M/s S.T. Reddiar & Sons, Ernakulam V. DCIT, Ernakulam

ITA 890/COCH/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 4360 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-06-2010
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 22-04-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 10-10-2008
• Court: TRIBUNAL
• Department Lawyers: T J VINCENT
• Keywords: Depreciation
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE T RIBUNAL COCHIN BENCH, COC HIN BEFORE S/SHRI N.VIJAYAKUMARAN, JM AND SANJAY ARORA , AM I.T.A. NO. 890/COCH./ 2008 ASSESSMENT YEAR : 2005-06 M/S. S.T. REDDIAR AND SONS, VEEKSHANAM ROAD, ERNAKULAM. [PAN: AAJFS 5454K] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2(2), ERNAKULAM. (ASSESSEE-APPELLANT) (REVENUE- RESPONDENT) ASSESSEE BY SHRI MATHEW JOSEPH, CA REVENUE BY SHRI T.J.VINCENT, DR O R D E R PER SANJAY ARORA, AM: THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF THE ORDER BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOCHI (CIT(A) FOR SHORT) DATED 31.7.2008, AND THE ASSESSMENT YEAR (A.Y.) UNDER REFERENCE IS 2005-06. 2. THE APPEAL RAISES TWO ISSUES, WHICH WE SHALL TAKE U P IN SERIATIM. THE FIRST CONCERNS THE ASSESSEES CLAIM FOR DEPRECIATION ALLO WANCE U/S. 32 OF THE INCOME-TAX ACT, 1961 (THE ACT HEREINAFTER), WHICH STOOD MADE ON THE RELEVANT PLANT & MACHINERY AT RS. 8,48,111/-, AND RESTRICTED BY THE ASSESSING OFFICER (AO) VIDE ASSESSMENT U/S. 143(3) OF THE ACT DATED 24.12.2007, TO RS. 3,53,379/-, AT WHICH AMOUNT IT STANDS CONFIRMED VIDE THE IMPUGNED ORDER. THE DETAILS OF THE RELEVANT MACHINERY AS ALSO THE DEPRECIATION CLAIMED AND ALLO WED THEREON, IS TABULATED HEREUNDER FOR READY REFERENCE: (AMOUNT IN RS.) SL.NO . NAME OF THE MACHINERY COST (RS.) DEPRECIATION CLAIMED DEPRECIATION ALLOWED 1. DAINIPPON SCREEN 17,83,071/- 5,34,921/- 2,22,8 83/- 2. AIR-CONDITIONER 2,00,000/- 60,000/- 2 5,000/- 3. UPS 2,05,000/- 61,500/- 25,625/- ITA. NO. 890/COCH./2008 2 4. ELECTRONIC PLATE PROCESSOR 4,83,968/- 1,45,190/- 60,496/- 5. KRITE 510 1,55,000/- 46,500/- 19, 375/- TOTAL 8,48,111/- 3,53,379/- THE REASON FOR THE AOS DISALLOWANCE WAS THAT THE V ERIFICATION OF THE PURCHASE BILLS OF THE MACHINERY REVEALED IT TO BE A COMPOSITE OF VARI OUS INDIVIDUAL UNITS, VIZ. COMPUTER SOFTWARE MODULES (COSTING RS. 34.20 LAKHS), AIR CON DITIONERS, UPS, PRINTERS, ETC. EXCLUDING COMPUTERS AND COMPUTER SOFTWARE, THE OTHE R MACHINES WERE STATED BY HIM TO BE, THOUGH COMPUTER RELATED, IN THE SENSE THAT T HEY STOOD TO BE USED WITH THE AID OF COMPUTERS, SPECIALIZED MACHINES FOR DESIGNING AND P RINTING AND, AS SUCH, NEITHER COMPUTERS NOR COMPUTER SOFTWARE. HE, ACCORDINGLY, W ORKED THE DEPRECIATION THEREON WITH REFERENCE TO THE STANDARD RATE OF 25% PRESCRIB ED IN RESPECT OF PLANT & MACHINERY. FURTHER, AS THE SAME STOOD ADMITTEDLY USED FOR LESS THAN 180 DAYS DURING THE RELEVANT PREVIOUS YEAR, THE DEPRECIATION ALLOWANCE, EVEN AS BY THE ASSESSEE ITSELF, STOOD RESTRICTED BY HIM TO 50% OF THE EXIGIBLE AMOUNT OF DEPRECIATION. IN APPEAL, THE LD. CIT(A) CONFIRMED THE FINDINGS, AND CONSEQUENTLY, TH E ORDER OF THE AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL. 3. BEFORE US, LIKE SUBMISSIONS STOOD RAISED BY THE LD. AR, PLACING A COPY OF THE INVOICES OF THE RELEVANT MACHINERY ON RECORD. IN A DDITION, RELIANCE, AS BEFORE THE LD. CIT(A), STOOD PLACED ON THE DECISIONS BY THE TRIBUN AL IN THE CASE OF ITO VS. SAMIRAN MAJUMDAR , 98 ITD 119 (KOL.) AND DCIT VS. RAJASTHAN PATRIKA (P.) LTD ., 41 ITD 349 (JP.). THE LD. DR, ON THE OTHER HAND, PLACED RELIAN CE ON THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD, AS WELL AS THE CASE LAW CITED. 4.1 WE FIND THAT THE ASSESSEE HAS NEITHER BEFORE THE FIRST APPELLATE AUTHORITY NOR BEFORE US PRESSED ITS CLAIM IN RESPECT OF AIR-CONDI TIONER AND UPS, EITHER WITH ANY MATERIAL OR ON THE BASIS OF ANY GROUND, FACTUAL OR LEGAL, FOR US TO EXAMINE ITS CASE IN RESPECT OF THE SAME, WHICH ARE EQUIPMENTS THAT ARE NORMALLY USED AND THUS ALSO ITA. NO. 890/COCH./2008 3 UNDERSTOOD AS EMPLOYED TO REGULATE ROOM TEMPERATURE AND ELECTRIC SUPPLY RESPECTIVELY, IN LIGHT THEREOF. THE SAID EQUIPMENT, THEREFORE, CANNOT BE CONSIDERED AS EITHER COMPUTERS OR COMPUTER SOFTWARE. 4.2 THE ONLY ISSUE, THEREFORE, THAT WOULD SURVIVE I S THE RATE OF DEPRECIATION EXIGIBLE ON ITEMS LISTED AT SL. NO. 1, 4 AND 5 OF THE TABLE AT PARA 2 ABOVE. WITH REGARD TO THIS, IT WOULD BE, FIRSTLY, NECESSARY TO GO BY THE MEANIN G AND SCOPE OF THE TERM COMPUTER AND COMPUTER SOFTWARE. THE SAME, THOUGH DEFINED I N THE ACT, WOULD, WITHOUT DOUBT, HAVE TO CONFORM TO THE COMMON UNDERSTANDING OF THE SAID TERMS, BEING, IN FACT, ONE OF COMMON USAGE AND APPLICATION. THE TERM COMPUTER SY STEM, AS DEFINED IN THE EXPLANATION TO CLAUSE (XI) TO S. 36(1) OF THE ACT, MEANS A DEVICE OR COLLECTION OF DEVICES INCLUDING INPUT AND OUTPUT SUPPORT DEVICES AND EXCLUDING CALCULATORS WHICH ARE NOT PROGRAMMABLE AND CAPABLE OF BEING USED IN C ONJUNCTION WITH EXTERNAL FILES, OR MORE OF WHICH CONTAIN COMPUTER PROGRAMMES, ELECTRON IC INSTRUCTIONS, INPUT DATA AND OUTPUT DATA, THAT PERFORMS FUNCTIONS INCLUDING, BUT NOT LIMITED TO, LOGIC, ARITHMETIC, DATA STORAGE AND RETRIEVAL, COMMUNICATION AND CONTR OL . THE STUDY MATERIAL ON THE PAPER ON INFORMATION TECHNOLOGY ISSUED BY THE INSTI TUTE OF CHARTERED ACCOUNTANTS OF INDIA EXPLAINS THE TERM `COMPUTER AS ONE WHICH CAN LOGICALLY BE APPLIED TO ANY CALCULATING MACHINE. HOWEVER, IT GOES ON TO SAY: `I N COMMON USAGE THE DEFINITION OF A COMPUTER HAS BECOME MORE LIMITED IN A CONTEMPORARY USAGE, AND WE NOW DEFINE A COMPUTER AS AN ELECTRONIC DATA PROCESSING DEVICE CA PABLE OF RECEIVING INPUT, STORING SETS OF INSTRUCTIONS FOR SOLVING PROBLEMS AND GENER ATING OUTPUT WITH HIGH SPEED AND ACCURACY. COMPUTERS ARE COMPOSED OF SWITCHES, WIRE S, MOTORS, TRANSISTORS AND INTEGRATED CIRCUITS ASSEMBLED ON FRAMES. THE FRAME S FORM COMPONENTS SUCH AS KEYBOARDS, PRINTER, VISUAL DISPLAY UNITS, DISK DRIV ES, MAGNETIC TAPE DRIVES AND CENTRAL PROCESSING UNITS. THESE COMPONENTS ARE WIRED TOGETH ER INTO A NETWORK CALLED A COMPUTING SYSTEM OFTEN CALLED A COMPUTER. THE WORD COMPUTER IS THUS DEFINED TO SIGNIFY AN ELECTRONIC MACHINE THAT CAN STORE, ORGAN IZE AND RETRIEVE INFORMATION, DO COMPLEX CALCULATIONS AND CONTROL OTHER MACHINES. C OMPUTER SOFTWARE STANDS EXPLAINED IN NOTE # 7 TO THE RELEVANT APPENDIX I TO THE INCOME TAX RULES, 1962 (THE ITA. NO. 890/COCH./2008 4 RULES HEREINAFTER) AS ANY COMPUTER PROGRAMME RECORDED ON ANY DISC, TAPE , PERFORATED MEDIA OR OTHER INFORMATION STORAGE DEVIC E. . 4.3 HAVING CULLED OUT THE SCOPE OF THE WORDS `COMPU TER AND `COMPUTER SOFTWARE FROM VARIOUS SOURCES, AND WHEREIN WE OBSERVE NO INC ONSISTENCY, WE PROCEED TO APPLY THE SAME TO THE THREE MACHINES UNDER REFERENCE TO SEE IF THEY SATISFY THE FUNCTIONAL TEST AS STATED IN THE DEFINITION. SO HOWEVER, ONE T HING IS APPARENT - THE DEFINITION IS ARTICULATED IN THE MOST GENERIC TERMS: ANY MACHINE WITH A COMPUTING CAPABILITY THAT IS PROGRAMMABLE WOULD QUALIFY TO BE A COMPUTER . HERE IT MAY ALSO BE RELEVANT TO STATE THAT THE ASSESSEE HAS NOT DETAILED THE FUNCTIONS OF THE EQUIPMENTS BEFORE ANY OF THE AUTHORITIES; ONLY STATING IT TO BE A COMPUTER WHICH RUNS ON SOFTWARE. WHEN THE SAME ITSELF IS IN DISPUTE OR THE BONE OF CONTENTION, SIM PLY STATING SO WOULD BE BY ITSELF OF NO MOMENT. FURTHER, THE ASSESSEE HAS ALSO NOT CONVEYE D OR EXPLAINED THE CLASSIFICATION OF THE RELEVANT MACHINERY UNDER THE SALES-TAX/VAT, EXC ISE DUTY, CUSTOMS DUTY, AS THE CASE MAY BE, TO WHICH THE SAME ARE SUBJECT; THE SAI D STATUTES CLASSIFYING PRODUCTS ON THE BASIS OF SOME DEFINITE ATTRIBUTES FOR THE PURPO SE OF LEVY OF TAX ON THEIR PRODUCTION/PURCHASE/SALE, ETC., AS THE CASE MAY BE. NEVERTHELESS, THE ASSESSEE HAS SUPPLIED THE COPY OF THE INVOICES AS ALSO THE PRODU CT CATALOGUES AS ISSUED BY THE PRODUCT MANUFACTURERS. WE SHALL, FOR THE PURPOSE OF OUR EXAMINATION AND ANALYSIS, GO BY THE SAID MATERIAL. 4.4 AT THIS STAGE IT WOULD BE RELEVANT TO TAKE NOTE OF THE ASSESSEES BUSINESS AS WELL AS THE PRODUCTION PROCESS INVOLVED, I.E., IN WHICH THE MACHINERY UNDER REFERENCE STANDS DEPLOYED. THE ASSESSEE IS IN THE PRINTING BU SINESS. THE PRODUCTION PROCESS AS DELINEATED IN THE PRODUCT CATALOGUE FROM THE SUPPLI ER `DAINIPPON SCREEN MFG. CO. LTD. (`DSML FOR SHORT / HN PG. 12) IS AS: AUTOMA TIC PLATE RECORDER PROCESSOR OVER-BRIDGE - PLATE PROCESSOR STACKER. PROCESSOR BRIDGE AUTOMATES TRANSPORT OF PLATES BETWEEN THE PLATE RECORDER AND THE PROCESSOR . EXPOSED THERMAL PLATES FROM THE PLATE RECORDER ONTO THE BRIDGE AND ARE THEN CONVEYE D TO THE PLATE PROCESSOR FOR INLINE ITA. NO. 890/COCH./2008 5 PROCESSING. THE MOVEMENT OF THE PLATES TO THE PRESS IS FROM THE STACKER ATTACHED TO THE PROCESSOR. 4.5 THE DESCRIPTION OF THE FIRST MACHINE IN THE RELEVANT INVOICE [HEARING NOTE (HN), PG.9) READS AS DAINIPPON SCREEN PT-R 8000II, SEMI AUTOMATIC THERMAL CTP COMPLETE WITH ACCESSORIES. WE HAVE GONE THROUGH THE CATALOGUE FROM DSML (HN PG. 12); AS PER IT, THE SAID MACHINE IS A THERMAL CPT R ECORDER. IN OTHER WORDS, IT PROCESSES OR IMAGES PLATES WHICH IN TURN FEED THE P RESS FOR PRINT OUTPUT. THE MODEL - PLATERITE 8000 II - PROCURED BY THE ASSESSEE PROCES SES (1030 X 800 MM) AT 2400 DPI AND CAN GENERATE 13 PLATES PER HOUR WITH SIZES B-3 TO B-1. THE SECOND MACHINE, AS PER THE RELEVANT INVOICE (HN PG. 11), IS AN ELECTRONIC PLATE PROCESSOR FALLING UNDER EXCISE TARIFF HEADING NO. 8442.90. PLATE PROCESSING INCLUD ES THE PROCESSES OF DEVELOPING, WASHING, GUMMING AND DRYING. THE PLATE PROCESSOR P URCHASED BY THE ASSESSEE (MODEL DPX 860E) IS A MICROPROCESSOR BASED SYSTEM WITH USE R FRIENDLY FEATURES. THE THIRD MACHINE IS DESCRIBED IN THE RELEVANT BILL (HN PG. 1 0) AS `PORTABLE COLOR REFLECTION DENSITOMETER. THOUGH WE ARE UNABLE TO LOCATE THE S AID MACHINE IN THE FLOW CHART AS DETAILED IN THE CATALOGUE SUPPLIED BY DSML, THE SAM E IS APPARENTLY TO MONITOR THE DENSITY OF THE COLOURS WHILE EXECUTING COLOUR PRINT ING JOBS. THE ASSESSEE STATES OF ALL THE SAID MACHINES AS COMPUTER SYSTEMS WHICH MANAGE THE ENTIRE PROCESSES. 4.6 CLEARLY, ALL THE THREE MACHINES UNDER REFERENCE ARE SPECIALIZED MACHINES USED IN PRINTING ACTIVITY, USING, AS IT APPEARS, THE STATE- OF-THE-ART TECHNOLOGY. THE SAME MAY BE MICRO-PROCESSOR BASED, USING, PERHAPS, THE SAME OR SIMILAR ELECTRONIC CIRCUITARY OR ARCHITECTURE, I.E., THE TECHNOLOGY, AS USED IN THE COMPUTERS; HOWEVER, THAT BY ITSELF WOULD NOT MAKE THEM COMPUTERS. AS NOTED EARLIER, ` COMPUTER BEING A GENERIC TERM, STANDS DEFINED IN MOST BROAD TERMS, SO THAT ANY PRO GRAMMABLE MACHINE WITH A COMPUTING CAPABILITY WOULD STAND TO BE TERMED AS A COMPUTER. HOWEVER, IT IS ONLY WHERE THE MACHINE IS USED PRIMARILY FOR ITS COMPUTI NG CAPABILITY THAT IT WOULD BE APPROPRIATE TO CLASSIFY IT AS ONE SUCH. WHERE THE S AID CAPABILITY, OR THE COMPUTER, ITSELF FORMS THE BUILDING BLOCK OF A MACHINE DESIGNED FOR A SPECIFIC PURPOSE IT COULD NOT ITA. NO. 890/COCH./2008 6 POSSIBLY AND APPROPRIATELY BE CALLED A COMPUTER, BU T ONLY AS THE MACHINE IT IS FUNCTIONALLY DESIGNED FOR AND USED AS. THIS IS AS THE COMPUTING CAPABILITY COULD BE, AND IN FACT IS, BASIC OR INTEGRAL TO MANY SPECIALIZ ED OPERATIONS. A LATHE MACHINE, A POWER PRESS, OR A KNITTING MACHINE, FOR EXAMPLE, SH ALL CONTINUE TO BE SO WHERE THEY ARE PROGRAMMABLE OR MICROPROCESSOR BASED. WHY, COMP UTERS FIND PRESENCE IN ALMOST ANY PRESENT-DAY ELECTRONIC EQUIPMENT OR GADGETRY. W E FIND COMPUTERS IN CAMERAS, CELL PHONES, WASHING MACHINES, DVDS, TO NAME SOME MODERN HOME APPLIANCES; IN VEHICLES, AS MOTOR-CAR, AEROPLANES, ROCKETS, ETC.; RATHER, IN THE ENTIRE RANGE OF INDUSTRIAL APPLICATIONS SPREAD ACROSS DIFFERENT AREAS; THE COM PUTERS HAVING PERMEATED ALMOST EVERY SPHERE OF HUMAN ACTIVITY. THIS WOULD NOT MAKE THEM ANY LESS THE MACHINES THEY ARE KNOWN AND FUNCTIONALLY USED AS, I.E., AS VEHICL ES, CAMERAS, WASHING MACHINES, ETC. LIKE-WISE FOR THE SPECIALIZED MACHINES IMPORTED BY THE ASSESSEE FOR UNDERTAKING DISTINCT AND INDEPENDENT JOBS IN RELATION TO PRINTI NG, AS THESE CONTINUE TO FUNCTIONALLY REMAIN SO AND USED AS SUCH. IT IS PRECISELY FOR THI S REASON THAT IT WAS OBSERVED BY THE BENCH DURING THE COURSE OF HEARING ITSELF IF THE RE LEVANT ENTRY IN THE DEPRECIATION SCHEDULE SPEAKS OF (SAY) `AN ELECTRONIC MICROPROCES SOR BASED SYSTEM, TO, OF COURSE, AN ANSWER IN THE NEGATIVE BY THE LD. A.R. 4.7 COMING TO THE DECISIONS RELIED UPON BY THE ASSE SSEE; IN THE CASE OF RAJASTHAN PATRIKA (P.) LTD (SUPRA), IT WAS THE CASE OF THE COMPUTER DIRECTLY YIELDING PRINT OUTPUT SO THAT IT WAS HELD TO BE COMPUTER PRI NTING MACHINE, I.E., A COMPUTER WHICH YIELDS PRINT OUTPUT, REJECTING THE DEPARTMENT S CONTENTION THAT THE MACHINE IS ONLY AN IMPROVED ELECTRONIC TYPEWRITER. IN THE CAS E OF SAMIRAN MAJUMDAR (SUPRA), AS WELL AS IN THE CASE OF NESTLE INDIA VS. DCIT , 111 TTJ (DEL.) 498, THE ISSUE WAS WHETHER THE PRINTER AND THE SCANNER FORM AN INTEGRA L PART OF THE COMPUTER SYSTEM. THE NORMAL DESKTOP COMPUTER, OR ANY COMPUTER FOR THAT M ATTER, WOULD REQUIRE A DEVICE FOR INPUT OF DATA (WHICH IS DONE THROUGH THE KEYBOARD), A PROGRAMME TO EXECUTE SOME DEFINED OPERATION ON THE SAME (AS `WORD PROCESSOR) , A STORAGE DEVICE (FOR STORING PROGRAM AND DATA FILES), AND FINALLY, A MECHANISM F OR THE RETRIEVAL OF DATA. THE PRINTER ATTACHED TO THE COMPUTER ENABLES THE USER TO TAKE T HE PROCESSED DATA (OUTPUT) ON PAPER, ITA. NO. 890/COCH./2008 7 AND WHICH COULD BE ON ANY OTHER ELECTROMAGNETIC MED IA AS WELL. AS SUCH, WITHOUT DOUBT, A PAPER PRINTER IS INTEGRAL TO THE USER OF T HE COMPUTER AS SUCH. TAKE THE CASE OF RESERVATION AND TICKETING ON COMPUTERS, AS (SAY) BY THE RAILWAYS OR AIRLINES. THE TICKETS ARE GENERATED ON PAPER, AND THE PRINTED (PA PER) TICKET DELIVERED TO THE PASSENGER. IT DOES NOT TAKE MUCH STRAIN TO REJECT T HE ARGUMENT, OR ARRIVE AT THE FINDING OF IT BEING NOT CORRECT TO SAY, THAT WHAT IS BEING USED FOR RESERVATION AND TICKETING IS NOT A COMPUTER BUT ONLY AN (ADVANCED) ELECTRONIC TY PEWRITER OR PRINTER (BEING PROGRAMMABLE). THE FACTUM OF THE PRINTER BEING ATTA CHED TO A COMPUTER WOULD NOT CONVERT IT INTO A PRINTER; RATHER, THE LATTER ENABL ES THE DELIVERY OF THE OUTPUT OF THE COMPUTER IN `HARD COPY AND, AS SUCH, COMPLETES ITS FUNCTION AS A COMPUTER. IN OTHER WORDS, THE PRINTER IS (AND CONTINUES TO BE) A NECES SARY ADJUNCT TO THE COMPUTER, DELIVERING ITS OUTPUT ON PAPER. SIMILARLY, THE SCAN NER ENABLES INPUT OF LARGE VOLUMES OF DATA TO THE COMPUTER FOR FURTHER PROCESSING AND , AS SUCH, IS AGAIN INTEGRAL TO ITS FUNCTIONING. THE SAID CASE LAW, THEREFORE, WOULD BE OF NO ASSISTANCE TO THE ASSESSEE. THE MACHINES, AS DESCRIBED AND SEEN FROM THE DOCUME NTS SUPPLIED BY THE ASSESSEE ITSELF AND SOURCED FROM THE MANUFACTURER THEMSELVES , ARE SPECIALIZED MACHINES FOR PRODUCTION AND PROCESSING OF THERMAL PLATES FOR DES IGNING AND PRINTING, AS WELL AS FOR MONITORING THE SHARPNESS/DENSITY OF THE COLOURS (IN CASE OF COLOURED PRINTING), I.E., FOR DELIVERING HIGH QUALITY PRINT OUTPUT. THE VERY FACT THAT THESE ARE NOT MANUFACTURED BY THE REGULAR COMPUTER MANUFACTURERS, BUT BY ENTITIES SPECIALIZING IN, AND SEPARATELY AT THAT, DIFFERENT PROCESSES OF THE PRINTING ACTIVITY, WOULD BEAR OUT THE UN-MAINTAINABILITY OF THE ASSESSEES CLAIM. THE ACID, AND WE CONSIDER THE ONLY, TEST, WOULD BE TO EXAMINE, ON A CONSPECTUS OF THE OBTAINING FACTS AND CIRCUMST ANCES, IF THE MACHINE UNDER REFERENCE IS BEING USED ESSENTIALLY FOR ITS COMPUTI NG CAPABILITY OR THE SAME CONSTITUTES AN ELEMENT OR INGREDIENT OF THE ACTIVITY WHICH, IF ANY, IT IS DESIGNED OR GEARED TO DO OR PERFORM. THIS IS AS IT IS ONLY WHERE THE MACHINE IS BEING USED ESSENTIALLY AND PREDOMINANTLY FOR ITS COMPUTING CAPABILITY, AND NOT BEING HARNESSED FOR OTHER SPECIALIZED INDUSTRIAL BE IT MECHANICAL, ELECTRIC OR ELECTRONIC (OR A COMPOSITE THEREOF) ACTIVITY, THAT IT COULD BE RIGHTLY CALLED A COMPU TER. ITA. NO. 890/COCH./2008 8 4.8 IN VIEW OF THE FOREGOING, WE ARE OF THE CONSIDE RED VIEW THAT THE HARDWARE UNDER QUESTION, INVOLVED IN THE EXECUTION OF THE PRINTING PROCESSES BY THE ASSESSEE, DOES NOT QUALIFY TO BE CATEGORIZED AS `COMPUTERS AND, THUS, NOT ELIGIBLE FOR A HIGHER RATE OF DEPRECIATION IN ITS RESPECT AND, ACCORDINGLY, CONFI RM THE FINDING BY THE AUTHORITIES BELOW. 5. AS REGARDS THE SECOND ISSUE, THE ASSESSEE WAS FOUND TO HAVE CLAIMED LABOUR CHARGES IN SUM OF RS. 46,59,627/-, DETAILS IN RESPE CT OF WHICH WERE SOUGHT AND EXAMINED. OF IT, RS. 29,90,153/- WAS FOUND TO REPR ESENT PURCHASES, THOUGH INCLUDED UNDER THE ACCOUNT `LABOUR CHARGES, FOR THE REASON THAT AT LEAST 10% THEREOF WAS LABOUR CHARGES. HOWEVER, BEING UNABLE TO FURNISH THE PREC ISE FIGURE OF THE LABOUR CHARGES INCLUDED THEREIN, THE AO ESTIMATED THE LABOUR COMPO NENT AT RS. 3,50,000/-, AND HAVING BEEN PAID WITHOUT DEDUCTION OF TAX AT SOURCE , DISALLOWED THE SAME BY INVOKING THE PROVISION OF SECTION 40(A)(IA) OF THE ACT. ANOT HER SUM OF RS. 12,57,078/- WAS IN RESPECT OF PRINTING MATERIALS AND BINDING CHARGES, INCLUDING, ADMITTEDLY, LABOUR CHARGES IN THE SUM OF RS.7,54,247/-, WHICH STOOD PA ID WITHOUT DEDUCTION OF TAX AT SOURCE, SO THAT DISALLOWANCE U/S. 40(A)(IA) WAS EF FECTED. THE ASSESSEE DID NOT CONTEST THE SECOND DISALLOWANCE, I.E., FOR RS. 7.54 LAKHS B EFORE THE LD. CIT(A) (REFER PG. 2 OF HIS ORDER) AS REGARDS THE FIRST, THOUGH CHALLENGED, WAS OF N O AVAIL, AS THE LD. CIT(A) FOUND THE ESTIMATION BY THE AO AT RS. 3.5 LAKHS AS REASONABLE, CONSIDERING THE ADMISSION BY THE ASSESSEE OF AT LEAST 10% OF THE TO TAL EXPENSES OF RS. 29.90 LAKHS AS BEING ON ACCOUNT OF LABOUR CHARGES, AND FOR WHICH, ADMITTEDLY, NO TDS STOOD DEDUCTED OR PAID. AGGRIEVED, THE ASSESSEE IS IN AP PEAL. 6. BEFORE US, LIKE CONTENTIONS STOOD RAISED BY EITH ER SIDE. 7. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. IN OUR VIEW, NO DISALLOWANCE IS EXIGIBLE IN THE FACTS AND CIRCUMSTA NCES OF THE CASE. THIS IS FOR THE REASON THAT ONLY A SMALL FRACTION OF THE TOTAL EXPE NDITURE IS IN THE FORM OF LABOUR CHARGES. AS SUCH, IT IS DIFFICULT TO SAY THAT THE C ONTRACT IS FOR THE SUPPLY OF LABOUR OR FOR ITA. NO. 890/COCH./2008 9 WORK, AND WOULD RATHER FALL TO BE CATEGORIZED AS ON E FOR PURCHASE OF GOODS, THOUGH ON WHICH SOME LABOUR WORK STANDS PERFORMED. THE ASSESS EE IS BUYING GOODS IN THE PROCESSED FORM, AND IT IS NOT THE REVENUES CASE TH AT MATERIAL STANDS BOUGHT IN THE UNPROCESSED FORM AT FIRST STAGE AND THEN GIVEN FOR JOB WORK. ANY GOODS PURCHASED FROM THE MARKET ARE ESSENTIALLY SERVICES PERFORMED ON THE INPUT MATERIAL PROCURED BY THE SUPPLIER AND, AS SUCH, WOULD INCLUDE, EXCEPT IN THE CASE WHERE THE SUPPLIER HAPPENS TO BE A TRADER OR DEALER IN GOODS, SOME COM PONENT OF LABOUR. IN FACT, GOING SO ON AND SO FORTH, EACH `GOOD COULD BE BROKEN UP INT O A COMPOSITE OF SERVICES SO THAT IT IS ESSENTIALLY A TANGIBLE FORM OF LABOUR. THAT WOUL D NOT, ON THAT ACCOUNT, MAKE IT A CONTRACT FOR SERVICES OR LABOUR, SO AS TO ATTRACT T HE PROVISIONS OF SECTION 194C AND, CONSEQUENTLY, THAT OF SECTION 40(A)(IA) OF THE ACT. REFERENCE IN THIS CONTEXT COULD BE MADE WITH PROFIT TO THE DECISIONS BY THE APEX COURT IN THE CASE OF ACC LTD. V. CIT , 201 ITR 435 (SC) AD BIRLA CEMENT WORKS V. CBDT , 248 ITR 216 (SC). THERE IS NO FINDING IN THE PRESENT CASE BY ANY OF THE AUTHORITI ES BELOW QUA EXISTENCE OF A SEPARATE CONTRACT IN RESPECT OF LABOUR WORK. WE DO NOT, THUS , FIND MUCH MERIT IN THE CASE OF THE REVENUE AND SET ASIDE THE IMPUGNED ORDER ON THIS GR OUND DELETING THE DISALLOWANCE UNDER DISPUTE. WE DECIDE ACCORDINGLY. 8. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY A LLOWED. SD/- SD/- (N.VIJAYAKUMARAN) (SANJAY ARORA) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: ERNAKULAM DATED: 18TH JUNE, 2010 GJ COPY TO: 1. M/S. S.T. REDDIAR & SONS, VEEKSHANAM ROAD, ERNAK ULAM 682 035. 2. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-2( 2), ERNAKULAM. 3. THE COMMISSIONER OF INCOME-TAX (APPEALS)-II, KOC HI. 4. THE COMMISSIONER OF INCOME-TAX, KOCHI. 5. D.R./I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE.