GYAN PRAKASH SAHU V. INCOME TAX OFFICER

TA/48/2000

AI Insights

The case revolves around the appellant's challenge to the Income Tax Appellate Tribunal's decision, which denied deductions for profits and gains accrued from data processing and software development activities, on the grounds that these do not involve 'manufacture'. The High Court of Madhya Pradesh had previously recognized data processing as an industrial activity, which influenced the court's decision in this appeal. The court found that the activities in question qualify as industrial undertakings, thus entitling the appellant to the deductions claimed under Section 80-I of the Income Tax Act, 1961.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 766179 (HC-CUTTACK)
• Appeal Type: Others
• Pronouncement Date: 24-07-2019
• Assessment Year: misc
• Other Referred Cases: Commissioner of Income Tax –v- Oswal Data Processors, CIT v. Ajay Printery Private Ltd.
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Applicant
• Court: HIGH COURT
• Keywords: Data Processing; Deductions; Industrial activity; Investment allowance; Manufacture; Software Development
• Section: 80J; 80-I

Judgement Text

" 10. 24.07.2019 Heard learned counsel for the appellant and learned Senior Standing Counsel for the Income Tax Department. 2. By way of this appeal, the appellant has challenged the order dated 09.03.2000 at Annexure-7 passed by the learned Income Tax Appellate Tribunal, Cuttack Bench, Cuttack in ITA 198/CTK/1994 whereby the Tribunal dismissed the aforesaid appeal. 3. It appears that this Court on 01.05.2007 admitted the appeal on the following questions of law: “(i) Whether under the facts and circumstances of the case the learned Appellate Tribunal was justified in not granting deductions in respects of profits and gains accrued to the appellant, an industrial undertaking on the ground that data processing and software development do not involve “manufacture”, despite holding that such activities would be industrial activities by the appellant. (ii) Whether deductions in respect of profits and gains by an industrial undertaking, as provided under section 80-I of the Income Tax Act 1961, can only be granted to an industrial undertaking who is also manufacturer and not to any other industrial undertakings.” 4. Now the issue involved in this appeal is squarely covered by the decision of the Madhya Pradesh High Court in the case of Commissioner of Income Tax –v- Oswal Data Processors, reported in (1997) 223 ITR 735 (MP), wherein it has been held as under: “2. The facts material for the purpose of this reference are these: The year of assessment involved is 1982-83, previous ending June 30, 1981. The assessee is a registered firm carrying business of data processing with the help of computers. It claimed investment allowance on T.A. No.48 of 2000 -2- computers and also the deduction under Section 80J. The assessing authority, vide its order dated July 27, 1985 (annexure “A”), disallowed the claims holding that the work of data processing is not an industrial activity. On appeal, the Commissioner of Income Tax (Appeals) allowed both the aforesaid claims of the assessee, vide its order dated February 19, 1980 (annexure “B”). The Department then came in appeal before the Tribunal which also endorsed the order of the Commissioner of Income Tax (Appeals). The order of the Tribunal is annexure “C”. 3. Dissatisfied with the decision of the Tribunal, the Department moved an application under Section 256 (1) whereupon the Tribunal has referred the abovenoted questions for the opinion of this court. 4. We have heard Shri D.D. Vyas, learned counsel for the applicant-Department, and Shri S.S. Samvatsar, learned counsel for the non- applicant/assessee. 5. We may usefully refer here to the decision of the Government of India communicated by them to the Director, Small Industries Service Institute, Ministry of Industry, Government of India, Indore, which reads as follows (vide letter dated September 8, 1981, annexure “B-I”): “In view of the sophisticated and specialized type of operations involved in software servicing and data processing, it has been decided to recognize this as an industrial activity. As such small-scale units engaged in this activity are eligible for facilities and concessions available to the small-scale industries under the Small industries Development Programme. Units engaged in software servicing and data processing can, therefore, be registered as a small-scale industry provided they fulfill the necessary conditions of investment on” machienery and equipment, etc.” 6. The learned Commissioner has dealt with the questions at length and come to the conclusion that data processing is an industrial activity and the assessee-firm was, therefore, entitled to investment allowance on the -3- computers installed by it and was also entitled to deductions under Section 80J. The concurrent view taken by the Commissioner and the Tribunal finds support from the decision of the Gujarat High Court in CIT v. Ajay Printery Private Ltd. MANU/GJ/0002/1965 : [1965] 58 ITR 811 (Guj). Nothing substantial could be demonstrated before us so as to take a different view in the matter. 7. We thus answer both the questions in the affirmative, i.e., in favour of the assessee and against the Department.” 5. Taking into consideration the above, we are of the opinion that the issue is required to be answered in favour of the assessee and against the Department. Accordingly, the same is answered in favour of the assessee and against the Department. Accordingly, the T.A. is disposed of being allowed. Misc. Cases/I.As. connected to the appeal, if any, are disposed of accordingly. Issue urgent certified copy of this order as per Rules. SKG .…….......……………… ( K.S. Jhaveri ) Chief Justice …………………..……… (K.R. Mohapatra) Judge "