ORDER
B.V. Venkataramaiah, Accountant Member
1 to 5. [These paras are not reproduced here as they involve minor issues.]
6. The last ground is that the Commissioner (Appeals) erred in holding that the DCM computer purchased at a cost of Rs.6,35,611 is entitled to investment allowance under Section 32A of the Income-tax Act, 1961 (‘the Act’). The relevant portions of the order of the Commissioner (Appeals) are reproduced below :
The ITO has held that the computer of the assessee would be used in the accounting and financial operations of the assessee-company and so, was in the nature of office equipment. It is argued by the assessee that the computer in question cannot be described as accounting machine or office equipment. According to the assessee, it is used to generate various information, report and operational data relating to mining activity, mining machinery capacity utilisation, inventory control and pay roll. I am inclined to agree with the assessee. It would be an over-simplification to say that the computer is an office equipment. The computer in the present case is no doubt installed in the head office of the company and may appear to be disentitled to investment allowance by virtue of Clause (a) of the proviso to Sub-section (1) of Section 32A. However, by its very nature, the computer cannot be installed at the mine site. It has necessarily to be an environment free of dust and where regulated power supply would be available. According to Sub-section (2)(iii) of Section 32A any machinery installed in an industrial undertaking for the production of article or thing not specified in the Eleventh Schedule is entitled to investment allowance. There is no dispute about the fact that the mining of iron ore is production of article or thing as is evident, from the fact that relief under Section 80J has been allowed to the assessee. Under the circumstances I direct the ITO to allow investment allowance on the computer.
(i) The assessee’s representative furnished details of the information supplied by the computer. Specimen information sheets monitoring the performance of various machines were furnished. These indicate the performance of the various machines, for example, whether a dumper is being put to optimum use or not. The computer gives the necessary information to the management in the proper deployment of the machinery. The argument on behalf of the assessee is that the computer is a ‘plant’ and has got to be used along with the other plant and machinery engaged in the mining operations. The entire set up is a composite one. Without the computer, efficient use of the machinery cannot be made. While there can be no doubt that the computer is a plant, it cannot be treated on the same level as an office equipment, say, a typewriter. It was also submitted that the recent Finance Bill specifically provides for investment allowance on computers. Further, reliance was placed on a decision of the Bombay Bench ‘C’ of the Tribunal in IT Appeal No.3826 (Bom.) of 1982 dated 25-5-1984, where the question of allowing extra shift allowance on computers was being considered. The ITO had denied investment allowance also. The Commissioner (Appeals) reversed his finding and the Commissioner (Appeals)’s finding has been accepted by the revenue. The learned representative of the assessee, thus, submitted that investment allowance should not be disallowed on the computer.
7. Although this is the revenue’s appeal, we have placed the arguments of the assessee-respondent first for the sake of greater clarity. The learned departmental representative submitted that though the Finance Bill, 1986 has accorded investment allowance to computers, that in no way suggested that the intention of the Legislature was not to treat computers as office appliances prior to 1-4-1986. In other words, his submission is that the amendment is not clarificatory but substantive. A reference to International Customs and Classification reveals that computers are classified under office equipment. Alphabetical index to the nomenclature and the explanatory notes, 2 M to Z was also furnished :
Office equipment (See also specific items) Equipment and furnishing n.e.s.o.i. (not being furniture of 94),-see 'Desk, furnishings' Furniture as defined in94 94.031 Machinery 84.51/54 84.51/54 84.53-Automatic data processing machines and units thereof: Magnetic or optical readers ? Machines for transcribing data onto data media in coded form and machines for processing such data, not elsewhere specified or included.
Since it is internationally recognised that computers arc office equipment, there is no reason to treat it on a different footing for the purpose of Indian Income-tax Act, 1922. He further submitted that computer here does not control any machinery used in the mining operations. It only gathers information about the machines and supplies the data to the management for taking decisions, i.e., information relevant for managerial decisions are being supplied by the computer. This essentially is the work of an office equipment and, hence, the computer is not entitled to investment allowance.
8. Although it may be sufficient for us to say that in IT Appeal No.3826 (Bom.) of 1982 it is made clear that the decision directing investment allowance on computers has been accepted by the department and, therefore, it is not necessary to say anything further in the matter, we feel that the matter being of considerable importance, deserves a more detailed analysis :
(i) In the initial stages, calculating machines with printing or typing facilities were invented. But the computer is not just an electronic calculator. Information is fed through an input unit and taken out through an output unit. The main computer consists of what is known as a Central Processing Unit. The memory of the computer, that is the stored information and programmes, are in the Central Processing Unit. The Central Processing Unit consists of another unit called ‘the Control Unit’ which directs the sequence of operations. Another component unit of the Central Processing Unit is known as ‘the Arithmetical & Logical Unit’. It performs various operations like additions, subtractions, etc. and also determines which operation is to be performed and under what circumstances. The input unit now-a-days will generally be in the form of magnetic discs. The output unit may either be stored on tapes, visually displayed on a television screen or printed. There is a typewriter key board to feed in information and command the computer to do various types of functions. The unit before which the operator sits is known as the ‘Consol and the main computer may sometimes be at a distant place. With this type of configuration, there is no doubt that the computer is a plant.
(ii) The next question is that in spite of it being a plant, is the computer an office equipment. Is it an equipment installed in office premises ?
(iii) In our opinion, it would be somewhat blasphemous to reduce the computer to the status of a lowly typewriter. A machine which perform operations in a millionth of a second (microsecond) or billionth of a second (nanosecond) or a trillionth of a second (peikosecond) is more of a plant than an office equipment. Originally, development rebate was introduced with a view to encourage industrial development. Development rebate was allowable on plants. But when the definition of ‘plant’ was extended to all types of equipment including those which do not substantially contribute to the production or manufacture of articles, like, for example, typewriters, small calculators, fans and air-conditioners in offices, the Legislature introduced a provision that development rebate should not be given in respect of office equipment. At that stage an instrument of great versatility like the computer was not thought of at all. Realising that industrial development would be greatly hampered if computers are treated as ordinary office equipments, the Finance Act, 1985 made it clear that investment allowance (which is now replaced by development rebate) is allowable in respect of computers although it is still to be denied in respect of office equipment. This very amendment shows that computers are not to be treated as office equipments.
(iv) We now try to meet the argument of the learned departmental representative that when a computer is used for office work it should be treated as office equipment. We can go along with the learned departmental representative if the computer is used mostly for office purposes like pay roll, accounting, etc. In the present case, the computer is used to monitor the performance of various other machines. The information supplied by the computer about the performance of various machines is useful not so much for the office manager as for the technical manager. He would know whether the machines arc to be shifted to a different place ; whether the work load is higher or whether any modifications are to be carried out if a particular machine is performing below its rated capacity or optimum efficiency. Therefore, this computer should be treated as part and parcel of the other mining equipment which the asscssee is using ; for, without a continuous supply of information regarding operational efficiency of the mining machinery which is done by the computer the mining machinery itself will not be used to the best advantage. The argument that the same work could be done by manual labour, i.e., a clerk can sit and note down the performance of the machines, which is essentially an office work and, as such, what the computer does is also office work, cannot be accepted. In fact, practically everything that a man is capable of doing is being done by a machine in a quicker and more efficient way. Therefore, where the work relates to the performance of machine and the information is supplied through another machine, the latter machine, in our opinion, cannot be treated as an office equipment. The computer is used for the control of the machinery and is, therefore, not an office equipment. It is not necessary that the computer itself has to do the switching on and off the machinery. We are also not dealing here with an equipment like the ‘word processor’ which is useful for sending routine letters to customers, etc. We, therefore, hold that the customs classification cannot be a guide in treating the computer as an office equipment.
(v) The second objection of the revenue that the computer is located in the office premises and, hence, investment allowance cannot be given is not sustainable. By its very nature it is to be located in a separate room with air-conditioning facility. This cannot be treated as a part of the general office premises. The same issue came before us in IT Appeal Nos.80 and 90 (Bang.) of 1976-77 dated 8-5-1984 as regards safe deposit lockers in a bank. In accordance with the directions of the Karnataka High Court, we have held as follows :
… the revenue seeks to suggest that if the entry to the strong room is through the office premises and if they are situated in a part of the same building, development rebate is not allowable. But this ignores the observations of the Hon’ble High Court in paragraph 6. It would appear that the directions of the High Court were to find out whether the strong room itself could be treated as an administrative block. It will not be practicable to set up the strong room in a place detached from the administrative block. The Commissioner has to consider whether provision of entrance to the strong room through the office room is sufficient to disallow the assessee’s claim. Apparently the matter has to be further examined in the light of the observations of the High Court in paragraphs 6 and 7. We, therefore, remit the matter back to the Commissioner who will pass an order after considering the evidence on record and after giving an opportunity to the assessee of being heard.
(vi) In the light of the above decision, we hold that the computer being housed in a separate room with air-conditioning facility cannot be treated as a part of the general office premises. The room housing the air-conditioner cannot be treated as a part of the administrative office. In the result, we hold that the assessee is entitled to investment allowance on the computers.
9. In the result, the appeal is dismissed.