2002 (8) TMI 45 - HC - Income Tax

New Industrial Undertaking - Special Deduction u/s 80J & 80HH - (i) Whether, the assessee-company was eligible for deduction under section 80J of the Income tax Act, 1961, and the assessee s undertaking could be held to be manufacturing or producing articles within the meaning of section 80J? - Whether, assessee-company was eligible for deduction under sections 80J and 80HH of the Act and the assessee s undertaking could be held to be manufacturing or producing articles within the meaning of sections 80J and 80HH for the assessment years in question? - Whether, Tribunal was justified in law in directing the Income-tax Officer to consider the assessee s claim for investment allowance for the assessment years in question, for being allowed provided all other conditions laid down in that section were satisfied? - Whether, on the facts and in the circumstances of the case, the assessee-company was eligible for deductions under sections 80J and 80HH of the Income-tax Act, 1961, and the assessee s undertaking could be held to be manufacturing or producing articles within the meaning of sections 80J and 80HH?

Summary

Issues Involved:
1. Eligibility for deduction under section 80J of the Income-tax Act, 1961.
2. Eligibility for deduction under section 80HH of the Income-tax Act, 1961.
3. Eligibility for investment allowance under section 32A of the Income-tax Act, 1961.
4. Determination of the assessee as an "industrial company."

Detailed Analysis:

1. Eligibility for Deduction under Section 80J:
The primary issue was whether the assessee-company was eligible for deduction under section 80J of the Income-tax Act, 1961, for the assessment years in question. The Tribunal concluded that the construction activities of the assessee, which included tunnels, dams, and powerhouses, did not qualify as "manufacturing or producing articles" within the meaning of section 80J. The Tribunal emphasized that the end-products like tunnels or dams could not be considered "articles" as required by section 80J, and thus, the assessee was not eligible for the deduction.

2. Eligibility for Deduction under Section 80HH:
Similar to section 80J, the Tribunal also examined the eligibility for deduction under section 80HH. The Tribunal held that the language in section 80HH was similar to that in section 80J and concluded that the construction activities did not qualify as manufacturing or producing articles. Therefore, the assessee was not eligible for deductions under section 80HH.

3. Eligibility for Investment Allowance under Section 32A:
The Tribunal discussed the eligibility for investment allowance under section 32A, particularly for the assessment year 1978-79. It noted that the law was amended, and investment allowance was allowable if the machinery was used in an industrial undertaking for the business of construction, manufacture, or production of any articles or things not specified in the Eleventh Schedule. The Tribunal directed the Income-tax Officer to verify if the assessee met the conditions laid down in section 32A for the assessment year 1978-79.

4. Determination of the Assessee as an "Industrial Company":
The Tribunal addressed whether the assessee could be considered an "industrial company." It directed the authorities to ascertain if the assessee was engaged predominantly in the manufacture or processing of goods. The Tribunal noted that the assessee's activities included manufacturing steel structures and concrete slabs, which could qualify as manufacturing or processing. However, it emphasized the need to determine if these activities were predominant.

Intermediate Products and Manufacturing Activity:
The assessee contended that even if the end-products (like tunnels and dams) were not considered articles, the intermediate products manufactured during construction should qualify for benefits under sections 80J, 80HH, and 32A. The Tribunal did not fully address this argument, focusing instead on the end-product doctrine. The court noted that this aspect required further examination to determine if the intermediate products could entitle the assessee to the claimed benefits.

Remand for Fresh Consideration:
The court concluded that the matter required fresh consideration by the Tribunal. It directed the Tribunal to re-examine whether the assessee's activities related to intermediate products could qualify for the benefits under sections 80J, 80HH, and 32A. The Tribunal was instructed to consider relevant case law and the specific facts of the case while making its determination.

Conclusion:
The court remanded the case to the Tribunal for fresh consideration of the assessee's eligibility for deductions under sections 80J and 80HH and investment allowance under section 32A, particularly in relation to the intermediate products manufactured during construction activities. The Tribunal was directed to determine if the assessee could be considered an "industrial company" and to grant necessary reliefs based on its findings.