2004 (3) TMI 18 - HC - Income Tax

1. Whether Tribunal is right in law in holding that the assessee is entitled to investment allowance under section 32A? 2. Whether, Tribunal was right in coming to a conclusion that the assessee s business of construction and testing of plants and commissioning of boilers, would amount to manufacture of any article or thing, as per section 32A? - An undertaking wherein activity of manufacturing takes place is an industry, if it meets the well known tests for determining the existence of an industry and that what is required is the industrial undertaking must be engaged in bringing into existence articles or things by a process of manufacture, and if these tests are met, an industrial undertaking can be recognised as being in existence - As in this case, the same has not been examined with reference to the question, it is only proper that the matter is remitted back to the Assessing Officer for fresh consideration of such claim of the assessee.

Summary

Issues:
1. Entitlement to investment allowance under section 32A of the Income-tax Act for the business activities of erection of plants and commissioning of boilers.
2. Determining whether the business activities amount to the manufacture of any article or thing as per section 32A of the Income-tax Act.

Analysis:

Issue 1: Entitlement to Investment Allowance
The case involved a dispute regarding the entitlement of the assessee to investment allowance under section 32A of the Income-tax Act for the assessment year 1986-87. The Assessing Officer initially disallowed the claim of investment allowance on the grounds that the assessee was not involved in the manufacture of an article or thing, as required by the Act. However, the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal both ruled in favor of the assessee, allowing the investment allowance claim. The court highlighted the importance of the industrial undertaking being engaged in bringing into existence articles or things by a process of manufacture to qualify for the investment allowance under section 32A. The court emphasized that the machinery or plant claimed for investment allowance should be used in the manufacture of articles or things, and if proven, the benefit should be granted to the assessee as per the provisions of the Act.

Issue 2: Business Activities as Manufacturing
The court examined whether the business activities of the assessee, which involved the construction and testing of plants and commissioning of boilers, could be considered as the manufacture of any article or thing under section 32A of the Income-tax Act. The Department argued against the claim, citing previous court rulings to support their position. On the other hand, the respondent/assessee relied on a different court ruling to assert that the activities of installing plants and erecting boilers indeed amounted to the manufacturing of an article or thing. The court decided that the matter needed further examination by the Assessing Officer to determine if the machinery or plant claimed for investment allowance was used in the manufacture of articles or things. The court set aside the orders of the Tribunal and the appellate authority, directing the Assessing Officer to reevaluate the claim based on the evidence provided by the assessee, and grant the benefit if satisfied with the manufacturing process.

In conclusion, the court did not provide a definitive answer to the questions of law raised in the reference, as the decision ultimately depended on the findings of the Assessing Officer. The case was remitted back to the Assessing Officer for a fresh consideration of the claim, with clear instructions to assess whether the machinery or plant was used in the manufacturing process and if the assessee qualified as an industrial undertaking under the Act.