2006 (8) TMI 111 - HC - Income Tax

Tribunal grants investment allowance and depreciation for computers used in data processing

The Tribunal ruled in favor of the company, allowing investment allowance and additional depreciation on computers used for data processing. It held that ... Computers & data processing would be same as plant & machinery so investment allowance is allowed – in instant case, office premises are used as industrial premised for production of the processors & computers are used for date processing so additional depreciation. Issues:1. Allowability of investment allowance and additional depreciation on computers.2. Entitlement to deduction under Section 32A for data processing and print out.3. Classification of computer machinery as plant and machinery for additional depreciation.Analysis:Issue 1:The Income Tax Appellate Tribunal referred questions regarding the allowance of investment allowance and additional depreciation on computers. The company, engaged in data processing system designing, claimed deductions under Section 143(3) of the Income Tax Act. The Commissioner of Income Tax invoked Section 263, disputing the deductions allowed by the Assessing Officer. The Tribunal, citing precedent judgments, held that computers and data processing machines qualify as plant and machinery, making the investment allowance available. The Tribunal disagreed with the Commissioner's decision, stating that the computers being installed in the office premises did not disqualify them from additional depreciation.Issue 2:Regarding the entitlement to deduction under Section 32A for data processing and print out, the Tribunal relied on a judgment by the Gujarat High Court, affirming that data processing and print out are considered products of the assessee, thus making the company eligible for deductions under Section 32A. The Tribunal concluded that the Commissioner was unjustified in setting aside the assessments based on these grounds.Issue 3:The Tribunal further deliberated on whether the computer machinery installed by the company qualifies as plant and machinery for additional depreciation. The Tribunal, in alignment with the Gujarat High Court's judgment, determined that the computer machinery indeed falls under the category of plant and machinery. Consequently, the Tribunal ruled against the Revenue's contention that the assessments should be set aside.In the absence of representation from the opponent during the hearing, the court considered the arguments presented by the Revenue's counsel. The court analyzed the interpretation of 'office premises' concerning the location of computers and data processing machines for claiming additional depreciation. The court clarified that the term 'office premises' should not be narrowly construed, emphasizing that if the premises are used for industrial purposes like data processing, they do not fall under the definition of office premises for the purpose of depreciation and investment allowance. The court ultimately ruled in favor of the assessee, answering all questions against the interest of the Revenue.