2003 (7) TMI 30 - HC - Income Tax

Deduction on investment allowance under section 32A, in respect of machinery used in mining activity - Whether, Tribunal was justified in holding that the assessee is entitled for deduction on investment allowance under section 32A, in respect of machinery used in mining activity, ignoring the fact that the assessee is engaged in extraction and processing of iron ore, not amounting to manufacture or production of any article or thing? - ore has to be extracted or raised from the earth in which it is embedded and has to be brought to the surface. What is brought to the surface is something new which comes into existence, as an article or thing. If that be the case, winning or extracting of ore would fall within the expression production . Once it falls within the expression production , the assessee would be entitled to the benefit under section 32A Tribunal s order require no interference

Issues Involved:
1. Whether the assessee is entitled to deduction on investment allowance under section 32A of the Income-tax Act for machinery used in mining activity.
2. Whether the extraction and processing of iron ore amount to "manufacture" or "production".

Detailed Analysis:

Entitlement to Deduction on Investment Allowance:
The primary issue revolves around whether the assessee qualifies for the investment allowance under section 32A of the Income-tax Act for machinery used in mining activities. The court identified three requirements for the applicability of section 32A:
1. The machinery should be owned by the assessee.
2. It should be wholly used for the purposes of the business carried on by the assessee.
3. The machinery must come under any of the categories specified in section 32A, sub-section (2).

The respondents satisfied the first two conditions, namely ownership of the machinery and its use for mining purposes. The critical question was whether the machinery was used for "construction, manufacture, or production."

Extraction and Processing of Iron Ore as "Manufacture":
The court examined whether the extraction and processing of iron ore could be classified as "manufacture." The term "manufacture" was scrutinized under various legal precedents. The court referenced the apex court's ruling in Deputy CST (Law), Board of Revenue (Taxes) v. Pio Food Packers, which defined "manufacture" as a process that brings into existence a commercially different and distinct article. The court concluded that mere extraction of iron ore does not meet this criterion, as the ore remains commercially the same substance despite undergoing various processes.

Extraction and Processing of Iron Ore as "Production":
The court then considered whether the activities could be classified as "production." The term "production" was interpreted based on its dictionary meaning and judicial precedents, including CIT v. N.C. Budharaja and Co., which stated that "production" involves bringing into existence new goods by a process that may or may not amount to manufacture. The court noted that several High Courts, including those in Andhra Pradesh, Delhi, and Calcutta, had ruled that mining activities constitute "production."

The court highlighted that the ore extracted from the earth and brought to the surface is a new article or thing, thereby falling within the definition of "production." Consequently, the assessee was entitled to the investment allowance under section 32A.

Conclusion:
The court rejected the appeals filed by the Revenue, affirming the Income-tax Appellate Tribunal's decision that the extraction and processing of iron ore amounted to "production," thus qualifying for the investment allowance under section 32A of the Income-tax Act. The court emphasized that the legislation should be interpreted beneficially, considering the intent of Parliament to provide such allowances for mining activities.

← Previous Next →