Decided on October 24,1994



B. L. CHHIBBER, A. M. : - (1.) THESE three appeals are directed against the order of the learned CIT passed under s. 263 of the IT Act, 1961.
(2.) The assessee is a private limited company established by two technocrats returning to India from abroad. Dr. Kirit C. Vyas and Mrs. Bharati Vyas returned to India after staying about 16 years in the USA, established the Startronic Enterprises Pvt. Ltd. Mrs. Vyas has a Master degree in the field from IIT, Chicago and Dr. Vyas has a Doctorate degree. All the machinery required for this project was imported from the USA. The payment of the duty and installation costs of the machinery was financed by the Gujarat State Finance Corporation, Ahmedabad, Gujarat. The assessee company is engaged in the business of data processing, system designing and software development and supply. While completing the assessments under s. 143(3) the learned Assessing Officer (AO) allowed to the assessee company following deductions : Asst. yr. 1985-86 1. Investment allowance of Rs. 4,90,000 on computers 2. Additional depreciation of Rs. 1,46,714 on computers 3. Extra shift Allowance of Rs. 2,93,429 on computers Asst. yr. 1986-87 : 1. Additional depreciation Rs. 74,560 on computers. 2. Extra shirt allowance of Rs. 3,54,296 on computers. asst. yr. 1987-88 : 1. Investment allowance of Rs. 1,76,700 on Computers 2. Extra Shift Allowance of Rs. 3,52,049 on Computers.
(3.) LATER on, on perusal of the records of the IT proceedings in the assessees case for the abovenoted three assessment years, the learned CIT noted that the orders passed under s. 143(3) by the ITO were erroneous in so far as these were prejudicial to the interests of Revenue because, according to him, the learned AO was not justified in allowing the abovenoted allowances. He accordingly, invoked his jurisdiction under s. 263. In response to the notices issued by the CIT the assessee argued that the computers installed were plant and machinery and were entitled to investment allowance in view of the judgment of the Bombay High Court in the case of CIT vs. IBM World Trade Corpn (1986) 161 ITR 673 (Bom). The learned CIT was not satisfied with the explanations furnished and held as under : "For the purposes of s. 32A, however, the conditions applicable to the assessees case are that (a) the machinery or plant should be new (b) it should be installed after 31st March, 1976 and (c) for the purposes of business of construction, manufacture or production of any article or thing, not being an article or thing specified in the list in the Eleventh Schedule [32A(2)(iii)]. The words article or thing denote a commercial and marketable commodity. It is an admitted fact that the output of the computer machinery by way of printout of data is not a commercial or marketable commodity. It has no use to anybody else except the person for whom the data are processed. The assessee is not really selling any goods. Its business is providing services." In support of his contention the learned CIT also relied upon the definition of the word "article" given in the T. P. Mukherjees The Law Lexicon Second Edition at page 163 which reads as under : "Article : The" Shorter Oxford English Dictionary (Ed. 1964), Vol. I, Page 102 says that article means, inter alia, "a piece of goods or property". Websters New World Dictionary defines an article as a commodity and commodity as "any useful thing" or "any article of commerce". (See Ed. 1962, pp. 83 and 295). Putting it simply, a "machine" is a thing and is therefore an article. Law may not all be common sense and logic may not be taboo in law Courts. A machine is after all intended to be and is conceived as a useful thing and is therefore an article." The learned CIT further held as under : "The word "thing" has also to be understood in this sense. One more point to be considered in this context is that a thing or article has a value in itself. The output of a computer machinery, however, has no value in itself. A copy of one printout can replace the original printout. Considering all these, I am of the opinion that since the assessee was not producing any article or thing the computer machinery installed by it is not entitled to investment allowance. The AO has allowed investment allowance without considering the issue properly. Therefore, I am satisfied that the assessment is erroneous and prejudicial to the interests of the Revenue. Therefore, the assessment is set aside. The AO is directed to make a fresh assessment. He should give adequate opportunity to the assessee to prove its case." The CIT further held that since computers were installed in the office premises, additional depreciation was not admissible on the same. He further held that extra shift allowance for triple shift to the data processing equipment was also not admissible in view of the provisions of Depreciation Schedule Part-III C(5). He accordingly set aside the orders passed by the AO.;

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