A computer division of a company can be considered an industrial undertaking that satisfies the conditions of Section 32a (2) (b) (iii) of the Income-tax Act, 1961, if it is a factory registered under the relevant law, transforms data into instructions and computations through a series of programs and processing, and produces an end product that is entirely different from the input data.

AJIT K. SENGUPTA, J.

( 1 ) IN this reference under Section 256 (1) of the Income-tax Act, 1961, for the assessment year 1979-80, the following question of law has been referred to this court :"whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that 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 contained in Section 32a (2) (b) (iii) of the Income-tax Act, 1961?"

( 2 ) SHORTLY staled, the facts are that the assessee-company claimed investment allowance on new plant and machinery installed in the computer division of the assessee-company. A sum of Rs. 99,006 consisting of Rs. 89,762 being the investment allowance was claimed in respect of Madras Computer Centre and Rs. 9,244 relating to the machinery installed in the Calcutta Computer Division. The Income-tax Officer, following the assessment order for the assessment year 1975-76, held that the computer being in the nature of an office appliance is not entitled to the investment allowance under Section 32a (2) (b) of the Act.

( 3 ) THE Commissioner of Income-tax (Appeals ), while agreeing with the Income-tax Officer that the computer being in the nature of office appliance also, held that the Computer Division of the assessee-company is not an industrial undertaking and that the conditions prescribed by Section 32a (2) (b) (iii) of the Act have not been fulfilled.

( 4 ) THE Tribunal found that the computer division of the assessee-company was a factory registered under the relevant law, that is, under the Factories Act. It was further contended that the data which are fed into the computer are transformed into instructions and computations through a series of programmes and processing which, in the end, leads to an end product in the shape of printed materials and statements that are entirely distinct and separate from the inputs that are fed into the computer. The Tribunal accepted the contention that the computer is not in the nature of an office appliance. In coming to the said conclusion, the Tribunal relied upon the decision of the Bombay High Court in the case reported in CIT v. I. B. M. World Trade Corporation [1981] 130 ITR 739 (Bom) and also the decision in CIT v. International Computers Ltd. [1981] 131 ITR 1 (Bom ).

( 5 ) REGARDING the question as to whether the assessee-company is an industrial undertaking for the purpose of business of manufacturing or production of any Article or thing not being an Article or thing specified in the Eleventh Schedule, the Tribunal held that, before the Income-tax Officer, the assessee stated that the computer division of the assessee was a profit-earning centre. It rendered services to outside customers also. It was registered as a factory under the relevant law.

( 6 ) ON the aforesaid facts, the Tribunal held that the services which the assessee rendered in the computer division are in relation to a profitable venture and as such it was an industrial undertaking. The Tribunal has recorded its finding that it cannot be disputed that the computations and statements that a computer brings about after processing of the technical and commercial data which are fed into the computer as inputs are entirely different in content from such inputs. The Tribunal, therefore, came to the conclusion that 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 contained in Section 32a (2) (b) (iii) of the Income-tax Act, 1961.

( 7 ) BEFORE us, the contentions which were raised before the Tribunal have been reiterated. In support of the contention, learned counsel for the assessee has relied on several decisions to which we shall presently refer.

( 8 ) IN CIT v. Datacons (P.) Ltd. [1985] 155 ITR 66, the Karnataka High Court held that, where a company is engaged in processing the data furnis

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