates Commercial Bank Ltd., which allowed deduction under Section 32A for computers used in data processing. The question referred was answered in the affirmative, in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the assessee company, which provided computer services to other concerns, was an industrial undertaking engaged in the business of manufacture or production and thus eligible for investment allowance under Section 32A on the cost of the computer? Assessee's arguments: Not recorded in the judgment. Revenue's arguments: The assessee's activity of providing computer services cannot be treated as manufacturing. Computers are primarily office appliances. Reliance was placed on CIT v. R. Shroff Consultants P. Ltd. (1999) 238 ITR 1018, which held that data processing does not constitute manufacture or production of an article or thing, and CIT v. N.C. Budharaja (1993) 204 ITR 412.

Which sections of the Income-tax Act were involved?

Section 32A,Section 256(1)

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 304 of 1992

For Approval and Signature:

HON'BLE MR.JUSTICE D.A.MEHTA AND HON'BLE MS.JUSTICE H.N.DEVANI

============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements?

2.

To be referred to the Reporter or not? : YES

3.

Whether Their Lordships wish to see the fair copy : NO of the judgement?

4.

Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges

The order continues below.

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