2004 (12) TMI 83 - HC - Income Tax

Claim of the assessee for weighted deduction under section 35B - Whether Tribunal was justified in law in holding that it was obligatory for the assessee to have machinery and plant and that it had failed to establish that it had installed machinery and plant for the purposes of the business of the undertaking within the meaning of clause (2) of the Explanation below sub-section (2) of section 32A of the Income-tax Act, 1961? - All the three authorities have found that the assessee does not own any plant and machinery - finding of the Tribunal that the assessee is not entitled for the weighted deduction under section 35B of the Act as it did not have any machinery or plant in the relevant assessment year, is correct in view of the provisions of section 35B(1A)

Summary

Issues:
Claim for weighted deduction under section 35B disallowed - Ownership of machinery and plant for manufacturing - Interpretation of "small scale exporter" - Requirement of machinery and plant for claiming weighted deduction under section 35B - Definition of "small scale industrial undertaking" - Legal precedent regarding ownership of machinery and plant for claiming benefits under the Income-tax Act.

Analysis:
The High Court of ALLAHABAD was tasked with determining whether the assessee was justified in claiming weighted deduction under section 35B of the Income-tax Act, 1961, despite the disallowance of the claim by the Income-tax Officer. The primary issue revolved around the ownership and installation of machinery and plant for manufacturing purposes by the assessee. The Tribunal found that the assessee failed to provide evidence of having installed machinery and plant for its business activities, as required by section 35B(1A) of the Act.

The assessee contended that as an exporter, it was not mandatory to own machinery and plant to claim the deduction under section 35B. The court examined legal precedents, including cases such as Griffon Laboratories Pvt. Ltd. v. CIT and Addl. CIT v. A. Mukherjee and Co. (P.) Ltd., to interpret the definition of "industrial company" and "manufacturing" under the relevant fiscal Acts. These cases emphasized that ownership of machinery and plant was not a prerequisite for being considered a manufacturer, but the company must mainly engage in manufacturing or processing activities.

Furthermore, the court analyzed the definition of "small scale industrial undertaking" under section 35B(1A) of the Act, which required the machinery and plant to be owned by the assessee to qualify for weighted deduction. The court highlighted the importance of the phrase "owned by him" in determining eligibility for benefits under section 35B. The aggregate value of machinery and plant should not exceed the prescribed limit, indicating ownership as a crucial factor for claiming deductions.

Ultimately, the court upheld the Tribunal's decision, stating that the assessee did not own machinery or plant necessary for claiming the weighted deduction under section 35B. The court emphasized that the assessee failed to demonstrate the installation of machinery and plant for business purposes, leading to the denial of the claim. The judgment favored the Department, affirming that ownership of machinery and plant within the prescribed limits was essential for availing benefits under section 35B of the Income-tax Act, 1961.