Law: Income Tax Act, 1961

Section: 32,32A

JUDGMENT R.S. Garg, J. - The Tribunal, Ahmedabad Bench 'A', at the instance of the revenue, has made this reference on the following questions for the opinion of this Court: "(1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the investment allowance and additional depreciation is allowable on computers? (2) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in holding that data processing and printout would certainly be a thing produced by the assessee even if not a thing manufactured by the assessee and thereby the assessee-company is entitled to deduction under section 32A? (3) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the computer machinery installed by the assessee-company are plant and machinery as a natural corollary and thereby the additional depreciation is entitled to the assessee?" 2. The assessee is a private limited company established by two technocrats, who started and established Startronics Enterprises (P.) Ltd. All the machineries required for this project were imported from the United States of America. The assessee-company is engaged in the business of data processing, system designing and software development and supply. While completing the assessments under section 143(3) of the Income-tax Act ("the Act" for short), the Assessing Officer allowed to the assessee-company certain deductions. 2.1 Later, on perusal of the records of the income-tax proceedings in the assessee's case for the assessment years 1985-86, 1986-87 and 1987-88, the learned CIT observed that the orders framed under section 143(3) by the ITO were erroneous insofar as these were prejudicial to the interest of the revenue. Accordingly, he invoked his jurisdiction under section 263 of the Act. In response to the notice issued by the CIT, the assessee submitted 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 v. IBM World Trade Corpn. [1986] 161 ITR 673. The learned CIT did not accept the submission.…

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