JUDGMENT
R.K. Patra, J.
1. The Income-tax Appellate Tribunal, Cuttack Bench, Cuttack, at the instance of the Revenue has under Section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”), referred the following question of law as arising out of the orders dated April 11, 1989 and April 12, 1989, in I.T.A. Nos. 198 (CTK) of 1986 and 199 (CTK) of 1986, respectively :
“Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in holding that the assessee is entitled to investment allowance under Section 32A on data processing machine for the assessment years 1981-82 and 1982-83 ?”
2. The opposite party is a small scale industrial unit as per the certificate granted by the Director of Industries, Orissa. It manufactures coal briquettes and lime as well as engaged in computer business. For the assessment years 1981-82 and 1982-83 investment allowance claimed by the opposite party under Section 32A of the Act on data processing machine was allowed by the Income-tax Officer in the assessment order dated January 17, 1984, and January 23, 1984, respectively. The Commissioner of Income-tax by invoking the power vested in him under Section 263 of the Act, examined the opposite party’s record and held that investment allowance was not admissible on data processing machine as it did not manufacture any article or thing. He was of the view that the assessments for the years 1981-82 and 1982-83 were erroneous and prejudicial to the Revenue. He accordingly set aside both the assessments and directed the Income-tax Officer to make fresh assessments in accordance with law subject to the observations made by him in the order. Aggrieved by the orders of the Commissioner, the opposite party filed appeals before the Income-tax Appellate Tribunal (hereinafter referred to as “the Tribunal”). The appeal filed for the assessment year 1981-82 was allowed in part by order dated April 11, 1989. The Tribunal in paragraph 3 of the order held as follows :
“Ground No. 2 pertains to the allowance of investment on data processing machine. In this respect it would be sufficient to rely on the judgment of the Bombay High Court in the case of CIT v. IBM World Trade Corporation [1981] 130 ITR 739, wherein the Bombay High Court has held that investment allowance on data processing machine is allowable. Sri Agarwala has also relied on several other decisions as cited by him at page 1 of the paper book in support of this contention. However, the (?) did not make any investigation regarding computation of investment allowance. Therefore, we have asked the learned representative for the assessee, Sri A. Agarwala to file the working of investment allowance on data processing machine. He has also placed that on record. We have taken the statement of working of investment allowance on record. We are not required to compute the investment allowance and it is the duty of the Income-tax Officer. The investment allowance is allowable and computation of the same on data processing machine requires to be made by the Income-tax Officer. In the result, the assessee succeeds partly. The Income-tax Officer is directed to make computation of investment allowance after allowing an opportunity of being heard to the assessee.”
3. The appeal filed by the opposite party for the assessment year 1982-83 was also partly allowed by the Tribunal in its order dated April 12, 1989, for the self-same reason.
4. The Commissioner moved the Tribunal to refer the following question to this court:
“Whether, on the facts and in the circumstances of the case and on a correct interpretation of Section 32A(2)(iii) and Item No. 22 of the Eleventh Schedule investment allowance is admissible on data processing machine for the assessment year 1981-82 (1982-83) ?”
5. According to him, as per Section 32A(2)(iii) of the Act and Item No. 22 of the Eleventh Schedule investment allowance is not admissible on machinery if installed in office premises for data processing. The Tribunal, on consideration of the matter, however, has posed the question in a different form as indicated at the threshold of this order.
6. The Commissioner’s objection to the admissibility of investment allowance on data processing machine is that it does not manufacture any article or thing. It is, therefore, necessary to examine the correctness of his stand with reference to the facts of the case and the question posed by the Tribunal.
7. Let us therefore first look at the statutory provision. Section 32A of the Act deals with investment allowance. Sub-section (1) thereof, whose relevant portion quoted hereunder lays down as follows :
“In respect of … machinery . . . specified in Sub-section (2), which is owned by the assessee and is wholly used for the purposes of the business carried on by him, there shall, in accordance with and subject to the provisions of this section, be allowed a deduction, in respect of the previous year in which . . . the machinery . . . was installed or, if the . . . machinery … is first put to use in the immediately succeeding previous year, then, in respect of that previous year, of a sum by way of investment allowance equal to twenty-five per cent, of the actual cost of the . . . machinery … to the assessee.”
8. Section 32A(2) reads as follows :
“. . . machinery . . . referred to in Sub-section (1) shall be the following, namely :– . . ,
(b) any new machinery or plant installed after the 31st day of March, 1976-. . .
(ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing ; or . . .”
9. The opposite party is a small scale industrial unit. In order to get investment allowance, it has to show that the machinery, i.e., the data processing machines, have been installed for the purpose of business of manufacture or production of any article or thing mentioned in Section 32A(2)(b)(ii) of the Act. It has been held by the Bombay High Court in CZT v. IBM World Trade Corporation [1981] 130 ITR 739, that data processing machines are not office appliances and as such are eligible for allowance of development rebate under Section 33(1) of the Act.
10. We may now proceed to examine the meaning of the word “manufacture” appearing in the aforesaid provision. The expression “manufacture” has not been defined in the Act. It has been held by the Supreme Court in Rajasthan State Electricity Board v. Associated Stone Industries [2000] 4 Scale 663 ; AIR 2000 SC 2382, that in the absence of the definition of the word “manufacture” in a taxing statute, it should be understood in its commercial sense. The definitions of “manufacture” given in other enactments such as the Factories Act, the Industrial Disputes Act or the Excise Act cannot be applied while interpreting the expression “manufacture” in relation to the provisions of the Act. In Union of India v. Delhi Cloth and General Mills Co. Ltd., AIR 1963 SC 791, the Supreme Court has observed as follows (page 794) :
“The word ‘manufacture’ used as a verb is generally understood to mean as ‘bringing into existence a new substance’ and does not mean merely ‘to produce some change in a substance’, however minor in consequence the change may be. This distinction is well brought out in a passage thus quoted in permanent edition of Words and Phrases, Vol. 26, from an American judgment. The passage runs thus :
‘Manufacture’ implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use.”
11. Para. 17 of the same judgment reads thus (page 795) :
“These definitions make it clear that to become ‘goods’ an article must be something which can ordinarily come to the market to be bought and sold.”
12 In Aditya Mills Ltd. v. Union of India [1989] 73 STC 195 ; AIR 1988 SC 2237, it has been held by the Supreme Court that “manufacture” is complete, as soon as by the application of one or more process, the raw material undergoes some change and a new substance or article is brought into existence. The new substance or article must have a distinct name, character or use. The new commodity must be a commercially separate and distinct commodity having its own character and use.
13. In Name Tulaman Manufacturers Pvt. Ltd. v. Collector of Central Excise [1990] 183 ITR 577, the Supreme Court observed that manufacture implies a change, but every change is not manufacture and yet every change of an article is the result of treatment, labour and manipulation. But something more is necessary and there must be transformation; a new and different article must emerge having a distinctive name, character or use.
14. It has also been held by the Supreme Court in CIT v. Shaan Finance (P.) Ltd. [1998] 231 ITR 308 that an exemption provision in a taxing statute (like sections 32A) is a beneficial one and full effect has to be given to the language used in the said section.
15. Before the Calcutta High Court in CIT v. Shaw Wallace and Co. Ltd. [1993] 201 ITR 17, the question that came up for consideration was whether the business carried on by the assessee in its computer division with the aid of computer system is an industrial undertaking which satisfies the conditions mentioned in Section 32A(2)(b)(iii) of the Act. On consideration of a large number of cases, it held that the assessee was an industrial company engaged in the manufacture or processing of goods. “Data processing” means the converting of raw data to machine-readable form and its subsequent processing by a computer. “Computer” means one that computes ; specifically a programmable electronic device that can store, retrieve and process data. Therefore, there cannot be any doubt that raw data cannot be equated with the result derived. It is different in form and substance.
16. The specific case of the opposite party is that it is a small scale industrial unit and on feeding of data into the data processing machine, balance-sheet, profit and loss account, computations and other statements emerge. In other words, raw data on being fed into the data processing machines, balance-sheets, profit and loss account and other statements are manufactured with distinct name, character or use.
17. In view of what has been stated above, we have no hesitation to hold that the Tribunal was justified in allowing investment allowance on the opposite party’s data processing machines.
18. The question in this reference is, therefore, answered in the affirmative and in favour of the assessee.
L. Mohapatra, J.
I agree.