Commissioner Of Income Tax Delhi-Iv, New Delhi v. M/S. Hls India Ltd

* THE HIGH COURT OF DELHI AT NEW DELHI + ITA Nos.627/2005,194/2005, 515/2006, 501/2006208/2002, 504/2006, 683/2005, 716/2005,1081/2005899/2007, 668/2008, 296/2010 & 433/2009 Reserved on : 07.04.2011 Date of Decision : 11.05.2011 Commissioner of Income Tax Delhi-IV, New Delhi ……Appellant Through: Ms. Prem Lata Bansal, Sr. Advocate with Mr. Deepak Anand, Advocate. Advocate with Mr. Deepak Anand, Advocate. Versus M/s. HLS India Ltd. (Now HLS Asia Ltd.) Through: ……Respondent Mr. Ajay Vohra, Ms. Kavita Jha and Mr. Somnath Shukla, Advocates. Jha and Mr. Somnath Shukla, Advocates. CORAM : HON’BLE MR. JUSTICE A.K. SIKRI HON’BLE MR. JUSTICE M.L. MEHTA 1. Whether Reporters of local papers may be allowed to see the judgment ? allowed to see the judgment ? Yes 2. To be referred to the Reporter or not ? Yes 3. Whether the judgment should be reported in the Digest ? in the Digest ? Yes M.L. MEHTA, J. 1.By way of this judgment, we are disposing off 13 different Income Tax Appeals, ranging from assessment year 1989-90 to assessment year 2003-2004, pertaining to the same assessee M/S HLS India Ltd. These appeals, all filed under section 260 A of the Income Tax Act, 1961(hereinafter referred to as the Act), have been clubbed together on the ground that the legal issues involved in these matters are similar, though the financial figures have been kept varying with the assessment years. 2.Before coming to these legal issues it would be pertinent, in the light of facts and circumstances of these cases, first of all to succinctly narrate the genesis of instant prolonged tax dispute between the Revenue and the assessee. light of facts and circumstances of these cases, first of all to succinctly narrate the genesis of instant prolonged tax dispute between the Revenue and the assessee. 3.The Assessee, HLS India Ltd. (Currently known as HLS Asia Ltd.) is an oilfield services company, which provides petro-physical & completion solutions and services to its clients for the exploration and production of Hydrocarbons. On 04.05.1988 the assessee company entered into a contract with Oil India Limited (In short OIL) to provide ―wire-line logging‖ and ―perforation services‖ to the OIL. A similar contract was also entered into with the ONGC on 11.01.1989 In its Income Tax Returns filed for the assessment years we are concerned with, following claims were made by the assessee (only those claims which are subject matters of this litigation):- is an oilfield services company, which provides petro-physical & completion solutions and services to its clients for the exploration and production of Hydrocarbons. On 04.05.1988 the assessee company entered into a contract with Oil India Limited (In short OIL) to provide ―wire-line logging‖ and ―perforation services‖ to the OIL. A similar contract was also entered into with the ONGC on 11.01.1989 In its Income Tax Returns filed for the assessment years we are concerned with, following claims were made by the assessee (only those claims which are subject matters of this litigation):- A.Claim under section 32A of the Act- Investment allowance on New Plant and Machinery installed by the assessee in pursuant to aforesaid contracts. [Claims made in the assessment years 1989-90 & 90-91] allowance on New Plant and Machinery installed by the assessee in pursuant to aforesaid contracts. [Claims made in the assessment years 1989-90 & 90-91] B.Claim of deduction on ―profit and gains‖ under section 80-IA (from AY 1991-92 to 1999-00) and 80-IB (from AY 2000-01 to 2003-04). [Section 80-IA was substituted by two sections - 80-IA and 80-IB - by the Finance Act, 1999 w.e.f. April 1, 2000.] section 80-IA (from AY 1991-92 to 1999-00) and 80-IB (from AY 2000-01 to 2003-04). [Section 80-IA was substituted by two sections - 80-IA and 80-IB - by the Finance Act, 1999 w.e.f. April 1, 2000.] A.Claim under section 32A of the Act- Investment allowance on New Plant and Machinery installed by the assessee in pursuant to aforesaid contracts. [Claims made in the assessment years 1989-90 & 90-91] allowance on New Plant and Machinery installed by the assessee in pursuant to aforesaid contracts. [Claims made in the assessment years 1989-90 & 90-91] B.Claim of deduction on ―profit and gains‖ under section 80-IA (from AY 1991-92 to 1999-00) and 80-IB (from AY 2000-01 to 2003-04). [Section 80-IA was substituted by two sections - 80-IA and 80-IB - by the Finance Act, 1999 w.e.f. April 1, 2000.] section 80-IA (from AY 1991-92 to 1999-00) and 80-IB (from AY 2000-01 to 2003-04). [Section 80-IA was substituted by two sections - 80-IA and 80-IB - by the Finance Act, 1999 w.e.f. April 1, 2000.] C.Depreciation @ 100% under Rule 5, appendix I, Part 1, III (ix) of the Income Tax Rules, 1962. [For all the assessment years which we are concerned with] Part 1, III (ix) of the Income Tax Rules, 1962. [For all the assessment years which we are concerned with] 4.As for as claim of ―investment allowance‖ under section 32A is concerned, which was made for assessment year 1989-90 and 1990-91 only and denied by the AO on the ground that the assessee fails to meet the requirements provided in sub-section (2) of section 32 A as the assessee is neither an industrial undertaking nor it is engaged in any manufacturing and production of any article or thing, the assessee succeeded before the CIT(A) and ITAT and the ITAT‘s order dated 10.08.1998 on this issue is a subject matter of dispute before us in ITA 627 of 2005 and ITA 194 of 2005. concerned, which was made for assessment year 1989-90 and 1990-91 only and denied by the AO on the ground that the assessee fails to meet the requirements provided in sub-section (2) of section 32 A as the assessee is neither an industrial undertaking nor it is engaged in any manufacturing and production of any article or thing, the assessee succeeded before the CIT(A) and ITAT and the ITAT‘s order dated 10.08.1998 on this issue is a subject matter of dispute before us in ITA 627 of 2005 and ITA 194 of 2005. 5.As for as the claim regarding deduction under section 80-IA is concerned, which is available in respect of profits and gains from concerned, which is available in respect of profits and gains from industrial undertakings or enterprises engaged in infrastructure development, it was made for the first time in the assessment year 1991-92, but the same was denied by the AO on the similar grounds as the assessee, as per AO‘s view, is not an industrial undertaking engaged in manufacturing or producing an article or a thing. Though, this claim got an affirmative approval at the level of CIT (A), but the ITAT while hearing the appeals of the revenue pertaining to assessment years 1991-92 and 1992-93, restored the matter back to the desk of AO to verify as to whether the other conditions regarding 80-IA are satisfied because it has held in its own decision pertaining to assessment year 1989-90 and 1990-91 that the assessee is an industrial undertaking engaged in manufacturing or production of an article or thing for the purpose of section 32A. Claims regarding 80-IB, as made in the assessment years 2000-01, 2001-02, 2002-03 and 2003-04, were also denied by the AO on the ground that neither the assessee is an industrial undertaking nor it fulfills the basic criteria of employing certain number of persons as required by this section. Forming a contrary opinion against that formed by its predecessors in previous assessment years, the CIT(A) this time held that the assessee is not engaged in manufacturing or production of any article or thing. On appeal ITAT, following its own decision dated 23.09.99 restored the matter back to the desk of AO. Since then, this cat and mouse game is on between the revenue authorities and the assessee and this issue has been a part of almost every appeal listed before us in the instant batch of appeals. desk of AO. Since then, this cat and mouse game is on between the revenue authorities and the assessee and this issue has been a part of almost every appeal listed before us in the instant batch of appeals. 6.Regarding the claim of the assessee for higher depreciation on equipments used below the earth surface @ 100 % under Rule 5, appendix I, Part 1, III (ix) of the Income Tax Rules, 1962, the AO, from the very first assessment year i.e. 1989-90, was of the view that the same is available to a ―mineral oil concern‖ only and the activities of the assessee do not make it a mineral oil concern. This view of the revenue was reversed by the CIT(A) but on appeal, though the ITAT vide its order dated 10.08.1998 pertaining to assessment years 1989-90 and 1990-91 gave an in principle approval but the matter was restored back to the table of AO to verify as to whether the nature of the operations of these equipments is similar to those used by state run oil production companies. Subsequently, though OIL, an oil PSU certified the similarity of the equipments in question but the AO, on the ground of mobility of the assessee‘s equipments denied the claim. This order has been reversed by the CIT(A) and the CIT(A)‘s order has got approval of ITAT vide its order dated 10.01.2002. Not only this order of the ITAT is challenged before equipments used below the earth surface @ 100 % under Rule 5, appendix I, Part 1, III (ix) of the Income Tax Rules, 1962, the AO, from the very first assessment year i.e. 1989-90, was of the view that the same is available to a ―mineral oil concern‖ only and the activities of the assessee do not make it a mineral oil concern. This view of the revenue was reversed by the CIT(A) but on appeal, though the ITAT vide its order dated 10.08.1998 pertaining to assessment years 1989-90 and 1990-91 gave an in principle approval but the matter was restored back to the table of AO to verify as to whether the nature of the operations of these equipments is similar to those used by state run oil production companies. Subsequently, though OIL, an oil PSU certified the similarity of the equipments in question but the AO, on the ground of mobility of the assessee‘s equipments denied the claim. This order has been reversed by the CIT(A) and the CIT(A)‘s order has got approval of ITAT vide its order dated 10.01.2002. Not only this order of the ITAT is challenged before us in ITA 208/2002 but the previous order of the ITAT whereby it restored the matter to the desk of AO is also appealed against in ITA 627 of 2005 and ITA 194 of 2005. 7.In all these appeals similar questions of law came up for consideration, though these were worded differently at different times of hearings. In the light of above discussion and considering the ―substantial questions of law‖ admitted in the appeals which are part of the instant batch, two legal issues are clearly deducible for our consideration. These issues are as under: consideration, though these were worded differently at different times of hearings. In the light of above discussion and considering the ―substantial questions of law‖ admitted in the appeals which are part of the instant batch, two legal issues are clearly deducible for our consideration. These issues are as under: 1.Whether, on the facts and in the circumstances of the present case, the assessee can be said to be an ―industrial undertaking‖ engaged in the business of ―manufacturing or production of an article or a thing‖ for the purpose of section 32A and section 80-IA/80-IB of the Income Tax Act, 1961? the present case, the assessee can be said to be an ―industrial undertaking‖ engaged in the business of ―manufacturing or production of an article or a thing‖ for the purpose of section 32A and section 80-IA/80-IB of the Income Tax Act, 1961? 1.Whether, on the facts and in the circumstances of the present case, the assessee can be said to be an ―industrial undertaking‖ engaged in the business of ―manufacturing or production of an article or a thing‖ for the purpose of section 32A and section 80-IA/80-IB of the Income Tax Act, 1961? the present case, the assessee can be said to be an ―industrial undertaking‖ engaged in the business of ―manufacturing or production of an article or a thing‖ for the purpose of section 32A and section 80-IA/80-IB of the Income Tax Act, 1961? 2.Whether, on the facts and in the circumstances of the present case, the assessee is entitled to a higher depreciation allowance @ 100% under Rule 5, appendix I, Part 1, III (ix) of the Income Tax Rules, 1962? the present case, the assessee is entitled to a higher depreciation allowance @ 100% under Rule 5, appendix I, Part 1, III (ix) of the Income Tax Rules, 1962? 8.We can now deal with aforesaid two legal issues separately one by one. The first issue is whether the production of log by the assessee, while providing wireline logging services to its clients, assessee, while providing wireline logging services to its clients, amounts to manufacturing or production of an article or thing so as to place the assessee at per an industrial undertaking wherefrom it can be entitled to claim various tax incentives as available to these entities under the Act. 9.The Income-tax Act provides various incentives in different sections to the industrial under-takings. Under section 32A a new industrial undertaking can avail investment allowance provided it satisfies the conditions as laid down in sub section (2) thereof. sections to the industrial under-takings. Under section 32A a new industrial undertaking can avail investment allowance provided it satisfies the conditions as laid down in sub section (2) thereof. This provision reads as under: Section 32A: Investment Allowance (1) …………………………………. (2) The ship or aircraft or machinery or plant referred to in sub- section(1) shall be the following, namely: to in sub- section(1) shall be the following, namely: (a) a new ship or new aircraft acquired after the 31st day of March, 1976, by an assessee engaged in the business of operation of ships or aircraft; 31st day of March, 1976, by an assessee engaged in the business of operation of ships or aircraft; (b) any new machinery or plant installed after the 31st day of March, 1976,– (i) for the purposes of business of generation or distribution of electricity or any other form of power; or or distribution of electricity or any other form of power; or (ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing; or (a) a new ship or new aircraft acquired after the 31st day of March, 1976, by an assessee engaged in the business of operation of ships or aircraft; 31st day of March, 1976, by an assessee engaged in the business of operation of ships or aircraft; (b) any new machinery or plant installed after the 31st day of March, 1976,– (i) for the purposes of business of generation or distribution of electricity or any other form of power; or or distribution of electricity or any other form of power; or (ii) in a small-scale industrial undertaking for the purposes of business of manufacture or production of any article or thing; or 10.One of the main conditions under this provision, as applicable to a new industrial undertaking, is that the unit must be engaged in manufacturing or production of an article or a thing. Similarly, under section 80-IA deduction is allowed on profits and gains derived from an industrial undertaking. Though the word ‗Industrial Undertaking‘ has been used many times in the Act but it has not been defined in various incentive provisions. It is only in S. 33B of the Act, that the definition of ‗industrial undertaking‘ has been given by way of Explanation. In this Explanation, the definition of industrial undertaking has been given as akin to ‗industrial company‘ which also includes processing. However, this definition is applicable only in the context of S. 33B whereby the rehabilitation allowance was granted in respect of assessment years 1984-85 and prior thereto. In old S. 80IA before its substitution by Finance Act 1999, it was provided in the Explanation that ‗industrial undertaking‘ had meaning assigned to it as provided in section 33B. However, in the new S. 80IA or S. 80IB as introduced by Finance Act, 1999, there is no similar provision defining the term ‗industrial undertaking‘. However, where the Section provides that the undertaking must engage in manufacture or production of article or thing, whatever be the way the term industrial undertaking is interpreted; it does not make any difference. This is because in such case the industrial undertaking must be engaged in manufacturing or production of article or thing. So even if the industrial undertaking were taken to mean processing or assembling activity, the unit would not be eligible for deduction unless it is proved that activity results into manufacturing or production of article or thing. Thus, the phrase ‗Manufacture or produce an article or thing‘ is of paramount importance under both the provisions of the Act. The term ‗manufacture or production‘ has not been defined in the Act and has been interpreted differently in respect of different types of industries by the courts. 11.In the instant case, the AO, while framing the assessment orders for the assessment years 1989-90 and 90-91, denied the claim made under section 32A as it was of the opinion that the assessee is “just converting into data something which is already there i.e. geo-physical properties of the earth crust which are already there are just being logged with the help of certain sophisticated equipments.” The rationale behind this opinion was that “the term „production‟ means that by the process something new must come into existence” and to qualify the test of ‗manufacturing‘ there must be transformation resulting in a new and different article having distinctive name, character, and use. In the view of the AO, the activities of the assessee i.e. production of data could be linked to a typewriter printing out letters on a sheet of paper or a rubber stamp giving impression on a sheet of paper. In the view of the AO, the activities of the assessee i.e. production of data could be linked to a typewriter printing out letters on a sheet of paper or a rubber stamp giving impression on a sheet of paper. 12.On appeal, the CIT(A) vide a common order dated 25.05.1992 pertaining to both the assessment years reversed the order of the AO and held that the assessee was an industrial undertaking within the meaning of s. 2(7)(c) of Finance Act 1981, and it was manufacturing within the meaning sub- section (2) of S. 32A of the Act. When the issue came before the ITAT, by way of an appeal filed by the revenue against the aforesaid order of the CIT(A), the ITAT vide its order dated 10/08/1998 upheld the order of the CIT(A). The relevant para of this order is as under: pertaining to both the assessment years reversed the order of the AO and held that the assessee was an industrial undertaking within the meaning of s. 2(7)(c) of Finance Act 1981, and it was manufacturing within the meaning sub- section (2) of S. 32A of the Act. When the issue came before the ITAT, by way of an appeal filed by the revenue against the aforesaid order of the CIT(A), the ITAT vide its order dated 10/08/1998 upheld the order of the CIT(A). The relevant para of this order is as under: ―We heard the parties at length and have perused the paper book filed before us. We find that the assessee-company derives its income from wire-line logging and perforation activities for exploration of oil. Wire-line logging is the standard process used to evaluate oil wells both at exploratory and development stage. The aforesaid perforating services are used at the development stage as an essential step in the actual recovery of oil specialised high technology electronic-cum-mechanic equipment is used for data collection. These specialised high-tech equipments termed as logging tools are sensitive sensor-electromechanical system working in hostile environment of extreme pressure and temperature. The data collected by these tools is transmitted uphole via an electromechanical cable. The data so processed on surface by an on-line computer which are recorded on digital mechanical tapes. After processing of the data, the computer gives an output termed as 'logs'. These are ideal tools for detailed description of an oil reservoir in terms of petro-physical characteristics geometrical orientation and layering. It is with these petro-physical characteristics that a thorough description of a reservoir emerges and it is based on these pictures the geologists decide to test the well. Further, vital informations are given to geologists for future exploration at the wells. We have further perused the wire-logging process as also the exact process of manufacturing log data logs placed by the assessee in his paper-books at p. 4.16 and at p. 4.17. In our considered opinion in such a situation it cannot be said that assessee is not an industrial undertaking. In view thereof, we find no infirmity either in CIT(A)'s findings or conclusion that assessee is an industrial undertaking. Hence, the Revenue fails and the CIT(A)'s order in directing AO to allow investment allowance on the plant and machinery used by it, is upheld.‖ 13.Claims regarding deduction under section 80-IA / 80-IB, which were made in the assessment year 1991-92 for the first time, were denied by the AO on the similar ground that the assessee is not an industrial undertaking engaged in manufacturing of an article or a thing. On appeal, CIT(A) reversed the order of the AO. 13.Claims regarding deduction under section 80-IA / 80-IB, which were made in the assessment year 1991-92 for the first time, were denied by the AO on the similar ground that the assessee is not an industrial undertaking engaged in manufacturing of an article or a thing. On appeal, CIT(A) reversed the order of the AO. Feeling aggrieved, the revenue filed an appeal before the ITAT, which by a common order dated 23.09.99 pertaining to assessment years 1991-92 and 1992-93 held that the issue whether the assessee is an industrial undertaking engaged in manufacturing of an article or a thing is settled in the favour of the assessee in the light of ITAT‘s order dated 10[th] August 1998. However, it reverted back the matter back to the desk of AO to find out whether other conditions as required under section 80-IA are fulfilled. Since then this issue has travelled to the ITAT level in every assessment year either under section 80-IA (till AY 1999-00) or under 80-IB (from AY 2000-01 to 03-04), which in turn, every time, has followed the decision of ITAT dated 23.09.99 and reverted the matter back to the table of AO to find out as to whether other requirements are satisfied. 14.Hence comes this appeal to us on this issue. 15.Ld counsel for the respondent assessee Mr. Ajay Vohra has submitted before us that the assessee is an industrial undertaking engaged in the business of retrieving and producing valuable information in respect of the sub-terranean of the oil fields of mineral oil concern. He has fervently pleaded that the printed logs and statements being final product of data processing amounts to manufacturing of an article or a thing to submitted before us that the assessee is an industrial undertaking engaged in the business of retrieving and producing valuable information in respect of the sub-terranean of the oil fields of mineral oil concern. He has fervently pleaded that the printed logs and statements being final product of data processing amounts to manufacturing of an article or a thing to satisfy the statutory requirement in regards to the concerned claims made by the assessee. In order to fortify his case, a plethora of judicial decisions have been cited before us by the Ld. counsel for the assessee to support the contention that the “activity carried on by the assessee with respect of collecting and transmitting of data amounted to manufacturing and producing of an article or thing”. During the course of arguments, a specifically emphasized limb of his argument has been the analogy between the production of logs by using wireline logging equipments on the one hand and the production of X-Ray and ultrasound report sheets using X-Ray and Ultrasound machines on the other hand which have been held to be eligible for investment allowance under section 32A in various judicial pronouncements. 16.Following judgments have been cited by the learned counsel for the assessee to support its contention: 1.CIT Vs. IBM World Trade Corporation [130 ITR 739 (Bom)] 2.CIT Vs. Datacons (P) Ltd. (1985) 155 ITR 66 3.CIT Vs. Peerless Consultancy Services Pvt. Ltd. [186 ITR 609 (Cal)] 609 (Cal)] 4.CIT Vs. Shaw Wallace and Co. Ltd. [201 ITR 17 (Cal) 5.Ship Scrap Traders Vs. CIT [251 ITR 806 (Bom)] 6.CIT Vs. Emirates Commercial Bank Ltd. [ 262 ITR 55 (Bom)] 7.CIT Vs. Professional Information Systems and Management. [274 ITR 242 (Guj)] 7.CIT Vs. Professional Information Systems and Management. [274 ITR 242 (Guj)] 8.CIT Vs. Oracle Software India Ltd. [320 ITR 546 (SC)] 16.Following judgments have been cited by the learned counsel for the assessee to support its contention: 1.CIT Vs. IBM World Trade Corporation [130 ITR 739 (Bom)] 2.CIT Vs. Datacons (P) Ltd. (1985) 155 ITR 66 3.CIT Vs. Peerless Consultancy Services Pvt. Ltd. [186 ITR 609 (Cal)] 609 (Cal)] 4.CIT Vs. Shaw Wallace and Co. Ltd. [201 ITR 17 (Cal) 5.Ship Scrap Traders Vs. CIT [251 ITR 806 (Bom)] 6.CIT Vs. Emirates Commercial Bank Ltd. [ 262 ITR 55 (Bom)] 7.CIT Vs. Professional Information Systems and Management. [274 ITR 242 (Guj)] 7.CIT Vs. Professional Information Systems and Management. [274 ITR 242 (Guj)] 8.CIT Vs. Oracle Software India Ltd. [320 ITR 546 (SC)] 17.In the case of I.B.M.World Trade Corporation (supra) the question before the Bombay High Court was as to whether E.A. Machines (now called Data Processing Machines) were office appliances not eligible for allowance of development rebate under section 33(1) of the Act. The Court held that the word "appliances" is qualified by the word "office" in Section 33 and those words as they are used in section 33 will, therefore, have to be construed in the context of appliances which are generally used in an office as an aid or a facility for the proper functioning of the office. The Court observed that a computer system or an electronic data processing system is physically a collection of electromechanical and electronic components and devices assembled in metal cases (modules) and cabinets. These contain switching and communication components such as transistors, diodes, capacitors, resistors and integrated circuits, all combined into various types of circuitry, together with memory systems, power supplies , delay lines and various types of magnetic media such as tapes and wires for carrying and transforming data and information, as coded, into instructions and computations. The court further observed that a data processing machine is complicated machinery which could not be easily operated by lay men and special training for a period which may exceed three question before the Bombay High Court was as to whether E.A. Machines (now called Data Processing Machines) were office appliances not eligible for allowance of development rebate under section 33(1) of the Act. The Court held that the word "appliances" is qualified by the word "office" in Section 33 and those words as they are used in section 33 will, therefore, have to be construed in the context of appliances which are generally used in an office as an aid or a facility for the proper functioning of the office. The Court observed that a computer system or an electronic data processing system is physically a collection of electromechanical and electronic components and devices assembled in metal cases (modules) and cabinets. These contain switching and communication components such as transistors, diodes, capacitors, resistors and integrated circuits, all combined into various types of circuitry, together with memory systems, power supplies , delay lines and various types of magnetic media such as tapes and wires for carrying and transforming data and information, as coded, into instructions and computations. The court further observed that a data processing machine is complicated machinery which could not be easily operated by lay men and special training for a period which may exceed three months in some cases and a much longer period in others is necessary in order to equip a person with the knowledge and art of operating these machines. The installation and operation of the machines is on a scientific basis and even for the purposes of installation, certain special conditions have to be provided in the form of air-conditioning or a particular temperature. The purposes for which such machines, which can be described as computers, are used are well-known and, in highly scientifically developed systems, they have their own role to play and they cannot be equated with office appliances which would be of a much simpler nature. The Court held that in view of the varied functions which the "system" is capable of performing, data processing machines cannot be classified as "office appliances" and are eligible for allowance of development rebate under section 33(1) of the Act. 18.In the case of Datacons (P) Ltd. (supra) the assessee was carrying on the activity of processing data furnished by its customers by using IBM Unit Record Machine Computers. The question before the Karnataka High Court was whether the Appellate Tribunal was correct in law in treating the assessee either as a manufacturer of goods or as engaged in the processing of goods within the meaning of section 2(7)(c) of the carrying on the activity of processing data furnished by its customers by using IBM Unit Record Machine Computers. The question before the Karnataka High Court was whether the Appellate Tribunal was correct in law in treating the assessee either as a manufacturer of goods or as engaged in the processing of goods within the meaning of section 2(7)(c) of the Finance (No. 2) Act, 1977. The Court observed that the term "industrial company" has been described as including a company engaged in the processing of goods. The Court discussed at length the activities carried out by the company while processing the data and held as follows: "It will be clear from these activities that the assessee receives vouchers and statements of accounts from the customer and they are converted into the required balance-sheet, stock account, sales analysis, etc. They are got printed as per the requirements of the customer. In all these activities, the assessee has to play an active role by co-ordinating the activities and collecting the information. Such activities, in our opinion, could fairly fall within the concept of processing of goods, if not manufacture of goods." The Karnataka High Court observed that the Gujarat High Court in case of CIT Vs. Ajay Printery Private Ltd. (1965) 58 ITR 811 had gone a step further and held that the printing balance-sheets, profit and loss accounts, dividend warrants, pamphlets, share certificates, etc., required by companies is a business which consists wholly of "manufacture of goods" within the meaning of clause (ii) of Explanation 2 to section 23A of the Income-tax Act, 1922. 19.Peerless Consultancy Services Pvt. Ltd. (supra) is a case where the assessee was engaged in the business of providing technical and industrial consultancy. Along with the above activities it was also undertaking electronic data processing on the basis of computers. While dealing with the issue as to whether the assessee was an industrial company within the meaning of Section 2(7)(c) of the Finance Act, 1981 and entitled to investment allowance under section 32A in respect of a generator installed by it, the Calcutta High Court relied upon Datacons (P) Ltd. (Supra) and held that the assessee is an industrial company. 20.In the case of Shaw Wallace and Co. Ltd. (supra) the issue was as to whether the Computer Division of the assessee-company was an industrial undertaking for the purpose of section 32A as opposed to the AO‘s view that the computer are of the nature of office appliances. The Calcutta High Court dismissed the appeal preferred by the department and held as under: also undertaking electronic data processing on the basis of computers. While dealing with the issue as to whether the assessee was an industrial company within the meaning of Section 2(7)(c) of the Finance Act, 1981 and entitled to investment allowance under section 32A in respect of a generator installed by it, the Calcutta High Court relied upon Datacons (P) Ltd. (Supra) and held that the assessee is an industrial company. 20.In the case of Shaw Wallace and Co. Ltd. (supra) the issue was as to whether the Computer Division of the assessee-company was an industrial undertaking for the purpose of section 32A as opposed to the AO‘s view that the computer are of the nature of office appliances. The Calcutta High Court dismissed the appeal preferred by the department and held as under: ―25. Investment allowance is admissible in respect of machinery or plant installed in any industrial undertaking for the purpose of business of construction, manufacture or production of any Article or thing not being an Article or thing specified in the list in the Eleventh Schedule. There is no dispute that "data-processing" or "computer" is not mentioned, in the Eleventh Schedule. If, as held by the Division Bench in Peerless Consultancy Services (Pvt.) Ltd., the assessee-company is an industrial company, there is no reason why such a company will not be entitled to the benefit of the investment allowance. Investment allowance will not be admissible in respect of office appliances. In our view, having regard to the nature and function of the computer and the data-processing system, it cannot be said that they are office appliances. An industrial company is a 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 (as storing, updating, combining, rearranging or printing out) by a computer. "Computer" means "one that computes; specifically a programmable electronic device that can store, retrieve, and process data". There cannot be any doubt that raw data cannot be equated with the result derived. It is different in form and substance. 26. We are, therefore, of the view that the computer division is an industrial undertaking which satisfies the conditions mentioned in Section 32A(2)(b)(iii) of the Income-tax Act, 1961.‖ 21.In the case of Ship Scrap Traders (supra) the issue before the Bombay High Court was as to whether the business and activity of ship-breaking carried out by the assessee amounted to manufacture or production of article or thing for the purpose of deduction under sections 80HHA and 80-I. While relying upon some direct judicial authorities on the concerned issue the court also tried to look into the matter from an interpretational perspective to decide the issue in favour of the assessee. The relevant part is as under: 26. We are, therefore, of the view that the computer division is an industrial undertaking which satisfies the conditions mentioned in Section 32A(2)(b)(iii) of the Income-tax Act, 1961.‖ 21.In the case of Ship Scrap Traders (supra) the issue before the Bombay High Court was as to whether the business and activity of ship-breaking carried out by the assessee amounted to manufacture or production of article or thing for the purpose of deduction under sections 80HHA and 80-I. While relying upon some direct judicial authorities on the concerned issue the court also tried to look into the matter from an interpretational perspective to decide the issue in favour of the assessee. The relevant part is as under: 14. The Income Tax Act does not define the expression "industrial undertaking". Therefore, reference to its definition in similar enactments or adoption of its ordinary meaning is inevitable. Considering the object of the enactment of the provision under consideration, the said expression will have to be construed liberally in a broader commercial sense, keeping its object in mind. There is not much debate on this aspect of the matter. The concept of industrial undertaking need not be necessarily confined to manufacture and production of articles and even in the absence of either of them there could be an industrial undertaking. The assessees are, therefore, well within the expression of industrial undertaking. In this view of the matter, the only question arises, therefore, is whether the assessees had begun to manufacture or produce the articles after the specified date in any backward area. It is not in dispute that the assessees have commenced their work after the specified date. In short, the limited question is whether the ship-breaking can be characterised as an activity amounting to manufacture or produce an article or articles as the case may be. Whether a particular activity is a manufacturing activity is dependent upon several factors and no straight-jacket formula or principle can be applied. The manufacture implies a change but every change is not manufacture. There must be a transformation of kind and new different item should have been emerged having different features. For manufacture there should be some alteration in the nature or character of the goods. By process of manufacture something is produced and brought into existence which is different from that, out of which it is made in the sense that the thing produced is by itself a commercial commodity capable of being sold or supplied. The material from which thing or article is produced or manufactured may necessarily lose its identity or may become transformed into the basic or essential properties. 15. The manufacture implies a change but every change is not manufacture, yet every change of an article is the result of treatment, labour and manipulation. Naturally, manufacture is the end result of one or more processes through which the original commodities are made to pass. Whatever may the operation, it is the effect of the operation on the commodity that is material for the purpose of determining whether the operation constitutes such a process, which will be part of manufacture. The test to determine whether a particular activity amounts to manufacture or not is : Does new and different goods emerge having distinctive name, use and character. The moment there is transformation into a new commodity commercially known as a distinct and separate commodity having its own character, use and name, whether be it the result of one process or several processes manufacture takes place. Etymologically, the word manufacture properly construed would doubtless cover the transformation. It is the transformation of a matter into something else and, that something else is a question of degree, whether that something else is a different commercial commodity having its distinct character, use and name and commercially known as such from that point of view is a question depending upon the facts and circumstances of the case. 16. 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 about 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 land, different article must emerge having a distinctive name, character or use." 17. The expression manufacture has in ordinary acceptation a wide connotation. It means making of articles, or material commercially different from the basic components, by physical labour or mechanical process. However, it also needs to be considered that when the word manufacture is appearing in the company of word production which has a wider connotation than the word manufacture, the word production or produce when used in juxtaposition with the word manufacture takes in bringing into existence new goods by a process which may or may not amount to manufacture. The associated words are indicative of the mind of legislature. Where a word is doubtful or ambiguous in nature the meaning has to be ascertained by considering the company in which it is found and the meaning of the word associated with it. The words manufacture and production have received extensive judicial attention both under the Act as well as the Central Excises Act and the various sales-tax laws. The word production has a wider connotation than the word manufacture. In order to appreciate and understand the scope and meaning of the said words, it is necessary to turn to the various judgments dealing with the said subject and law laid down by the various High Courts including this court and the views expressed by the Apex Court while dealing with such contentions. The Authorities relied upon by the parties 18. The Apex Court in CIT v. N.C. Budharaja & Co. (supra) observed : "The word production has a wider connotation than the word 'manufacture. While every manufacture can be characterised as production, every production need not amount to manufacture . . . ." It was further observed : ".......... The word production or produce, when used in juxtaposition with the word manufacture, takes in bringing into existence new goods by a process which may or may not amount to manufacture . . . . ." Then it was observed : "The expressions manufacture and produce are normally associated with movables articles and goods, big and small but they are never employed to denote the construction activity of the nature involved in the construction of a dam . . . . . . . . ." The Supreme Court also expressed the view that the expressions used in the relevant clause of section 32A must be understood in its normal connotation and according to commercial usage. Viewed from that standpoint and the legislative history of the provisions, their Lordships held that construction of a dam, bridge and the like cannot be understood as a production of article or thing. In Websters New International Dictionary, the word produce is defined as "something which is brought forth or yielded either naturally or as a result of effort and work", In Shorter Oxford English Dictionary, the following meaning is given : "to bring forward, bring forth or out : to bring into being or existence". The meaning given in Blacks Law Dictionary to the expression produce is "to bring forward : to show or exhibit : to bring into view or notice : to bring to the surface". In Websters New International Dictionary, the word produce is defined as "something which is brought forth or yielded either naturally or as a result of effort and work", In Shorter Oxford English Dictionary, the following meaning is given : "to bring forward, bring forth or out : to bring into being or existence". The meaning given in Blacks Law Dictionary to the expression produce is "to bring forward : to show or exhibit : to bring into view or notice : to bring to the surface". 19. Applying the principles spelt out by the Apex Court in the aforementioned decision and the ordinary meaning of the word produce as disclosed by the dictionary and by its ordinary connotation, we are of the opinion that when the word manufacture is appearing in the company of the word production, which has wider connotation than the word manufacture, then in that event, the word manufacture will have to be interpreted in wider sense and will have to be understood at par with the meaning assigned to the word production and if such approach as contemplated by legislature is adopted then in that event it is not difficult to reach to the conclusion that assessee are the industrial undertakings, engaged in manufacture and production of articles and things. 22.In the case of Emirates Commercial Bank Ltd. (supra) where the issue was as to whether the Tribunal was right in allowing deduction under Section 32A in respect of computers installed in premises of assessee bank, the revenue came forward with the contention that the assessee was in banking business which was not an industrial undertaking as it was not manufacturing any article or thing. Computers are like calculating machines helping in the proper functioning of the office and, therefore, they were in the nature of office appliances and that they did not constitute plant or machinery under Section 32A(2)(b)(iii). While dismissing the appeal, the Court held as follows: "Today, we have computerised accounting in the banks. In the case of computers, which existed during the relevant assessment year and even today, the operation of the computers in principle remains the same. That, commercial data is fed into the computers as inputs as per the requirement of various customers and the data is processed to get necessary information, computation and statements as outputs. These computers cannot be compared to calculators. Today in matters of investments and security transactions, banks have a front office and back office. Today, under customer services, the banks render several services including providing information to customers on the basis of which the customers would make investments. All this is based on the print outs which constitute in