2004 (6) TMI 24 - HC - Income Tax

Whether, Tribunal was right in holding that assessee is entitled to investment allowance on the activities of the assessee, viz., mining granite from quarries and exporting them after cutting, polishing, etc., which tantamount to manufacture for the purpose of section 32A? - Tribunal is directed to go into the question and determine the nature of the activities of the assessee and also decide whether the activities of the assessee would fall within the scope of section 32A of the Act. Needless to mention, it is open to the Revenue to contest that the activities of the assessee do not amount to manufacture or production of article. Since the factual basis for grant of investment allowance is absent, we return the reference without answering

Summary

Issues:
- Entitlement to investment allowance for mining granite and exporting after cutting and polishing as manufacturing activity under section 32A of the Income-tax Act, 1961.

Analysis:
The High Court of MADRAS addressed the issue of whether the assessee was entitled to investment allowance for activities involving mining granite from quarries and exporting them after cutting and polishing, considering it as a manufacturing activity under section 32A of the Income-tax Act, 1961. The Assessing Officer initially allowed the claim, but the Commissioner of Income-tax, through a revision order, disallowed the investment allowance stating there was no manufacturing activity. The Income-tax Appellate Tribunal, based on the assessee's case, concluded that quarrying and mining granite could be considered as manufacturing under section 32A. However, the Revenue challenged this decision, leading to the reference of the legal question to the High Court.

The Revenue relied on previous court judgments where it was held that activities like cutting and polishing granite did not qualify as production or manufacture for claiming investment allowance. The Revenue argued that based on these precedents, the assessee was not entitled to the allowance. On the other hand, the assessee contended that the nature of their activities, including converting granite into a marketable commodity, should be considered as manufacturing, a point not adequately addressed by the Commissioner or the Tribunal.

The High Court emphasized that if the assessee's activities were limited to cutting and polishing granite, it would not amount to manufacturing under section 32A. The court noted that the Commissioner and the Tribunal did not sufficiently analyze the nature of the assessee's activities, particularly the claim of converting granite into a marketable commodity. As a result, the court refrained from providing a definitive answer to the legal question, highlighting the lack of factual findings on the nature of the activities. The court directed the Tribunal to thoroughly examine the nature of the assessee's activities to determine if they fell within the scope of section 32A. It was made clear that the assessee needed to establish any additional manufacturing processes beyond cutting and polishing to claim the investment allowance. The court allowed the Revenue to challenge the assessee's activities if they did not meet the criteria for manufacturing. Ultimately, the reference was returned without a specific answer, subject to the court's earlier directions for further assessment by the Tribunal.